Papua New Guinea Government and ExxonMobil Execute P'nyang Gas Agreement

by PNG Business News - September 30, 2021

Photo credit: Papua New Guinea Today

Papua New Guinea Prime Minister  James Marape, accompanied by Petroleum Minister Kerenga Kua, Justice Minister Bryan Kramer, Gulf Governor Chris Haiveta and Hela Governor Philip Undialu, met with the ExxonMobil President for Upstream Mr Liam Mallon in Houston and the senior executive team where the State executed Heads of Agreement (HOA) on P’nyang Gas Agreement along with an Equity Purchase HOA with ExxonMobil.

The Gas Agreement HOA captures key fiscal, regulatory and licencing terms negotiated over last two months. The Equity HOA provides for the State to acquire at cost 10% additional equity from ExxonMobil in the P’nyang Project.

The overall deal reflects a win-win for both sides. In addition to all the legal entitlements, the State’s take is at 63% in this deal compared to 49% in PNG LNG and and 51% in Papua. This is made possible by increase production levy of 3% and the State equity (including the commercial purchase) being 32.5% compared to just 19.6% in the PNG LNG and 22.5% in Papua.

The deal makes P’nyang an investment grade bankable project, meeting the project partners’ investment thresholds and gives it the best chance of going into construction.

The Prime Minister said, “The project timing is sequenced in a way that P’nyang commences as soon as Papua construction is complete. 

"This provides costs synergies which will provide certainty and opportunity to PNG businesses for a period of eight years of construction of these two projects. 

"The businesses can plan ahead with certainty and continuity over eight years and this augurs well for continuous economic growth.

"The present P'nyang project model is different from the earlier model which was planning of additional train of gas. 

"In this new update, P'nyang will involve synergy between P'nyang and PNGLNG, however we have to take time to renegotiate with ExxonMobil to ensure that State wins big in the overall project economics that empowers Western Province and its landowners as well as ensuring that PNGLNG benefits are not diluted but improved for landowners and provincial governments.

"We apologize for the delay on P'nyang but it had to happen to help us get the best deal for our country even without changing the laws - with open, strong and honest negotiations with our investors.

"The little wait has brought us to the point where we have commercially negotiated a better ‘take back’ more for our country," said PM Marape.

The Prime Minister continued to thank ExxonMobil for its willingness to enter into the discussions with an open mind to allow for best outcome for landowners and provincial governments, adding that he was equally happy to hear of the company's assurance to look into certain legacy issues in PNGLNG.

"We bring a partnership outlook into our discussions and I am pleased to note ExxonMobil’s willingness to help maximise benefits to all stakeholders. The terms of the HOA demonstrate this willness in the most practical manner”, said the Prime Minister while thanking 

the State Negotiating Team headed by Treasury Secretary Mr Dairi Vele for successfully concluding the negotiations.

The Prime Minister also took the opportunity to state to ExxonMobil that any share restructuring of both P'nyang and PNGLNG in light of Oil Search and Santos merger would be in the national interest of PNG and that PNG takes precedence in exercising its option to acquire the equities.

Mr Liam Mallon, President, Upstream Oil and Gas of ExxonMobil said: “we will work with the government to align on a gas agreement that ensures fair benefits for the people of PNG and the stakeholders. The HOA is a critical step towards alignment on a gas agreement that will help define the development and operation of P’nyang Project for the long term”

Mr Peter Larden, PNG LNG Managing Director, thanked the Government on behalf of the joint venture partners and said, “through our partnership with PNG, we will continue to drive investment, development and promote social and economic welfare across Western Province and the country”

Petroleum Minister Mr Kerenga Kua said, “this deal guarantees ExxonMobil’s continued presence in PNG for a long time to come, which is a big plus for PNG as it attracts new exploration and strengthens PNG’s credentials globally as an investor-friendly destination with competitive fiscal terms to attract and retain large oil companies.”

The two sides will continue discussions in the coming months to draft a more detailed gas agreement and the equity agreement.

"This now secures for the next 10 years pre FEED ( front end engineering design ) and FEED exploration and design costs, plus construction of both Papua LNG and then P'nyang from 2022 to 203O. 

"Construction cost of both projects will exceed $25 billion and once complete the two projects will ensure PNG produces and exports gas all the way into 2050 while providing jobs and taxation revenue to PNG," PM Marape concluded.



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PNG Business News - June 01, 2021

Government Intends to Move on with P'nyang Gas Project

Photo credit: Santos The National Government is set to concluding all project discussions for the $US11 billion P'nyang gas project by the third quarter of 2021. This, according to Petroleum Minister Kerenga Kua, will provide project partners enough time to obtain Sales and Purchase Agreements (SPA) and achieve a Final Investment Decision (FID) by 2023, when the new LNG project opportunity window to absorb a large amount of LNG from within the area is still available. According to Kua, the project's development may serve as a catalyst for the development of marginal and stranded gas resources and prospects in the Western Papua Basin, which is located in the Western and Gulf provinces. He claimed that the P'nyang deposit, when coupled with the remainder of the stranded gas in the Western Papuan Basin, could provide up to 16 TCF of gas and 200 million barrels of condensate. “Since we have a good traction on Papua LNG project with Total E&P fully committing to it, the Government will now re-appoint a new State Negotiating Team to start reengaging with ExxonMobil,” Kua said. According to him, the initial intention is to build a third LNG train alongside the two Papua LNG trains, each having a capacity and specification of 2.7 MTA of LNG production. “However, the P’nyang gas development will have a huge impact on the monetization of other smaller stranded gas fields in the Western and Gulf provinces and can be aggregated as a stand-alone, used as a backfill for the PNG LNG project together with Juha and Muruk in the Northwest fold-belt as a utilised project, or deliver alongside Papua LNG as initially planned with reference to the set re-negotiation closing date,” Kua said. “The benefits of spreading the construction period for both Papua and P’nyang projects over an 8 years’ period shall be massive for the country.” According to the Field Development Plan and the Open Book Economic Model provided by ExxonMobil, the spread will be over a decade of continuous intense industrial activity before to and after construction, with total Capital Expenditure Investment for P'nyang alone estimated at $US11 billion. “P’nyang Gas Agreement is one of my KPIs as the responsible Minister, and once the new SNT and ExxonMobil agrees on the key fiscal and non-fiscal term sheets, then the Petroleum Advisory Board will be able to convene and make the final recommendation to the Minister off Petroleum either to grant or refuse the application for the Grant of Petroleum Development Licence,” Kua said.   Reference: Post-Courier (21 May 2021). “Government To Advance P’Nyang Gas Project.”

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PNG Business News - August 26, 2021

Kua: P’nyang Ready for Negotiations

Exxonmobil PNG and the government have joined forces to ensure that the P'nyang gas project in Western Province is ready for negotiations in the coming weeks. The project's letter of intent was signed, paving the way for it to get off the ground. The P'nyang project has been on the table since 2019 when the State began looking into the possibility of signing a gas deal with ExxonMobil and its joint venture partners as project developers. According to Minister of Petroleum Kerenga Kua, these negotiations were concluded in January of last year, allowing both the State and ExxonMobil to take a breather and rethink their respective strategies. “We are grateful that Exxon is now prepared to invite us to recommence our discussions one more time. “This time we intent on making sure that we cross the line bring all good faith and sincerity to the negotiations to enable us to reach some terms and conditions that are satisfactory to both sides so that the project can happen for all our mutual benefit,” Minister Kua said. He explained that negotiating a project agreement is difficult since developers have their own internal standards and the state has its own expectations. “I can only be hopeful and encourage Exxon to attempt to understand where we are coming from to help us to realise some of the revenue returns back to the country. “This process will start very shortly. We are hoping that around 9th or 10th of September the parties can convene in one room and try to stress out terms and conditions to potentially develop this project,” he said. Peter Larden, managing director of ExxonMobil PNG, praised the Papua New Guinea government for taking this critical step ahead in the development of the P'nyang project. He stated that the initiative will benefit all stakeholders directly and will encourage continuing investment and growth in the nation, as well as increasing capacity and ensuring the social and economic well-being of Papua New Guineans. “The intent to develop the P’nyang field helps demonstrates the encouraging growth opportunities for our operations here in Papua New Guinea and together with our joint venture partners, we look forward to working closely with the government and the landowners to progress the P’nyang field development proposal and secure the license as needed to develop this resource,” Larden said. “I thank the PNG Government for its support and I look forward to progressing our discussions.”   Reference: Yafoi, Melisha. Post-Courier (23 August 2021). “Kua: P’nyang On The Table For More Talks”.

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PNG Business News - September 09, 2021

‘Re-engagement on P’nyang, very positive for PNG’ - Smaré

President of the Papua New Guinea Chamber of Mines and Petroleum, Anthony Smaré, has applauded the Marape-Basil government, Petroleum Minister Kerenga Kua, ExxonMobil PNG, and their joint venture partners for agreeing to reengage in negotiations on the P’nyang project in Western Province. Mr. Smaré said “In light of the extremely challenging economic conditions in PNG, the P’nyang and Papua LNG projects, are projects that are desperately needed to be kick-started to kick-start the country’s stagnant economy creating jobs, bringing in foreign exchange and providing opportunities for PNG businesses, particularly SMEs in the impacted areas”. “I congratulate the Prime Minister, Minister Kua, the SNT and Exxon Mobil and its partners for restarting these negotiations, and strongly encourage them to secure a win-win outcome that sees the progress of the P’nyang project in the near term, and in turn helping PNG and our people.” In making the announcement of re-engaging in negotiations on P’nyang, on August 20###sup/sup###, Petroleum Minister Kerenga Kua highlighted the economic importance of these two projects alone. “The benefits of phasing the construction of both Papua and P’nyang projects over an eight-year period shall be a substantial boost to the economy and the country. “This tremendous investment would extend our gas pipeline infrastructure into the country’s Western Province and have a meaningful and lasting economic impact for Papua New Guinea and its people,” Minister Kua said. He also announced that there would be a series of workshops regarding the development of the P’nyang Gas Fields, and if these continued unhindered, an expected signing of a P’nyang Heads of Agreement could be expected by end of this month, with a Gas Agreement to follow. “While there continues to be misinformation on the true impact of resource projects in the country, the government remains fully aware that projects which remain in the pipeline, will not be able to effect much financial benefit, until they are negotiated and commissioned. “This announcement by government of re-engaging with ExxonMobil PNG and its joint venture partners on the P’nyang project, is an extremely positive step in the right direction,” Mr. Smaré said.   Article Courtesy of the PNG Chamber of Mines and Petroleum 


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PNG Business News - October 26, 2021

Australia buys Digicel, PNG’s mobile monopoly

Photo credit: Devpolicy by Stephen Howes Yesterday, Telstra announced that it was buying Digicel Pacific. Telstra itself is only paying $270 million, and the Australian government $1.33 billion. Yet, Telstra is obtaining 100% ownership. The deal is certainly an attractive one for Telstra. But does it make sense for Australia, and for the Pacific? Digicel has had a transformational impact in the Pacific, but now has too much market power. As the Telstra release explains, it holds the dominant position in all the Pacific countries in which it operates, except for Fiji, where it is in second place. In Papua New Guinea, which I know best, and which is by far Digicel's biggest market, the company  has a 92% share of the mobile phone market. That makes Digicel effectively a monopoly in PNG. And that is why it is so profitable: like any monopolist, it exploits its market power. Australian and PNG researchers have been tracking mobile internet prices in PNG since Australia gifted it a new underwater cable . Their conclusion is that since the completion of that cable in December 2019 to today there has been no decrease in mobile internet prices. The reason is simple: the lack of retail competition. Michelle Nayahamui Rooney, Martin Davies and I last year exposed Digicel PNG’s predatory loan scheme. Digicel lends phone credit to its customers. They pay it back when they next top up. Our estimate is that Digicel made a 17% return from such loans every week, which is equivalent to an unbelievable 351200% a year. Is this really the way in which Australia want to engages in the Pacific – owning an enterprise that keeps prices high for consumers, and rips them off when they are desperate to make a call? Any monopolist is necessarily engaged in a battle between the consumer and their profits. At some point, Telstra will end up going toe-to-toe with the PNG telecom regulator, NICTA, as Digicel has done several times. It’s going to be awkward for both Telstra and the Australian government. Many will welcome the investment as a sign of Australian commitment to the Pacific. However, if we want to invest in the telecom sector in the Pacific, we should be backing alternatives to Digicel, to push prices down and improve services, not buying out the dominant player. Amalgamated Telecom Holdings based in Fiji is the Pacific’s second biggest telecom provider. It is currently planning to enter the PNG mobile market with support from the Asian Development Bank. This is the sort of investment we should be financing. That Australia has bought Digicel shows the extent to which the Pacific is now viewed through a China lens. That’s unfortunate. China is a massive economic power. Its companies will have increasing stakes in economies around the world. That is a fact we have to accept. The Australian government also needs to decide if its only goal is to counter China or if it is still seeks to promote Pacific development. When I was AusAID's Chief Economist, Digicel was the new kid on the block in the Pacific, and it was successfully challenging state-owned telcos that until then had been dominant. In 2006, in Foreign Minister Alexander Downer's flagship Pacific 2020 report, we wrote glowingly about the competition that various Pacific countries had recently started allowing in the mobile phone sector. Our analysis was right then, and remains relevant today. Yet here we are, in 2021, doing the opposite: rather than supporting greater competition in the telecom sector, subsidising the purchase of the incumbent monopolist. The decision to buy Digicel Pacific should be reversed. If it is too late for that, the Australian government should at least – in return for all its cheap and risk-reducing finance – oblige Telstra to operate Digicel for the benefit of the people of the Pacific rather than solely for its shareholders through an agreement that makes it clear that the Australian company is not only expected to return the cheap loan it has been given, but also reduce prices, and end rip-offs.   This article appeared first on Devpolicy Blog (devpolicy.org), from the Development Policy Centre at The Australian National University. Stephen Howes is the Director of the Development Policy Centre and a Professor of Economics at the Crawford School.

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PNG Business News - October 26, 2021

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PNG Business News - October 26, 2021

Digicel Pacific to be Acquired by Telstra

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