Oil Search switches focus to Papua LNG from PNG LNG

Australian independent Oil Search is switching its upstream development focus in Papua New Guinea (PNG) to the 5.33mn t/yr Papua LNG project, away from plans to add a third train to ExxonMobil's 6.9mn t/yr PNG LNG venture.

The Total-operated Papua LNG project and the third train at PNG LNG had been planned to be built at the same time, as part of an effort to lower construction costs. Papua LNG's two trains will be located next to the existing trains at PNG LNG. But talks between ExxonMobil and the PNG government on an expansion of PNG LNG have stalled.

Oil Search said today it is targeting initial engineering work for Papua LNG in 2022, a final investment decision in 2023 and first gas deliveries in 2027.

"Overall, there is strong support for Papua LNG. There are synergies with PNG LNG, which has many opportunities to build a third train," Oil Search executive vice president commercial Diego Fettweis said at the firm's investor day briefing. "Recently the Papua LNG project has received support from the PNG government and its strong commitment to the project."

The Papua LNG project will coincide with the emergence of new LNG demand in the Asian market Fettweis said. Total executives plan to go to PNG in December, he added.

Total has a 40.1pc stake in Papua LNG, Oil Search has 22.8pc and ExxonMobil holds 37.1pc. The companies and the PNG government reached a gas agreement in September 2019 to enable the project to be developed. The agreement's legislative amendments passed through Parliament on 11 November, Fettweis said.

But the Papua LNG partners held off on project development as the PNG government and ExxonMobil negotiated a deal over the fiscal terms for development of the P'nyang gas field, which will provide feedstock for the third train at PNG LNG. No such deal has been reached and the project has stalled.

Total last year planned to reach FID on Papua LNG in 2020, but the P'nyang delays and the impact of the Covid-19 pandemic have forced the firm to delay a decision by three years. Papua LNG will extract gas from the Elk-Antelope onshore gas fields, which are part of petroleum retention licence 15.

PNG LNG, in which Oil Search has a 29pc stake, is the cornerstone of the company's business in PNG. All of the project's debt is expected to be paid by 2026, when the project will become a pure cash generation business for the firm, Fettweis said.

PNG LNG is projected to produce 8.8mn t/yr in 2020, he said. It produced at an annualised rate of 8.9mn t/yr in January-September, the highest annualised rate in any nine-month period since operations began in 2014.

Oil Search plans a 75pc reduction in exploration expenditure in PNG and intends to offload non-core exploration licences in the Pacific island nation, managing director Keiran Wulff said. "We do not need any more exploration acreage. We have plenty of oil and gas projects on our books to develop," Wulff said.

Oil Search plans to raise production to over 137,000 b/d of oil equivalent (boe/d) by 2028-30 from a projected 76,500 boe/d this year. Its cash-flow breakeven point is targeted to be $17-$20/boe by 2028-30, from $20-$22 now.

By Kevin Morrison