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Australia's Santos says no major delays seen at PNG LNG due to political upheaval

Brisbane — No major delays are expected in the expansion of the PNG LNG project in Papua New Guinea due to the country's leadership change this week, project partner Santos' Chief Executive Kevin Gallagher told reporters Thursday.

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Some observers had suggested that the ongoing political turmoil in Papua New Guinea could impact the expansion of the PNG LNG expansion project, with analysts expecting a final investment decision could be pushed back by several months.

"I think we've just got to wait and see how that will settle down and let the process take its course," Gallagher said on the sidelines of the APPEA 2019 conference in Brisbane.

He added that the main source of the previous disputes or the challenges in the PNG LNG project were around fiscal terms for new developments going forward, and not political issues.

"I don't hear anybody talking about stopping or slowing down new developments," he said.

"There's always a concern that it [the prime minister's resignation] could lead to a delay. But I wouldn't anticipate at this stage that there should be any major delay," Gallagher said, adding that resource development is still very important for the development of Papua New Guinea.

Santos has a 13.5% interest in PNG LNG, Oil Search has a 29% stake, ExxonMobil has 33.2%, JX Nippon holds 4.7%, Papua New Guinea's Kumul Petroleum has 16.8% and state-owned Mineral Resources Development has 2.8%.

PNG LNG has a current nameplate capacity of 6.9 million mt/year and is expected to add three more trains with a capacity of 8.1 million mt/year in the next wave of expansion, expected to take FID by 2020.

Two of the three trains will be supplied as part of the Papua LNG project, with upstream gas from the PRL 15 Elk-Antelope fields developed by Total. One train is to be developed as part of PNG LNG (T3) and fed by upstream gas from the P'nyang fields (PRL 3), led by ExxonMobil.

Total did not respond to queries on PNG LNG. ExxonMobil said it does not comment on political matters.

"We remain committed to our long-term plans for PNG and look forward to working with the new leadership," ExxonMobil said.


James Marape took over as Papua New Guinea's new prime minister on Thursday after a vote by MPs this week, ending days of uncertainty after the resignation of the previous prime minister, Peter O'Neill, over the weekend.

O'Neill's resignation had the potential to delay the PNG expansion project although the project was still likely to reach FID in 2020, Neil Beveridge, senior analyst at Bernstein Research, said earlier this week.

"A change in government would lead to a change in key personnel responsible for negotiation of the P'nyang Development Agreement," Beveridge said.

"This could delay finalization of the P'nyang Development Agreement until later in the year and push front-end engineering and development entry out to 4Q19," he said, referring to the agreement for the PNG LNG T3 train to be developed by ExxonMobil.

But he added that, despite the political uncertainty, the PNG LNG expansion was unequivocally positive for the country and he had a high conviction that the project would move ahead.

There have been disagreements related to fiscal terms for the gas supply agreements, with Papua New Guinea requiring a greater margin for the government. Analysts said they expect the PNG LNG expansion to have less favorable terms than the original three trains, with a lower oil slope.

Still, the project is one of the most cost competitive compared with high-cost projects in Australia that have seen costs multiply over the years.

"Currently, the expansions are estimated to cost $12 billion including the three trains and upstream development, implying a cost of $1,500/mt which is the most competitive in the Asian region," Beveridge said, adding that PNG LNG's expansion projects are highly levered to oil prices.

The attractiveness of the project clearly outweighs short-term political risks, executives at the LNG conference said.

-- Eric Yep,

-- Edited by James Leech,