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Papua LNG upstream agreement paves way for export expansion

Sydney — Papua New Guinea has signed a gas agreement with project partners to develop the country's LNG export capacity, exploration and development company Oil Search said Tuesday.

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The Papua LNG gas agreement announced Tuesday includes a domestic market obligation, an acquisition of equity interest in the project by the state with a deferred payment mechanism, and support for local workforce development

Two of Papua LNG's three 2.7 million mt/year capacity trains are to be supplied with gas from the PRL 15 Elk-Antelope fields -- developed by Total -- while one train is to be developed by PNG LNG, fed by gas from the existing P'nyang fields (PRL 3).

The project will effectively double Papua New Guinea's export capacity. The existing Papua New Guinea LNG project has a nameplate capacity of 6.9 million mt/year but consistently operates above it, achieving a run rate of 8.8 million mt/year over July-December 2018. Oil Search and ExxonMobil also hold stakes in PNG LNG along with Santos, National Petroleum Company of PNG, JX Nippon Oil and Gas Exploration Company and Mineral Resources Development Company.

"The signing of this important agreement will allow all Papua LNG Project parties to proceed with confidence into front-end engineering and design-related activities, commencing with contractor selection and engineering contracting," the company said.

"In addition, the PRL 15 Joint Venture has reached alignment on a suite of agreements which will support the Papua LNG Project taking the next steps towards development, including those related to PNG LNG project site and facility access," it said.

Oil Search will now move to work with PRL 3 operator ExxonMobil and the state to close an agreement for the development of the P'nyang field and to start the FEED phase for the proposed three-train integrated development at the PNG LNG plant site, Oil Search said.

"FEED is expected to result in a final investment decision in 2020, which will ensure that first production from our new, globally competitive, LNG trains is available in 2024," Oil Search said.

The government back-in saw it and landowners take a 22.5% equity in Papua LNG, while Oil Search's share fell to 17.7% from 22.8%, Total's to 31.1% from 40.1% and ExxonMobil's to 28.7% from 37.1%.

Oil Search has previously said that an agreement for PRL 3 is expected to closely follow the PRL 15 deal.

Initial discussions have begun with potential buyers in Asia for Papua LNG offtake. Purchase agreements are to be made once the project enters the FEED phase.

-- Nathan Richardson,

-- Edited by James Burgess,