Tag Archives: Peter O’Neill

O’Neill’s rushed Papua LNG deal could cost taxpayers $45 billion

Mekere Morauta

“Analysis of the gas agreement seen by the Financial Review claims that this missed condensate income, along with a fleet of exemptions from goods and services taxes, could cost the PNG exchequer $US20 billion-$US30 billion over the life of the project. The same analysis values exemptions from dividend and interest withholding tax at upwards of $US15 billion“.

Oil Search gas play a target in latest PNG power play

Matthew Stevens | Australian Financial Review | May 7, 2019

A former prime minister of Papua New Guinea has claimed that a technical study prepared for the government has raised doubt over the quality of a Papuan Basin gas and liquids discovery that has so far lured $4.5 billion of acquisition investment by Total, Oil Search and Exxon.

Sir Mekere Mourata said on Friday that a study “available” within the PNG Department of Petroleum says the Elk-Antelope gas and condensate discovery that has lured investment by two super majors and the Australian-listed Oil Search could prove a marginal and excessively risky investment for the state.

The study that has fired up Sir Mekere was written by a consultancy called Sarkal Energy and it was delivered on December 31. According to the widely respected former PM, the review reveals “five major problems” at Elk-Antelope. The most profound of them is the claim that there is less recoverable gas than had been stated in past communications with the government and that the gas is of poorer quality than assumed.

“The report suggests that progress on the project should cease until a detailed independent assessment of the Elk-Antelope field is carried out,” Sir Mekere said in the latest of a recent flood of his bellicose “public statements”.

“It says the financial risk to Papua New Guinea is too high not to conduct such an inquiry. If the project fails, according to the report, the cost to PNG could be up to K20 billion ($8.5 billion),” Sir Mekere advised.

Given the wild political times being lived in PNG and Sir Mekere’s standing as an MP opposed to the present leadership, these are claims that need testing. So, naturally, we asked Oil Search people to respond. They did not.

Not every expert’s view

Certainly though, it needs to be noted that this gloomy view of Elk-Antelope’s prospectivity stands in violent contrast to those of two rather better-known independent experts and of the usually equally informed internal technicians at Oil Search.

And the idea that gas majors both super and regional that are steering a $16 billion growth story might have so thoroughly and consistently overlooked the potential that recoveries at Elk-Antelope will be sub-standard is, frankly, a little hard to accept.

Separate assessments of Elk-Antelope in 2016 by sector-leading independent experts Netherland Sewell & Associates and Gaffney, Cline & Associates certified the fields’ contingent resources at 6.1 trillion cubic feet (tcf) and 6.9 tcf respectively. And Oil Search’s internal reserve modelling puts the gross resource near 6.45 tcf.

While that is not quite the potential that was marketed by the discoverer of the novel Elk-Antelope play, a Singapore listing called InterOil, it is certainly enough to justify its acquisition by Exxon for $US2.5 billion in 2017.

To secure that deal Exxon had to fight off Oil Search, which bid for InterOil after earlier acquiring a 22.84 per cent slice of the Elk-Antelope concessions. That 2014 deal cost $900 million. And it was funded from the proceeds of the $1.24 billion that was raised in delivering a 10 per cent stake in Oil Search to the PNG government.

PNG funded its recovery of a 10 per cent stake in Oil Search through a debt raising led by UBS that has been the subject of domestic and regional controversy pretty much ever since.

As The Australian Financial Review reported back in 2014, the then treasurer, Don Polye, lost his job after objecting to the debt raising on the grounds that it was unconstitutional and a breach of budget debt law.

In March the Financial Review reported that Swiss authorities were investigating the circumstances of the UBS loan to assess whether it breached local regulations.

Gas heats O’Neill dissent

PNG’s Prime Minister back in 2014 was Peter O’Neill. And, for the moment at least, the hardest man of PNG politics still has that job. O’Neill has successfully stared down frequent challenges over recent years, but this week his grip on power seems as vulnerable as at any point since his rise to the top in 2011.

One of the trigger points for a threatened no-confidence motion against O’Neill is the April 5 agreement the government signed with the proponents of $16 billion worth of expansions to PNG’s most successful resources developments, the PNG LNG project.

This is an expansion of two parts that involves adding three new liquid natural gas trains to the two that began their campaign back in 2014. One of those new trains will be fed by gas provided by the current joint venturers. The other two are supposed to be filled by gas from the Total-led Papua New Guinea joint venture, which will draw its gas from Elk-Antelope.

High among the issues of contest triggered by the April agreement is that it appears to preclude the usual free-carry arrangements that are offered to host governments of small nations that own equity in capital-heavy resources projects.

It seems, instead, that the agreement assumes that the state will borrow from the other joint venturers whatever funds are necessary to cover its 22.5 per cent equity participation in the expansion.

This prospect has created anxiety in some corners of government not least because there is no indication as to the potential interest rate on the lending nor, indeed, what appetite there may be among the partners to offer funding.

There is concern, too, that marketing rights for the entirety of PNG equity share of the expansion gas has been passed to Total, which is the major owner and operator of the Elk-Antelope play.

Through successive public statements of complaint about the content and processes of the April agreement, Sir Mekere has made particular complaint about the way the expansion gas project is to be taxed.

The expansion trains have been deemed a gas project. They attract a 30 per cent tax take in PNG. But the project will produce maybe 92 million barrels of condensate. It is light oil. Sir Mekere reckons this is extracted through a separate process and it should be taxed at the same 45-50 per cent rates that were demanded of the Kutubu oil development.

Analysis of the gas agreement seen by the Financial Review claims that this missed condensate income, along with a fleet of exemptions from goods and services taxes, could cost the PNG exchequer $US20 billion-$US30 billion over the life of the project. The same analysis values exemptions from dividend and interest withholding tax at upwards of $US15 billion.

“On most of the country’s standard fiscal terms we have exempted the developers of the two important projects, the PNG LNG and Papua LNG,” the analysis complains.

“The critical issue is will a project of such magnitude and size ever be developed in the country again where PNG will have chance to negotiate better deals for the country?

“The gas resources we have discovered left for future development account for smaller volumes if each discovery is to be developed along like the case of Papua LNG.”

Total go slow?

Now, separate to that, we understand there is growing frustration at the lack of urgency of Total’s efforts to procure development approval for Elk-Antelope.

An internal petroleum ministry briefing note written as recently as March 27 complains that the documentation so far presented by Total lacks the “technical detail that the department requires in order to make a decision” on the application for a development licence.

The note, which was written by the acting secretary of the department, Lohial Nuau, made its way into the public arena via Facebook.

“Based on the fact that none of the required documents have been submitted and the Department of Petroleum has no ability to verify any of the important economic parameters provided by Total in the economic analysis,” Nuau wrote.

The point about the complaint is that the department was being asked to make assessment of the terms of the landmark PNG LNG-Papua LNG gas agreement.

The acting secretary noted that the want of Total’s development application and its supporting technical data made it difficult for the department to make informed input to the landmark gas agreement. The agreement was signed just nine days after Nuau’s briefing note was written.

Would it be too cynical to imagine that, with the PNG LNG-Papua LNG agreement now a done deal, Total’s deeply informed application will now land with a thump with the acting secretary?

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Doubt Over Value Of Elk Antelope Gas Field

Post Courier | May 6, 2019

The secrecy and haste surrounding Prime Minister Peter O’Neill’s approval of the gas agreement for the Papua LNG Project may be hiding a multi-billion kina problem for Papua New Guinea – the value and viability of the Elk-Antelope gasfield that underpins the project.

A report available in the Department of Petroleum suggests that the field has five major problems, according to former prime minister and Northwest MP Sir Mekere Morauta.

He said the gas may not be anywhere near as extensive as first thought, nor as easily extractable, there is a high water content, the gas is of low quality, requiring expensive treatment, and the geology of the field is suspect.

“Mr O’Neill’s haste and secrecy, and his sidelining of the State negotiating team and the department of petroleum, may result in a multi-billion kina loss for the nation,” he said.

“These questions should have been resolved prior to the approval of the Gas Agreement by Mr O’Neill.

“Instead we have the acting secretary of the Department of Petroleum telling us that a large number of critical documents have not been filed by the project partners, and critical processes have not been completed.

“I do not have a view one way or the other about the veracity of the doubts being expressed.

“But they are sufficiently serious to warrant a comprehensive and independent investigation, which would be in the national interest.

“Something smells very fishy here. It goes right back to Mr O’Neill’s decision to take out the UBS loan to buy 10 per cent of Oil Search, enabling the company to buy a share of Elk-Antelope from the discoverers, InterOil.”

He said the report suggests that progress on the project should cease until a detailed independent assessment of the Elk-Antelope field is carried out.

It says the financial risk to Papua New Guinea is too high not to conduct such an inquiry. If the project fails, according to the report, the cost to PNG could be up to K20 billion.

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Move to roll PNG PM threatens $16 billion LNG deal

PNG Prime Minister Peter O’Neill is facing a no-confidence motion as early as next week. AP

Angus GriggLisa Murray, Angela Macdonald-Smith | Australian Financial Review | May 1, 2019

Moves to oust Papua New Guinea Prime Minister Peter O’Neill over claims of  financial mismanagement threaten a $16 billion gas deal agreed by Australia’s Oil Search just three weeks ago.

In the biggest challenge to his almost eight years in power, Mr O’Neill is set to face a no-confidence vote after Parliament resumes next week as key allies abandon his ruling coalition.

Mr O’Neill has brought stability to the often fractious world of PNG politics, but the opponents are now pledging to review the LNG deal he signed and investigate allegations of corruption and abuse of process.

Any review of the Papua LNG project being developed by Oil Search and its partners, ExxonMobil and France’s Total, would see renewed scrutiny of the so called “UBS loan affair”, whereby the Australian arm of the Swiss bank advanced the PNG government $1.2 billion. The deal was championed by Mr O’Neill.

“A big item on the agenda for the new government will be to investigate the UBS loan agreement in its entirety,” shadow attorney-general Kerenga Kua told The Australian Financial Review.

He also warned the Papua LNG partners not to make any further investments in the project as the deal was set to be reviewed.

The move against Mr O’Neill comes at an awkward time for Canberra as it seeks PNG support to blunt China’s influence in the region and continue to house refugees on Manus Island.

“This is the biggest challenge Prime Minister O’Neill has faced,” said Shane McLeod, a research fellow focused on the Pacific at the Lowy Institute.

“It’s not entirely clear who is in control of the numbers, but the move is definitely on.”

The 2014 loan from UBS’ Australian arm to the PNG government is already being investigated by the Swiss regulator after the highly complex deal saw the Pacific nation lose as much as $400 million in just three years after it borrowed the money to buy a 10 per cent stake in Oil Search.

Former Prime Minister Mekere Morauta said the LNG agreement and the “illegal” UBS loan need to be investigated “as a matter of urgency”.

“The two are connected and all the detail needs to be exposed to scrutiny,” Sir Mekere said.

“Neither the Papua LNG agreement nor the UBS-Oil Search loan were in the national interest.”

Opposition figures claim the UBS loan was illegal as it was never approved by Parliament, as stipulated in the constitution.

Oil Search chief executive Peter Botten said any move against Mr O’Neill could delay the final agreement for the $16 billion Papua LNG project, but he doubted it would see the deal scrapped.

“Clearly, if there’s a change of government or whatever in Papua New Guinea that might impact timing, but all sides of politics recognise the importance of this project and the need to move forward given competition from others,” Mr Botten said in Sydney on Tuesday.

“Papua New Guinea has had two prime ministers in the last 19 years. Compared to Australia it’s doing OK. But there are times when political shake-ups happen. This may or may not be the time when it happens but we’ll know over the next week.”

The deal agreed with the PNG government on April 9 sets out the tax and fiscal details of the project.

Oil Search CEO Peter Botten says any change of government in PNG could delay his latest LNG project. Vanessa Kerton

Efforts to topple Mr O’Neill, who came to power in August 2011, have been brewing for months amid claims he has centralised power, and not followed due process.

Mr O’Neill has been rocked by the resignation of two cabinet ministers and an estimated eight MPs from his ruling People’s National Congress.

It had been the largest party with 27 MPs, but Mr O’Neill was still reliant on an often fluid coalition to rule in the 111-seat Parliament.

The opposition is confident momentum is building for a move to roll Mr O’Neill via a no-confidence motion on the floor of Parliament.

But all sides acknowledge Mr O’Neill is highly skilled at forming and retaining coalitions and has the advantage of incumbency to fend off any challenge.

“He’s got plenty of tools at his disposal, like ministries and prominent positions within the government,” said Mr McLeod from the Lowy Institute.

The opposition also lacks a natural leader and at this stage has not said who it would put up to be prime minister if it won the no-confidence vote. This is slowing down the process.

The shadow attorney-general Mr Kua said the UBS loan agreement had “destroyed the integrity, image and trust in this government”.

“We need to look at all the terms and conditions, whether fees were paid at a commercial rate and all the boxes were ticked before we can come to our own view about whether the loan approval went through a proper process.”

In 2014, PNG borrowed $1.24 billion to purchase a 10 per cent stake in Oil Search, which was developing natural gas assets in the PNG Highlands. The PNG government’s stake then allowed Oil Search to purchase a 23 per cent interest in the Elk-Antelope gasfields, the resource that will supply the Papua LNG project.

Oil Search and Exxon along with Australia’s Santos are also shareholders in the $25 billion PNG LNG project, which began production in 2014.

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Bougainville admonished by O’Neill over planned mining change

Momis and O’Neill at a reconciliation ceremony in 2014. (ABC/AUSTRALIA NETWORK NEWS)

Radio New Zealand | 29 April 2019

The Prime Minister of Papua New Guinea has written to the Bougainville government asking it to consult more widely over proposed changes to the autonomous region’s Mining Law.

Peter O’Neill in a letter to President John Momis last month said the changes have the potential to cause discord and conflict.

Mr Momis said the law change will allow landowners to retain control of minerals once they have been mined.

But landowning groups, especially the Osikaiang group at the site of the key Panguna mine, allege this is an attempt to shut them out along with their preferred joint venture company, RTG.

James Onartoo of Bougainville Indigenous Rights Advocacy has accused Mr Momis of deliberately trying to spread misinformation on the matter.

He said the proposed amendment removes the protection of customary landowners’ rights and attempts to replace them with vague benefits and entitlements.

But Mr Momis in his response to Peter O’Neill said his government has since conducted extensive consultation on the new legislation

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PM must come clean on Papua LNG

Logo at French oil and gas company Total gas station in Marseille. REUTERS/Jean-Paul Pelissier

PNG Blogs | April 29, 2019 

The Member for Moresby North-West, Sir Mekere Morauta, today questioned the legitimacy of the Gas Agreement the O’Neill Government has signed with the Papua LNG partners, saying the Prime Minister and his cronies have hijacked the approval process and put State and landowner interests at risk.

“I have seen evidence from a variety of sources that suggests we are heading for a repeat of the PNG LNG model which has brought few benefits to the state and landowners,” he said. “Peter O’Neill has shut out the State Negotiating Team and gone with a Gas Agreement that is largely the work of Total, ExxonMobil and Oil Search.

“The Department of Petroleum and other Papua New Guinean experts have been sidelined in favour of shadowy participants in the O’Neill Government’s corruption, waste and mismanagement. Why?”

Mr O’Neill’s interference in due process opens PNG to another financial disaster, as it did with PNG LNG and the UBS-Oil Search loan, Sir Mekere said. It risks resource owners not being paid their royalties and development levies, as has happened with PNG LNG. Mr O’Neill has still not provided answers as to where he has secreted the money, whether it is still there, and when resource owners will be paid.

It means that once again foreign resource giants have been granted huge financial and tax concessions that will cost the nation billions of kina in lost revenue. Mr O’Neill’s mismanagement of PNG LNG means the operation is still paying virtually no tax.

It means that questions remain about the actual technical and financial viability of the project. “Will it become another financial and social burden on ordinary Papua New Guineans that PNG LNG has become because of Mr O’Neill,” Sir Mekere asked

“Mr O’Neill and Total and its partners have many questions to answer. For now, I want to know why the State Negotiating Team and the Department of Petroleum have been sidelined. Who is advising Mr O’Neill?

“A potentially expensive and dangerous failure of due process has resulted from Mr O’Neill and his cronies taking over the negotiations. These failures are outlined in a letter to the Chief Secretary from the Department of Petroleum immediately before the Gas Agreement was initialed by Mr O’Neill and then signed by the participants.”

Acting Secretary Lohial Nuau wrote on March 27 that at least 11 critical documents have not been provided by Total which are required before any commercial and financial terms can be agreed to, nor has the Department received the required Application for a Petroleum Development Licence.

“The APDL, as per the Oil and Gas Act 1998, will require supporting technical documentation that will give confidence to the Department of Petroleum of proven gas and oil reserves, investment cost, project schedule and environmental compliance,” he wrote. “These are key parameters in the economic model and therefore form the basis for the commercial and fiscal negotiations.

“The department has received and reviewed from Total preliminary documents … for the purpose of discussing the APDL application process. These documents have shown little progress on the Papua LNG project and are NOT at the level of technical detail that the Department requires in order to make a decision on an APDL. In addition in the letter from Total of February 8, Total committed to an APDL application on March 15, 2019. Until today the Department has not received such application.

“Based on the fact that none of the required documents have been submitted and the Department of Petroleum has no ability to verify any of the important economic parameters provided by Total in the economic analysis, I come to the following recommendations to the SNT:

1. Because no Application for an APDL and associated licenses have been submitted. On January 29 2019, I requested Total, as required by the Oil and Gas Act 1998, to apply for these permits and provide the Department of Petroleum with the supporting documentation urgently.

2. As the Department of Petroleum has not received the application for the APDL including any of the Technical documentation required by the Oil and Gas Act 1998, the Department cannot review and endorse any of the key economic parameters provided by Total in their economic model. Therefore the Department recommends for Total to urgently submit the APDL and all supporting documents before input can be provided to the Gas Agreement.

3. Social Mapping and Landowner Identification process still has to be completed. Therefore there is no proper due diligence by the stakeholders on the Gas Agreement. The Department recommends for Total to urgently complete the SMLIS. “

Sir Mekere said: “These are damning comments from the department. They are supported by evidence from other experts who have been following Papua LNG progress, and are alarmed at the multi-billion-kina risks that Mr O’Neill has exposed the nation to.

“I am also concerned about reports of visits to China by O’Neill officials in the company of Total executives. I am surprised at Total’s willingness to associate itself so closely with Mr O’Neill and his cronies. I would hate to hear any suggestion of a special sale of an interest in Papua LNG.

“A new Government must review the agreements personally entered into by Peter O’Neill to make sure that the State, the landowners and the developers share the risks and the benefits fairly,” Sir Mekere said.

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Indigenous Rights Advocacy Group says ABG President Momis is not telling the truth

Prime Minister O’Neill has written to the ABG President raising concern over proposed changes to the Bougainville Mining law; concerns Momis is trying to downplay using ‘misinformation’

Chairman of a human rights organization, Bougainville Indigenous Rights Advocacy (BIRA), James Onartoo, has raised concerns that the ABG President Momis is deliberately trying to spread misinformation to push his government’s proposal to amend the Bougainville Mining Act.

Mr. Onartoo was responding to a draft letter of response by President Momis to concerns expressed by the Prime Minister in his letter to the President on the proposed amendment. The letter in which the President downplayed the Prime Minister’s concerns was posted recently on social media.

Mr. Onartoo said that the proposed amendment drew wide opposition because it removed protection of customary landowners’ rights and attempted to replace it with vague benefits and entitlements that lacked detail.

“You cannot remove and replace existing protection of the rights of customary landowners with imaginary rewards that may never materialize in the end,” he said.

Mr. Onartoo was also critical of the way ABG was handpicking people to drum up support in the mine affected areas to help push through the amendments. He said the ABG had never obtained “free, prior informed consent” (FPIC) in the mine affected areas and instead it has tried to avoid those who opposed mining, causing further divisions in the mine affected communities.

“Under FPIC the people have the right to say no to mining and the government should respect the wishes of the people and support them. Instead the government has gone abroad to make a deal and it is now trying to involved the landowners after the laws are drafted along with the proposed amendment to cater for monopolization of mining by a single mining company ”, Mr Onartoo said.

The Vice President, Raymond Masono and Finance Minister Robin Wilson left yesterday for Port Moresby to hand deliver the letter from President Momis to the Prime Minister, Peter O’Neill.

Meanwhile, ABG Parliamentary Legislative Committee’s inquiry into the amendment bill continues in Central Bougainville and according to it’s Chairman and member for Kokoda constituency, Rodney Osioco, there is a growing opposition from all stakeholders and the general public, to the proposed bill by the ABG to amend the Bougainville Mining Act.

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O’Neill’s lies show he still wants to get his tentacles on $1.4 billion

War of Words Over PNG SDP Gets Even Hotter

Mekere Morauta | April 25, 2019

The Member for Moresby North-West, Sir Mekere Morauta, said today that Peter O’Neill’s statement that BHP Billiton and I created PNGSDP as a private company with four shareholders, one of whom is me, is a deliberate lie manufactured by a man desperately trying to repair his public face following the comprehensive win by PNGSDP in the Singapore Supreme Court.

“Peter O’Neill also lied to the Singapore Court, through the State’s affidavit, saying he had a document giving the State the power to control PNGSDP,” Sir Mekere said. “He failed to produce the document as evidence to the Court, and the court decision exposed him as the liar he is 

“Why did he not produce such a document? Because no such document exists. He made it up, hoping this would convince the Singapore Court.”

“Why is he still lying? Because he wants to get his tentacles on the $1.4 billion in PNGSDP’s Long Term Fund.”

PNGSDP was established by the State of Papua New Guinea, BHP Billiton and Inmet, the shareholders of Ok Tedi Mining Ltd in 2000, to hold the BHP shareholding (then 52%) gifted by BHP.

The object of PNGSDP was to invest two-thirds of the future dividend flows from the shares into a Long Term Fund to be used after mine closure for sustainable development in Western Province. One-third of the dividend income was spent on development projects throughout the country, including Western Province.

PNGSDP was established as a not-for-profit company, limited by guarantee. It has no shareholders. In such company structures, used by charities, NGOs, sporting groups and other similar organisations, shareholders are replaced by members. I am a member of PNGSDP, not a shareholder.

Members do not derive any benefit from a limited guarantee company, as shareholders would from a limited liability company. The Program Rules, set jointly by the Government of PNG and BHP, prescribe that the benefits from PNGSDP flow only to PNG and Western Province.

Singapore documents purportedly showing I am a shareholder are pro-forma documents that do not provide for companies limited by guarantee. They do not provide for members instead of shareholders, as happens in many jurisdictions.

“The statement that I am a shareholder of PNGSDP is a naked, diabolical lie,” Sir Mekere said.

“Increasingly, it seems that the Prime Minister is fabricating stories to cover his own misdeeds. If he actually believes his own lies, we should all be worrying about not only his level of intelligence, but also his sanity.

“The man is not fit to be Papua New Guinea’s Prime Minister.

 “Peter O’Neill’s ceaseless attacks on PNGSDP and on me are due to his failure to gain access to the Long Term Fund – which is what he wants, desperately.

 “He was not satisfied with the extremely valuable shareholding PNGSDP had in Ok Tedi, which he expropriated in 2013. He also wants the Long Term Fund, which now stands at over $1.4 billion. He wants the lot.

 “I want to assure the people of Western Province that their money in the Long Term Fund is safe, and will continue to be safe, whilst it is managed by an independent PNGSDP. 

“It was my instruction to the advisory team when PNGSDP was established that the company was to be protected from political influence – from the tentacles of octopuses.

“The Singapore Court decision proved the independence of PNGSDP. I am proud that I led the fight and won it for the people of Western Province.”

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