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PNG Govt set to finalise second LNG deal

The Post Courier - Papua New Guinea, 30 June 2009, By NEHEMIAH ISAAC

THE National Government is “days away” from finalising a project agreement for Papua New Guinea’s second liquefied natural gas (LNG) project.

The Post-Courier was reliably informed yesterday that a draft agreement is being prepared for Cabinet approval later this week.

Prime Minister Sir Michael Somare is understood to have instructed the Ministerial Oil and Gas Committee last Friday to finalise the draft agreement by tomorrow. The State is entitled to 20.5 per cent equity in the proposed multi-billion-kina project under the Oil and Gas Act. It has been offered an additional 10 per cent equity in the LNG process plant by project operator InterOil Corporation.

InterOil and the State-owned Petromin PNG Holdings Ltd are the current partners in the project. Negotiations are underway to seek additional upstream partners. Gas from the Elk/Antelope fields in the Gulf Province hinterland is expected to feed the project.

The Government officially declared the Antelope 1 area a project site in March. It also renewed InterOil’s original Petroleum Prospecting Licences 236, 237 and 238 for a second term of five years. The Antelope field has been described as one of the largest gas reservoirs to be discovered in the Southern Hemisphere.

The declaration of location and the extension of the licence areas also paved the way for the project participants to commercialise the project. InterOil has proposed developing the fields initially for their liquids content, before supplying gas to an LNG export project adjacent to the company’s oil refinery at Napa Napa, near Port Moresby.

The LNG plant is proposed with a 3.5 – 5.0 million tonne per annum processing train, with options to add further trains if sufficient reserves are proven. The fields are currently licensed to InterOil (79.5 per cent) and Petromin (20.5 per cent).

The LNG plant would be owned and operated by Liquid Niugini, a joint venture between InterOil and Clarian Finanz. Merrill Lynch initially held a one third equity position in Liquid Niugini and the offtake rights for all LNG, but sold its interests in February, following a dispute with InterOil over the exclusive lifting rights of LNG.

InterOil initially planned to fast-track the LNG project to a Final Investment Decision (FID) this year and first LNG in early 2014. Meanwhile, InterOil plans to significantly increase capital investment in PNG.

Company president Bill Jasper made the announcement yesterday following the closing of a recent $US70 million (K195.5 million) direct stock offering.

“We believe we are now in the best financial position in our history. The company is on track to achieve a robust and vibrant future,” he said.

“We intend to take advantages created by the current global downturn in industry activity to accelerate our upstream (exploration) activities.”

Mr Jasper said InterOil planned to buy an additional rig to use in its exploration program. He said the company also planned to acquire additional seismic data to delineate the Elk/Antelope structure and to prioritise a number of adjacent prospects.

“This increased activity should accelerate our growth plans and position us to develop and derive greater value from our asset base,” Mr Jasper said.

“This multi-billion-kina project is expected to make a major contribution to the nation via increased jobs, additional government revenues and strengthening the balance of payments situation.”