Duma adds a twist - Printable Version

Papua New Guinea’s Petroleum & Energy Minister William Duma has added a twist to the negotiations between InterOil and ExxonMobil over gas supplies into the US giant’s PNG liquefied natural gas project.

Duma said the government is respectful of the commercial negotiations that are ongoing between the two energy companies, but emphasised that whatever agreement is reached must be within the parameters and project specifications contained in the 2009 Project Agreement between InterOil and the government.

The focus of the discussions between InterOil and ExxonMobil is the acquisition by ExxonMobil of an equity stake in the permit that contains the Elk-Antelope gas discoveries operated by InterOil.

The proposed deal would see ExxonMobil buy an interest in Block PRL-15 that would give it access to 4.6 trillion cubic feet of gas in order to build an additional train at PNG LNG.

There is no suggestion of a new standalone LNG facility, which was the basis of the 2009 Project Agreement, and of the November 2012 Gulf LNG proposal which evidently was approved by the government. However, highly-placed sources said there is no certainty over the legal status of the 2009 agreement, and questioned Duma’s motives.

Duma reiterated that the government intends to take up its legal entitlement of a 22.5% equity share in Block PRL-15.

“At this stage, we do not know when the current negotiations apparently being conducted between InterOil and Exxon will be concluded. However, any final agreement must meet the project specifications contained in the 2009 Project Agreement,” said Duma.

The 2009 agreement stipulated a two-train LNG facility, with each train capable of producing about 4 million tonnes per annum of LNG, based on feedstock from Elk-Antelope.

Over subsequent years InterOil took the project through various guises without progressing to a final investment decision, and in 2012 the government insisted InterOil return to the original 2009 proposal.

Last November, the government apparently endorsed a revised development model called the Gulf LNG Project and, in a surprise move, decided it wanted half the gas resources from the Elk-Antelope field for its domestic market.

InterOil believes a tie-up with ExxonMobil will benefit PNG “in a number of ways” including the use of PNG LNG infrastructure to create strong synergies and cost savings, and allowing for early development of the Elk-Antelope fields.

“InterOil believes that the economic benefits to the existing project partners and the country of Papua New Guinea are compelling.” Most market watchers are supportive of a tie-up between the two companies.

The Elk-Antelope fields are understood to contain best case contingent resources of 9.45 trillion cubic feet of wet gas.

Assuming the ExxonMobil deal is completed, InterOil will still have the option of either developing its own LNG project using the remaining gas from PRL-15 plus other discoveries including the recent Triceratops find, or it could pursue further co-operation with ExxonMobil.

ExxonMobil is already progressing with plans to develop its own P’nyang gas field as a supply source for a third train at PNG LNG.

It is understood that any agreement for Elk-Antelope gas would be the stimulus for a fourth train.

Notice that Duma has transitioned completely away from arguing that InterOil’s proposed SPA would create monopolistic control by Exxon of PNG’s LNG and may not be in the best interests of the country. Since LNG and condensates are export products, his argument was invalid. His transition to arguing that the deal must conform to the 2009 Project Agreement is very likely a last-ditch effort by Duma to invite Shell into the competition.

The irony of this new argument, however, is that the gas from Elk/Antelope being supplied to PNG LNG does not require a new project agreement; it only requires a gas agreement. The Gulf LNG Project, however, does require a project agreement and the Gulf option embedded in the Exxon deal likely reflects the 2009 Project Agreement model that the NEC agreed to last year in which one train is initially built and a second train would be added subsequently.

Hence I view Duma’s new argument as being much more positive for InterOil than his previous anti-monopoly argument. It’s a brilliant tactic by the DPE head, as he is subtly inviting Shell into the game while saving face (and even taking credit for forcing the Gulf option to conform to the 2009 Project Agreement) if the Exxon deal is consummated.

Notice the positive change of language (i.e. “Duma said the government is respectful of the commercial negotiations that are ongoing between the two energy companies” ) relative to his previous quotes over the past 2 months. Also, notice that the government taking a larger than 22.5% stake is seemingly off the table (i.e. Duma reiterated that the government intends to take up its legal entitlement of a 22.5% equity share in Block PRL-15).

Yes RA and what I like is Duma's weight is behind IOC's LNG 'optionality' and the best for us shareholders is a stake in PNG LNG expansion and a tidy ~30% stake in our own Gulf LNG project also. Duma agrees with Hession and that is to make IOC into an LNG player.

Duma will say and do anything to keep this project from moving forward. His constantly changing positions have been a thorn in IOC's side ever since Somare left office. Nothing he says can be taken at face value. We can only hope he continues to put himself further out on the margins and O'Neil takes strong hold of the situation. IOC needs to build a plant in the Gulf, but only AFTER it signs the deal to send Exxon its gas. Delays in drilling are not helping this scenario but maybe the new seismics in NW Triceratops are.

Agree on the Gulf plant and when it's built. There will be no drilling until XOM wedding. Duma won't be going anywhere and he will look good in the end.

The following excerpt is from the June 20 article in the National: In a brief statement this week, Duma said: “... there is some concern that it may not be a wise thing to allow one major energy company to dominate the industry in the country.  “There have already been some concerns expressed by some influential sections of the community so we are also mindful of that.”

Contrast that with Duma’s commentary in Friday's Upstream article: Duma said the government is respectful of the commercial negotiations that are ongoing between the two energy companies…

In each instance, Duma is leaving the door a crack open for Shell, but he’s now taking a more benign approach towards Exxon’s proposed tie up with InterOil as he recognizes the O’Neill coalition’s support for the expedited and low cost expansion of PNG LNG and virtual inevitability of the deal closing.

Duma adds a twist to gas supply talks