Papua New Guinea recommits to Total’s $13 billion gas deal

James Thornhill September 03, 2019

SYDNEY (Bloomberg) - After months of delays and new commitments by Total SA, Papua New Guinea will honor a gas deal with the French energy giant, clearing a major hurdle for a $13 billion plan to expand the nation’s fuel exports.

The Papua LNG project, which counts Exxon Mobil and Oil Search Ltd. as partners, has been in limbo since Prime Minister James Marape’s government swept to power in May pledging better resource deals for the country. His decision to review and possibly renegotiate the agreement, which was signed in April, has drawn criticism for raising the specter of “sovereign risk” and potentially scaring off foreign investment.

The nation’s petroleum minister, Kerenga Kua, said in a statement Tuesday that Total has made new commitments, detailed in an Aug. 30 letter, that are mostly “substantial new concessions on potential future benefits not previously available to the country under the signed agreement.”

It’s the government’s position “that the Papua LNG project be allowed to proceed in accordance with the terms of the related gas agreement,” Kua said in the statement. “But which terms must be interpreted and applied in accordance with the Total letter and the related expectations of the government and the state.”

Total said it welcomed the decision to honor the gas agreement, calling it “a positive signal for foreign investment in the country.”

Moving Ahead

Finalization of the Papua LNG deal is necessary for talks to resume on the related Exxon-led P’nyang project. Once those are concluded, both ventures, which will share infrastructure, can progress to front-end engineering and design work. The partners are competing with a wave of LNG projects around the world aiming to start up next decade.

After reviewing the agreement and meeting in Singapore for talks last month, Total rejected the government’s request to renegotiate the financial terms of the deal, which was signed by Marape’s predecessor, Peter O’Neill.

According to Kua, Total committed to preparing a detailed plan for how the project will use local content, building third-party access points for the project’s pipelines, engaging in future negotiations for the government to buy stakes in the pipelines and evaluating the use of LNG tankers owned by the nation’s state oil company, Kumul Petroleum Holdings Ltd.

Oil Search shares ended Tuesday in Sydney up 2.1%. The benchmark ASX 200 Index fell 0.1%. The company traded ex-dividend Tuesday, meaning buyers won’t be entitled to the 5-cent dividend payment due Sept. 24.

Kua also said he and the mining minister have been instructed to draft new resource laws that ensure Papua New Guinea will receive early cash flow from future mining and petroleum projects and relieve the state of burdensome expensive loans.

Currently the government gets most of its gas revenue through Kumul, which has to buy multi-billion dollar stakes in projects, often borrowing at higher interest rates than its international partners.

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