Political crisis threatens to delay $12bn-$14bn expansion led by ExxonMobil and Total
Jamie Smyth | Financial Times | 28 May, 2019
ExxonMobil Corp and Total SA have become embroiled in a political crisis in Papua New Guinea that risks delaying a $12bn-$14bn expansion of the nation’s liquefied natural gas industry.
The government of prime minister Peter O’Neill appeared to be in jeopardy with opposition MPs set to hold a no-confidence vote against him in parliament next week. Mr O’Neill on Tuesday applied to the Supreme Court seeking an injunction to block the move, which could bring an end to his eight years in charge.
The revolt by the opposition, which says it has the numbers to bring down the government, was sparked in part by allegations Mr O’Neill mishandled the financing of the LNG projects.
Analysts warn that if he is ousted, there could be a delay in finalising the requisite contracts for the multibillion-dollar expansion that is critical to the Pacific nation’s finances. The Supreme Court is due to hear Mr O’Neill’s appeal on Friday.
David Low, an analyst at Wood Mackenzie, forecast that the prime minister’s resignation would delay first gas from the LNG projects by as much as two years, to beyond 2025.
Any delay would be a blow to the oil majors, with Wood Mackenzie projecting 2019-20 will be record years for LNG investment decisions, unleashing 100m metric tonnes a year of new capacity. The risk is that the PNG projects miss out on this wave of investment and a new administration seeks to extract more taxes or royalties from the projects.
“While we still expect the project to go ahead, the political turmoil opens the door to competing projects and increases the risk of knock-on delays,” Mr Low said.
ExxonMobil and Total are spearheading the PNG LNG and Papua LNG projects, in partnership with Australian listed resources companies Santos and Oil Search, spending an estimated $12bn-$14bn on expansion.
The opposition MPs support development of the projects for the investment they would bring to the resources-rich but poverty stricken country. But they have demanded Mr O’Neill stand down after a report, drafted by the PNG Ombudsman and leaked to the press, that concluded Mr O’Neill acted improperly by securing a A$1.2bn ($831m) loan from UBS to buy shares in Oil Search in 2014 without seeking formal parliamentary approval.
According to the Ombudsman — an independent body established under the constitution that protects citizens’ rights against administrative injustice — the PNG government used the loan to buy a 10 per cent stake in Oil Search, enabling the company to buy into a gasfield being developed by Total.
Oil prices subsequently crashed, and the government lost hundreds of millions of dollars when it sold the shares in 2017 during a fiscal crisis that forced widespread cutbacks.
“The A$1.2bn UBS deal represents all that is wrong with Peter O’Neill’s prime ministership,” Mekere Morauta, an opposition MP, told the Financial Times. “PNG did not benefit. It lost K1bn ($297m).”
UBS declined to comment on the loan, on which the bank earned A$100m in interest and fees. Finma, the Swiss financial markets regulator, said: “It is familiar with the financing business mentioned, and we are in contact with the bank”.
Mr O’Neill did not reply to a request for comment. He has previously denied that the loan was unlawful, saying the matter had been clarified in parliament and the ombudsman investigation was “flawed”.
Oil Search said on Tuesday it had breached no laws, and no allegations had been made against the company or its officers. It said that contrary to the requirements of PNG law, Oil Search and others were not contacted by the Ombudsman Commission during its investigations or given any opportunity to provide evidence or comment.
Kevin Gallagher, chief executive of Santos, said forecasts of a two-year delay were “pure speculation” and there was no indication the PNG government wanted to delay anything.
ExxonMobil and Total did not immediately respond to requests for comment.