Our Activities

In 2006, Oil Search undertook extensive studies into the potential for developing an LNG project based on the substantial resource existing in PNG. As a result of these investigations, it was clear that, with increasing demand for LNG globally and in the Asia Pacific region in particular, LNG offered the highest value opportunity to develop Oil Search's large PNG gas resources.  In 2007, ExxonMobil, Oil Search and other field owners of the Hides, Angore and Juha gas/condensate fields and the Kutubu, Moran and Gobe Main oil fields commenced pre-FEED studies on the potential for an LNG development based on these fields, which culminated in a decision to move into the Front End Engineering Design (FEED) phase in May 2008.

During 2008, the following milestones were achieved:

• An LNG marketing plan was established.
• A Joint Marketing Agreement was signed, covering all commercial aspects of the Project, including gas supply arrangements, unitisation principles and voting arrangements, aligning all the participants behind the PNG LNG Project.
• A Gas Agreement was signed with the PNG Government, outlining the fiscal terms under which the Project will operate.
• Front End Engineering Design (FEED) commenced.
• All required legislatory and regulatory changes were approved by the PNG Government.
• Initial financing roadshows were held.

In 2009, further progress was made, including:

• Securing LNG offtakers for the full LNG volume.
• Concluding an agreement between the PNG Government and landowners on an equitable Benefits Sharing Agreement (BSA) and finalising multiple individual Licence Based Benefits Sharing Agreements (LBSAs). These agreements set out how a number of the PNG Government and landowners' revenue streams are shared.
• Commencing early works (road and camp construction).
• Awarding Execution and Procurement Contracts.
• Securing Project Finance.
• Receiving approval of the Project's Environmental Management Plan.

On 8 December 2009, the PNG LNG Project participants formally decided to proceed with the PNG LNG Project development.

In March 2010, the PNG LNG Project commenced full execution after a number of additional milestones had been reached. These included the finalisation of financing arrangements with lenders and the signing of the gas sale and purchase agreements. Project activities ramped up significantly during 2010, with Project activities focused on the following areas:

• Mobilisation of people and equipment to PNG by the Operator, Esso Highlands Limited (a subsidiary of Exxon Mobil Corporation) and the major engineering, procurement and construction contractors.
• Procurement of long lead equipment and materials.
• Construction of training facilities in Port Moresby and in the Highlands.
• Continued early construction activities both in the PNG Highlands (including earthworks, resettlement activities, road and bridge upgrades) and at the PNG plant site near Port Moresby (accommodation camp, road bypass).
• The delivery of line pipe to Kopi wharf on the south coast.
• Commencement of Associated Gas (AG) construction in the oil fields and the PL Life Extension Project.

During 2011, most of the preparatory works and infrastructure development were completed and the main construction activities commenced. These included:

• The start of construction of the LNG storage tanks, installation of structural steelwork for both LNG trains and piling of the 2.4 kilometre jetty at the LNG plant site near Port Moresby.
• Laying of some 135 kilometres of the 407 kilometre offshore pipeline.
• Solid progress on the onshore pipeline northwards from the coast, with 106 kilometres welded and 75 kilometres buried and backfilled by the end of the year.
• Completion of site preparation and installation of the first foundations at the Hides Gas Conditioning Plant site in the Highlands.
• Significant earthworks at the Komo airfield.
• Completion of the first phase of tie-in and key equipment installations at the Central Processing Facility and the installation of a new Catenary Anchor Leg Mooring buoy at the Kumul terminal.
• The delivery of the first of two new-build drill rigs to PNG.

Project Progress in 2012

The PNG LNG Project, operated by Esso Highlands Limited, made good progress in 2012 with a number of major construction activities at or nearing, completion. The Project was 75% complete at the end of the year, with more than 105 million cumulative work hours completed, and remains on track to achieve first LNG sales in 2014.

By the end of 2012, the following key milestones had been achieved:

• At the LNG Plant, construction of the structural steelwork and the installation of all major processing equipment for the LNG trains had been completed. Welding on all 120 jetty pipe rack modules and installation of the Marine Control Building was completed on the LNG jetty. Construction of the LNG tanks and flare system was also well advanced.
• The construction of the offshore pipeline had been completed, with preparations underway at year end for final pressure testing.
• Over 215 kilometres of the 292 kilometre onshore pipeline, from the Gulf of Papua to beyond the Kutubu oil field, had been laid and welded. 176 kilometres of the pipeline had been hydro tested.
• Earthworks and foundations at the Hides Gas Conditioning Plant were completed and construction of structural steel, piping and cable installation had commenced.
• At the Komo airfield, the first layer of asphalt had been laid across half the 3.2 kilometre runway, with the final asphalt layer installed on 800 metres. Site utility buildings and facilities were nearing completion.
• Development drilling on the Hides gas field was underway using the first of two purpose built rigs.

Associated Gas and PL 2 Life Extension projects

Oil Search has an important role to play in the development of the PNG LNG Project. The Oil Search-operated PNG oil fields (Associated Gas fields) will supply approximately 20% of the total gas feedstock for the Project. In addition, Oil Search-operated facilities will handle liquids associated with the PNG LNG Project, with Project liquids stored and exported through the existing oil export system.

During 2012, the construction works at the Central Processing Facility (CPF) at Kutubu and the Gobe Processing Facility (GPF) advanced well. Key activities included the installation of two new Tri Ethylene Glycol (TEG) units at the CPF and one at the GPF, for de-watering the gas stream, and a Commissioning Gas Unit at the CPF. Towards the end of the year, equipment commissioning commenced.

Oil Search had also substantially completed the life extension refurbishment of the Kumul Marine Terminal (KMT) and the PL 2 oil export system by the end of 2012. The remaining preservation and maintenance work scope will continue in 2013.

Cost and Schedule Review

In November 2012, the PNG LNG Project operator provided the co-venture partners with a revised capital cost estimate for the Project. The Project cost has increased from US$15.7 billion to US$19 billion. Foreign exchange impacts represent the largest single contributor to the increase - total realised and estimated foreign exchange impacts, including the US$0.7 billion impact announced in 2011, have added US$2.1 billion to Project costs since Project sanction in 2009. Delays from work stoppages and land access issues, which have led to increased construction and drilling costs, have added a further US$1.2 billion to the cost estimate. In addition, adverse logistics and weather conditions, including rainfall exceeding historic norms for most of the last two years, are estimated to have added US$0.7 billion.

It is anticipated that the capital cost increase will be funded in line with the Project’s existing financing terms, namely 70% by debt and 30% by equity contributions from the Project co-venturers, as allowed for under the existing project finance arrangements. Agreements to access the supplemental debt are expected to be executed in 2013. The Company has ample liquidity to fund its share of additional equity contributions.

The operator has advised the coventurers that the PNG LNG Project remains on schedule, with start-up and first LNG deliveries expected to commence in 2014. The operator has also confirmed an increase in the LNG plant capacity, from 6.6 MTPA to 6.9 MTPA, which is available for marketing and will be sold either under contract or on the spot market.

Given the capacity increase and substantially higher oil and gas prices than assumed at Project sanction, PNG LNG remains a highly robust economic project.