Oil Search shares dropped more than 11% at one stage on the ASX yesterday after negotiations on developing a new gas field in Papua New Guinea collapsed at the weekend.
It was only a week ago that the company and it’s about to retire CEO, Botten were confident the talks with the PNG government would move towards some sort of deal for the new field. The talks were being led by a senior partner in the field (and PNG LNG) Exxon Mobil.
But the PNG government has now chosen to walk away from the final offer from Oil Search’s joint venture partner Exxon Mobil over the development of the P’nyang gas field after seven months of negotiations.
Oil Search shares hit a low of $6.41 before recovering a touch to close down 6.7% at $6.41.
Not helping was the sharp slide in oil prices last week on the fears about the impact of China’s coronavirus crisis.
PNG Prime Minister James Marape said in a statement issued on Friday that ExxonMobil’s final offer would benefit PNG less than similar deals in Malaysia, Indonesia, and Brunei.
“The gas belongs to PNG’s people,” he said. “We are willing to allow international oil companies to develop the field and achieve decent returns by exporting most of the gas, but PNG must also benefit.”
But Oil Search said that the cost of development and challenges of operating in Papua New Guinea was very different than other countries, making comparisons misleading.
“Under the terms proposed by the state, the joint venture partners were unable to obtain a return on their investment that made the project investable and bankable,” CEO Botton said in a statement
Oil Search said it would now seek to move forward with its $20 billion Papua LNG project, recognising that modifications would need to be made now that the P’nyang gas field development had been delayed.
Analysts believe the most likely outcome is that PNG and Exxon will eventually reach a deal for the $13 billion-plus project to develop the P’nyang natural gas field in PNG’s Western Highlands.
If agreed to and it proceeds, the project will double PNG’s gas exports by the mid-2020s.
