Photo credit: Papua New Guinea Today
Papua New Guinea Prime Minister James Marape, accompanied by Petroleum Minister Kerenga Kua, Justice Minister Bryan Kramer, Gulf Governor Chris Haiveta and Hela Governor Philip Undialu, met with the ExxonMobil President for Upstream Mr Liam Mallon in Houston and the senior executive team where the State executed Heads of Agreement (HOA) on P’nyang Gas Agreement along with an Equity Purchase HOA with ExxonMobil.
The Gas Agreement HOA captures key fiscal, regulatory and licencing terms negotiated over last two months. The Equity HOA provides for the State to acquire at cost 10% additional equity from ExxonMobil in the P’nyang Project.
The overall deal reflects a win-win for both sides. In addition to all the legal entitlements, the State’s take is at 63% in this deal compared to 49% in PNG LNG and and 51% in Papua. This is made possible by increase production levy of 3% and the State equity (including the commercial purchase) being 32.5% compared to just 19.6% in the PNG LNG and 22.5% in Papua.
The deal makes P’nyang an investment grade bankable project, meeting the project partners’ investment thresholds and gives it the best chance of going into construction.
The Prime Minister said, “The project timing is sequenced in a way that P’nyang commences as soon as Papua construction is complete.
"This provides costs synergies which will provide certainty and opportunity to PNG businesses for a period of eight years of construction of these two projects.
"The businesses can plan ahead with certainty and continuity over eight years and this augurs well for continuous economic growth.
"The present P'nyang project model is different from the earlier model which was planning of additional train of gas.
"In this new update, P'nyang will involve synergy between P'nyang and PNGLNG, however we have to take time to renegotiate with ExxonMobil to ensure that State wins big in the overall project economics that empowers Western Province and its landowners as well as ensuring that PNGLNG benefits are not diluted but improved for landowners and provincial governments.
"We apologize for the delay on P'nyang but it had to happen to help us get the best deal for our country even without changing the laws - with open, strong and honest negotiations with our investors.
"The little wait has brought us to the point where we have commercially negotiated a better ‘take back’ more for our country," said PM Marape.
The Prime Minister continued to thank ExxonMobil for its willingness to enter into the discussions with an open mind to allow for best outcome for landowners and provincial governments, adding that he was equally happy to hear of the company's assurance to look into certain legacy issues in PNGLNG.
"We bring a partnership outlook into our discussions and I am pleased to note ExxonMobil’s willingness to help maximise benefits to all stakeholders. The terms of the HOA demonstrate this willness in the most practical manner”, said the Prime Minister while thanking
the State Negotiating Team headed by Treasury Secretary Mr Dairi Vele for successfully concluding the negotiations.
The Prime Minister also took the opportunity to state to ExxonMobil that any share restructuring of both P'nyang and PNGLNG in light of Oil Search and Santos merger would be in the national interest of PNG and that PNG takes precedence in exercising its option to acquire the equities.
Mr Liam Mallon, President, Upstream Oil and Gas of ExxonMobil said: “we will work with the government to align on a gas agreement that ensures fair benefits for the people of PNG and the stakeholders. The HOA is a critical step towards alignment on a gas agreement that will help define the development and operation of P’nyang Project for the long term”
Mr Peter Larden, PNG LNG Managing Director, thanked the Government on behalf of the joint venture partners and said, “through our partnership with PNG, we will continue to drive investment, development and promote social and economic welfare across Western Province and the country”
Petroleum Minister Mr Kerenga Kua said, “this deal guarantees ExxonMobil’s continued presence in PNG for a long time to come, which is a big plus for PNG as it attracts new exploration and strengthens PNG’s credentials globally as an investor-friendly destination with competitive fiscal terms to attract and retain large oil companies.”
The two sides will continue discussions in the coming months to draft a more detailed gas agreement and the equity agreement.
"This now secures for the next 10 years pre FEED ( front end engineering design ) and FEED exploration and design costs, plus construction of both Papua LNG and then P'nyang from 2022 to 203O.
"Construction cost of both projects will exceed $25 billion and once complete the two projects will ensure PNG produces and exports gas all the way into 2050 while providing jobs and taxation revenue to PNG," PM Marape concluded.
