Tag Archives: UBS loan

Oil Search on tenterhooks over Total’s Papua New Guinea gas deal

Is PNG exacting payback on Oil Search for the UBS loan debacle?

Sonali Paul | Reuters | August 20, 2019

Oil Search warned on Tuesday that costs for a $13 billion plan to double gas exports from Papua New Guinea could rise if talks on a gas agreement between the government and Total SA drag on beyond next week.

Australia-listed Oil Search is a partner in Total’s Papua LNG project and Exxon Mobil Corp’s  PNG LNG project, which together aim to double LNG exports from the impoverished Pacific nation to around 16 million tonnes a year.

PNG’s new petroleum minister, Kerenga Kua, last week suddenly set out to renegotiate a gas deal with Total, which the company had signed in April with the previous government. Neither side has commented on the talks held last week in Singapore.

Oil Search Managing Director Peter Botten said on Tuesday further talks are planned this week and next week, with the aim of reaching an agreement by the end of August.

“It’s a dynamic environment at the moment,” said Botten, who was in Singapore during the talks, adding that he had been fully briefed on them.

He declined to comment on what issues have yet to be resolved or say how confident he was a deal would be done by the end of next week.

“I’m not going to put odds on it,” Botten told Reuters in an interview.

“We’re doing whatever we can to work with whoever we can to try and get this resolved as quickly as possible. Time is running out though.”

Botten has led Oil Search, PNG’s biggest company, for 26 years and has faced delays on projects before, but said the current uncertainty was rare in a country that has had a “very stable fiscal regime” for many years.

“It’s unusual that this is happening at such a critical time in the project.”

The Papua LNG project had already lined up bids from contractors to do preliminary engineering and design work, but those are due to expire in September, he said.

The companies risk having to pull together new bids if the existing bids fall over, and could face higher costs.

“It would be done in a market that probably would have a higher level of expenditure as the capacity in the market gets soaked up by new projects in other parts of the world,” Botten said.

Oil Search on Tuesday reported its half-year profit more than doubled to $161.9 million for the six months ended June 30 from a year earlier, just ahead of a consensus estimate of $160 million, on strong output from the PNG LNG project and higher oil-linked LNG prices.

The result last year was hurt by a shut down of PNG LNG following a major earthquake.

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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.

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New PNG cabinet puts Oil Search and UBS Australia on notice

PNG PM James Marape unveiled a surprisingly bold cabinet on Friday.

Angus Grigg and Lisa Murray | Australian Financial Review | June 7, 2019

Papua New Guinea’s new Prime Minister, James Marape, has appointed one of the most outspoken critics of a recently signed gas deal as the responsible minister and taken a swipe at Australia’s Oil Search in announcing a cabinet full of surprises on Friday afternoon.

In swearing in Kerenga Kua as the Minister for Petroleum, Mr Marape noted he was a lawyer who “shared his vision” for reforming the sector and maximising gains for PNG.

Mr Kua has previously said the $US14 billion ($20 billion) Papua LNG project, agreed in April, should be reviewed for its legality, potentially opening the way for the deal to be renegotiated.

The new Prime Minister has said he would not seek to unwind existing contracts. However, looking into the legality of this and other deals could be a way to reopen negotiations.

“We will come to a position that everyone is comfortable with without disrupting business,” Mr Kua said when asked about the Papua LNG project after being sworn in.

“But [we will] ensure there is an equitable distribution of benefits which come out of these resource projects.”

Mr Marape used the occasion to take aim at Oil Search chief executive Peter Botten, following a speech Mr Botten made in Sydney on Thursday.

“Peter Botten knows me. I’m investor friendly but I also have to win for the 8 million shareholders of this country,” he said.

Prior to this the Prime Minister said he would not apologise for his comments on getting a better deal for the country out of resource projects.

“If you don’t like the way I’m speaking … pack up and leave,” he said.

This skirmish follows Mr Botten saying that any delay in the Papua LNG project would have it leapfrogged by other projects around the world.

“We can’t wait too long before our place in the queue slips,” Mr Botten said. “The government is aware of this, as is the new Prime Minister.”

ExxonMobil and Total are spearheading the PNG LNG and Papua LNG projects, in partnership with Australian resources players Santos and Oil Search.

Shining a light on corruption

The other surprise move on Friday was the appointment of Bryan Kramer, a popular but outspoken opposition figure, as Police Minister.

Mr Kramer, who has over 117,000 followers on his Facebook page, has said former prime minister Peter O’Neill should face criminal prosecution and has written scathing articles about the UBS loan affair.

He said the deal, which had PNG borrow $1.2 billion from UBS to buy into Oil Search, would “go down as one of the dumbest investments in PNG’s history”.

His appointment should ensure ministerial-level support to further investigate the loan affair, which cost PNG $400 million.

On Friday, Mr Kramer said his main priority was keeping the people of PNG safe but he would also be looking at high-level corruption.

Shane McLeod from the Lowy Institute said Mr Marape had delivered a pointed and substantial shake-up of the ministry.

“Bringing across prominent opposition voices Kerenga Kua and Bryan Kramer – and placing them in key portfolios of Petroleum and Police – shows that Marape is serious about distancing himself from his predecessor, and shining a light on resource deals and allegations of corruption,” he said.

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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.

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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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Massive K1.5 Billion Loss For State Owned Kumul Petroleum

Post Courier | January 4, 2019

STATE-owned oil and gas company Kumul Petroleum Holdings Limited made a massive loss of K1.5 billion in the 2017 financial year, according to its annual report.

And when the Government was asked to comment yesterday, there was no response as of late yesterday, over the document that has been made public.

It also showed that after receiving LNG revenue totaling K1.8 billion in 2016, Kumul still recorded a massive K481 million loss for the year.

These figures were yesterday highlighted by the opposition leader Patrick Pruaitch, who described them as “scandalous” citing the O’Neill government’s K3 billion UBS loan as the cause among others. He said that Kumul’s consolidated accounts disclosed that following the 2016 loss, the UBS collar loans were extinguished in 2017 at a cost of US$842,423,000 (K2.8 billion), part of which could have been offset by the prevailing value of the Oil Search shares.

He said this was mismanagement of the country’s economy by the O’Neill government through a series of bad and corrupt decisions, the latest of which included the airlifted importation of the Italian-made Maserati cars.

“More money has been lost in this foolhardy transaction that the entire annual budget for either health or education and yet there has been a zero level of accountability,” he said. He said that K2-3 billion in APEC expenditure has also not been accounted for even though the 2018 Budget accounts had been closed.

“It would take many years to recover from a loss of that scale. Prime Minister Peter O’Neill and Treasurer Charles Abel both promised in September 2017 that Kumul Petroleum would disclose full details of this transaction in Parliament, but this has not happened,” he said.

Mr Pruaitch said he did not believe the losses indicated by the 2017 KPHL annual report represented the total financial losses because it excluded the original transaction costs prior to responsibility for purchase of 149 million Oil Search shares and UBS loan liabilities being passed on the company. There have been suggestions these transaction costs, which had no oversight from either Treasury or the Attorney General’s Department, could have been as much as A$200 million.

“The government wants to hide the truth, and the extraordinary level of losses, caused by these transactions,” Mr Pruaitch said, noting that Kumul Petroleum was the only State-owned enterprise that reported to the PNG Prime Minister.

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