PNG willing to walk away from Oil Search deal
A $20bn gas expansion plan in PNG pursued by Australia’s Oil Search and US energy giant ExxonMobil could be canned.
A $20bn gas expansion plan in Papua New Guinea pursued by Australia’s Oil Search and US energy giant ExxonMobil could be canned unless the companies are prepared to offer more generous terms to the government, Petroleum Minister Kerenga Kua has warned.
Ahead of a Friday deadline to conclude negotiations for the P’nyang gas field, Exxon and Oil Search must be prepared to soften a rigid negotiating stance to have any chance of getting a deal over the line.
“I have cautioned the people of PNG not to hold their breath,” Mr Kua told The Australian. “We will give the negotiations our best shot but at this stage I would rather advise the people of PNG to prepare for a failure of negotiation between the two sides.”
The original aim of concluding a deal by the end of 2019 was foiled when PNG claimed Exxon demanded it secure a petroleum development licence before ticking off a checklist of early project commitments.
Mr Kua said companies should be more pragmatic.
“These people must be prepared to take reduced margins if the state’s wishes are to be accommodated,” he said. “These energy developers may not receive as many dollars as before but they will still do well. That’s just where the world is heading. You give some and take some.”
The P’nyang gas project forms the second plank of a bid by Oil Search and Exxon to double LNG exports from the Pacific nation by 2024, after the companies and operator Total agreed the first part of the enlarged facility through the Papua LNG contract in September.
Both the Papua and P’nyang deals are required before the gas expansion can proceed.
PNG has been under pressure to secure a better deal for the state over concern it failed to strike competitive terms for the original PNG LNG plant, which started operating in 2014 and is jointly owned by Oil Search, Exxon and Santos.
Oil Search shares fell 7.52 per cent on Tuesday to close at $7.13 partly on the renewed tensions. The fall also reflected a softer oil price because of the coronavirus fears potentially dampening Chinese oil demand and a mixed outlook for the company after it released its quarterly production report.
PNG politician James Donald, a member of the nation’s negotiating team, had already heightened tensions at the weekend by calling for the P’nyang part of the project to be “shelved away” and for the nation to walk away from negotiations.
The MP, whose Western Province electorate includes the P’nyang field, said last week’s talks in Sydney between the negotiating team and the Exxon-Oil Search joint venture had stalled and it was time to cancel any deal.
“I have made up my mind to speak off from the view that we’ve lost the plot as a country and so why are we wasting our time when we either make a radical decision or we do it the same old conventional way expecting the same outcome,” Mr Donald said on Friday night.
Still, Mr Donald’s view may be a dissenting voice and indicate a deal will still be struck, Credit Suisse analyst Saul Kavonic said.
Oil Search did not outline a timeline to reach a deal on Tuesday but said it expects to reach an “equitable outcome”.
The expansion project’s front-end engineering and design component won’t be ticked off until the gas agreement is finalised, meaning progress will idle on offtake deals with Asian utilities.
“Discussions with potential LNG customers in Asia continued during the quarter with continued interest expressed by the market on contracting additional LNG volumes from PNG,” Oil Search said as part of its quarterly production statement.
“However, we do not anticipate making any further tangible progress until the joint ventures enter front end engineering and design on the expansion project.”