Oil Search expansion in doubt as PNG PM scraps deal
The fate of Oil Search’s $20bn Papua New Guinea LNG expansion plan hangs by a thread after a deal was scrapped.
The fate of Oil Search’s $20bn Papua New Guinea LNG expansion plan hangs by a thread after Prime Minister James Marape scrapped a deal, saying unacceptable demands had led to the collapse of negotiations.
US major ExxonMobil — which leads the joint venture — had proposed terms that would have left PNG “out of the money” and failed to pass on significant benefits to the Pacific nation, Mr Marape said.
“The gas belongs to PNG’s people,” Mr Marape said. “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 nation’s decision to walk away from a pact, foreshadowed by The Australian last week, represents a high-stakes gamble by PNG to bring Exxon and its partners Oil Search and Santos back to the negotiating table at a time of deep budget deficits and broader fiscal strains in its economy.
For Oil Search, which is banking on the expansion as a major avenue of growth, the collapse of talks will mean further delays to the giant gas export project at a sensitive time of management succession as long-serving chief Peter Botten prepares to step down on February 25 after a quarter-century in the role.
The PNG government agreed to the first plank of a plan to double its LNG volumes with French oil major Total in September in a deal known as the Papua LNG accord.
However, the second component, known as P’nyang, has from the start been a more difficult negotiating process despite PNG’s experience in dealing with Exxon through the foundation $US19bn ($28bn) PNG LNG project.
Mr Marape said Exxon’s stance had barely changed since November and was not “substantially different” from the Papua LNG agreement, indicating PNG expects to win better terms than it did for the first leg of the deal.
PNG has been under pressure to strike a more lucrative agreement amid concern it failed to seal a competitive contract for the original PNG LNG plant, which started operating in 2014 and is jointly owned by Oil Search, Exxon and Santos.
With Papua and P’nyang being developed together as a unified expansion to help save on costs, PNG’s decision to freeze any deal effectively now means the Papua deal will also be left languishing.
PNG said accepting the proposed P’nyang deal would have delivered significantly less value than what its Asian neighbours had won, including Malaysia where Exxon has a large operation and other nations like Indonesia and Brunei.
“The terms we proposed to ExxonMobil were fair, ensuring PNG benefits from the project while the international oil companies made decent returns. Our proposals were rejected as these companies tried to extract even more profit for themselves,” Mr Marape said.
Exxon said it was disappointed with the breakdown of talks but hinted it remained hopeful of eventually securing a deal.
“We are very hopeful that those discussions can move forward and continue,” Exxon CEO Darren Woods said on Friday night. “I think, from our perspective, we’ve got to find a way to get to a win-win proposition.”