Wafi-Golpu MOU to be eliminated

So Newcrest and Harmony signed a deal with the O’Neill government that stitched up the landowners and the country – but nobody gets held accountable once again. Not the bureaucrats, not the politicians and certainly not the mining company executives and their lawyers! 

Cedric Patjole | Loop PNG | January 31, 2020

The Memorandum of Understanding between the former O’Neill-led coalition government and the Wafi -Golpu Joint Venture will be eliminated.

Prime Minister James Marape revealed this at the Back to Business Breakfast event in Port Moresby.

The MOU signed in December 2018 established the framework for the parties to progress the permitting of the Wafi-Golpu Project ‘as quickly as practicable’ with a view to achieving a Special Mining Lease by 30 June 2019.

However, the Morobe Provincial Government rejected the move, taking the matter to court and stalling the Wafi-Golpu Mine from maturing.

Prime Minister Marape revealed to the business community that the MoU would be eliminated.

“Some of you might be interested on what is happening with Wafi-Gopu, one of our lowest hanging fruits, and let me thank Harmony and Newcrest for their patience,” said Marape.

“But they also know that the MOU that they signed with the previous government was a show stopper. That MOU was signed outside of the normal protocols of Government.

“And so we are in the businesses of now eliminating that MOU, and they have agreed to eliminate that MOU, and so, we’re now having discussions with our provincial government and our landowners and very soon, Wafi-Golpu will be a project that is moving towards maturity.”

Since the move by the Morobe Provincial Government and the ongoing permitting delays, WGJV has reduced its planned work program and manpower.

Marape holds Singapore talks over PNG trust fund

Radio New Zealand | 19 June 2019 

Papua New Guinea’s prime minister has led a delegation to Singapore to find a way in to a trust fund the government has been locked out of.

In his first overseas trip since taking office last month, James Marape met with officials from the PNG Sustainable Development Program on Sunday.

The company manages about $US1.4 billion of assets through a long term fund which was set up to hold profits from the Ok Tedi copper mine in Western Province.

Since the government of Peter O’Neill expropriated the mine from the SDP in 2013, it had been in a protracted court fight to gain control of the long-term fund parked in Singapore.

Singapore’s High Court ruled against the government’s claim in April. Following this, and a change in government leadership, PNG’s new prime minister Mr Marape is seeking a different approach.

He said on Facebook the aim of his trip was to find common ground with the company managing the fund.

The prime minister was accompanied by MPs from Western Province whose constituents are intended to be direct beneficiaries of the SDP’s projects and long-term fund.

Mr O’Neill, who indicated that the government would appeal the Singapore court ruling, portrayed the government’s aim in the case as being to ensure the company’s funds were given to the people of Western Province.

It remains to be seen whether that appeal will proceed, with Mr Marape advocating a discourse-based approach to dealing with Sustainable Development Program.

The SDP was established in 2001 when BHP Billiton divested its majority share in the lucrative Ok Tedi copper mine in Western Province to SDP.

The divestment followed legal action by Western Province landowners over extensive and long lasting environmental damage caused by the mine operations, particularly its riverine tailings disposal system.

April’s court decision was welcomed by the four Western MPs, who said it would ensure SDP was protected from political interference and that its assets went to the people.

However, the money in the fund is intended to be disbursed by SDP within Western Province when the Ok Tedi mine closes. The mine is still operational.

New Petroleum Minister says no more coffee shop deals

Kerenga Kua says there will be no more coffee shop deals – like the one between Peter Botten and Peter O’Neill where they agreed the disastrous and unlawful State investment in Oil Search shares (funded through the notorious UBS loan) over coffee at the Grand Papua hotel.

PNG LNG Review Must Focus On People, Says Kua

Elias Nanau | Post Courier | June 18, 2019

A sigh of relief for the aggrieved landowners and key stakeholders of the recently signed Papua LNG (liqued natural gas) – the gas project agreement will be “reviewed”.

This was the ultimate assurance from the Petroleum Minister Kerenga Kua during the handover-takeover ceremony between him and outgoing minister Dr Fabian Pok in Port Moresby yesterday.

He said the review should be done to satisfy the government and people that “it was signed in compliance with all applicable laws” and protocols and key institutions like the Bank of PNG and Treasury had been involved equitably and statutorily.

He drew applause from the conference room.

“We owe it to our people,” he said. “Leadership and government must combine and deliver back to our people.”

Mr Kua gave the assurance in front of a packed conference room of landowners, oil and gas company executives and department staff at Hideaway Hotel.

Mr Kua said although there were market forces, they would not run away and the government and people must approach it judiciously.

He said the petroleum industry was one of the biggest revenue earners but asked: “Is the level of revenue we generate enough?”

Mr Kua reminded the department staff that while there would be work to review projects and legislation.

“There is that urgent need to source money to fund the visions of the government as outlined by Prime Minister James Marape,” he said.

He noted the bold statements of making PNG the richest black nation and to take back PNG.

“The challenge or way forward has been defined, now we need money. It must start somewhere, you cannot wait,” he said.

Mr Kua said his key performance indicators would be defined by the two guiding statements made by the Prime Minister.

“It is incumbent of the leaders of today to make such vision statements,” he said.

He reminded people they may think its “insurmountable and unachievable” but 70 years ago when Kondom Agaundo from Chimbu told expatriates the next generation would learn and communicate fluently in English, it happened and today the country has a load of “intellectual workhorse”.

He appealed to petroleum staff : “We must restore the strength and prominence of the department. “It must be at the forefront of the economic departments.”

Mr Kua told everyone he did not want to have meetings with investors or anyone that is work related outside of the department and staff.

“Let’s meet at the office rather than at the coffee shop,” he said.

Oil Search reinforces PR team as pressure mounts on several fronts

A cozy meeting between Peter Botten and Peter O’Neill was at the heart of a disastrous investment for PNG in Oil Search shares according to an Ombudsman Commission report on the illegal UBS loan that financed the deal.

New faces at Oil Search

Matthew Stevens | Australian Financial Review | June 11 2019

Don’t imagine for a second that Oil Search sits wholly calm amid the storm created by the dumping of long-standing Papua New Guinea prime minister Peter O’Neill  and the company’s place in the events that proved a tipping point in the collapse of political support for him.

In the lead-up to O’Neill’s replacement by leadership neophyte James Marape, Oil Search made wholesale changes to the way it manages its external affairs, delivering new blood to its media management and inviting Crosby Textor to take on the driller’s reputation management.

The most immediate effect of the Oil Search deckchair shuffle is that long-standing general manager of investor relations and communications, Ann Diamant, appears to have lost half of her brief to a former PNG television executive.

A familiar media contact point through her 16 years with Oil Search, Diamant has surrendered the day-to-day of communications and media management to a new face in the Australian media landscape. The new vice-president, communications and media, is Matthew Park.

Park lands at Oil Search with an ANU law degree, six years’ experience in policy advisory with the Australian Communications and Media Authority and a whole lot of experience in PNG television. His most recent job of import was running a TV station in PNG and, even more recently, he ran PR for PNG’s APEC advisory council. But, according to his various CVs, that is about as close as he has got to knowing who’s who in the zoo of Australian media, or media anywhere but PNG for that matter.

Oil Search insiders suggest this shift and the decision to appoint Crosby Textor shows just how unnerved the company is by regime change rolling out in PNG.

As The Australian Financial Review reported on Friday, Marape continues to send mixed signals about his future relationship with Oil Search and its much more powerful partners in PNG liquid natural gas, Exxon and Total.

The house view at Oil Search is that Marape might seek changes to a recent deal with Santos that aligns the ownership of the P’nyang gasfield with a proposed LNG development, but that previous investment agreements will be left untouched.

New PNG leader aims to ‘maximise gain’ from resources sector

Despite the rhetoric of a leadership challenge is the new PM really going to change PNG’s addiction to elite politics and large-scale resource extraction?

Tom Westbrook | Reuters | 30 May 2019

• Parliament elects ex-finance minister James Marape
• Critic of major gas deal, plans to review resource management
• Peter O’Neill resigned on Wednesday after weeks of turmoil
• Concerns over benefits from resources not reaching the poor 

Former finance minister James Marape was elected prime minister of Papua New Guinea on Thursday, and the critic of a major global gas development deal vowed to review management of the nation’s resource riches.

Marape received 101 votes to eight in parliament in the capital, Port Moresby, a day after Peter O’Neill resigned having lost the support of the house after almost eight years in power.

Marape, who hails from the poor but gas-rich highlands of the South Pacific nation, said he would focus on “taking back our economy” and proposed an overhaul of mining, forestry and fishing laws.

“We will look into maximising gain from what God has given this country from our natural resources,” he said in his maiden address to parliament.

“I have every right to tweak and turn resource laws for my country, then it will empower my citizens as well,” he told the chamber to cheers and applause.

Political instability is not unusual in the poor but resource-rich country, but Marape’s resignation from cabinet in April tapped into growing concern over governance and resource benefits not reaching the poor.

Those concerns ultimately led to O’Neill’s downfall.

Marape told a news conference after he was sworn in at Government House that any changes to laws would not be retrospective.

But he has previously questioned an agreement with French oil company Total in April, which allows Total, Oil Search Ltd and ExxonMobil Corp to begin work on a $13 billion plan to double gas exports.

“We are not here to break legally binding project agreements,” he told reporters when asked if he would consider reviewing another gas deal with Exxon critics say has failed to benefit landowners and the government.

However, he added: “If we find any project agreement … that has not fully complied with proscribed provisions of law, then we are open to reviewing and scrutinising them,” he said.

“We are not about breaking laws. We are about honouring existing laws.”

Exxon has said it does not comment on politics. Oil Search and Total did not immediately respond to requests for comment.

Business leaders in Papua New Guinea offered cautious support for the new leader.

“He was finance minister so understands need for clarity and stability in policies,” Isikeli Taureka, chairman of Kinabank and a former oil and gas executive at Chevron and InterOil, said in a text message.

“I believe he is rational and seems to lean towards respecting and grandfathering current agreements,” he said.

The political uncertainty has knocked almost 6% from shares in Oil Search, an Australian partner in large liquefied natural gas developments in PNG, since the challenge to O’Neill gained traction last week.

Oil Search shares climbed in early trade, but turned negative after Marape’s election to trade 0.7 percent below Wednesday’s close in a falling broader market.

Papua New Guinea turmoil puts LNG projects at risk

The government of prime minister Peter O’Neill appears to be in jeopardy with opposition MPs set to hold a no-confidence vote against him in parliament next week

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.

Political disarray in Papua New Guinea rocks Oil Search shares

Tom Westbrook and Sonali Paul | Reuters | May 27 2019

Political turmoil in Papua New Guinea threatened to delay a $13 billion plan to double the country’s gas exports, sending shares in one of the project’s partners, Oil Search Ltd, down nearly 4% on Monday.

PNG Prime Minister Peter O’Neill said on Sunday he would resign after weeks of high-level defections from the ruling party. Sir Julius Chan, twice a former premier, would take over as the government’s leader, O’Neill said.

Political instability is not unusual in Papua New Guinea and has not held back mining and energy investments in the resource-rich country, however protests over benefits failing to reach rural areas have dogged the government and project owners.

It was not clear whether Chan could command a majority in parliament when it resumes on Tuesday.

“We will not choose him. It’s a really bad choice,” opposition lawmaker Allan Bird told Reuters in a text message.

“We want a complete break from O’Neill (and) Chan is just a proxy for O’Neill,” he said.

Chan said on Monday he had been approached by both the government and the opposition to take the role.

“This is not a position I am seeking,” he said in a statement. “However, I love Papua New Guinea, and there is a desperate need right now to unite the country … and to make the wealth of this country work to the benefit of the people of this country.”

O’Neill had resisted calls to resign for weeks but his opponents said on Friday they had rallied enough support in parliament to oust him over a range of grievances, including a gas deal agreed in April with France’s Total SA.

The deal with Total set the terms for developing the Elk and Antelope gas fields, which will feed two new liquefied natural gas (LNG) production units at the PNG LNG plant, run by ExxonMobil Corp.

At the same time, ExxonMobil and its partners are planning to build a third new unit at the PNG plant, to be partly fed by another new gas field, P’nyang.

Credit Suisse analyst Saul Kavonic said the political upheaval could put pressure on the government to negotiate tough terms for the P’nyang gas agreement, which is yet to be finalised, and affect talks on development costs.

“Both these factors heighten the risk of delay,” he said in a note to clients.

Any delays in the P’nyang agreement could hold up a final investment decision on the PNG LNG expansion, which is set to double the plant’s capacity to 16 million tonnes a year.

The uncertainty sent shares in Oil Search, a partner in PNG LNG and Papua LNG, down as much as 3.9% in early trading on Monday. Energy stocks rose 0.6%.

ExxonMobil and its partners had hoped to begin basic engineering planning for the expansion by mid-2019 and make a final investment decision in 2020.

They are racing against projects in Mozambique, Qatar, North America and Australia to produce LNG from the expansion by 2024 to fill an expected gap in the global LNG market. ExxonMobil and Total both have LNG projects elsewhere that could take priority if PNG politics delays them, Kavonic said.

RBC analyst Ben Wilson said he did not think a final investment decision in 2020 was at risk yet and played down the threat that the PNG opposition would seek to renegotiate the LNG agreement.

“Sanctity of contract is critical to ongoing investment in PNG and to the success of future potential sovereign bond issuances,” Wilson said.

Total and Oil Search representatives were not immediately available to comment.

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

“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?

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.

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 Grigg, Lisa 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.