By ROSS KELLY

BRISBANE, Australia—Exxon Mobil Corp. would prefer to use natural-gas fields in Papua New Guinea owned by InterOil Corp. to expand the country's $19 billion PNG LNG gas-export project than to build a second export facility, a senior Exxon executive said Monday.

Exxon last week began exclusive talks with Houston-based InterOil to invest in the latter's gas assets in Papua New Guinea. However, it didn't specify at the time whether the assets would underpin a new liquefied natural-gas plant or support an expansion of the PNG LNG project that is already under construction.

"We are interested in it because it could potentially provide an expansion of our existing facility," Mark Nolan, Exxon's vice president, Middle East and Australia, told reporters.

Choosing not to build a second LNG plant could put Exxon at odds with Papua New Guinea's government, which wants to encourage as much investment as it can in the impoverished nation to stimulate economic growth. Expanding existing LNG projects is usually cheaper and less labor-intensive than building them from scratch because some essential infrastructure, such as roads and pipelines, is already in place.

Papua New Guinea's government had insisted that InterOil bring in a company with experience in building and operating a multibillion-dollar LNG plant. Relations have warmed in recent months as it became clearer that InterOil was closing in on a preferred development partner.

The PNG LNG project, which counts Australia's Oil Search Ltd. and Santos Ltd. as shareholders, is being built with two gas-processing units, known as trains. The foundation stage of the project is more than 80% complete and on track to ship its first LNG cargoes to Asian customers next year.

Exxon and partners have already found more resources in Papua Guinea that could lead to an expansion of PNG LNG to three trains, including the recent P'nyang discovery, so Mr. Nolan's comments are the strongest sign yet that Exxon may be able to expand it to four trains.

Exxon has estimated that it would need another 4 trillion or 5 trillion cubic feet of natural gas to add another train to PNG LNG.

"The resource will determine the size of the project, and, at the end of the day, the market will as well," Mr. Nolan said.

Wood Mackenzie, a U.K.-based consultancy, estimates Papua New Guinea has 26 trillion cubic feet of natural gas—roughly equivalent to U.S. consumption of the clean-burning fuel in a year. That likely underestimates its true potential, as Papua New Guinea has only been lightly explored for oil and gas up to now

'ArtM72' pid='23194' datel Wrote:I suspect the infrastructure and labor demand for the CSP and pipeline will be plenty for Gulf Province in the time being so an immediate LNG plant construction there doesn't seem politically necessary. Remember, it was just a few years ago fuel was being brought into Keremea by motorized canoe. I suspect more than a few people are looking at levelizing resource demands with a controlled build plan. As PNG LNG expansion moves forward more people will be trained and ultimately find their next jobs in Gulf, but that can wait until Ttops and other area resources are quantified. Plenty to do in the mean time. BTW, I hadn't heard that XOM had quite found enough gas for two units to date. The article above suggests they have enough for three and would use E/A for the fourth. Did XOM or OSH announce a significant discovery recently?

ArtM--As of May 23,2013 , The Mananda # 6  (Oil Search) was at a depth of 1808 meters . No,I don;t believe they have announced any new discovery recently,but imho this well has a lot of potential. We should know something b/4 too long .

What if this is all about XOM buying 8-10 tcf or enough  for two trains?  This might explain the recertification as XOM would want to be extra certain they could support both additional trains?  Would this make it a non-conforming bid as essentially all or most of the gas is piped out, therefore needing govt. approval?  This would explain the need to disclose.  The exclusivity also needed to be disclosed as other bidders have been put on hold or rejected?

Anthything greater than 10 tcf at E/A could be used for a smaller unit.  Sounds like TOT likely to be included on T2 with oil search.  Perhaps the LNG plant comes later as part of a deal here?

I always thought it made too much sense for XOM to be involved somehow.  Keep it simple, right? Question now is deal terms.  Was XOM forced to outbid others or does exclusivity give them leverage?  If there was a beauty contest and XOM has more margin to bid with than I would hope an"all in" price per mcf would approach or surpass $2 mcf.