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PNG wants a good LNG deal, not a fast deal

LNG Industry,| 2 December 2019

The Papua New Guinea (PNG) State Negotiating Team has released a statement, reaffirming its position in relation to the P’nyang Field.

Isaac Lupari, Chairman of the State Negotiating Team, said: “It is important we get a good deal, not a fast deal.

“This is vital to generate revenue and wealth creation from development of nation building projects in PNG.

“The key issue for PNG is to learn the lessons from the PNG LNG project and recently signed Papua LNG project agreement. What is essential to PNG is to develop the P’nyang Field in a timely fashion, on terms similar to other countries.”

According to the statement, there are two aspects to this. One of the current arguments is about the commercial terms.

Lupari said: “In essence PNG has already determined that we can achieve State benefits that are far greater than Papua LNG, while delivering an attractive return to the developer. We’ve already suggested to Exxon how we can resolve this sharing of benefits of the project based on international best practice.”

The other critical aspect to this is the certainty of the field being developed, and that this occurs according to a reasonable timeline with clear milestones. And yet Exxon won’t commit to this before the Minister issues the Petroleum Development License (PDL).

Lupari added: “What Exxon has demanded is we deliver a PDL before they complete industry standard prerequisites required for a final investment decision, which could give them an excuse to defer the development.

“A timeline for development must be one of the fundamental conditions in any agreement.

“Not agreeing to this makes us wonder if the developers really have any current plans to develop the project, or instead intend to warehouse the field. That kind of flexibility means the country may get no benefit – only costs – in the foreseeable future.

“We welcome the developer’s participation to resolve these issues and achieve a mutually beneficial outcome.”

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Talks on PNG LNG expansion at a standstill – govt

PNG Liquefied Natural Gas Plant near Port Moresby. Photo: Richard Dellman.

Radio New Zealand | 28 November 2019 

Talks with oil and gas giant Exxon Mobil over an expansion of their huge LNG (Liquefied Natural Gas) project in Papua New Guinea are at a standoff, with the company unwilling to negotiate on the country’s terms, says PNG’s petroleum minister.

Kerenga Kua said the state’s negotiating team had set out draft terms for negotiations on developing the P’nyang gas field that were in line with international standards and would ensure a “fair deal” for PNG.

It was disappointing that Exxon has refused to consider the terms and PNG urged them to reconsider their position.

Reuters reports that the new delay to the P’nyang agreement will make it harder for Exxon and its partners Total SA, Oil Search and Santos Ltd to reach a final investment decision in 2020 on their plans to double LNG exports from the country.

Exxon Mobil’s PNG spokesman said discussions with the PNG government were ongoing and an agreement was needed before decisions could be made on preliminary engineering and design for the expansion of its PNG LNG plant.

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Papua LNG Put On Hold By Landowner’s Court Action

Roy Daniel Evara and Roy Evara addressing the media at a press conference convened at the Port Moresby Archdiocese yesterday.

Post Courier | November 27, 2019

A Landowner Umbrella Association on where [sic] the Papua LNG project is situated has successfully taken out a temporary court order, stopping the progress of any development on the US$10 billion project.

The landowners of Baimuru through their Umbrella association Purari Development Association (PDA), obtained the stay orders through a challenge of a decision by the State to cancel their Special Agriculture Business Lease (SABL) title.

The lease, according to the association, covers the project area.
In a press conference organised at the Port Moresby Archdiocese, the president Roy Evara, his son Daniel Evara his vice president Poroa Kaia and leaders of the nine tribes of Baimuru applauded the court decision saying, “No Papua LNG Project – Not until a new gas agreement is negotiated under a new Oil and Gas Legislation”.
“

We want, in fact, we demand the fast-tracking of a new oil and gas law that Prime Minister James Marape and his government foreshadowed recently, to be enacted.”

The three main issues to be addressed in the new law according to the landowners are a guarantee for full involvement and participation of landowners in all aspects of project development; the use of production sharing model for all oil and gas development projects in the country, starting with Papua LNG Project; and a new increased level of equity of up to 50% of State’s total equity and other benefits for landowners under such production sharing model, before the Petroleum Development License Agreement is negotiated.

The restraining orders were taken out from a court challenge to judicially review the decision of the Registrar of Titles for the cancellation of their Special Agriculture and Business Lease (SABL) title.

“Let me be clear to all who care to listen – we will not be an unfortunate bunch of landowners that will stand condemned for missing out on more superior benefits that a new production sharing model arrangement promises, when change for such law is foreshadowed to be around the corner. Indeed, we will not allow that to happen and now call on the State, the developer and its partners, and other stakeholders that we all go back to the drawing board and negotiate in good faith something that is a win-win for all parties, “ said Mr Evara

They also stated that the government has been ignoring them for too long.

“Despite our existence and our God-given rights to our land and resources, we have never been acknowledged nor respected, through any meaningful engagement at any time during the gas agreement negotiations by the O’Neill government, nor in the recent review by the Marape government. For all intents and purposes we just don’t seem to exist at all.

“We refuse to be taken for granted anymore. More importantly we are resolved that the Papua LNG Project will not progress any further, until the landowners aspirations and desires are heard and that legislative and policy changes that protect the interests of landowners and the country as a whole are fully enacted by law so that we are not to be bullied by corporate giants and made to look as beggars in the development of our scarce resources.
”

The effect of the Interim Court Orders according to the landowners basically means that the State is restrained from entertaining and approving a PDL license.

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Oil Search’s LNG expansion uncertain as Exxon rejects PNG’s terms

Angela Macdonald-Smith | Australian Financial Review | November 22, 2019

Oil Search’s year-end target for reaching a deal with the Papua New Guinea government – so that work can proceed on a planned $US14 billion ($20 billion) expansion of liquefied natural gas – is uncertain after the parties failed to agree on terms or even the state of the negotiations.

PNG petroleum minister Kerenga Kua released a statement on Friday expressing “disappointment” with the progress of talks after ExxonMobil, the lead partner in the LNG venture, “refused to consider the state’s proposed terms”.

Mr Kua said the proposed terms, which were not disclosed, are “based on international best practice”. They are understood to involve a higher tax rate and a more onerous domestic gas requirement than under a similar earlier deal for the separate but related Papua LNG project.

But ExxonMobil said the discussions with the PNG government to complete were continuing. “An agreement is needed before decisions can be made regarding front-end engineering and design for the three-train development at the PNG LNG plant site,” an ExxonMobil spokesperson said.

Exxon, French major Total and Oil Search need to reach an agreement on the fiscal and other terms related to the development of the P’nyang gas field to proceed with the LNG expansion. The earlier deal for Papua LNG was struck under the former government of Peter O’Neill, while the new government, led by James Marape, has taken a much tougher line on resource development, demanding that more benefits flow to the PNG economy and local communities.

The partners need the second deal to be tied up before they can proceed with engineering work on the three-train expansion, which involves both Papua LNG and the expansion of the existing PNG LNG project, fed by the P’nyang field.

Credit Suisse analyst Saul Kavonic told clients the statement supported his view that the PNG government was seeking “much tougher” terms on P’nyang than for Papua LNG.

That risks prolonging negotiations, delaying engineering work and potentially putting the final investment decision at risk for the whole project, which he calculates is worth $2.40 a share for Oil Search.

Shares in Oil Search dipped when the statement was released, but still closed up 1.1 per cent at $7.24 on Friday. Neither Exxon nor Oil Search would immediately comment.

Revenues ‘critical’

Mr Kua described the P’nyang field as the last significant LNG opportunity in PNG, and said the revenues from development were, hence, critical for the nation.

He said the team negotiating the deal on behalf of PNG had carried out “extensive” preparatory work to draft terms in line with international standards to ensure a good deal for the PNG people. The revenues would be used for infrastructure, health and education.

“It is disappointing Exxon has refused to even consider these terms and we urge them to reconsider their position,” Mr Kua said.

According to a source familiar with the situation on the PNG side, Exxon has sought to table its own proposed agreement as the starting point for discussions.

Mr Kua said that while the negotiating team was committed to working with international oil companies to develop PNG’s natural resources as quickly as possible to support the development of PNG, “our resources cannot become money‐making machines for oil companies at the expense of the nation”.

Oil Search’s outgoing managing director Peter Botten has previously underscored the importance of a timely agreement on the gas development so that the LNG expansion doesn’t miss a market “window” for new demand expected to emerge mid next decade.

The timing of the expansion has already been delayed by many months owing to the difficulty of the negotiations, particularly after the change of government.

Mr Kua said the terms PNG proposed were comparative to those for oil and gas projects in Indonesia and Malaysia.

“We have asked Exxon to be transparent about their costs and intentions with P’nyang, so we can move forward with negotiations and secure a deal that is beneficial for PNG and project partners,” the minister said.

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Papua New Guinea flags talks with Exxon on $13 billion gas expansion hit impasse

Reuters | 22 November 2019

Papua New Guinea’s petroleum minister flagged on Friday that talks with Exxon Mobil Corp tied to a $13 billion gas expansion had reached an impasse as the U.S. oil giant was unwilling to negotiate on the country’s terms.

The state’s negotiating team had set out draft terms for negotiations on developing the P’nyang gas field, which Petroleum Minister Kerenga Kua said were in line with international standards and would ensure a “fair deal” for PNG.

“It is disappointing Exxon has refused to even consider these terms and we urge them to reconsider their position,” Kua said in a statement emailed to Reuters.

Exxon Mobil’s PNG spokesman was not immediately available to comment.

The P’nyang agreement is one of two agreements needed for Exxon and its partners Total SA, Oil Search and Santos Ltd to go ahead with a $13 billion plan to double LNG exports from PNG.

The other agreement, the Papua LNG pact, was sealed with Total in September.

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Papua New Guinea, Exxon to start talks on revising P’Nyang gas deal

Reuters | November 15, 2019

Papua New Guinea is set to start talks with Exxon Mobil Corp to negotiate better terms for the state from the P’Nyang Gas Project, Minister for Petroleum Kerenga Kua said on Friday.

“All things going well we can expect to sign a P’Nyang Gas agreement around the end of this month,” Kua said in a statement mailed to Reuters.

The project will help feed an expansion of Exxon’s PNG LNG plant, in which Australia’s Oil Search and Santos Ltd are also stakeholders.

Talks over the project were put on hold earlier this year, when the government sought to revise a separate LNG agreement it has with French energy firm Total in which Exxon is also involved.

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PNG to seek more from Exxon on P’nyang deal than Total’s Papua LNG

“It has to be better. It has to be far better. That’s the key point.”

Jessica Jaganathan and Sonali Paul | Reuters | September 25, 2019

Papua New Guinea will press Exxon Mobil Corp for “far better” terms on its P’nyang gas project than the government secured in a recent agreement with Total SA for its Papua LNG project, the country’s petroleum minister said.

The P’nyang field will help feed an expansion of Exxon’s PNG LNG plant. If negotiations for the project are protracted, that could delay Exxon’s $13 billion plan with Total’s Papua LNG to double the country’s liquefied natural gas exports by 2024.

Talks on P’nyang were put on hold earlier this year when the government sought to revise Total’s Papua LNG agreement. That deal was finally endorsed in early September, with minor concessions from Total.

Formal talks on the P’nyang project have yet to begin, with the government waiting for information from Exxon, PNG Petroleum Minister Kerenga Kua told Reuters on the sidelines of the annual LNG Producer-Consumer conference in Tokyo.

Asked whether the government would seek the same terms from Exxon on the P’nyang project as it secured from Total, Kua said: “It has to be better. It has to be far better. That’s the key point.”

Exxon Mobil, which is also a partner in the Papua LNG project, said it is looking forward to working with the PNG government to conclude the gas agreement for the P’nyang project ahead of decisions on design work for the addition of three new processing units, called trains, at PNG LNG.

“The verification of the gas agreement for the Papua LNG project confirms the commitment of all parties to make the project a success and provide value for all stakeholders,” an Exxon Mobil spokeswoman said in emailed response to Reuters when asked to comment on Kua’s remarks.

The push to extract more benefits from the P’nyang project is part of a wider effort by PNG’s new government to reap more rewards from the country’s mineral and petroleum resources to lift the country out of poverty.

Kua said the government would begin working with foreign investors next year to review natural resource extraction laws, which mostly stem from before PNG won independence in 1975.

The country is already in the process of revising its Mining Act, and next year will look to update its petroleum legislation to match regulations in other nations that produce LNG.

“In early 2020 the government will look at such changes in our regulatory set-up in close consultation with our development partners,” Kua said at the conference.

“This consultation is necessary to ensure Papua New Guinea is walking forward in lock-step with its investors,” he said.

“Whilst attracting FDI (foreign direct investment) in the oil and gas sector, reaping and sharing the rewards involving this valuable resource must be equitable to our development partners, investors, and the host government and its people.”

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