Total seeks to finalize Papua LNG talks this month

August 21, 2019

SYDNEY (Bloomberg) - The Total SA-led liquefied natural gas joint venture in Papua New Guinea is seeking to finish a new round of negotiations with the government by the end of August, while insisting that the original agreement signed with the state in April is fair and equitable to both sides.

Oil Search Ltd., a junior partner in the Papua LNG project, said Tuesday it was important for the discussions to be concluded before the expiration of contract bids for front-end engineering. The validity of those bids “can be pushed out a little” but are set to expire in early September, managing director Peter Botten said on a conference call.

The project has been in limbo since a new government, led by Prime Minister James Marape, swept to power in May pledging to get better resource deals for the country, including a $13 billion plan to expand LNG exports. Total last week rejected a request to renegotiate the Papua LNG agreement, which was proposed during talks in Singapore, according to a person with knowledge of the discussion.

The Papua joint venture is competing with a wave of LNG projects around the world which are hoping to come on stream in time to meet an expected supply deficit from the mid 2020s.

“Activity in the sector is building and under those circumstances if you’re delayed for any length of time you’re likely to see further inflation into the cost you might incur,” Botten said in an interview.

Finalization of the Papua LNG deal is necessary before talks can resume on an agreement for the related Exxon Mobil Corp.-led P’nyang project, and only once that’s concluded can both expansion projects to progress to front-end engineering and design work, Oil Search said. Further meetings between the joint venture and government representative were planned for later in the week with both sides working toward finalizing the agreement, Botten said.

“The Papua LNG joint venture believes the existing terms and agreement, which were entered into in good faith, are appropriate, fair and reasonable,” Botten said in a statement earlier Tuesday to accompany the group’s first-half results. Oil Search has seen its shares fall sharply on the risk of delays to its projects in PNG amid the political uncertainty.

Papua New Guinea has had a strong record for project development in the resources sector, Botten said, but he also cautioned the government. “Reviewing things can be acceptable, but it also does send shivers down investors’ spines,” he said.

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