By David Winning of Wall Street Journal
International
energy companies seeking a foothold in Papua New Guinea’s nascent
natural gas export industry are being courted with a new opportunity.
Sydney-based Horizon Oil is seeking to sell up to half of its assets
in Papua New Guinea, after drilling results in the forelands region of
the Southeast Asian country beat expectations and highlighted the
potential for a new liquefied natural gas plant.
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| Getty Images |
A deal could be worth around 250 million Australian dollars (US$259
million) based on recent transactions in Papua New Guinea, which
U.K.-based consultancy Wood Mackenzie estimates has reserves totaling at
least 26 trillion cubic feet of natural gas.
Papua New Guinea’s appeal as a gas exporter is growing in step with
Asia’s demand for natural gas, particularly in China which is striving
to reduce its reliance on burning dirty coal for power. The
International Energy Agency this month forecast that China’s consumption
of natural gas is poised to quadruple from 130 billion cubic meters in
2011 to 545 billion cubic meters in 2035.
Unlike rival LNG suppliers in the Middle East, shipments to Asia from
Papua New Guinea won’t pass through the Malacca Strait choke point near
Singapore and freight charges are lower.
“We believe Horizon Oil has a commanding and material position in the
liquids-rich sweet spot of the Papuan foreland basin and we have had
strong interest in the sale from substantive LNG industry players,”
Horizon Oil Chairman Fraser Ainsworth told shareholders at the company’s
annual meeting in Sydney.
A successful sale would balance Horizon’s oil and natural gas
portfolio, which also includes producing and development assets in New
Zealand and China, with financing for advancing its Papua New Guinea
project, he said. It would also enable the company to firm up plans to
pay dividends in future.
A person familiar with the matter said Horizon Oil had hired
investment bank Lazard to lead the partial selldown of its Papua New
Guinea assets. The company also owns a producing oil field in New
Zealand, and is developing an oil project in southern China’s Beibu Gulf
in partnership with
Roc Oil and China’s
Cnooc Ltd.
that is due to start production early next year.
Horizon’s sale process comes just weeks after France’s Total made its
first foray into Papua New Guinea through an exploration deal with Oil
Search in the Gulf of Papua. Separately, Texas-based InterOil said Nov.
16 it expects to agree the sale of part of its interest in two fields
and its Gulf LNG project in the country within weeks.
However, Papua New Guinea isn’t immune from headwinds such as
currency swings buffeting its bigger neighbor Australia, where US$180
billion of investment is currently being plowed into gas-export projects
and several more developments are on the drawing board.
Earlier this month
ExxonMobil sa
id
the cost of its PNG LNG project in Papua New Guinea had blown out to
US$19 billion, in part due to exchange-rate movements. It also blamed
local landowner disputes and torrential rain for the overrun from its
earlier budget of US$15.7 billion.
Analysts and investors seeking to put a value on Horizon’s assets
will likely look to the acquisition by Japan’s Mitsubishi in February of
stakes in several natural gas discoveries and prospects in Papua New
Guinea from Canada’s
Talisman Energy for US$280 million.
Talisman is a joint venture partner of Horizon Oil in the PRL 4 and
PRL 21 tenements, which respectively contain the Stanley and
Elevala/Ketu discoveries. Sydney-based Horizon owns 50% of PRL 4 and 45%
of PRL 21, as well smaller stakes in two adjacent blocks.
However, the price tag for half of Horizon’s equity will have been
boosted by the successful Ketu-2 well in PRL 21, recent reserves
upgrades, and this year’s final investment decision taken on developing
the Stanley field.
The Ketu field contains a mean contingent resource of 432 billion
cubic feet of natural gas and 19.3 million barrels of condensate,
Horizon said in a regulatory filing last month.
That adds to the estimated 434 billion cubic feet of gas and 24.6
million barrels of condensate at the Elevala field, with the joint
venture now preparing to drill another prospect – Tingu – in the first
half of next year.
Energy companies typically look for 1 trillion cubic feet of natural
gas reserves for each million ton of annual LNG capacity they plan to
build. When added to gas reserves discovered at Stanley, this suggests
Horizon has already found enough gas to support a 1-million-ton-a-year
LNG plant, while further drilling could see this capacity at least
double in size.
“The increased gas volume–around 1.2 trillion cubic feet in PRLs 4
and 21 combined–is approaching the scale required for a mid-scale LNG
project and we are advanced in our pre-feasibility studies of this
opportunity,” the company said in a statement to the Australian
Securities Exchange on Oct. 12.
In July, Horizon said any LNG scheme could happen alongside current
plans to recover condensate from the gas for early export via the Fly
River.
Companies in China, Japan and South Korea that rely on LNG to plug a
gap in their energy mix have been actively seeking equity in LNG
projects as well as traditional offtake deals.
Citing a person familiar with the situation, Dow Jones Newswires reported Feb. 7 that
Korea Gas is in talks to form a consortium with Mitsui and
Japan Petroleum Exploration to join InterOil’s project in Papua New Guinea.
