Saturday, March 28, 2009

Somare switches on InterOil’s record gas find


MONDAY March 2, 2009 was a special day for Papua New Guinea.
It was the day PNG announced to the world that it had become the home of the Southern Hemisphere and quite possibly the world’s largest vertical column of natural gas and gas condensate discovery.
Prime Minister Sir Michael Somare had travelled with his wife Lady Veronica, daughter Betha and son Sana to InterOil’s Antelope-1 discovery well on the day at the head of an contingent of PNG government ministers and department heads, PNG and overseas corporate guests, InterOil executives and a strong media corps to officially switch it on. He officially flowed and flared the find for experts to determine the exact size of the discovery.
And it was a sight to behold as the Prime Minister assisted by InterOil CEO Phil Mulacek (pictured above) officially opened a smaller side valve of Antelope-1 well to flow and flare a small fireworks side-show for onlookers for about 20 minutes before Sir Michael again with Mulacek assisting opened the main valve to flow and flare the well again – this time creating a flame wall that intensified and rose to a height of almost 50 metres.
The heat generated the flare was something else.
By design, InterOil engineers had already pumped in a couple of million gallons of water from the nearby Purari River into a side well to provide a cooling water curtain to prevent VIP spectators and drill site workers from the intense heat.
The ground trembled beneath the feet of all present and natural gas and some condensate rumbled upwards from deep in the earth to be flared in a volcano-like spectacle.
The noise generated by the upward rumble and release of gas and condensate was akin to two or three jumbo jets landing simultaneously at Port Moresby’s Jacksons Airport.
It was awesome and everyone present had to wear ear-mufflers to prevent ear-drums bursting.
A visibly excited Prime Minister later announced to his ministers and departmental officials, InterOil’s guests and the media at the Antelope-1 site: “It is with great pleasure that I announce a World record natural gas discovery in Papua New Guinea.
“This discovery will place PNG as a co-leader with Australia in supplying LNG to the Asian Markets.
“The Antelope-1 well, which today flowed at a new world and PNG record rate of 383 million cubic feet per day with 5,000 bbl of condensate and a third party confirmed-capacity of 17.7 BCF (billion cubic feet per day) of gas, places PNG as one of the best quality gas producers in the world with a 760-metre column of gas.
“For our country, this marks an accomplishment that was achieved through many years of mutual cooperation between the government of PNG and InterOil Corporation.
“InterOil has been a continuous supporter of our country for over a decade. The company committed resources and capital over the entire time-frame to building the largest infrastructure in our country and making a substantial contribution to the country’s outstanding GDP growth and employment.
“InterOil built and operates the refinery at Napa Napa, streamlined and manages our largest refined product distribution network, and conducted the largest exploration program in the country’s history.
“This has culminated in the international success we share today,” Sir Michael said on Monday, March 2, 2009.
At the “burn-off” the Antelope-1 well flowed at 382 million cubic feet of natural gas per day (MMcfd) with 5,000 barrels of condensate per day (BCPD) for a total 68,700 barrels of oil equivalent per day (BOEPD), setting a new record rate for Papua New Guinea.
The flow test recorded a maximum calculated rate at 545 MMcfd for a dry gas reading through a 6 inch capacity choke that was only opened to 3 ½ inches or about 30% of capacity.
Conservatively adjusting the dry gas flow rate of 545 MMcfd to compensate for 13 Bbls of condensate per MMcf resulted in the foregoing 382 MMcf effective gas flow rate.
“As far as we are aware, the world record breaking gas flow rate from a vertical well confirms other records recently established by the well, such as the largest vertical hydrocarbon column height in a single onshore carbonate reef structure and the largest calculated absolute open flow (CAOF) at 17.7 billion cubic feet of natural gas per day,” InterOil Chairman and CEO Phil Mulacek said.
“The well results establish the country of Papua New Guinea as a world class gas resource base in close proximity to the largest and most well developed LNG market in the world.
“InterOil believes the Antelope-1 well clearly confirms the gas resource potential sufficient to proceed with plans to build a liquefied natural gas (LNG) plant on company land next to the InterOil refinery in Port Moresby.
“Antelope-1 and previous wells, have confirmed over 120% of full capacity, estimated at 500 MMcfd, for the first proposed LNG train.
“Third party resource estimates are underway and will be released when completed in the next few weeks.
“Recent settlement agreement with Merrill Lynch uniquely positions InterOil to enter direct negotiations with industry partners on an ownership stake in the Elk/Antelope structure, an ownership stake in the proposed LNG plant and long-term LNG offtake contracts,” Mulacek said.
InterOil’s PNG partner and State-owned company Petromin Limited hailed the discovery as a significant boost to underpin PNG’s second Liquefied Natural Gas (LNG) project.
“Let me firstly thank the Prime Minister, Minister for Petroleum and Energy and other Ministers of Government for facilitating (development of) Papua New Guinea’s second LNG Project,” Managing Director and CEO Joshua Kalinoe said.
“Declaration of Location and the extension of the License areas (by the Petroleum and Energy Minister William Duma on site during the official flowing and flaring of Antelope-1) now pave the way for Petromin and the Operator, InterOil to commercialize the project.
“The flaring of Antelope 1 on Monday, March 2, 2009 underpins a first train 3.5 million tons per annum capacity plant at an estimated cost of US$5 billion. As we prove up reserves through further exploration drilling we will add another one or two trains.
“For Petromin, the State and people of Papua New Guinea this will be our single largest petroleum project where Papa New Guineans will be given the opportunity to be active participants in the whole value chain.
“The Board and management of Petromin made the decision to farm-in on the Elk/Antelope project after going through an internal risk assessment process.
“When we signed the Investment Agreement with InterOil in October last year, our petroleum geologists and reservoir engineers assessed the risk and made the observation that the Elk/Antelope field is less risky and highly prospective and recommended the farm-in arrangement.
“This second LNG project for PNG is unique and innovative in many ways. One such innovation is that there is a lot of flexibility on how the project will eventually be structured so that InterOil can bring in strategic partners to underwrite the LNG project.
“Further more, all the high quality condensate will be sold to the InterOil Refinery in Port Moresby, adding more value to the Papua New Guinea economy.
“The condensate extraction is planned to commence in 2010. So some benefits will accrue to the project partners years before the actual gas is sold as LNG.
“The innovative and competitive approach to project financing that we are currently pursuing collectively with InterOil and Pacific LNG will ensure that no State assets will be sold or swapped to finance the State’s equity.
“In fact Petromin with the support of InterOil and Pacific LNG is working on a financing structure that would ensure that State’s full 20.5% equity in the upstream and 10% in the midstream will not be diluted either directly or indirectly.
“We are determined to ensure that the State and people of PNG maximize their gains from this project both through the revenue stream as well as through technology transfer.
Petromin and InterOil have forged a very solid long term strategic commercial partnership.
“In this regard, I am happy to announce that InterOil and its downstream partners have agreed for Petromin to co-market its share of the LNG.
“This will make Petromin a fully integrated petroleum company in which Papua New Guineans will for the first time be given the opportunity to participate in the full value chain of the LNG business.
“This is what our political leaders envisaged when Parliament created Petromin in 2007. InterOil has now made it possible for this vision to be realized.
“We are determined to promptly deliver the second LNG project to Papua New Guineans on schedule in 2014 and the operator, InterOil has commenced the pre-FEED process, including contractor identification, financing, marketing, landowner study, and environmental study.
“Work is in advanced stages in putting together the PDL application. We want to thank the Minister for his expeditious actions in declaring the location of the gas find and extending the exploration licenses.
“We know that the project has the unequivocal support of the Prime Minister and our political leaders, especially members of Cabinet.
Accordingly we look forward to the project being given priority consideration as far as regulatory and statutory approvals are concerned.
“In fact, we are pleased to note that the approval process for the LNG Project Agreement for the liquefaction plant is progressing well.
“We understand that the Ministerial Gas Committee has given it the fullest attention.
“We now got the gas, international LNG recognition, and all we need is the LNG Project Agreement to be approved so that we meet the construction deadline,” Mr Kalinoe said.

*Susuve Laumaea is an award-winning veteran PNG journalist. He works for InterOil Corporation as the company’s Senior PNG Manager for Media Relations & Public Affairs. He also writes a weekly Public Affairs column for the Port Moresby-based weekly Sunday Chronicle newspaper.

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