Papua New Guinea seeks bigger stake in PNG LNG project -the Australian

MELBOURNE, Oct 8 (Reuters) - Papua New Guinea Prime Minister James Marape has told Santos Ltd (STO.AX) the country wants an extra stake in the $19 billion dollar PNG LNG project.

If Santos' proposed takeover of Oil Search goes ahead, the Australian newspaper reported on Friday.

Marape met with Santos CEO Kevin Gallagher and Oil Search CEO Peter Fredericson in Port Moresby on Wednesday to discuss the deal, which the government has said must meet the national interest.

The newspaper, citing unnamed sources, said the cash-strapped Papua New Guinea government, which needs to give permission for the takeover to proceed, would expect to acquire a stake for a low price or potentially via a loan.

"All things considered, the state would like to pick a portion of whatever Santos will make available in their rebalancing," PNG Petroleum Minister Kerenga Kua told the Australian.

"The Prime Minister is asking that the joint venture project partners should all agree for the state to be given the first right of refusal to acquire some portion of that equity," he said.

A Santos spokesperson confirmed Gallagher met with Marape but declined to comment on what he said were confidential talks.

Credit Suisse analyst Saul Kavonic said it was likely that negotiations were just beginning.

"Our view is the government will extract something here, but ultimately it will be modest and shouldn't prevent the deal from proceeding," Kavonic said.

Under the proposed deal, Santos will acquire Oil Search's holding in the prized PNG LNG project, making it the biggest single shareholder in the gas project operated by Exxon Mobil Corp (XOM.N), with a 42.5% stake.

Gallagher has said Santos would look to sell down part of its stake in PNG LNG to help align partner holdings in PNG LNG and another project set to be developed, TotalEnergie SE's (TTEF.PA) Papua LNG project.

Kavonic said a bigger risk from PNG's request was that prolonged negotiations with the government could delay preliminary design work on the Papua LNG project ahead of a final investment decision due in 2023.

Shareholders in Oil Search are due to vote on the deal on Nov. 29, which will require support from 75% of the votes cast. The deal is slated to be completed in December.