Australia's Santos has agreed to divest a 2.6% stake in its PNG liquefied natural gas (LNG) project to Papua New Guinea (PNG) state-owned Kumul Petroleum in a deal worth $736m (A$1.1bn).

As per the deal, Kumul Petroleum will acquire the minority stake in the PNG LNG project by making a cash payment of $576m and undertaking project finance debt of $160m.

The transaction is subject to approval by the PNG competition regulator on or before 31 December 2023.

In a separate statement, Kumul said it has also secured a call option to acquire a further stake of 2.4% in the project.

In exchange, Kumul is required to make a $524m cash payment and take on a $145m proportionate share of project debt.

As a result, Kumul Petroleum is expected to acquire a 5% stake in the PNG LNG project.

Kumul Petroleum managing director Wapu Sonk said: “This transaction is the culmination of many months of discussions that have taken place with national and international financiers since the NEC gave its initial approval for KPHL to acquire additional equity in the PNG LNG project in September 2022.

“The PNG LNG project is a mature, profitable and de-risked petroleum project that has consistently operated above its nameplate capacity and which has many more years of commercial life left as additional gas fields are brought online.”

The PNG LNG integrated project involves development of gas production and processing facilities that extend from the Hela, Southern Highlands, Western and Gulf provinces to Port Moresby.

PNG Prime Minister James Marape said: “This transaction will increase Kumul’s interest in PNG LNG and supports the PNG Government objectives for the people of PNG to have a greater equity interest in the development of their natural resources.”