Tuesday, April 17, 2012

Drama, intrigue mark InterOil's Gulf LNG proposal in PNG


The veil of political intrigue around InterOil Corporation's Gulf LNG project in Papua New Guinea has thickened, with Prime Minister Peter O'Neill denying a statement issued by his office last Friday that claimed the National Executive Council had not rejected the company's plans for the project.
PNG newspaper the Post-Courier reported today that O'Neill has denied releasing any statement in support of the Gulf LNG project and was "furious" that it had been issued without his knowledge and authorization.
The statement released Friday was given to Platts and other news agencies by Susuve Laumaea, media and public affairs adviser in O'Neill's office. At the time, Laumaea said the statement, delivered via email, would be sent on the Prime minister's official letterhead later that evening, although no follow-up communication was received by Platts.
When contacted by Platts today, a spokeswoman in the Prime Minister's office in Port Moresby said "we were not aware" of the statement and referred questions to Laumaea, who has not yet responded to email and telephone queries.
In the contentious statement, O'Neill was quoted as saying that InterOil's LNG project in the Gulf province would "go ahead when all pre-conditions set by government and the 2009 Project Agreement are fully satisfied." He added, "there is no National Executive Council decision rejecting the Gulf LNG project."
The document went on to say that the Prime Minister "reiterated his earlier statement in August last year that the government under his watch would assist InterOil to secure a strategic operating partner, rescope the project agreement to enable phased LNG development, and to locate the project in Gulf province."
O'Neill also "directed the ministry and Department of Petroleum and Energy to cooperate with InterOil and desist from confusing the investment community and Gulf province government and landowners with media statements about rejection of the project."
Questions about the status of InterOil's Gulf LNG proposal have been swirling since last September, when the NEC rejected its plans for a phased development. According to a copy of the NEC's decision NG37/2011, obtained earlier this week by Platts, InterOil's plan would be "an inefficient use of the state's gas resources" and "inconsistent with the project agreement."
The NEC's decision, which was signed by O'Neill as chairman of the executive body, also endorsed the views of and actions taken by Minister for Petroleum & Energy William Duma "to ensure that the gas resources of PNG are developed according to the project agreement, in particular, if LNGL/InterOil proceeds with the Gulf project, and takes a final investment decision in relation to any of the projects that make up the Gulf project or otherwise commits a repudiatory breach of the project agreement."
The NEC comprises about 30 politicians who meet regularly. September's decision has not subsequently been overturned, local sources said.
The Gulf LNG project proponent is Liquid Niugini Gas Limited or LNGL, a joint venture between US-listed InterOil and Clarion Finanz affiliate Pacific LNG, which is also a large shareholder in InterOil.
On Friday, Duma told Platts he wanted to "remind" InterOil of his comments last September, when he pointed out that the project agreement called for InterOil to deliver a 7.6 million-10.6 million mt/year LNG facility based on its Elk and Antelope gas reserves, using internationally recognized technology and operators. Instead, the company was proposing a three-phase development and did not have an internationally reputable partner on board, Duma said.
As it currently stands, InterOil's overall development plan for its gas resources would see it acting as the upstream field operator. A condensate stripping plant is planned with Japan's Mitsui, to be followed by the LNG project with Australia-based Energy World Corporation.
In February 2011, InterOil signed an agreement with EWC for a modular LNG plant to be developed in two phases -- 2 million mt/year, with a later expansion of 1 million mt/year. The agreement, which was originally conditional on a final investment decision on the project being taken by December 31, 2011, provided for a possible expansion of upto 8 million mt/year.
That deal followed an agreement in August 2010 by InterOil and Mitsui for a $550 million liquids stripping project at the Elk and Antelope fields that would be a precursor to the LNG development.
Under its project agreement, InterOil has until June 2013 for an FID on the LNG project, but both it and the liquids stripping proposal are running way behind schedule.
The projects had been due for FID by March 31, 2012, but InterOil has now extended the deadline for the liquids plant to June 30, 2012, with provision for a possible further delay to December 31, 2012. The deadline for an FID on the LNG project has also been pushed back to the end of this year.
Duma said last week he had urged InterOil to talk to Shell and other majors about its plans for the LNG project, rather than pursue its proposed phased development with EWC, or talks with a Korea Gas Corporation-led group that includes Mitsui and Japan Petroleum Exploration Company. "Kogas is not an LNG plant operator, it is an importer of LNG," he added.
Shell is an obvious potential partner for InterOil, as it has a strategic alliance with PNG's state-owned Petromin, signed last August, and is actively pursuing LNG opportunities through a Port Moresby office opened in February this year. "Shell believes that PNG offers the potential for upstream development and is very keen to invest and develop business opportunities in PNG," a company spokesman said this week.
ExxonMobil is also active in PNG, and is looking for gas reserves to support an expansion of its two-train LNG plant currently under construction near Port Moresby. The US oil and gas giant's $15.7 billion project will put PNG on the map as an LNG producer, pumping out 6.6 million mt/year from 2014.
InterOil CEO Phil Mulacek said Friday that international investment banks Morgan Stanley, Macquarie Capital and UBS were working to secure a project partner "to accelerate the LNG capacity [of the Gulf project] to 8 million mt/year, with them as lead operator." But he said talks with "Shell or other LNG partners" were all under confidentiality agreements and so could not comment further.
Mulacek said the plan to bring in a partner might involve the incoming party buying part of the Elk and Antelope gas assets, a proposal which had been "outlined to the PNG government and was accepted."
Local industry observers said InterOil's determination to remain the operator of the upstream development at Elk and Antelope may have been one of the hurdles to the company concluding a deal with a major partner. InterOil, which is the operator of PNG's sole 36,000 b/d oil refinery, is seen as lacking experience as an upstream operator, they added.
Papua New Guinea has been in the grip of a constitutional crisis since August 2011, when O'Neill took the helm after a power struggle with incumbent prime minister Michael Somare. General elections are scheduled to be held in the impoverished but resource-rich nation in June

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