PNG Scraps Gas Deal Talks with ExxonMobil

The government of Papua New Guinea (PNG) has called off negotiations on the P’nyang gas agreement, the prime minister James Marape said in a statement published January 31.

“I am very disappointed to announce that, because of Exxon Mobil’s unwillingness to agree to reasonable terms in line with other international gas projects, the state’s negotiating team (SNT) has been unable to agree with ExxonMobil on a gas agreement to underpin the development of the P’nyang gas field,” Maraoe said.

Maraoe said that after several months of talks, ExxonMobil’s offer had barely changed from its original form presented last November and was not substantially different from the Papua LNG gas agreement. “In summary, ExxonMobil proposed a deal that was ‘out-of-the-money’ for PNG,” he said.

The development puts in doubt PNG’s plan to significantly expand its LNG exports in the coming years. Oil Search, ExxonMobil and France's Total have been working on developing the proposed Papua LNG project and the expansion of the existing PNG LNG plant. The proposed expansion of PNG’s LNG production and export capacity was dependent on the successful conclusion of the P’nyang gas agreement.

Oil Search in a statement issued February 3 said it is disappointed with the decision but respected the government’s right to set fiscal terms for resource developments in PNG.

“It is unfortunate that, at this time, the stakeholders in P’nyang cannot agree on the appropriate balance of value and benefits for a gas agreement to be concluded. Under the terms proposed by the state, the joint venture partners were unable to obtain a return on their investment that made the project investable and bankable. For Oil Search, the project returns under the state’s proposed terms were approximately the same as our cost of capital, on an unrisked basis,” Oil Search said.

Oil Search stressed it would continue a dialogue with the state on the P’nyang field and wouls seek to achieve the appropriate balance of risk and reward for all stakeholders in any future development. The company said it will now focus on the development of the Papua LNG Project, under the terms agreed in April 2019 and endorsed by the present government in September 2019, as well as on the exploration and development of its Alaskan assets.

“We will seek to advance the Papua LNG Project in a timely way, recognising that several engineering and commercial modifications will need to be made now that the P’nyang development is delayed. Joint venture meetings are planned in the short term to discuss the forward programme and we will update the market following these discussions,” it said.

Wood Mackenzie research director Angus Rodger in a note said that the termination of P’nyang negotiations was certain to lead to the expansion's delay. But the project may not be derailed entirely, he said.

“P’nyang is the most remote and difficult field to develop associated with the expansion project, and as such the latest setback will likely lead to a re-shuffling of priorities and development timetables. However, going back to the drawing board in terms of how expansion might look – two trains versus three for example – and what fields will feed them will inevitably require lots more time,” he said.

“The original plan was to add three new trains to the existing two-train PNG LNG development – one operated and fed by ExxonMobil’s gas assets (PNG LNG T3), with Total feeding the other two trains (Papua LNG) from its Elk/Antelope fields. The government has signalled it is willing to play hardball to secure a better fiscal take than it achieved with its first LNG project. The ball is now back in the operators’ court as to how they will respond,” Rodger said.