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Total concessions win PNG approval

Papua New Guinea (PNG) has approved Total to proceed with the Papua gas project – but subsequent projects will be carried out under a new system.

PNG Minister for Petroleum Kerenga Kua, in a statement on September 3, said the review of the agreement had been completed and that Total and its partners have become “more forthcoming”. Total and its partners have made some concessions but these are relatively minor.

The Papua LNG project should “be allowed to proceed in accordance with the terms of the related gas agreement”, the statement said. “As Minister for Petroleum, it will be my responsibility and that of my department to ensure that the state’s expectations are met.”

Much of the progress seems to have come as a result of a letter from Total, dated at the end of August. There is a need to deliver “what the Total letter says and the resulting expectations of the state”, said Kua’s statement.

Kua’s statement noted four points on which progress had been made: on national content, third-party access to pipelines, valuing pipelines and ownership of LNG carriers. In particular, Total has said it is ready to launch a national content plan, which should help provide benefits both to local citizens and the government.

The French company has also said it would build access points on its pipelines and work to reach mutually acceptable terms. It has also agreed to negotiate on the potential sale of stakes in pipelines with the state. This would come after loans and carry costs have been reimbursed, the statement said, with the government recognising the fair value of investments.

Total and the PNG state-backed Kumul Petroleum have formed a commercial joint venture for selling cargoes. The statement said the two companies would now consider using LNG carriers for deliveries in which the state owned a stake. These four points were “substantial new concessions on potential future benefits not previously available to the country under the signed agreement”, the minister said.

A gas agreement was signed in April on the fiscal framework for Papua LNG. The next step for the project is finalising the P’nyang gas agreement, Oil Search, one of the participants said. Once this has been agreed, “the PRL 15, PRL 3 and PNG LNG joint ventures can proceed into [front-end engineering and design] FEED for this nationally-important development”, said the company’s managing director Peter Botten.

Following FEED work, a final investment decision (FID) is expected in 2020, with first LNG production in 2024. Total’s plan will involve the addition of two LNG trains, while ExxonMobil is also expected to build a third. Costs are estimated at $13 billion. The government is in line for a 22.5% stake. Debt financing for the existing two trains accounted made up 70% and assuming this is replicated, the PNG government will have to provide around $880 million.

This is likely to be a challenge, which ties in with the state’s plans to overhaul the licensing system. Kua said that the review of the agreement, by the National Executive Council (NEC), had demonstrated the current licensing system had failed PNG. The NEC has instructed the ministers of mining and petroleum to rewrite the laws, shifting the country to a production-sharing agreement (PSA) system. The statement said this was intended to free the government from taking on expensive loans to support projects, while also providing early free cashflow.

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