Last week, independent arbitration upheld InterOil’s decision to sell a gross 40% shareholding in the Elk-Antelope LNG project to French super major, Total SA. Total’s Managing Director in PNG, Philippe Blanchard, talks exclusively to Business Advantage PNG about the arbitration result and Total’s plans for the project.

Total’s Philippe Blanchard

Business Advantage PNG (BAPNG): What is your reaction to arbitration ruling? Are you happy with the ruling?

Philippe Blanchard (PB): Yes, because the claim was that the transaction which had been performed was not effective and that there were pre-emptive rights. This is not the case. So we are happy with the outcome because it is in line with what we were expecting.

BAPNG: What does it now mean for the timeline for the Elk-Antelope project?

PB: It will not kick start anything because we have already started working since we entered the licence at the end of March 2014, and since we began the conceptual studies in May 2014.

We are still working on the conceptual studies, which we said to the authorities and our partners should be completed by May 2015. So we will be in a position to announce the concept in June 2015. We will at the same time initiate all the other activities, including the financing, gas marketing and all required environmental studies.

But to keep things on track, Total needs to be appointed lead operator, which is not the case at the moment. Now that the arbitration ruling is behind us and resolved, we need to have agreement within the joint venture that Total is the lead operator for us to be able to launch the project financing and the gas marketing.

It means the project will be regarded as Total-led, in the same way as the first LNG project is known as ExxonMobil-led.

BAPNG: How will the arbitration ruling affect the relationship with Oil Search, which has a 22.8% share in the Elk-Antelope project?

PB: Our wish is that this does not affect our relationship with Oil Search. It did affect our relationship during the period of the arbitration proceedings. As Total is a company that values its partnerships, now that the arbitration and the understandings associated with that ruling are behind us, the priority is to work together.

‘We are experienced in LNG. We are present in the whole value-added chain of LNG projects, from upstream assets, to building LNG trains and trading LNG products. We are the second actor after Shell in this business.’

We will take advantage of the experience and knowledge of all our partners to be able to deliver together a good project. So we want to put this arbitration period behind us and we want to fully restore the relationship with our co-venturers. We believe there is plenty to do to deliver the project and we need the energy of everybody.

BAPNG: What does Total bring to this project?

PB: This project cannot exist if you don’t have a major oil and gas company involved. Total is one of the major companies. We are experienced in LNG. We are present in the whole value-added chain of LNG projects, from upstream assets, to building LNG trains and trading LNG products.

We are the second actor after Shell in this business. We have interests in LNG assets in the Middle East—Qatar for instance, Indonesia, Australia and Siberia—showing our strength in this field.

Moreover, we know how to manage a major project and we have shown our capacity to deliver on time and within budget such mega projects worldwide.

BAPNG: There has been a lot of speculation about whether you will create your own processing trains or add to the first PNG LNG trains? Are you close to deciding that?

PB: This is the purpose of the conceptual study—for us to find the best concept. We are currently reviewing all the elements. Since we started the conceptual study, we have discarded some options but if it is clear there are some synergies to be achieved with the PNG LNG project, we will look into them to see how they can create value for Elk-Antelope and the PNG LNG project.

‘The fact that oil prices are down can create some opportunities because we expect costs as well to decrease.’

This process is still ongoing and a decision will be taken by June 2015.

BAPNG: Global oil and gas prices have taken a hit recently. Will this have an impact on the Elk-Antelope project?

PB: Well, we are committed to the project. We have already made a big investment before we entered the licence. It is clear our interest is to deliver the project. It is a good project. I don’t believe it will have a significant impact on what we are going to do.

It just means that we have to be very careful on how we spend money because there is a constraint on capital expenditure so we need to be careful and find the right option.

The fact that oil prices are down can create some opportunities because we expect costs as well to decrease. Let’s see how the current pricing is going to last and there might be some good opportunities for the project in terms of costs, when we call for tenders.

BAPNG: What excites you about the Elk-Antelope project?

PB: I arrived in PNG last July. What is exciting about Elk-Antelope is that it is only the second LNG project. The ExxonMobil-led PNG LNG has set a benchmark that is quite high so we have to do better than PNG LNG.

It’s onshore. It’s in a country where there are environmental and social aspects, where there is plenty to do. Total, as a company, is well positioned to do it due to our worldwide experience. These are elements that are critical for us and we are respectful of the people as well as the environment.

‘The Asia-Pacific region has a completely different mindset—challenges everywhere and, personally speaking, many things to discover. It’s a complete change to what I have been accustomed to in Europe or even Africa.’

It comes very close after the projects we started in Australia, which will be completed soon. This is our next step: fitting with the Total strategy to remain one of the leaders in the LNG business.

BAPNG: And what excites you about the project at a personal level?

PB: When you are a French person like me, coming to work in PNG, it is like going to the other side of earth, working in an environment that has nothing in common with Europe.

The Asia-Pacific region has a completely different mindset—challenges everywhere and, personally speaking, many things to discover. It’s a complete change to what I have been accustomed to in Europe or even Africa.

It is really exciting.