Oil Search calls for PNG government transparency on payments as frustrations build

Oil Search is grappling with disquiet among Papua New Guinea communities about the delayed distribution of benefits from PNG LNG. Alamy

Angela Macdonald-Smith | Australian Financial Review | May 11 2018

Oil Search chairman Rick Lee has upped pressure on the Papua New Guinea government to hand out the benefits from the PNG LNG venture owed to local land owners in a bid to head off escalating resentment about the problem just before a targeted $US12 billion expansion.

Grilled by several local land owners and a pressure group at the annual shareholder meeting in Port Moresby, Mr Lee acknowledged growing “frustrations” about a lack of transparency on the fate of royalties paid to government from the $US19 billion venture.

Among the 15 licences covered by the PNG LNG project, three are caught up in legal tussles and have seen no distributions of benefits to land owners almost four years after production started. Other payments are running late amid a complex process still ongoing to identify qualifying landholders.

Mr Lee said Oil Search recognised the problems and challenges and was “working hard” to get the benefits distributed.

But his argument that the issue is the responsibility of the PNG government, and that Oil Search and its PNG LNG partners have fulfilled their obligations on royalties, didn’t wash with disgruntled shareholders.

“The responses were predictable and didn’t assuage our concerns, especially in the context of Oil Search’s expansion plans,” said Brynn O’Brien, executive director of Australasian Centre for Corporate Responsibility, who posed questions of the board.

“The company doesn’t have a clear pathway through the benefits distribution mess, and regardless of whose fault that is it constitutes significant risk.”

Social impact

Chief executive Peter Botten told shareholders that PNG had received 14 billion kina ($5.7 billion) from the project since production started, with 3.9 billion kina paid to the state and land owner groups in royalties, development levies and equity payments. Some 708 million kina of land owner benefits are held in trust, awaiting the completion of the landholder identification process.

Mr Lee noted growing discontent within local PNG communities over the delays and said Oil Search is campaigning for “improved transparency around how these payments are received and spent”.

The comments came as the Jubilee Australia Research Centre, an advocate for economic justice in Asia-Pacific, released a report on the “adverse social impacts” from PNG LNG.

It said land owners near the gasfields in Hela province are still living in “conditions of abject poverty” and said most promised infrastructure and services have not been delivered, contributing to an escalation of violence in villages.

The intensification of the debate around the issue comes as Oil Search and its partners are negotiating with the PNG government on an agreement that would cover crucial fiscal terms, benefit sharing and national content for the expansion.

The partners, led by majors ExxonMobil and Total, are targeted this December half to start engineering and design work on three new LNG trains, each of 2.7 million tonnes a year. Preparations have not been derailed by the devastating earthquake in the PNG Highlands on February 26 that killed scores of villagers, destroyed houses and roads, and temporarily halted oil and gas production. 

Hayberry Global Fund portfolio manager Matthew Blumberg said he didn’t expect the land owner problems to cause issues for the LNG partners.

“It’s worth keeping an eye on the three licenses which are held up in court, but it’s important to remember the circa $1.5 billion which has already been paid to State and landowner entities,” he said.

“Oil Search and their partners have funded hospitals, women’s empowerment programs and many other initiatives. Ultimately, without Oil Search and their partners, its unclear where these land owners would get funding, so I think incentives between the parties should be aligned.”

Mr Botten also pointed to the “world class” quality of the oil assets secured in Oil Search’s $US400 million Alaskan investment. He said the acquisition assumed a resource of 500 million barrels, while some partners put it much larger, at 1.2 billion barrels.

The Alaskan venture is targeting a decision in 2019 to start engineering and design, ahead of a final go-ahead on the Nanushuk project in 2020 and start-up in 2023. The project could add 25,000-35,000 barrels a day for Oil Search based on its existing stake. Oil Search intends to exercise an option to double its interest and then to sell down to bring in another partner.

Mr Blumberg said he didn’t think investors are giving Oil Search full credit for its “well-timed” Alaskan acquisition.

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1 Comment

Filed under Financial returns, Human rights, Papua New Guinea

One response to “Oil Search calls for PNG government transparency on payments as frustrations build

  1. Lilian Pais

    Interested in work with you people

    On 13 May 2018 09:32, “Papua New Guinea Mine Watch” wrote:

    > ramunickel posted: ” Angela Macdonald-Smith | Australian Financial Review > | May 11 2018 Oil Search chairman Rick Lee has upped pressure on the Papua > New Guinea government to hand out the benefits from the PNG LNG venture > owed to local land owners in a bid to head off escal” >

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