Wednesday, 6 February 2013
HORIZON Oil had high hopes of having its development application for its Stanley condensate project approved by the end of last year, along with aspirations to start production late this year. By Wantok
Those hopes have been firmly dashed by the Department of Petroleum and Energy, which has demanded that Horizon concludes an unitisation agreement with Eaglewood Energy because a portion of its Stanley field extends from its Petroleum Retention Licence 4 into Eaglewood’s Petroleum Prospecting Licence 259.
For Horizon this may seem like history repeating itself just over a year after it was forced to go to court to challenge Petroleum Minister William Duma's decision not to renew PRL-5, which was then held by Horizon, Santos and Talisman.
It did not take long for legal proceedings to be settled on March 31 last year. There is not much, if anything, on the public record about the details of the settlement.
Horizon, which had a 35% stake in PRL-5, was awarded a five-year term in the replacement PRL-21 lease but this time it gained a 70% stake. Half of this stake was on-sold to Talisman. Santos, which had chosen not to contest the decision not to renew PRL-5, was completely cut out of the valuable PRL-21, which hosts the Elevala and Ketu fields.
What Horizon will do in the current circumstances remains unclear although it does have little choice but to pursue unitisation. After all, Horizon is the second largest equity owner in PPL-259 after Eaglewood.
The rigid and inflexible stance of the Department of Petroleum and Energy totally ignores the immense benefits that will be derived from Stanley, where all the economic outputs will be used domestically in a value-adding endeavour the likes of which has never been seen in PNG.
In the PRL-5 saga the Department of Petroleum appeared oblivious to the immense costs of maintaining the licence in good standing over a number of decades. The Elevala gas discovery there was only elevated from its traditional categorisation as “stranded gas” in recent years.
Despite its much smaller scale when compared to previous hydrocarbon projects, Stanley is an exciting project with considerable economic spinoffs for Western Province, where socio-economic indicators are abysmal. Even the beneficial national impacts will be considerable.
The treatment DPE is meting out to Horizon and its partners - Talisman (40%) and Mitsubishi Gas (10%) - is not far off the unkind backhander given to Nautilus Minerals and before that to Frontier's Kodu* venture or for that matter to the original partners in PRL-5.
While it is true that awarding of the development rights has not as yet taken place, Horizon, like InterOil before it, had gained significant credence that it had done everything right and was on the right track to assume that the development licence would be a fait accompli. Lessons, we expect, have to be learned the hard way.
Why? The former public enterprises minister, Sir Mekere Morauta, as part of the August 2, 2011, regime that carried out a parliamentary coup against the former Somare government, had gone to Cabinet and obtained approval for a gas-fired power plant at Stanley.
This project, he boasted at the time, would provide power for the mine life extension of the Ok Tedi mine, provide electricity supplies to the Frieda River mine if it was built, supply some gas to villages across the border as well as provide power to 50,000 local residents through a rural electrification program.
But like many things carried out by Sir Mekere, a former prime minister, he had placed the cart before the horse. To all intents and purposes, Horizon has still not been awarded the right to develop its Stanley field.
Regardless, the unitisation that DPE is holding out for is not such a big deal. The resource contained within PPL-259 is less than a tenth of the total Stanley resource and, as we pointed out earlier, 25% of that is owned by Horizon itself.
While most hydrocarbon projects in PNG have difficulty proving their viability without substantial exports, the Stanley development has been planned around shipping its 4000 barrels a day of condensate to the Napa Napa refinery in Port Moresby.
Under this plan much of the remaining gas is to be used for one of the most ambitious power projects in PNG to be given due consideration in decades. It is much more of a short to medium term prospect than the 240 megawatt Ramu-2 project that has been long mooted but where high capital costs have remained a deterrent.
*Ed note: This is the deposit which received criticism in Australia over the possibility of mining near the Kokoda Track, although the actual track used in the World War II battles is disputed.
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