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ExxonMobil and PNG agree key terms for LNG expansion

© Bloombergexxonmobil headquarters houston

ExxonMobil (NYSE: XOM) and Papua New Guinea (PNG) have agreed key terms for the P’nyang development that could expand the current PNG LNG export project.

Local media in PNG reported yesterday that the government and ExxonMobil have signed a heads of agreement regarding terms for a P’nyang Gas Agreement and Equity Purchase Agreement. Both agreements are critical if ExxonMobil is to progress development of P’nyang, which will supply its PNG LNG plant.

The heads of agreement for the gas agreement captures key fiscal, regulatory and licensing terms negotiated over last two months, reported the Post Courier. Under the latest heads of agreement, the state will acquire at cost 10% additional equity from ExxonMobil in the P’nyang project. In addition, the government take will be set at 63% in this deal compared to 49% in the legacy PNG LNG project and 51% in the TotalEnergies-led (EPA:TTE) Papua LNG scheme.

The news follows a meeting between PNG’s Prime Minister, James Marape, as well as Petroleum Minister Kerenga Jua, with ExxonMobil president for upstream, Liam Mallon, in Houston, US.

“The deal makes P’nyang an investment grade bankable project, meeting the project partners’ investment thresholds and gives it the best chance of going into construction,” said the Post Courier.

“The project timing is sequenced in a way that P’nyang commences as soon as Papua LNG construction is complete,” added the newspaper.

Indeed, there was plenty of chest thumping in the local media reports, as the government has been seeking to extract more benefits from resource companies investing in PNG.

Significantly, it is worth noting that PNG has reneged on previous agreements and nothing is concrete until the final deal is signed with ExxonMobil. The ExxonMobil-led joint venture and the PNG government will continue talks in the coming months to draft a more detailed agreement and equity agreement, according to the Post Courier.

ExxonMobil’s Mallon reportedly said that the “heads of agreement is a critical step towards alignment on a gas agreement that will help define the development and operation of P’nyang project for the long term”.

ExxonMobil and PNG to restart negotiations for P’nyang

The US major wants to develop P’nyang as part of a phased liquefied natural gas (LNG) export project.

A third LNG processing train could be added to TotalEnergies-led Papua LNG scheme if ExxonMobil and PNG can finalise the latest terms. The original plan included developing P’nyang alongside Papua LNG as a phased development, but ExxonMobil has yet to finalise development terms with the government. PNG has been holding out for a better deal that provides more benefits for the Pacific Island nation.

The development of ExxonMobil-operated P’nyang, known as the PNG LNG T3 scheme, was part of a three-train LNG expansion project proposed in 2018. The two other trains were part of the TotalEnergies-led Papua LNG project, with total capacity of 8 million tonnes per year (t/y). Two sets of fiscal terms were required to proceed with front-end engineering and design (FEED) work on the expansion project. A set of terms for the Papua LNG project was agreed upon in 2019. The P’nyang Gas Agreement is the second set of terms for the P’nyang Area where negotiations have stalled.

PNG plays hardball with ExxonMobil over LNG expansion

TotalEnergies and its partners are targeting to start FEED work at the Papua LNG project, led by the French company, next year. TotalEnergies operates the Elk and Antelope onshore fields and is the largest shareholder of the PRL-15 permit, which will supply Papua LNG, with a 31.1% share, alongside partners ExxonMobil (28.7%) and Oil Search (ASX:OSH) (17.7%), post the State back-in right of 22.5%.

The P`nyang Area consists of two fields, P`nyang and P`nyang South. The fields are located approximately 130 kilometres northwest of Hides, the main PNG LNG field, in the Highlands of Papua New Guinea. P`nyang was discovered by Chevron in 1990 and P`nyang South by ExxonMobil in 2012. The joint venture owners of the P’nyang project are operator ExxonMobil and Oil Search each with 36.86%, Santos with 14.32% and JX Nippon with 11.96%.

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