Arbitration talks due to take place in London at the end of this month could have a major influence on the future development of Papua New Guinea’s oil and gas industry.

Gas flare at the Antelope gas field in Gulf Province. Courtesy: InterOil

At stake is the planned development by InterOil, with French-based international oil company Total SA, of what could be PNG’s second major gas project, the Elk-Antelope gas field in Gulf Province.

After many years of trying to attract a major development partner for the field, InterOil selected France’s Total SA late last year, selling it a major share in the project in a deal that was mooted to be worth up to US$3.6 billion (K9.01 billion). The deal was finally executed in March this year.

However, the deal was immediately contested by Oil Search Limited, itself already a venture partner in the existing ExxonMobil-led PNG LNG project. In a surprise tactical move, Oil Search had bought into the Elk-Antelope project by purchasing the 22.8 per cent share owned by minority partner, Pac LNG.

A decision is expected early in the first quarter of 2015.

In contesting the Total/InterOil move, Oil Search argued that, as a venture partner in Elk-Antelope, it should have had the opportunity to pre-empt Total’s offer. It therefore suggested the deal with Total was invalid.

The arbitration, which Business Advantage PNG understands will be binding on all parties, will now determine the validity of the Total/InterOil deal. A decision is expected early in the first quarter of 2015.

Options

InterOil’s Michael Hession

If ruled valid, Total, InterOil and Oil Search will have to sit down and work out a harmonious way of developing Elk-Antelope. If ruled invalid, the Total–InterOil deal will have to be undone, and the significant planning already under way jettisoned.

Moreover, such a ruling could also place Total’s major participation in PNG under question, although it also has interests in five exploration licences in the Gulf of Papua, in partnership with Oil Search.

Peter Botten, Oil Search’s Managing Director, has gone on record as saying that the Elk-Antelope project should make use of the existing infrastructure created for the PNG LNG project, perhaps contributing to additional trains at the ExxonMobil-run LNG Plant north-west of Port Moresby.

On the other hand, InterOil and Total appear to favour developing their own infrastructure independent of ExxonMobil.

‘[Elk-Antelope] is closer to infrastructure than any other developed gas field in the country and it is close to a major river, an important cost benefit when transporting people and equipment,’ said InterOil’s Dr Michael Hession said in a statement to shareholders this week.

PNG’s Petroleum and Energy Minister Nixon Duban has already signalled he would like to see the project get off the ground ‘immediately’.

‘It is a single gas field that can be developed without the expense of pipelines and processing facilities to collect gas from multiple fields.

‘We believe Elk-Antelope will support at least a two-train project and will benefit from several advantages over other gas developments in Papua New Guinea.’

Government pressure

Petroleum & Energy Minister, Nixon Duban

To add to the excitement, Petroleum Retention Licence 15, which includes Elk-Entelope, is up for renewal in April 2015. PNG’s Petroleum and Energy Minister Nixon Duban has already signalled a renewal is likely and that he would like to see the project get off the ground ‘immediately’.

The PNG State has the option of becoming a partner in the Elk-Antelope project, should it go ahead, and has already confirmed the National Petroleum Company of PNG as its potential nominee for ‘back-in’ rights.