IN WHAT is shaping up to be one of the most significant upstream years in Papua New Guinea history, Cue Energy chief executive officer Mark Paton shares his views on just how little is known about the country’s gas resources and on the prospects of floating LNG technology in PNG.

Image courtesy of Oil Search.

An offshore oil producer in New Zealand and Indonesia, Cue has stakes in three petroleum licences in PNG, including an interest in the producing South East Gobe Field (5.57%) and interests in possible future sources of project gas in the Barikewa (14.89%), Cobra Iehi and Bilip discoveries (10.95%).

While ExxonMobil and Oil Search are ramping up their drilling campaigns to find more gas to fuel a possible, revenue-boosting third train of PNG LNG, Paton knows there is always a good degree of uncertainty over how big structures can be in PNG.

The key Hides field of the PNG LNG project in the difficult terrain of the Southern Highlands is his best example.

“It was a very small gas project when I first went up there when BP were operating to supply a very small local gold mine [Porgera],” Paton told sister publication PNG Report.

“Now it’s a major supply of gas for a major LNG project so obviously there is a good deal of uncertainty about the size of the resource. And I assume as they were producing the gas for Porgera they said ‘well the pressure is not dropping much in this reservoir – there is obviously lots of gas there’.”

He credits the mystery over the size of fields in PNG – especially in the Southern Highlands – to the high cost of evaluating them via seismic and drilling.

The $A100 million price tag for the eventually successful, third side track of the Oil Search-operated Cobra-1A well in 2008 which Cue shares in petroleum retention licence 14 (10.95%) is still a vivid memory for the people in Cue.

Outside of drilling costs which can soar past forecasts, Paton said it was also difficult and expensive to acquire seismic data and even if you did get seismic it’s “often of poor quality”.

“So it’s pretty high risk stuff and quite expensive to play the game.”

Despite these challenges the long-awaited Barikewa-3 appraisal well in the Papuan Basin is tentatively scheduled for spudding in the December quarter.

To be located southwest of the Barikewa-1 discovery well made in 1957, Paton said this new well would be closer to the lowlands than the highlands, allowing for easier development.

Southeast of the cluster of PNG LNG fields, the Barikewa-3 site is also much closer to the under-construction LNG plant near Port Moresby and roughly along the way of the proposed onshore pipeline route.

While it does not share the dizzying heights of the “mountain goat” country of the Hides field, Paton said the geology of the Barikewa structure and its Toro and Hedinia sandstones was similar – especially in terms of the ages of the reservoir rocks.

“Drilling another appraisal well at Barikewa is going to be a key activity; it could surprise us and give us a major gas resource like Hides.”

At least four wells have been spudded in PNG since November, including Elevala-2, Ketu-2 and P’nyang South-1 in Western Province and Triceratops-2 in Gulf province.

Both Elevala-2 and P’nyang South-1 have either met or surpassed pre-drill expectations while the other two wells were still busy drilling by the time of publication.

Oil Search has flagged that the ExxonMobil-operated Trapia-1 exploration well in the Southern Highlands will be drilled once the rig is mobilised from P’nyang South-1 – with this play also designed to provide more possible source gas for PNG LNG expansion.

But Oil Search is separately working on plans for its acreage in Gulf province and the Gulf of Papua, including the possible spudding of two offshore wells, with the first slated for the December quarter.

Cue regularly scours the world for petroleum opportunities but Paton said there was a lot more potential for exploration in PNG, which he considers one of the last frontiers.

“We have looked at some assets on other side of the border in Irian Jaya [Indonesia’s Papua province] – that’s relatively underexplored as well.”

Floating LNG

There are potentially two FLNG projects on the cards in PNG. The well-known one is the FLNG component of InterOil’s Gulf LNG project which is targeting 2 million tonnes per annum, but Western Province player Horizon Oil has also raised the possibility of bringing in a FLNG plant.

If the technology is feasible it would certainly offer a cost- effective solution to avoiding significant infrastructure development costs.

A floating plant is also a much harder target for any groups seeking to cause site disruptions.

Paton said FLNG would happen as Royal Dutch Shell has committed to developing the technology for its Prelude LNG project offshore Australia.

He said the major technical challenge was resolving how you transfer LNG from the floating plant to another LNG carrier at sea, where there can be significant relative motion between the two vessels.

The key issue is that the cold, pressurised LNG needs to run through a loading arm made from rigid pipe – which won’t have the flexibility to handle much ocean movement between the FLNG plant and the LNG carrier.

Paton said Shell addressed this issue by building a FLNG plant about the size of an aircraft carrier – the kind of size where in the relatively calm waters of the Timor Sea it can behave like a “piece of land”.

“An LNG carrier going alongside the Prelude plant will be like coming across a wharf,” he said.

But such an approach will not be suitable for smaller FLNG output capacities being considered in PNG.

“When you start to scale that down – that is the technical challenge that has to be addressed somehow,” Paton said.

This article first appeared in a different form in the April edition of PNG REPORT.

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