Oil Search inks PNG deal that paves way for planned $18.4bn expansion

Oil Search’s deal will help kickstart an $18.4bn expansion that’s set to double PNG’s LNG volumes.

The first shipment of liquefied natural gas from the Papua New Guinea project (PNG LNG).

Oil Search has signed a gas agreement with Papua New Guinea’s government, a key milestone to kickstart a planned $US13 billion ($18.4bn) expansion that is set to double LNG volumes from the South Pacific nation.

The fiscal framework underpinning Papua LNG — a joint venture between energy giants Total, ExxonMobil and Oil Search — will include a deferred payment mechanism for the PNG government to lower the ­financial burden of taking up its 22.5 per cent interest in the project.

It is understood state-backed oil company Kumul Petroleum, which is being advised by Lazard, will be required to tip in about $US1.4bn as part of the expansion project. Oil Search will hold a 17.7 per cent stake, with Total owning 31.1 per cent of the venture and Exxon the remaining 28.7 per cent.

The pact will include a domestic market obligation to develop local industry and provide sufficient local power generation.

The three energy companies will move into a front-end engineering and design phase with a final investment decision due in 2020 and first LNG by 2024.

“This is a major milestone for the Papua LNG Project. We believe the fiscal and other terms of the gas agreement equitably allocate project benefits and returns to the state, the project participants and other stakeholders,” Oil Search managing director Peter Botten said.

Analysts Bernstein says the fiscal terms looked reasonable and were as expected. “Key changes are a minimum annual gross tax payment of $US100 million to ensure stable revenue and a domestic market obligation of 10 per cent of gas volume,” it wrote in a note to clients.

Oil Search will now look to tie up terms with Exxon and the PNG government to develop the P’nyang gas field in the country as part of separate plans to enlarge the existing PNG LNG plant in Port Moresby that has been in production since 2014.

Two LNG trains with capacity of 5.4 million tonnes will be supplied through Papua LNG with a further 2.7 million-tonne train to come from the PNG LNG venture, doubling the country’s output from 8.5 million tonnes a year to 17 million tonnes.

Oil Search, which owns a 29 per cent stake in the PNG LNG operation and previously held a 22 per cent holding in Papua LNG, has been driving its much larger project partners to pursue the cost-effective, co-operative and rapid development of fields through the existing PNG LNG plant rather than building new greenfield facilities.