Papua New Guinea’s national oil and gas company plan to  increase household electrification and encourage growth in remote locations. Its Managing Director, Wapu Sonk, has revealed the company plans to diversify and focus on more downstream activities in order to maintain revenues.

Wapu Sonk, Managing Director at KPHL. Credit: BAI

The outlook for gas development in Papua New Guinea looks strong, says Wapu Sonk, Managing Director of state-owned oil and gas company, Kumul Petroleum Holdings Ltd (KPHL).

Already a participant in the ExxonMobil-led PNG LNG project, KPHL has already signalled its intention to take up its full share in PNG’s next including Papua LNG project, which is headed by French major Total SA.

‘We intend to exercise all our equity—22.5 per cent in those developments. We will retain 20.5 per cent and the other two per cent will be retained by landowners.’

‘We intend to utilise the Domestic Market Obligation (DMO) for electricity generation as gas feed stock for industry and to distribute LNG domestically.’

The financial advisory and asset management firm Lazard is providing an equity financing strategy for KPHL.

During the recent 3rd Petroleum and Energy Summit in Port Moresby, Sonk noted ExxonMobil’s plans to finalise its development plan for the P’nyang gas field in the second quarter of 2019, and Twinza Oil’s plans for the development of PNG’s first offshore oil field in the Gulf of Papua.

National Oil Companies

Sonk said the relationship between National Oil Companies (NOCs) such as KPHL and International Oil Companies (IOCs) such as ExxonMobil and Total SA can be complex.

‘IOCs are often driven by different objectives, such as revenue drivers, which may differ from the national agenda.’

For him the role of an NOC is to help integrate the two agendas: the IOC’s drive for profitability and the Government’s aim to build national capacity and wealth.

‘KPHL will focus more on ‘downstream activities which will bring the greatest benefits to PNG.’

‘The NOC often quickly builds up capital value. They are owned by the state and as such are part of the state’s bottom line.

‘When prices are high, so are taxes. When they are low, the flow of revenue to the state comes from dividends. That diversification wins.

‘A good NOC investment program will return long term revenues and rewards which should outlast domestic resources.

‘There is no point in establishing an NOC unless it is powerful and creates wealth for the country.’

Electricity generation

Map of current projects in Papua New Guinea. Credit: Oil Search

Sonk said NOCs tend to suffer more than IOCs when the price of oil falls because they are more exposed to upstream operations.

He said a 2017 analysis showed that between 2012 and 2016, NOCs’ average profitability fell by 30 per cent to 10 per cent.

‘Of course, the IOCs were impacted too, but not to the same extent.’

Sonk said because the majors had diversification into refining and ‘other midstream businesses’, they maintained profits and were able to mitigate the reduction in upstream revenues.’

KPHL will focus more on ‘downstream activities, which will bring the greatest benefits to PNG.’

‘We intend to utilise the Domestic Market Obligation (DMO) for electricity generation as gas feed stock for industry and to distribute LNG domestically. ‘

‘One of our key goals is increasing household electrification and encouraging growth in remote locations.’

Sonk mentioned KPHL had signed a Memorandum of Understanding with Mayur Resources to provide gas for cement manufacturing, and established a joint venture with the Japanese corporation Sojitz to produce methanol.

He says a concept study has been completed with Oil Search on domestic distribution.

‘Above all, we will invest and encourage others to invest in the electrification program to promote access to electricity and industry growth.

‘KPHL has also launched several business initiatives targeting sustainable developments, including a 50 year power plant—a 50/50 joint venture with Oil Search next to the PNG LNG project site—and providing power to Port Moresby to address the frequent blackouts.’

‘One of our key goals is increasing household electrification and encouraging growth in remote locations.’

Sonk explained the gas required ‘will only take a small fraction of the LNG, and have only a small impact on the exports,’ but he argues it will deliver a huge benefit to the nation.

Legislative changes

Sonk mentioned that the legislative changes in the Kumul Petroleum Authorisation Act 2015, have enabled the company to take a more active role in projects.

‘We are now participating early on, instead of waiting for the Final Investment Decision or Petroleum Development Licence.

‘So we are able to have early discussions and have access to data.’