Upstreamonline - ExxonMobil and InterOil locked in PNG talks

Searancke's sources indicate that Shell is still trying to get involved in InterOil's project. This will certainly elicit speculation on Shell's next move after (or before?) the Exxon deal is announced. It is very encouraging that Exxon will be facing fierce competition for the first Gulf LNG train, even after it prevails in consummating its SPA with InterOil for a train at PNG LNG.

EXXONMOBIL and InterOil are fast approaching a deadline in their exclusive negotiations over gas supplies to the US giant’s Papua New Guinea liquefied natural gas project.

The deadline is understood to expire this week, but Port Moresby sources said there is no clear signal of when the negotiations would close, and an extension is possible.

The focus of the discussions between InterOil and ExxonMobil is the acquisition by the latter 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.

The discussions between the two parties are understood to have the blessing and support of Prime Minister Peter O’Neill, who sources said wants to maintain the momentum achieved from the PNG LNG project and meet one of his own goals for infrastructure development.

Most market watchers are also in favour of the tie-up, but there is political tension in PNG, which is nothing new, with the Petroleum & Energy Minster William Duma earlier this month saying the government was “respectful” of the negotiations between the two companies, but he said that whatever agreement is reached must be within the parameters and project specifications contained in the 2009 Project Agreement between InterOil and the government.

Well-placed sources said the legal status of the 2009 agreement is uncertain, and questioned Duma’s motivations.

Last year, Duma endorsed Shell as an ideal partner for InterOil in developing a standalone LNG project.

Shell subsequently held discussions with InterOil and was seen as the favourite to partner InterOil, but ExxonMobil prevailed.

Sources said Shell is sore at missing the opportunity, and is waiting in the wings if the ExxonMobil-InterOil talks falter.

There is also said to be concern within government circles about not wanting ExxonMobil to gain a stranglehold on the country’s LNG industry.

The government, including Duma, will have to approve any deal that is agreed between ExxonMobil and InterOil.

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.”

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

If the ExxonMobil deal is completed, InterOil said it 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.

The US$19 billion PNG LNG project is a two-train scheme with capacity of 6.9 million tonnes per annum.

At the end of the second quarter of 2013, the project was nearly 90% complete and is on track for first LNG sales in 2014.