Our focus now is to push forward, as quickly as possible, with an alternative gas development, or developments, which maximises the long term value of the gas resources. It should be noted that we are not starting from scratch in this, as Oil Search has been working on a range of other gas options for some time, as part of its multi-pronged strategy.
We strongly believe that PNG has all the pre- requisites to become part of an elite group of countries world wide that supply LNG. We have
10
OIL SEARCH LIMITED
Incorporated in Papua New Guinea ARBN 055 079 868
the resources; we are ideally located, close to the fast growing markets of SE Asia; and we have a supportive Government that is pro-gas development.
Together with ExxonMobil and the other joint venture partners in the Hides, Angore and Juha fields, we have recently agreed terms to undertake detailed feasibility work on an LNG development based on these fields. While Oil Search believes that there are already sufficient gas resources in these three fields to underwrite an LNG development, the PDL 2 joint venture participants, which own the Kutubu and Moran fields, also have the option to join in these studies.
In parallel to the work being spearheaded by ExxonMobil, Oil Search is discussing LNG prospects with other parties, including British Gas, which has strong experience in building and operating large LNG plants. We are very excited about the
11
OIL SEARCH LIMITED
Incorporated in Papua New Guinea ARBN 055 079 868
prospects of being involved in LNG, one of the fastest growing industries in the world.
Based on our existing discovered resource of gas in PNG, Oil Search is in a strong position to own around 30% of any LNG development that may come from development of our core gas fields.
Oil Search is also continuing to develop plans to create a gas-based petrochemical industry in PNG. During 2006, considerable progress was made in advancing the development of an industrial park near Port Moresby, where a number of plants can be co-located with shared infrastructure facilities. Further work on this is ongoing with a range of partners, including Mitsubishi, Itochu and Oswal.
There are considerable economic advantages to Papua New Guinea from the current LNG and petrochemical plants proposals, when compared to the export of raw gas to Australia under the PNG
12
OIL SEARCH LIMITED
Incorporated in Papua New Guinea ARBN 055 079 868
Gas Project. These developments will see the gas being processed in-country and will generate significant investment and job opportunities, both during the construction phase and thereafter.
However, for any of these plans to move forward, considerable effort is required on the part of the upstream joint venturers, landowners and the Government. We need a strong, experienced and committed operator, a sound technical development plan and an economic and fiscal framework which ensures equitable benefits distribution to all key stakeholders in PNG. It is paramount that all these issues, including Government and landowner participation and fiscal terms, are resolved in a timely manner, so the progress of these projects is not delayed.
We are all impatient to progress gas development as soon as we can and monetise our large discovered resource. Given the huge scale of any
13
OIL SEARCH LIMITED
Incorporated in Papua New Guinea ARBN 055 079 868
LNG development and the long term returns that these projects bring, it is important that industry works closely with Government on appropriate policy settings that encourage early development, whilst setting a stable investment framework for long term multiple gas projects in country.
It is important to note that PNG based entities, Oil Search, the Government and Landowners, will own almost half the interest in any LNG development in country, ensuring appropriate returns and profits stay in PNG.
We are uniquely placed to make LNG work for us and the country. It is an exciting time, with the prerequisites of resource base and unprecedented market demand now in place, to bring an LNG development to reality. Oil Search will have a leading interest in these projects, bringing long term value to our shareholders and this country.
14
OIL SEARCH LIMITED
Incorporated in Papua New Guinea ARBN 055 079 868
While we already have a large inventory of undeveloped gas resources, some 800 million barrels of oil equivalent net to Oil Search, in light of the extremely strong global market for gas, the Company has commenced an active gas drilling campaign in PNG. This programme, which comprises both the drilling of new exploration targets and the appraisal of existing small gas fields, is designed to increase the amount of proven and probable gas which can be sold, to fast track further development.