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The PNG LNG Project is a 6.9 million tonne per annum (MTPA) integrated LNG project operated by Esso Highlands Limited, a subsidiary of Exxon Mobil Corporation. The gas will be sourced from the Hides, Angore and Juha gas fields and from associated gas in the Kutubu, Agogo, Moran and Gobe Main oil fields.

PNG LNG Project Overview

All of the contributing fields are located in the Southern Highlands and Western provinces of PNG. Over 9 tcf of gas and 200 million barrels of associated liquids are expected to be produced over the Project life. The gas will be conditioned in the PNG Highlands and then transported by gas pipeline to an LNG plant located approximately 20 kilometres northwest of Port Moresby.

The gas will then be liquefied at the LNG plant prior to loading onto ocean going tankers to be shipped to international gas markets.

PNG LNG Project Development Plan

The initial phase of development is taking place between 2010 and 2014 in the following discrete packages:

• The construction of the Hides Gas Conditioning Plant, which will collect and separate gas and associated liquids from the Hides, Angore and Juha fields.
• The drilling of eight new and two re-completed wells at Hides and two new wells at Angore.
• The construction of an airstrip at Komo near Hides.
• The construction of pipelines linking the various fields to the LNG plant in Port Moresby.
• Modifications to the associated gas fields to provide pipeline specification gas, metering and tie-ins to the onshore gas pipeline and handling of the Project condensates.
• The installation of a new commissioning gas skid at Kutubu for the initial filling of the LNG gas pipeline and commissioning of the LNG plant.
• Upgrades to Oil Search’s existing liquids export system to extend life and increase reliability.
• The construction of a two train LNG plant near Port Moresby and associated facilities. The 700 hectare LNG plant site is relatively flat, has a protected harbour and close proximity to the deep water required for LNG tankers. The LNG plant utilise APCI technology which is currently in use in a range of LNG plants globally.
• The construction of two 160,000 m³ LNG storage tanks and marine facilities to allow access for LNG tankers with capacities ranging from 125,000 m³ to 220,000 m³.
• The lease of  four LNG ships from Mitsui O.S.K. Lines, Ltd. for the portion of LNG sales which are being sold on a delivered basis.

The total cost for this initial phase is estimated at US$19.0 billion, excluding shipping costs. With a four year construction period, LNG deliveries are scheduled to commence in 2014. The Project will have an expected operational life of 30 years.

Markets

6.6MTPA of LNG from the Project is contracted to Asian buyers, comprising: TEPCO (~1.8 MTPA) and Osaka Gas (~1.5 MTPA) from Japan, CPC from Taiwan (~1.2 MTPA) and Sinopec (~2.0 MTPA) from China. The LNG has been jointly marketed, with ExxonMobil acting as marketing representative on behalf of the Project participants. The remaining 0.3MTPA will be sold either under contract or spot.

Impact of the PNG LNG Project

The PNG LNG Project has a material impact on Oil Search, which has a 29% interest in the Project:

• 504 million barrels of oil equivalent (mmboe) of proven and probable (2P) reserves have been booked to Oil Search’s reserves base.
• When the Project reaches plateau, Oil Search’s share of annual production will be approximately 19 mmboe.
• The Project provides robust financial returns and will deliver a strong and stable long-term cash flow for the Company from 2014 onwards.
• The Project development will provide significant infrastructure synergies and the LNG plant site can accommodate future LNG trains.
• Oil Search will maintain its role as the Operator of the oil fields producing associated gas and the liquids export system.

The Project will also provide a major boost to the PNG economy. An independent research group, ACIL Tasman has predicted that when the Project is in production, it will more than double the country's GDP and triple export revenues, as well as create significant employment and business development opportunities.

Competitive advantages of the PNG LNG Project

The PNG LNG Project is recognised in the market as one of the most economically robust LNG projects in the region. The benefits of PNG LNG include:

• A conventional LNG Project with no new technology being used.
• Substantial certified reserves base with a high liquids content and minimal impurities.
• Onshore location with an existing infrastructure base from the oil developments.
• Excellent location relative to the strongly growing Asian LNG markets.
• Fair fiscal regime with strong Government support.
• High liquid yield, which enhances project revenues.

• A fully aligned Joint Venture with ExxonMobil, which is highly respected for its ability to deliver major projects, as Operator.