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Oil Search disappointed in P'nyang delay

4th February 2020

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – Oil and gas producer Oil Search has expressed its disappointment after the Papua New Guinea (PNG) government halted talks with partner ExxonMobil on a potential A$20-billion expansion of liquefied natural gas (LNG) operations in the region.

PNG Prime Minister James Marape said in a statement that ExxonMobil had shown an "unwillingness to agree to reasonable terms in line with other international gas projects", prompting the government to halt negotiations on a gas agreement to underpin the development of the P’nyang gas field.

“After several months of dedication and good faith engagement by the state’s negotiating team, ExxonMobil’s offer had barely changed from its opening offer presented last November and is not substantially different from the PNG LNG gas agreement. This is unacceptable,” Marape said.

“The gas belongs to PNG’s people. We are willing to allow international oil companies to develop the field and achieve decent returns by exporting most of the gas, but PNG must also benefit. It is hugely disappointing that our negotiation partners will not agree to such terms.”

The Prime Minister claimed that the "State stake" offered by ExxonMobil in the P’nyang development was at the lower end of those for other nations around the world, and "significantly less" than neighbour Malaysia, where ExxonMobil has an existing operation.

Oil Search MD Peter Botten this week said it was unfortunate that the stakeholders in P’nyang could not agree on the "appropriate balance" of value and benefits for the gas agreement to be concluded, noting that under the terms proposed by the State, the joint venture partners were unable to obtain a return on their investment that made the project investable and bankable.

“For Oil Search, the project returns under the State’s proposed terms were approximately the same as our cost of capital, on an unrisked basis,” Botten said.

He added that while Oil Search would continue a dialogue with the State on the P’nyang field, and would seek to achieve the "appropriate balance" of risks and reward, the company would focus on the development of the PNG LNG project and the development of its Alaskan assets.

Meanwhile, advisory firm Wood Mackenzie’s research director Angus Rodger said that the lack of positive momentum for a final investment decision (FID) around the PNG expansion was concerning.

“Given the waves of new LNG that have been sanctioned over the last 18 months, and with more in the pipeline to reach FID in 2020, PNG expansion is slipping further and further to the back of the queue. From both a macro pricing and a contractor quality/ pricing perspective, trailing in the wake of the biggest wave of new LNG supply the industry has ever seen is not ideal.

"While the abandoning of P’nyang negotiations certainly means LNG expansion will be delayed, it may not mean the overall development has been derailed. P’nyang is the most remote and difficult field to develop associated with the expansion project, and as such the latest setback will likely lead to a reshuffling of priorities and development timetables.

“However, going back to the drawing board in terms of how expansion might look – two trains versus three for example – and what fields will feed them will inevitably require lots more time,” Rodger said.

 

Edited by Creamer Media Reporter

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