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Oil Search revises Papua New Guinean LNG expansion project's timeline

Sydney — Australia-listed Oil Search revised the timeline for front end engineering and design for its Papua New Guinean LNG expansion project after the country's new government decided to review a project-related gas agreement, the company said Tuesday.

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Papua New Guinea's largest company Oil Search, which had been expecting to make a FEED decision in the second half of 2019, said the country's new government intends to review the Papua LNG Gas Agreement signed in April with the previous government.

The Papua LNG gas agreement included 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.

"The Papua LNG Gas Agreement, which was signed by all joint venture parties as well as the government, was a key pre-requisite for entering the FEED phase of the Papua LNG project," Oil Search's managing director Peter Botten said.

Oil Search and joint venture partners, ExxonMobil and Total, have met with the Prime Minister James Marape in recent weeks, Botten said.

"PNG has an excellent track record of fiscal stability, offering a predictable operating environment which has brought significant investment into the resource sector. We remain confident that this will continue," he added.

Oil Search also cut its expected capital expenditure for 2019 to $500 million-$610 million from $545 million-$655 million.

The company said the cut largely reflected revised timings for FEED entry for LNG expansion in PNG and development activity on Angore field. Oil Search was not available for immediate further comment.

The company also trimmed its total production guidance from a range of 28-31.5 million barrels of oil equivalent to 28-31 MMboe.

The PNG LNG project's production guidance, however, was lifted to 25-26 MMboe from 24-26 MMboe with LNG production forecast raised to 110-115 Bcf from 106-113 Bcf. The production forecast for liquids was revised to 3.1-3.5 MMbbl from 3.1-3.6 MMbbl.

Meanwhile, Oil Search said its total production for the second quarter of 2019 was 6.9 MMboe, down 5% from January-March.

"This included 6.2 MMboe from the PNG LNG Project, net to Oil Search, which produced at an annualized rate of 8.4 million mt/year during the period," the company said.

PNG LNG Project's production was well above its nameplate capacity of 6.9 million mt/year, despite 13 days of reduced production rates due to scheduled maintenance activities, it said.

RBC Capital Markets analyst Ben Wilson said the company's total second quarter production was 7% below the investment bank's forecast of 7.4 MMboe.

--Nathan Richardson, newsdesk@spglobal.com

--Edited by Kshitiz Goliya, kshitizgoliya@spglobal.com