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HISTORIC OIL DEAL, SIR MOI SAYS OIL SEARCH TAKEOVER SET PNG FOR INDUSTRIALISATION By BRIAN GOMEZ and YEHIURA HRIEHWAZI (The National 19/5/03)

A HISTORIC deal has been forged under which Oil Search Ltd will become operator of the nation's multi-billion kina oil industry in October. "It is a privilege and unique for a Papua New Guinea company to take a leadership role in the oil industry," Oil Search managing director Peter Botten told The National yesterday. He said that after 74 years of operating in PNG, Oil Search was now repositioning itself as a significant operator with output of 55,000 to 60,000 barrels of oil a day. Petroleum Minister Sir Moi Avei who is already ecstatic about progress for a methanol plant in PNG was even more euphoric when this newspaper contacted him yesterday. "I've been advocating that this is the right way to go. We must support PNG-focused companies to drive the national agenda. "It's a great vote of confidence for Papua New Guinea and it is consistent with the national government's strategy to grow PNG-focused companies to get into down-stream processing," said Sir Moi. He said after 70-odd years, Oil Search has now helped to realize the national dream. "This means we are now setting the foundation for industrialization," Sir Moi said. The Minister said Oil Search would go into partnership with Japanese firms Mitsubishi and Itochu to develop the methanol plant and other gas processing facilities in PNG that will create employment opportunities. He said there was more "good news" coming for PNG. The company has undergone dramatic change in the past two to three years and would become an oil field operator in its own right in October, making a transition from its role as an oil explorer and producer. Mr Botten said that with the assimilation of staff from ChevronTexaco the number of employees in Oil Search would rise from just over 200 people to around 800. Oil Search began to position itself for a bigger role even before the formal withdrawal announcement by ChevronTexaco to sell its equity interests and give up its operator role, a move that had been signaled in this newspaper since last year. It has seconded eight technical staff into Chevron Texaco's offices in Perth and PNG as part of Asset Value Optimisation Teams. "Both ChevronTexaco and Oil Search are fully committed to ensuring a seamless transfer of responsibilities," Mr Botten said in his statement. In its announcement yesterday, Oil Search said it had been elected to succeed ChevronTexaco as operator of the following licence areas:

  • PDL2/PL2 - Kutubu, Moran and South East Manada (52.58 per cent stake)
  • SE Gobe Unit (44.96 per cent stake)
  • PDL4 - Gobe Main, SE Gobe and Saunders (57.33 per cent stake)
  • Moran Unit (51.96 per cent stake) and
  • PL219 - NW Moran/SE Moran and Manada prospects (47.52 to 66.25 per cent stake)

In the meantime Esso Highlands, a subsidiary of ExxonMobil Corp, was elected operator of retention licences PRL2 and PRL3, which contain the Juha and P'nyang discoveries respectively. The recent Oil Search annual report said cost savings of about US$15 million to US$20 million would result from the transfer in operatorship. Mr Botten said a key focus would be on greatly reduced drilling costs because this could pave the way for production increases and improved profitability. New initiatives have already seen output from Kutubu and Gobe rise in the first quarter of this year and Oil Search expects its share of total oil production - more than 50 per cent of PNG output - to increase to between 8.3 million and 8.8 million barrels this year and to between 9.2 million to 9.8 million barrels in 2004 and 2005. "This represents our worldwide oil production and our focus will be on driving profits and maximizing value of the assets," Mr Botten said, adding that this will attract even more investments into PNG.

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OIL SEARCH IN 'INTENSE’ TALKS (Post-Courier 13/5/03)

PERTH: Intense marketing efforts are continuing in a bid to secure customers for the multi-billion dollar Papua New Guinea gas project. Oil Search Ltd chief executive Peter Botten said yesterday discussions were being held with a number of potential customers. But he would not indicate when they were likely to be concluded. “We don’t put out timetables because a lot of the issues we are dealing with are not in our control,” he told AAP after addressing the Australian Upstream Gas and its Markets conference in Perth. “There are some key customers which we are having very intense negotiations with now and the results of those will become known whenever they are (finalised).” Oil Search has about 37 per cent equity interest in the pipeline project if the PNG Government exercises its ownership option, and 45 per cent otherwise. The project, which has been on the drawing board since 1996, was dealt a severe blow in December with the withdrawal of foundation customer Australian Gas Light Co as its primary initial customer. Mr Botten said yesterday it had customers committed to 60-70 petajoules of gas per year, but reports had suggested it required a commitment of 100-150 petajoules a year to proceed to the Front End Engineering Design (FEED) stage. Mr Botten said the project was not far off moving into the FEED but would not be specific on its requirement to move into that stage, saying it depended on customer mix. “Because there is potential to have a range of customers both in the Northern Territory and in Queensland together, and in the southern states . . . we have to look at what the final project will look like.” However, he said it was important additional customers were bedded down in the short term to make the project operational by around 2007-08. If the partners missed that “window of opportunity”, another may not open until around 2010. “The project will never go away, what we are looking at is a market window where there are four or five or six customers who need gas in that time frame.” Meanwhile, Mr Botten told the conference he did not believe risk associated with Papua New Guinea and the PNG Government would derail the project. “If I had to rate the chance of PNG falling over because of PNG Government issues, I would say extremely low,” Mr Botten said. He said at close to full production, the PNG gas project would represent almost 50 per cent of the country’s GDP. “If you spend $US2.4 billion in a country like PNG, it tends to have bit of an impact and it tends to get people’s attention,” he said.

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CHEVRON PULLS PIN (Post-Courier 14/4/03)

CHEVRONTEXACO’s decision to withdraw from Papua New Guinea within the next six months has been received calmly by the National Government and by locally-engaged Chevron Niugini staff. Petroleum and Energy Minister Sir Moi Avei said the oil company’s decision was based on understandable commercial realities and was not unexpected.

The move opens the door for a new operator whose plans and capacity might be a better fit with PNG’s own priorities at this time, the Minister said.

ChevronTexaco announced on Friday that it had placed its PNG assets on the market and informed its Joint Venture Participants that it would be resigning as operator of the Kutubu, Gobe and Moran projects.

The company said this was part of its drive to focus on assets more aligned with its strategic growth objectives.

The news of the withdrawal of PNG’s major oil and gas operator did not come as a surprise to the industry, or to the Government.

Although it is very large energy company globally, ChevronTexaco holds only 14 per cent of PNG’s current oil production, and a 9.7 per cent share in the PNG Gas Project.

ChevronTexaco has been at the forefront of oil exploration and development in Papua New Guinea for 20 years, and industry observers said the giant corporation had large targets in other developing oil and gas fields and believed that a company with more focus on PNG could carry on the very high standards that ChevronTexaco had established in PNG.

Staff in the field operations and in Port Moresby were the first to be informed of the decision and took the news well, Chevron Niugini management said.

Senior Papua New Guinean on the management team Wilmott Uberawa said the PNG oil and gas industry would enter a new phase of opportunity following the change of operatorship and that PNG staff had been very well trained by ChevronTexaco to meet the challenges and take the industry forward.

“We constitute a well-trained and highly experienced workforce, and I see this as an opportunity for us to take the industry forward,” Mr Uberawa said.

“It’s business as usual, and continued safe operations for us, while a new operator is decided upon.” Sir Moi said the decision by ChevronTexaco to withdraw should not have any negative impact on the PNG Gas Project.

“Oil Search and Exxon-Mobil remain as the largest owners of the gas project and they are committed to signing customers and commercialising this very large PNG resource,” Sir Moi said. “The Government and its partners in the industry also have in place several alternative strategies for gas commercialisation, which can complement the PNG Gas Project, or be done as stand alone projects.”

Commenting on the announcement, Peter Robertson, vice chairman of ChevronTexaco Corp said: “The decision to conclude our business in PNG was a very difficult one given the outstanding relationship the company has been privileged to enjoy over two decades with the people and government of Papua New Guinea. During this time, Chevron Niugini and its Joint Venture Participants have invested more than (US) $2.9 billion in PNG exploration, development and production.

“Our decision was a result of the company’s ongoing review of its global portfolio following the merger of Chevron and Texaco in October 2001. We believe the associated gas reserves from the operating oil fields make this sale particularly attractive to companies interested in future gas projects in PNG, in addition to the production of oil.

“We will leave an operation in the rainforests of PNG that we believe is unsurpassed in its environmental record and its approach to sustainable development and we’ve been delighted with the results achieved through our unique partnership with the World Wide Fund for Nature.

“We take great pride in this performance and in the recognition we’ve received both from within the industry and from environmental organisations.”

Mike Casey, Chevron Niugini’s asset manager in PNG, said the company was committed to working with all concerned — joint venture participants, employees, contractors, landowners, local communities, government officials and the new operator — to help ensure a safe and smooth transition of operations, environmental stewardship and community support.

“I’m particularly proud of the highly skilled, dedicated and hard-working employees and contractors who have made this venture a success for all stakeholders,” said Mr Casey.

“My message to any new participant or operator is that this workforce has been a vital part of the success of this venture.”

Mr Casey said he was also proud that Chevron Niugini and its joint venture participants had contributed significantly to the economic and social development of PNG.

Chevron Niugini was instrumental in establishing the Community Development Initiatives (CDI) Foundation through which the company and its joint venture participants support community health and education, environmental sustainability and agricultural activities in the Southern Highlands and Gulf provinces.

Through the Tax Credit Program, the company supports community infrastructure projects. ChevronTexaco first discovered oil in commercial quantities in the Kutubu region in 1985, with production beginning in 1992.

Since then, more than 300 million barrels of oil have been produced.

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