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PNG government reneges on offshore gas agreement again

© Supplied by ShutterstockA traditional mask in Papua New Guinea
A traditional mask in Papua New Guinea

The government of Papua New Guinea (PNG) has again changed the agreed fiscal terms for Twinza Oil’s proposed Pasca A gas project, which would be the country’s first offshore development. Significantly, the move underscores the increasing political risk for resource investors, such as ExxonMobil, in the Pacific Island nation.

PNG has repeatedly reneged on agreed terms and increased its demands for the shallow-water Pasca A development over the past year or so. However, on 6 July 2021, Twinza Oil and the government sealed a new deal that both parties committed to uphold.

But despite apparent strong support from Prime Minister James Marape, who on 13 July announced that negotiations had concluded, and that the official agreement would be signed on 29 July, the government is not honouring the latest deal, said Twinza yesterday.

“After a month of silence on the State-side, the state negotiating team (SNT) Chairman returned an extensive mark-up of the agreement late on the 6 August. This document bears no resemblance to the agreement of the 6 July 2021, containing over 2,400 changes in only 76 pages, and is essentially a new agreement which was provided with endorsement of SNT, State Solicitor and Minister for Petroleum Kua,” said the Australian-listed company.

“The agreement would be unacceptable to any investor and introduces new fiscal terms and inexplicable new conditions, several associated with Kumul Petroleum, that would make the Pasca A Project, or indeed any project in PNG, non-commercial and unfinanceable,” added Twinza.

Kumul Petroleum is the national oil company (NOC) of PNG. Like all other PNG upstream assets, the government has a right to back-in and acquire up to 22.5% working interest in the project by paying back costs and forward costs. If the government exercises its right to back-in to Pasca A, the resulting working interest among the parties will be Twinza on 77.5%
and government nominee on 22.5%.

“For reasons unknown to Twinza, it would appear that the Prime Minister’s strong support for the Pasca A Project, expressed most recently at the media conference of the 13 July 2021, is not being actioned by the State Solicitor and is being openly undermined by elements within the state negotiating team. This is both disappointing and surprising given that negotiations have concluded, and what should be a routine close-out process is being stewarded by the Minister for Petroleum, the Hon. Kerenga Kua,” said Twinza.

Twinza said it is urgently seeking clarity from the Minister for Petroleum as to whether there is support for foreign direct investment into the country and that the State will honour the deal of the 6 July 2021. As announced by Minister Kua on the 13 July 2021, Twinza can confirm that the Gas Agreement delivers all of the Government’s stated objectives from the project and would provide the highest State take of any resource development in PNG, over 60% of project value (55% nominal State take).

“It is extremely disappointing that certain State actors appear to be following their own agendas rather than those of the Prime Minister, demanding new terms and revising terms that were announced on the 13 July 2021. Indeed, this is the third time since the negotiations commenced over 12 months ago that the SNT has changed agreed terms, which were originally announced by the Prime Minister on the 24 September 2020. Twinza, as a company with a proud investment history in PNG, will naturally continue to honour the deal struck on the 6 July 2021,” said Twinza chief executive Ian Munro.

“Other operators and investors are closely observing whether the Pasca Project can effectively navigate the State’s bureaucracy and vested interests of some individuals in the SNT, to progress toward FEED entry. Notwithstanding this setback to investor confidence in PNG, I remain hopeful that the Minister for Petroleum, an experienced lawyer, can ensure the State agencies honour the agreed terms to sign the first Gas Agreement under this Government. The signing would indeed set a new fiscal precedent for the industry and finally supersede the Papua LNG Gas Agreement, announced by the O’Neill Government some two and a half years ago,” added Munro.

ExxonMobil is close to cutting a critical agreement with the government to expand its PNG LNG project. News of Twinza’s difficulties will not bode well for investors such as ExxonMobil.

In July, PNG Prime Minister James Merape said a state negotiating team had been established to hammer out an agreement for P’nyang with ExxonMobil. Merape said he is hoping to announce a deal with ExxonMobil on 16 September, when the country celebrates its 46th Independence anniversary.

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