Cost of PNG LNG rises to $19 billion

[Palm]

Yikes! That undersea pipeline and other costs for PNG LNG keep going up. Hopefully someone ones up with a lower cot solution for these things. Seems like a stepped construction wih modular would be a sensible alternative.

Santos, Oil Search shares fall after PNG LNG cost rise

Published 9:24 AM, 12 Nov 2012 Last update 10:57 AM, 12 Nov 2012

inShare

QUICK SUMMARY | FULL STORY | RESOURCES & ENERGY

AAP, with a staff reporter

Shares in local energy groups Oil Search Ltd and Santos Ltd have dropped, after the cost of a massive liquified natural gas project part-owned by the two groups leapt.

The cost of Papua New Guinea LNG project has increased by $US3.3 billion ($A3.18 billion) to $US19 billion, the partners have revealed.

At 1053 AEDT, shares in Oil Search had eased 4.62 per cent to 34 cents, against a benchmark index drop of 0.33 per cent.

Santos had fallen 2.48 per cent to $2.48.

PNG LNG, the country's largest resources project, is currently being operated by Esso Highlands Limited, a subsidiary of Exxon Mobil Corporation, and Oil Search has a 29 per stake.

Santos, Japan's JX Nippon Oil and Gas Exploration, a unit of JX Holdings, and the Papua New Guinea government are also stakeholders.

Esso has indicated the cost estimate for the project has risen from $US15.7 billion to $US19 billion, due mainly to foreign exchange factors, Oil Search said.

Delays from work stoppages and land access issues, and adverse weather conditions have also added to the cost of the PNG LNG project, it said.

The increased cost is expected to be met in line with the project's existing financing terms, Oil Search said, and it expects to contribute an additional $US300 million in equity.

Santos expects to contribute an additional $US130 million ($A125.62 million) in equity.

"The increase in the estimated final costs of the project is disappointing," Oil Search managing director Peter Botten said.

"The extent of the change is considerably beyond the upper end of what might have been expected from cash drawdowns and project progress to date.

"In addition, the estimated foreign exchange impacts and the amount allowed for additional contingency is higher than we would have anticipated.

"Oil Search intends to fully review the revised estimates and is committed to working with the operator to seek to mitigate these estimated cost increases."

But Mr Botten and Santos chief financial officer Andrew Seaton each said the PNG LNG project remained a "highly robust economic project".

http://www.businessspectator.com.au/bs.nsf/Article/Cost-of-PNG-LNG-rises-to-US19b-ZXTQF?opendocument&src=rss

Bet all that screwing around and disorganization under the prior administration is being pointed to behind closed doors. Can't happen again or png will price itself with the Aussie projects. A nice big juicy resource and modular is looking better every day, in addition to not having to build that undersea pipeline. Any ideas?

[jft310]

And its late!!Is my bet.

[Tusker]

Yikes! That undersea pipeline and other costs for PNG LNG keep going up. Hopefully someone ones up with a lower cot solution for these things. Seems like a stepped construction wih modular would be a sensible alternative.

Santos, Oil Search shares fall after PNG LNG cost rise

Published 9:24 AM, 12 Nov 2012 Last update 10:57 AM, 12 Nov 2012

inShare

QUICK SUMMARY | FULL STORY | RESOURCES & ENERGY

AAP, with a staff reporter

Shares in local energy groups Oil Search Ltd and Santos Ltd have dropped, after the cost of a massive liquified natural gas project part-owned by the two groups leapt.

The cost of Papua New Guinea LNG project has increased by $US3.3 billion ($A3.18 billion) to $US19 billion, the partners have revealed.

At 1053 AEDT, shares in Oil Search had eased 4.62 per cent to 34 cents, against a benchmark index drop of 0.33 per cent.

Santos had fallen 2.48 per cent to $2.48.

PNG LNG, the country's largest resources project, is currently being operated by Esso Highlands Limited, a subsidiary of Exxon Mobil Corporation, and Oil Search has a 29 per stake.

Santos, Japan's JX Nippon Oil and Gas Exploration, a unit of JX Holdings, and the Papua New Guinea government are also stakeholders.

Esso has indicated the cost estimate for the project has risen from $US15.7 billion to $US19 billion, due mainly to foreign exchange factors, Oil Search said.

Delays from work stoppages and land access issues, and adverse weather conditions have also added to the cost of the PNG LNG project, it said.

The increased cost is expected to be met in line with the project's existing financing terms, Oil Search said, and it expects to contribute an additional $US300 million in equity.

Santos expects to contribute an additional $US130 million ($A125.62 million) in equity.

"The increase in the estimated final costs of the project is disappointing," Oil Search managing director Peter Botten said.

"The extent of the change is considerably beyond the upper end of what might have been expected from cash drawdowns and project progress to date.

"In addition, the estimated foreign exchange impacts and the amount allowed for additional contingency is higher than we would have anticipated.

"Oil Search intends to fully review the revised estimates and is committed to working with the operator to seek to mitigate these estimated cost increases."

But Mr Botten and Santos chief financial officer Andrew Seaton each said the PNG LNG project remained a "highly robust economic project".

http://www.businessspectator.com.au/bs.nsf/Article/Cost-of-PNG-LNG-rises-to-US19b-ZXTQF?opendocument&src=rss

Bet all that screwing around and disorganization under the prior administration is being pointed to behind closed doors. Can't happen again or png will price itself with the Aussie projects. A nice big juicy resource and modular is looking better every day, in addition to not having to build that undersea pipeline. Any ideas?

Many of us heard the rumors several months ago that XOM was not pleased.  XOM prides its corporation on getting the job done.  And they have the track record to prove it.  Their consourtium will get get it done... but what a embarrasement to their shareholders on this project.

Now, what does IOC have that they did not?

A Project Manger who is one of three in the world that has brought in a project under budget and ahead of schedule.

We  - this Band of Brothers know this person who broght operational and stratigic command leadership in E.G,

Henry E. Aldorf

Cheers for all you BOBL's.

Tusker

[Palm]

You mean the same Henry that has screwed things up from the day he came on board Tusker?!!! All he's done is set us back years on our project. He thinks you can build this project with tinker toys. Or just maybe he knows what it takes to drive DOWN costs on these projects. That old Dutch engineer may just have a trick or two left in that retired mind. No wonder people sick around and pick his brains at round-table sessions.

[Tusker]

You mean the same Henry that has screwed things up from the day he came on board Tusker?!!! All he's done is set us back years on our project. He thinks you can build this project with tinker toys. Or just maybe he knows what it takes to drive DOWN costs on these projects. That old Dutch engineer may just have a trick or two left in that retired mind. No wonder people sick around and pick his brains at round-table sessions.

Round-table of a board room of a SM, or a long table at the Spinnaker Louge at 02:00 Am in the morning.

Stratigies of operational and stratigic engagement on the ground that are worth billions.  Do it togeather...  Do it once... Do it right...Done on time.

Cheers

" border="0" class="smilie" src="images/smilies/cool.gif" />

[Tree]

And its late!!Is my bet.

And it needs feedstock is my bet.

[Spartina]

Henry is a wild man, in a good way.

[Tree]

Henry is a wild man, in a good way.

And he and his team are 'Masters' at avoiding cost over-runs.  Clarification here on PNG LNG over-run costs which were not itemized in McDuck's post.  Half look avoidable.

..."It said that foreign exchange accounted for $1.4 billion of the increase, with delays from work stoppages and land access issues adding another $1.2 billion to the project's price tag.

The other $700,000 in cost overruns was attributed to “adverse logistics and weather conditions”, with Oil Search adding rainfall in the region had exceeded historic norms for most of the last two years."...

[TxPm]

I'm not an engineer or project manager I'm a finance guy but when I read this it seems like the $700,000 XOM & Co had little control over but the $1.2bil In delays/stoppages it seems to me should have been avoided with a good management team in place UNLESS that was due to PNG politics etc which in that case it puts IOC's delays into context. Finally on the $1.4Bil in foreign exchange risk with a project of this magnitude & all the unknowns surrounding the project you would think someone in management would have thought about hedging their foreign exchange risk through currency swaps or a forward contract. With all the other "Risks" associated with the project why would you let exchange risk be another unknown factor. Just my thoughts

[Palm]

Tx, over the last year the issues you mention have been in the press, and a good deal of the problems are related to PNG. Basically the PNG LNG project was ram-rodded through without having proper landowner identification done and a few other requirements that seemed to get "overlooked" by a Dept of Petroleum which many times was poorly staffed and even more poorly administered. That has cause MANY delays due to LO squabbles, blocking of roads, occupation of work sites which caused work stoppages, etc. Duma ran that dept but wasn't the only culprit. Then there was the constant national gov't problems where almost monthly Somare was being challenged with votes of no confidence, his health was bad, etc. Then you have the problem that was created by Arthur Somare in funding the govt piece of the project with Abu Dabi. Some of this is typical of a third world country as energy and mining giants move in and exercise their ways. Some of these costs are almost unavoidable when you decide to build a traditional stick plant in a country like this. All we have heard about are the labor shortages due to Australia's boom, plus the premium you need to pay to get people to work in a place like PNG.

That's why this whole thing is a bit ironic with the "Forward To The Past" movie we are seeing "Doc" Aldorf had this great plan of building modular/FLNG in countries with highly skilled labor and bringing it into a country like PNG to avoid many of these pitfalls and delays. His boy wonder "Michael J" Mulacek and the rest work differently than "Biffxon" and the other "Biffs" of the world because they have the Philosophy of working WITH the country they are working in to help develop the country and not just take the profits and run. That blast from the past is now being re-run in theaters near you.