Papua New Guinea validates Papua LNG gas agreement

Papua New Guinea’s National Executive Council (NEC) has cleared the way for the Total SA-led joint venture to proceed with implementation of the Papua LNG project following many perceived gains for the country by the government’s negotiating team.

Papua New Guinea’s National Executive Council (NEC) has cleared the way for the Total SA-led joint venture to proceed with implementation of the Papua LNG project following many perceived gains for the country by the government’s negotiating team.

The announcement, issued by Papua New Guinea’s Minister for Petroleum Kerenga Kua, follows an extensive review of the original Papua LNG gas agreement signed in April by the previous government.

As a result of the review, the NEC also has initiated a move away from the current concession-based licensing system for the petroleum and mining industries that is to be replaced by a production-sharing agreement system for future permitting arrangements.

Kua said the government’s negotiating team had raised concerns with Total and its two JV partners, ExxonMobil Corp. and Oil Search Ltd., about regulatory, fiscal, and other matters to do with the Papua LNG agreement. This had resulted in numerous concessions from the JV that were detailed in an Aug. 31 letter from Total to the minister.

Kua said the government and the Total group have now agreed on four points.

The first involves national content where the JV, in conjunction with the Department of Petroleum and Energy, will prepare and implement a detailed national content plan for the project that provides opportunities for the state and the people of Papua New Guinea.

Second, the JV will build third-party access points along the petroleum pipelines and engage in negotiations with any third parties requesting access on mutually acceptable terms.

Third, the JV has agreed that following reimbursement of all loans and costs, the participants will negotiate in good faith if the state desires to acquire a participating interest in the pipelines.

And fourth, Total and state firm Kumul Petroleum Holdings Ltd. have formed a commercial JV to market their shares in production from the project together. Total has agreed to evaluate with Kumul the option of using LNG carriers in which a participating interest is owned by the state for transportation of Kumul’s share of the jointly marketed cargoes through negotiated arm’s length contracts.

Kua said these new concessions on potential future benefits were not previously available to Papua New Guinea under the original signed agreement.

Kua added that the government will allow the Papua LNG project to proceed in accordance with the terms of the related gas agreement, but those terms must be interpreted and applied in accordance with the “Total letter” and the related expectations of the government and the state.

Project details

The Papua LNG project involves development of the Elk-Antelope gas-condensate fields in the country’s Eastern Highlands via a pipeline to supply two dedicated LNG trains to be built next to the existing ExxonMobil-operated LNG facilities at Caution Bay just west of Port Moresby.

Oil Search Managing Director Peter Botten welcomed the government announcement that it would stand by the gas agreement. He said the JV will work together with the government to finalize the National Content Plan, which aims to maximize the involvement of citizens of Papua New Guinea and local businesses in the development and operation of the project.

Botten added that Oil Search now will focus attention on working with all relevant parties to close out an agreement for the development of P’nyang gas field and commencement of front-end engineering and design-related activities for the proposed three-train integrated development, including FEED for the Associated Gas Expansion Project operated by Oil Search.

In relation to the future of the Papua New Guinea permitting system, Kua said the gas review exercise had demonstrated that the current licensing system had failed the country in both the mining and petroleum industries.

Kua said NEC had instructed him and the Minister for Mining to rewrite the laws to move into a system based on production-sharing agreements.

“It is envisaged that a PSA will relieve the state of expensive loans and create early free cash flows in all future mining and petroleum projects,” Kua said.

More in LNG