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Pacific Islands Development Program, East-West Center

With Support From Center for Pacific Islands Studies, University of Hawai‘i

Cost Of PNG Gas Project Soars By $3.9 Billion
Esso says various factors lead to increase

By Gynnie Kero

PORT MORESBY, Papua New Guinea (The National, Nov. 13, 2012) – The national government and other equi­ty partners in the PNG LNG project will have to fork out an additional US$3.3 billion (K6.9 billion) to pay for the country’s largest ever resource undertaking.

LNG operator Esso Highlands yesterday announced that cost for the project had increased to US$19 billion (K39.6 billion) from the ori­ginal estimate of US$15.7 billion (K32.7 billion).

Esso had indicated that the project cost estimate had risen due to foreign exchange factors, delays from work stoppages and land access issues and adverse weather conditions.

The increased cost was expected to be met in line with the project’s existing financing terms, the company said.

PNG government, landowners and Petromin would be required to pay according their equi­ty stake in the project.

Prime Minister Peter O’Neill was briefed on arrival yesterday from Bali, Indonesia, on the announcement by Esso.

O’Neill said last night: "It will not only be the PNG government but all equity partners, including landowners, who will bear this cost.

"There are many factors which have blown out the cost. This includes delays caused by landowners.

"The more this project gets delayed, the more it will cost for everybody involved."

A statement by the government would be made following a cabinet briefing today.

Share prices of Oil Search and Santos, who are joint venture partners, fell on the Australian Stock Exchange in response to the news.

"The increase in the estimated final costs of the project is disappointing," Oil Search managing director Peter Botten said.

Botten, however, said the company had ample liquidity to absorb the additional US$300 million (K626 million) it would be required to pay for its 29% stake in the project.

Santos was expected to contribute an additional US$130 million (K271 million) in equity.

Santos, Japan’s JX Nippon Oil and Gas Exploration, a unit of JX Holdings as well as ExxonMobil would also be required to pay addition in direct proportion to their stake in the project.

Botten said OSL intended to fully review the revised estimates and was committed to working with the project operator (Esso Highlands) to mitigate this cost increase.

"Nonetheless, even including the higher costs, the PNG LNG remains a highly robust economic project," Botten said.

Despite the increase in project cost, operator Esso Highlands announced yesterday that the PNG liquefied natural gas project capacity had increased by 5% from 6.6 million tonnes per year to 6.9 million tonnes.

The company said the increase had been achieved through system-wide optimisations as well as some minor modifications.

Esso Highlands assured co-venturers that the PNG LNG project remained on schedule with first deliveries expected to start in 2014.

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