Oil Search Signs JOA with ExxonMobil for LNG Project

The Papua New Guinea LNG project is to proceed to the forward engineering and design stage within a month, according to a report in The Sydney Morning Herald. ExxonMobil and three Australian partners in the project agreed on a joint operating agreement (JOA) March 14.

Of the three Australian companies -- Oil Search, Santos, and AGL the report indicates that the $10 billion project is most important to Oil Search because "the company has pinned its future on the LNG development to commercialize its stranded gas resources after a plan for a PNG-to-Australia pipeline fell over last year."

Oil fields in Papua New Guinea (PNG) owned by Oil Search reportedly will begin losing ground in terms of production by the year 2011. Oil Search stands to gain a considerable amount of market presence with their involvement in the PNG LNG project since it should produce 6.3 million tonnes per year once production begins.

"The JOA was one of the key deliverables undertaken during the PNG LNG project pre-FEED work, and the execution of this agreement demonstrates the alignment of the key PNG gas field participants behind the PNG LNG project," said Oil Search Managing Director Peter Botten said in a statement issued on the company's web site. "The agreement paves the way to progress into the front end engineering and design phase of the project, subject to the conclusion of a gas agreement with the PNG government."

Botten stated that the project will bring significant gains to the PNG government.

Although the project will cost an estimated $10 billion, The Sydney Morning Herald reported that Oil Search has suggested the project will cost more, and "an industry source close to the project has told the Herald it might be closer to $US16 billion."

The potential economic benefits of the project for PNG include "long-term, sustainable benefits," said ExxonMobil Development Company Vice President Al Hirshberg. According to the recently completed PNG LNG Economic Impact Study, PNG stands to double its gross domestic product and add an additional 7,500 jobs during the initial construction phase. After completion of the project, an estimated 850 jobs will be maintained during production.

The PNG LNG project is a totally integrated operation. A press release issued by ExxonMobil stated that "the JOA provides formal governance for the venture and incorporates all components, including upstream, gas transportation pipeline, and liquefaction."

Hirshberg said, "ExxonMobil is pleased to have the JOA executed as it is an important step in the progression of the project. Our focus now turns to resolving the fiscal terms and related matters with the PNG State, which are critical for the project to enter the FEED phase."

Esso Highlands Limited, the ExxonMobil subsidiary serving as operator, reported that the project will establish commercialization of "the Hides, Angore, and Juha fields and the associated gas resources in the currently operating oil fields of Kutubu, Agogo, Gobe, and Moran in the Southern Highlands and Western Province of PNG.

ExxonMobil holds a 41.6% interest in the project, while Oil Search, Santos, and AGL each hold a 34.1%, 17.7%, and 3.6% interest respectively. The remaining 4% interest is owned by Nippon Oil and PNG landowners.

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