PNG govt rejects major gas deal with ExxonMobil

10:18 am on 4 February 2020

Papua New Guinea's government says it had to reject a major gas deal because energy giant ExxonMobil was unwilling to offer fair terms.

An ExxonMobil LNG Project plant near Port Moresby, Papua New Guinea.

An ExxonMobil LNG Project plant near Port Moresby, Papua New Guinea. Photo: RNZ / Johnny Blades

On Friday, PNG concluded months of negotiations with Exxon regarding the fledgling P'nyang gas project in Western Province estimated at $US13 million.

The Minister for Petroleum and Energy, Kerenga Kua, said the state team had negotiated on the basis that it should receive improved terms for PNG compared to previous major Liquefied Natural Gas project agreements in the country.

But he alleged that after months of talks, Exxon was acting in "absolute bad faith" and unwilling to match the state's offer of concessions.

"Exxon has come in with a determination to exploit our vulnerabilities, exploit us for our weak economic position and take advantage of us," Mr Kua said.

"That's what I believe because the evidence, I've seen it in the last three months. Well, this country will no longer accept that kind of thing."

Kerenga Kua, Papua new Guinea's Minister for Petroleum.

Kerenga Kua, Papua new Guinea's Minister for Petroleum. Photo: Loop PNG

An ExxonMobil spokesperson said the company was disappointed that the two parties were unable to reach an agreement.

"We are hopeful that we can continue to work toward an outcome that benefits all stakeholders."

The company's partner in the P'nyang project, Oil Search, has characterised the government's demands as unreasonable, saying they meant the project developers would not gain a sufficient return on their investment.

Exxon, which last week announced estimated fourth quarter 2019 earnings of US$5.7 billion, is already the lead operator of the landmark PNG LNG project based in the Melanesian country's Highlands region.

The project began exports in 2014 but has not met the expectations of many landowner communities in the project footprint area.

Given PNG's growing experience in the industry, and Exxon's deep involvement in the country, there was also expectation in government that an expanded partnership would provide far better returns for PNG.

Prime Minister James Marape said every new project must build on previous projects with improved terms for PNG.

"That is a normal progression in nations as successive projects are approved and developed. We insist that this also occurs in PNG."

He said Exxon's ultimate offer had barely budged from its opening offer presented last November and was not much different to the Papua LNG Gas Agreement signed with French company Total SA.

That agreement, signed almost a year ago, proved unpopular with many leading MPs and precipitated the collapse of the former government of Peter O'Neill.

When the government emerged, Mr Marape and his petroleum minister quickly signalled the new administration's desire to ensure more fair and equitable deals for the interests of PNG in resource extractives projects.

Papua New Guinea's prime minister James Marape.

Papua New Guinea's prime minister James Marape. Photo: PNG PM Media Unit

A state negotiating team under Mr Kua had subsequently reviewed the Papua LNG agreement and then managed to negotiate a few concessions from Total.

"The gas belongs to PNG's people. We are willing to allow international oil companies to develop the field and achieve decent returns by exporting most of the gas, but PNG must also benefit," Mr Marape said.

But Mr Kua said the "state take" proposed by Exxon was significantly less than for projects in countries in neighbouring Southeast Asia including countries in which the company had extensive business interests.

"So it knows what the stake take is in all those countries. Now, if you project all those stake takes up on a graph and you compare them, who is the lowest? It's Papua New Guinea."

According to Mr Kua, the scrapped deal did not detract from the attractiveness of PNG as an investment destination.

"Our country continues to offer a very attractive investment buying climate for all manner of business including oil and gas business development.

"So we continue to encourage foreign investors to come and make a bid to participate in our oil and gas industry."

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