Operators keen to join the LNG sector in Papua New Guinea (PNG) have recently made their move to gain equity in potential developments, with one Japanese company sealing a deal and ExxonMobil entering talks to join another project.

Horizon Oil has agreed to sell 40% of its PNG assets to Japan’s Osaka Gas for US $204 million, as the new partner looks to develop PNG reserves via a mid-scale LNG project. The figure includes $74 million in cash on completion, a further $130 million in cash upon a final investment decision (FID) for an LNG project, as well as potential production payments where threshold condensate production is exceeded.

Under the deal, Horizon and Osaka will form a strategic alliance (Horizon 60%; Osaka 40%) to commercialize Horizon’s reserves of 125 MMboe and develop acreage covering 7,900 sq km (3,050 sq miles) in Western Province, PNG.

Horizon will transfer 40% of its equity in PRL 4 (Stanley field), PRL 21 (Elevala and Ketu fields), and PPL 259, and grant Osaka the option to acquire 40% of Horizon’s interests in recently acquired assets PPL 372, 373 and 430 by paying a proportionate share of costs incurred.

Horizon said it is stands to make a potential profit of around $153 million, made up of $23 million on completion and approximately $130 million more upon making the FID for the LNG development project.

“The principle objective of the partnership is to grow and develop the PNG assets for the purposes of supporting a mid-scale LNG project located on the coast in Western Province,” Horizon said. “The companies intend to exploit the full potential of the assets via early condensate production, local gas sales, and LPG sales, and to market their respective shares of petroleum products, especially LNG, on a combined basis.

“Completion is conditional upon customary consents, regulatory approvals, and grant of the development license for the Stanley field.”

Horizon’s CEO Brent Emmett said, “We and our existing joint venture participants have an aligned vision for the aggregation and commercialization of gas and condensate in Western Province and Osaka Gas shares this vision.

“Our upstream expertise is a good fit with Osaka’s experience in the LNG business and their ability to offtake the product. They will add significant value to our already strong joint ventures, and the strategic relationship will allow Horizon to play its part and participate in a substantive mid-scale LNG development, which will be a large and long-term contributor to value.”

During a visit to Japan in March, PNG’s Prime Minister Peter O’Neill said his country was in a good position to become a strategic supplier of Japan’s long-term energy needs and urged Japanese investors to invest in PNG’s gas and mining industries.

During his visit, O’Neill said PNG was at a critical stage in its development as a nation, especially with regard to hydrocarbon reserves.

“The record capital spending now underway in the petroleum sector will slow significantly from this year unless we bring new projects to the approval and development stages soon,” O’Neill said.

ExxonMobil Eyes PRL 15 Stake

One such project could be making progress. InterOil and its partner Pacific LNG have started “exclusive negotiations” with ExxonMobil on the development of PRL 15 in PNG.

PRL 15 holds the Elk and Antelope fields in the Gulf Province. The PNG government has been informed of the talks, and any future agreement will be subject to approval from the authorities.

One item being discussed in the negotiations is for InterOil and Pacific LNG to sell ExxonMobil equity in PRL 15 that “is sufficient to supply gas to develop an additional LNG train at ExxonMobil’s Konebada site.” Such a farm-out would include staged payments before and after production starts.

Under any deal, InterOil and Pacific LNG will be funded to drill additional delineation wells in the Elk and Antelope fields, which will be followed by recertification of the reserves. InterOil and Pacific LNG will have the option to either independently develop a second LNG project in the Gulf Province that also may use gas from PRL 15 and potentially other discoveries, such as Triceratops, or pursue further development with ExxonMobil in PNG.

Border Exploration Potential

On the exploration front, PNG and Indonesia are planning joint exploration for potential oil and natural gas reserves in the border areas.

“The border possesses a huge amount of unexplored oil and gas reserves, according to data obtained by our team,” Indonesian Energy and Mineral Resources Minister Jero Wacik told reporters after a recent meeting with PNG’s Public Enterprises and State Investment Minister Ben Micah.

“Economically, it would be easier to jointly explore these untapped resources,” Wacik said, adding that a joint effort was important to maintain security along PNG’s border.

The Indonesian province of Papua shares a 760-km (472-mile) border with PNG.

The ministers did not specify which blocks the countries plan to develop but said they also would improve much-needed infrastructure in border areas to support the new alliance.

Karen Agustiawan, chief executive of Indonesian state-owned oil and gas player Pertamina, who also attended the meeting between the two countries, said Pertamina was interested in joint studies with PNG’s national oil and gas companies – National Petroleum Company of Papua New Guinea (NPCP), which focuses on LNG and oil projects, and Petromin PNG Holdings, which manages the country’s petroleum and mining industries.

UK consultant Wood Mackenzie has estimated that PNG has 26 Tcf (736.5 Bcm) of natural gas. Indonesia has gas reserves of 104.25 Tcf (2.95 Tcm).

In 2012, China offered PNG loans of around $3 billion for infrastructure projects and signed a long-term deal to buy some of the country’s first exports of natural gas.

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