BY MICHAEL WEST
Illustration: michaelmucci.com
THE HIGHLANDS OF PAPUA NEW GUINEA are the most expensive place in the world to drill for oil, onshore that is.
This is hostile terrain, rugged and remote. Everything from the drill rig to the workers has to be flown in by helicopter. So the well-heeled speculator can expect to spend $100 million drilling a well, whether it's a "duster" or not. It's a fancy punt when you consider the long odds of producing a return.
Insightful article by Michael West (and great illustration by Michael Mucci) covers the risks of resource development in PNG and the enigma that is the InterOil project. Read more: http://www.smh.com.au/business/big-risks-questionable-profits-20120127-1qlj9.html#ixzz1kiYHQkPN
Matate, thanks for your reply to my concerns about the reported transfer of some of PNG's interest in the LNG project to other parties.
As I understand it (and I am happy to stand corrected), PNG has/had an interest in the LNG project via its approximately 15% shareholding in Oil Search (OSH) -196,604,177, shares held by Independent Public Business Corporation worth about AU$1.3 billion at today's share price, with OSH having a 34%? stake in the LNG project.
This gives/gave PNG about 5% of the LNG project as a result of its OSH shareholding.
Now, while West's article says, "... the PNG government is there for a 20 per cent free carry. ..." you and others say that PNG's approximately 20% stake in the overall project is being financed by the sale of its already held, by virtue of its OSH shares, 5% share in the project.
Thus it is converting a 5% holding into a 20% holding. On the face of it, a good deal but, by no means the "free carry" that West asserts.
West is usually quite reliable in his reporting so I would be interested to know where the "free carry" idea came from. Perhaps you can clarify the situation?
Posted by: Michael Lorenz | 30 January 2012 at 03:14 PM
The article is half informed rubbish. PNG funded its equity share of the LNG project by issuing an exchangeable bond against its shareholding in Oil Search to the Abu Dhabi government's energy investment company IPIC.
Although at the time this was supposed to value the shares at about $10 (while they currently trade for less than $7) the funds raised have resulted in a shortfall which the PNG government now needs to fund.
The income stream from the project stream was never sold, only the smaller exposure to the project through the OSH shares.
Posted by: Matate Morola | 30 January 2012 at 01:34 AM
From Michael West's article.
... Cash-strapped as it is, Port Moresby has flicked on a part of its share to the Kuwaitis for cash. ...
It would appear from this that the previous PNG administration has already sold off some of the revenue stream from the Exxon LNG project to raise money for current budgetary commitments (...best case, worst case, trousered by the usual suspects).
I'm not sure this could be considered prudent financial management. Issuing bonds to cover the current expenditure requirements would probably have been a better idea. Where is Mr. Khemlani when you need him? :-)
Posted by: Michael Lorenz | 29 January 2012 at 11:55 AM