Exxon, Chevron, Oil Search Will Cooperate on PNG Gas Project
By Stephen Wisenthal
Brisbane, Australia, April 28 (Bloomberg) -- Oil Search Ltd.
and Chevron Corp. said they reached an agreement that will make
Exxon Mobil Corp. and Santos Ltd. full participants in a proposed
US$3.5 billion project to pipe natural gas from Papua New Guinea
to Australia.
Chevron and Exxon operate the two gas fields in Papua New
Guinea needed to supply the PNG Gas project, one of the largest
energy projects being planned in Asia. The agreement sets out how
they will cooperate and share the spoils from selling the fuel.
``This is a very significant breakthrough for the project,''
Oil Search Managing Director Peter Botten said in a statement.
``It ensures optimal economic development'' of the gas fields.
Chevron, the second-largest U.S. oil company, Oil Search and
Orogen Minerals Ltd., a resources investment company controlled by
the Papua New Guinea government, have been working for more than
three years to develop the 3,000 kilometer pipeline.
Shares in Oil Search, the largest holder of oil and gas
reserves in Papua New Guinea, rose as much as 14 cents, or 9.6
percent, to a seven-day high of A$1.60, and closed 6.2 percent
higher at A$1.55. Shares in Orogen, which holds options which
could take its PNG oil and gas holdings close to Oil Search's,
rose 6 cents, or 5 percent, to A$1.26.
The agreement with Exxon, the world's largest publicly traded
oil company, and Santos secures enough gas to fill the pipeline
for 30 years. It allows the project partners to work on the last
major obstacle to going ahead -- securing firm sales contracts
with the customers for the gas in Queensland.
``It is an important and major announcement,'' said Andrew
Williams, oil and gas analyst at Wilson HTM in Brisbane. ``Now
they are not arguing about things like whose gas will go into the
line first and whose gas will be used and that sort of thing.''
Negotiations
Exxon holds a 47.5 percent stake in Hides, the largest
natural gas field in PNG. Santos and Oil Search own the rest.
Chevron, the operator of the Kutubu field and the PNG Gas
project's key promoter, has been negotiating with Exxon for more
than two years.
``The agreed principles for joint development ... are
expected to be finalized in a definitive set of agreements prior
to Sept. 1,'' Botten said.
The negotiations became less complicated late last year when
Exxon acquired Mobil Corp., one of the partners in Kutubu, giving
it stakes in both the fields.
The PNG Gas partners predicted late last year that they would
make a final decision to go ahead in September or October of 2000.
Chevron declined to say if it will meet that deadline, which would
allow it to deliver the first gas to Queensland late in 2002 or
early in 2003.
Potential customers for the gas, who have signed tentative
agreements to buy more than 200 petajoules a year, won't make
final commitments until the Queensland government has released its
energy policy, said Botten.
``As yet, this plan has not been formally announced, however
project sponsors believe that (the gas reserves agreement) will
expedite the announcement of the energy policy and underscore the
role of gas in the future development in Queensland,'' he said.
Electricity Prices
The state government owns about 80 percent of the electricity
generating capacity in Queensland, and may have to absorb losses
in the early years after the pipeline is built, as the extra
electricity generated from the PNG gas creates oversupply, pushing
prices below profitable levels.
This overcapacity is expected to be used up by the end of the
decade, as demand grows. Queensland has among the fastest
population growth in Australia, and new plants to process the
state's mineral resources will boost electricity consumption.
One key potential buyer of the gas, Comalco Ltd., Australia's
largest aluminum producer, early this month said it had chosen
Gladstone, on the central Queensland coast, as the preferred site
for its proposed A$1.4 billion alumina refinery.
Comalco, controlled by Rio Tinto Ltd., the world's largest
mining company by market value, said it hasn't yet decided whether
it will go ahead with the plant, and the earliest it could start
construction is the fourth quarter of this year.
``Their strong support for the project, and their express
desire to utilise gas from PNG, further underscores the market
position of PNG Gas and the faith of a significant customer for
the project,'' said Botten.
The project faces other hurdles, the PNG Gas sponsors said.
These include a PNG government decision on how it will tax
the liquid hydrocarbons produced along with the natural gas, and a
decision on how the government and various PNG companies will
participate in the US$1 billion company, which will own the gas
pipeline and processing facilities in Papua New Guinea. |
