PNG Energy Minister Duma Speaks


Minister to shake up PNG’s petroleum scene
Blair Price
Thursday, 1 December 2011

OIL major Shell may muscle into up to nine, or almost 70%, of the petroleum retention licences in Papua New Guinea through its strategic alliance with state-owned enterprise Petromin. PNG Petroleum Minister William Duma unloads several bombshells in a recent speech.

PNG Petroleum and Energy Minister William Duma

Shell and Petromin have a joint technical study underway on all of PNG’s major hydrocarbon basins, which is part of the strategic alliance they struck in August.

But the links between Petromin and Shell date back further.

In 2008, various industry sources told Shell was behind Petromin’s failed bid to become the state nominee for the Exxonmobil-led PNG LNG project that year.

What made the recent collaboration between Petromin and Shell more interesting was the fact Petromin had grassroots-stage petroleum acreage and was mainly known for operating the challenging and isolated Tolukuma gold mine.

Yet the situation appeared set to change, as Duma told attendees of a petroleum seminar in Port Moresby he would nominate Petromin as the state nominee for nine PRLs in the country.

The PRLs and their respective fields include:

PRL 1 – Pandora (operated by Talisman Energy)

PRL 3 – P’nyang (operated by Ampolex)

PRL 4 – Stanley (50:50 Horizon Oil and Talisman)

PRL 8 – Kimu (operated by Oil Search)

PRL 9 – Barikewa (operated by Barracuda – according to DPE data acquired)

PRL 10 – Uramu (operated by Oil Search)

PRL 13 – Kuru (operated by LNG Energy)

PRL 14 – Iehi, Bilip and Cobra (operated by Oil Search)

PRL 21 – Elevala and Ketu (operated by Horizon)

In the event operators want to turn a PRL into a petroleum development licence, the PNG government’s nominee can earn 22.5% in the field – indicating Petromin could have a considerable portfolio of petroleum interests in the future.

The only PRLs that were not part of Duma’s announcement were part of key PNG LNG project fields, namely PRLs 2 (Juha), 11 (Angore) and 12 (Hides) – which are all operated by Exxon subsidiary Esso Highlands – along with PRL 15 (Elk-Antelope), which is operated by InterOil in Gulf province.

In his speech, Duma acknowledged Petromin was “somewhat schizophrenic” due to its involvement in both the mining and petroleum sectors – but he foreshadowed further changes were on the cards.

“Its [Petromin’s] board has initiated a process which will see the separation of petroleum and minerals into separate entities, independently managed and with transparency and accountability which will accord with world’s best practice,” Duma said.

The revelation came as received unconfirmed information that Petromin had either sold the Tolukuma mine in PNG or was in the process of selling it.

Duma said the alliance between Petromin and Shell was one of the most important commercial alliances PNG could envisage.

I do stress that this is one of the most important: there will be others I am sure,” he said.

“Yet this particular initiative by Petromin brings to PNG the capacity to explore, finance and develop resources which, but for a lack of capital, should be moving towards production already.”

In his speech, he thanked the initial steps taken by players such as Oil Search, although he jibed it “claims to be an Australian company”.

Duma made it clear he wanted a much faster pace to development of PNG’s hydrocarbon resources.

“The growth which I see in the petroleum sector will not come about simply by standing around waiting for seismic results and, in due course, drilling.

“Our national company, Petromin, has been encouraged by me and others in its desire to take the bull by the horns and seek to assist in defining the future.”

Duma commented on how two state-owned enterprises, the Independent Public Business Corporation and National Petroleum Company PNG (also known as Kroton) were involved with running a 16.6% stake of the PNG LNG project.

“We owe a vote of thanks to my colleague, Sir Mekere Morauta– the minister for Public Enterprises, for resolving one of the disasters created by his predecessor [Arthur Somare] – the apparent existence of two national petroleum companies.

“Sir Mekere, in his wisdom, has recognised that one company is essential but that two is an indulgence.

“And so by relegating the child of Kroton [NPCP] to its original role as a passive holder of the state’s interest in only one, very specific project [PNG LNG], my colleague has achieved what the grand chief, Sir Michael Somare and I have aIways wanted – a single national oil and gas company in the form of Petromin PNG Holdings.”

The Department of Petroleum and Energy officially wants Shell to become the “world class operator” required for the InterOil-led Gulf LNG project, while Duma has previously criticised the project for changing from the plans of the 2009 agreement with the government.

Duma said the government regarded the InterOil project as the next project of national importance and it is ready to enter a dialogue with InterOil to try and find a way forward over the next few months.

His comments put more question marks over the final investment decision of the project – given the long-held FID deadline of late 2011.

The minister also discussed the opportunities for domestic use of PNG’s gas resources – especially for power generation for major new mining projects such as Marengo Mining’s Yandera project, the Wafi-Golpu project owned by Newcrest Mining and Harmony Gold and the Xstrata-operated Frieda River project.

While Duma and the alliance of Petromin and Shell clearly have big plans, a Supreme Court challenge over the controversial formation of the O’Neill coalition government in early August could trigger more complications, with an outcome expected on December 9.

The two-day petroleum seminar was organised by PNG’s Chamber of Mining and Petroleum.

Petromin’s existing petroleum acreage mainly consists of a relatively unknown offshore expanse in petroleum prospecting licence 345 in the northwest of New Ireland and in two applications for adjoining areas, APPL 346 and APPL 347.

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His full speech (pdf) is here: DumaSpeech

The relevant parts:
Lastly, but not the least, it would be remiss of me not to mention the exciting interOil LNG Project. On 21 September 2011, the National Executive Council reviewed the progress of the Project and did not approve of the staged development being progressed by IntelOil. This Cabinet decision has not been changed. However, my Department and I are working together with InterOil with a view ensuring that the developments are consistent with the Project Agreement of 2009. The State and lnterOil remain committed to delivering the Project that was agreed in the 2009 Project Agreement. I also expect lnterOil work together with the State nominee Petromin in delivering this important project. The Slate regards the InterOil Project as the next project of national importance, and we stand ready to enter into dialogue with InterOil in an attempt to find a way forward during the next few months. What is worth achieving does not come easily, but this I know: if we work together for the common good, if we are not limited in our vision and if we reeognise that our resources are finite, then we can secure the future for the generations of Papua New Guineans to come. This is not a vision ladies and gentlemen: this is our duty.