PNG sign Multi-billion kina P'nyang Gas Deal

The Papua New Guinea  Marape Government executed the Gas Agreement for P’nyang with the US super-major ExxonMobil and its partners Santos and NOEX of Japan, making it PNG’s third LNG Project after PNG LNG and Papua LNG projects.

The execution of the Gas Agreement comes after over 3 years of negotiations and under a changing energy scenario in the world. The fossil fuels (oil and gas) are no more the favourites of the financiers and shareholders, with most energy giants being forced to change their strategic, long term focus to renewables. Signing of this agreement ties ExxonMobil to PNG for the next few decades as they progress from PNG LNG Project to Papua and then to P’nyang. 

PNG sign Multi-billion kina P'nyang Gas Deal 

Prime Minister Hon James Marape said on the occasion, “I would like to place on record a thank you to Mr Andrew Barry, the former Managing Director of ExxonMobil PNG, who put P’nyang on the development agenda with the joint ventures and the Government, and commenced negotiations with a firm offer in 2019. This laid the foundation for what we see as a completed Gas Agreement today.” 

Prime Minister also thanked the State Negotiating Team and the new Managing Director of ExxonMobil PNG Peter Larden for carrying it forward and closing the deal in the recent months.

Together, these three projects will deliver production and tax revenue for PNG well beyond 2050. The royalty and development levy and the dividends from State equity in these projects will continue as well beyond 2050 and 2060.

Marape Government’s major focus had been on delinking P’nyang from Papua and removing that dependency syndrome. It took time, but we were firm and as a result we have the two projects able to stand on their own and be ready in their own timeframe. This delinking has allowed the new development concept of ullage or backfilling the existing trains to take shape- which will save over US$2.5 billion in cost of a new train and give our PNG Landowners additional revenue in tolling charges.

The new development concept of ullage using existing PNG LNG trains has additional advantage of good timing, apart from capex savings. The timing of P’nyang development in 2028 is ideally positioned as it follows the completion of Papua, which will commence construction in 2023-24 and will take about 4 years to complete.

Prime Minister said, “This provides a firm and stable economic base to the country for years to come: (a) construction activity from 2024 to 2032 (8 years non-stop) and revenue stream for 30 plus years thereafter. This is in sharp contrast to the stop and start of the past and will provide continuity to businesses, employees, educational institutions, and will serve multiple generations of Papua New Guineans. It makes me very proud as a Papua New Guinean.”

Prime Minister further added, “We all saw the thrust our PNG economy got during the PNG LNG construction period (2009-2014). In spite of the Global Financial Crisis, PNG economy experienced double digit GDP growth for the first time ever. All businesses grew magnificently. The GDP grew by over 80% during this 4-5 year period. It gave us a larger economic base for the future years with a result that now we have a K84 billion GDP economy in 2020 compared to the K32 billion GDP economy in 2008. We hope to see similar results and multiplier effects with these two LNG Projects and for double the period with smart project sequencing.”

Although it took time, there have been some major wins for PNG. For the first time in PNG’s petroleum sector we will have:

a) 3% production levy (compared to 0% in PNG LNG and 2% in Papua);

b) Better calculation formula for royalty and development levy for our landowners and affected provincial governments; 

c) State equity of about 34.5% consisting of 22.5% under the Oil and Gas Act and a negotiated commercial equity of 12.5%. This is much higher compared to 19.6% in PNG LNG and 22.5% in Papua).

d) A favourable DMO (domestic market obligation) for gas at much cheaper price than Papua (there was none in PNG LNG).

e) Early Tax credit works of about K150m.

Mr Marape clarified, “In the PNG LNG Project, the wellhead value formula for the calculation of royalty development levy had three (3) types of deductions from the export price- the capital cost, operating cost and a premium of capital. Which made it very thin and effective royalty became less than 1% instead of 2%. Now, we have removed the premium on capital as a deduction and thus enabling better outcome in the numbers.”

Overall, the State Negotiating Team, under direct oversight of the Minister Kua and Prime Minister has achieved a Government Take of 63% compared to 49% in PNG LNG and just above 51% in Papua. THIS IS A MASSIVE WIN!! This also sets a new benchmark for future negotiations.

Projects and nations develop through partnerships. This is what we have formed with ExxonMobil. Beyond the Gas Agreement, their long-term presence in the country should foster new exploration activity in the PNG which, beyond the Papua Basin, remains largely unexplored and virgin. The potential is huge.

Prime Minister said, “Successful exploration and commercialisation of discovered resources requires large risk capital. The project partners have already spent more than US$480m on P’nyang to date and will spend further US$10 billion in developing it. It needs credibility, track record, a balance sheet and appetite for risk. My meetings in Houston with ExxonMobil President Liam Mallon left me in no doubt that they have it all, plus the love for PNG. I am forming a relationship at the topmost level in ExxonMobil- more than just signing a Gas Agreement.”

Statement

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