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24 October 2014
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New Gulf LNG claims: exclusive

BIG claims are being made as InterOil awaits official confirmation of a new agreement struck with the Papua New Guinea government over its Gulf LNG project.

InterOil's Antelope-2 well flowed 705 million cubic feet of gas per day and yielded 11,200 barrels of condensate per day in late 2009

“InterOil will issue an official press release once it receives the details of the National Executive Council [cabinet] decision,” InterOil chief financial officer Collin Visaggio told PNGIndustryNews.net.

However, he is already calling the looming agreement a win for the people of PNG and InterOil shareholders.

“We are proud to support development of PNG and its people,” Visaggio said.

He outlined key changes from the previous project agreement struck in late 2009.

These include “endorsement” that the LNG facilities will be built in Gulf province and “approval” that development can start with a minimum of 3.8 million tonnes per annum of capacity (2009 agreement required 7.6Mtpa).

The other significant change he revealed was that the government can take its 22.5% statutory share of the project for “power generation and other key infrastructure”.

There has been discussion that the government will increase its stake to up to 50% of the Elk-Antelope field which underpins the Gulf LNG project, with a share of this to be bought by the government for capital-lacking landowners.

“PNG is a sovereign country and can finance its facilities, the primary item is 22.5% and discussions for an additional amount [are] pending commercial outcomes,” Visaggio said.

On the views of the super-majors involved in bids for an operating stake of the project so far, Visaggio said they were “positive” on the recent progress.

“InterOil anticipates concluding a sale of interest in the first 3.8 mtpa Gulf LNG train, and proportionate interest in the Elk and Antelope resource in petroleum retention licence 15, to a partner or partners.

“There are major oil companies, national oil companies, and global utilities involved in the strategic asset selldown in the proposed Gulf LNG project.”

An industry source has also claimed that Prime Minister Peter O’Neill overruled his cabinet in relation to recent negotiations between InterOil and the NEC.

He said the NEC passed what he called a 50:50 split agreement on Thursday of last week.

This is a reference to what was previously covered by the Wall Street Journal which used leaked documents in a report which suggested that the PNG government could buy half of the Elk-Antelope asset for a separate LNG project.

“We have been told that 90% of cabinet spoke against the motion [split agreement] but O’Neill used his chairman’s authority [of the NEC], usable twice a term, to push it through,” the source told PNGIndustryNews.net.

In contrast, Visaggio said the NEC votes were based on a majority vote.

“It’s a democracy – this appears to be an intended spin by some with expropriation intentions,” he told PNGIndustryNews.net.

While it is not yet clear if O’Neill went ahead without majority cabinet support PNGIndustryNews.net has independently received separate confirmation that the PM of PNG can overrule a cabinet decision.

“PM can override cabinet if he so decides,” a former Somare government bureaucrat told PNGIndustryNews.net.

“However, if he puts too many offside it might become even more likely that his position will be challenged over 18 months.”

This 18 months figure is a reference to the grace period a newly elected government receives from votes of no confidence in parliament.

Coincidentally, O’Neill has recently announced a proposal to constitutionally amend this grace period to 30 months.

In regards to the existence of a 50:50 split agreement, Visaggio said this was not correct. He further said the existing 2009 LNG project agreement has always been valid and the primary basis is for the “state to have 22.5% of equity gas in kind”.

“Once we have the NEC decision I can accurately report the outcome.”

Both the source and Visaggio are at odds in terms of the estimated resources of Elk-Antelope. While Visaggio believes there is enough for 8Mtpa of LNG capacity, the source does not view this is the case and further says the government is sticking to a Gaffney Cline and Associates estimate of 5.2 trillion cubic feet of gas (P50 estimate).

To put such an estimate in context, the PNG LNG project has 9.2tcf of resources for its existing two-train, 6.6Mtpa LNG plans.

However, InterOil also has two new wells in Gulf province that should have results in the coming months. Its Antelope-3 well is underway and drilling towards the top of a targeted reef structure.

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