Twinza Oil, PNG agree on Pasca A development benefits package

Aug. 2, 2021

Twinza Oil Ltd. and the government of Papua New Guinea have agreed to terms for the proposed $2.4-billion development of Pasca A gas-condensate field in PPL 328 in the Gulf of Papua.

The deal, reached after a year of negotiations and a threat by Twinza to walk away from the project, will see PNG gain 55% of gross project income while Twinza will take 45% (OGJ Online, Apr. 21, 2021; May 21, 2020).

PNG’s take, while less than the 60% demanded by Petroleum Minister Kerenga Kua in April, is higher than the income agreed in the umbrella benefits sharing agreement negotiated with ExxonMobil for the onshore PNG LNG project in 2009 and sets a new precedent in resources development.

Kua said PNG’s 55% total benefits package is based on an oil price of $50/bbl but could be incrementally higher if the current oil price of $76/bbl is sustained over time.

 The 55% stake includes:

  • 2% royalty on gross revenue,
  • 5% production levy on gross revenue,
  • 2% development levy on gross revenue,
  • 15% additional profit at 15% of accumulated rate,
  • 5% production retained for domestic market obligations, and
  • 30% corporate tax.

Production and development levies were on gross revenue, not net of deductions as in previous agreements, the minister said.

Because Pasca is an offshore field there is no specific landholder benefit, however the 2% royalty will go to the Gulf provincial government for distribution to the people in its jurisdiction, he added.

Kua also pointed to the 5% production levy. There was no provision in the country’s Oil and Gas Act for a production levy, but it was created for the Pasca project because it will secure early revenue, he said. During negotiations the production levy was brought in instead of a dividend withholding tax that necessitated a wait until the following financial year.

A formal gas agreement is currently being drafted. Although terms are subject to approval by PNG’s National Executive Council, a signed gas agreement was expected by end July, which would pave the way for Twinza to begin the front-end engineering and design (FEED) stage with the aim of reaching a final investment decision in 2022 and bringing Pasca A on stream in 2025.

Pasca is a carbonate pinnacle reef reservoir in a water depth of 93 m about 95 km from the PNG coast. Recoverable reserves are estimated at 70 million bbl of condensate and LPG and 327 bcf of gas. The field was discovered in 1968.

Twinza plans to develop the field in two phases. The first involves two production wells and one gas reinjection well connected to a small wellhead platform adjoining a self-installing platform for the processing infrastructure. Production of condensate and LPG will be stored in a floating storage and offtake vessel moored alongside. Dry gas will be reinjected into the reservoir.

Phase 2, set to begin 3 years later, will involve a floating liquefaction storage and offtake vessel based on continuing residual gas production plus gas from the reinjection well converted into a producer by reversing the flow.

Pasca A will be PNG’s first offshore petroleum development.

Twinza holds 77.5% interest. The PNG government will hold the remaining 22.5%.