PERTH, April 21 (Reuters) - Papua New Guinea has enough money built up from a tax windfall to fund its stake in a proposed Exxon Mobil-led liquefied natural gas (LNG) project that could make up over half its economy, its oil minister said on Monday.
William Duma, Papua New Guinea Minister for Petroleum and Energy said the government may consider imposing a penalty for developers who abandon major gas projects to prevent oil and gas firms from sitting on leases for resource-rich lands.
“Unlike before, the government now has a lot of money and we have enough money to fund our equity in these LNG projects,” Duma told Reuters in a telephone interview from Port Moresby.
“But if we need some more (money), we can then look at bonds as the last resort. But it will be for minor sums.”
U.S. energy major Exxon Corp Corp (XOM.N) said on Friday it had reached a fiscal agreement with the PNG government for the $11 billion LNG project, clearing the final hurdle for the project to enter the front-end engineering design (FEED) phase.
Papua New Guinea has two LNG projects totalling about $17 billion on its drawing board.
Most analysts have strong confidence that Exxon Mobil’s LNG project, in which the government will take a 22.5 percent stake or about $2.5 billion, will go ahead, thanks to the project’s robust economics, relatively low cost and high liquids content.
Duma said Exxon Mobil had agreed to pay 30 percent corporate tax and that the gas agreement was expected to be ratified by mid-May.
“We are now negotiating on the technical terms such as the downstream process, government participation and how much gas to set aside for the domestic market,” Duma said.
Exxon Mobil has a 41.6 percent interest in the project. Australian-listed Oil Search Ltd (OSH.AX) holds 34.1 percent, Santos Ltd (STO.AX) has 17.7 percent, while energy retailer AGL Energy Ltd AGK.AX, Nippon Oil Corp 5001.T and PNG landowners hold the rest.
But the PNG government will be taking a 22.5 percent stake in all LNG projects, which would result in the equity of other stakeholders being reduced proportionally.
The two-train project will have a production capacity of 6.3 million tonnes a year and is targeting first delivery by 2014.
Australian consultancy firm ACIL Tasman said earlier this month the LNG project could represent about 55 percent of PNG’s economy, while Moody’s Investors Service said on April 10 that the Exxon-led LNG facility would improve the country’s government-bond rating.
A recent surge in commodity prices has resulted in a tax bonanza for resource-rich Papua New Guinea, which has also enjoyed a sixth successive year of relative political stability.
Duma said the government was concerned about companies holding retention leases without fulfilling promises to develop the fields, and may consider imposing penalties on firms that scrap major projects.
“We are sick and tired of developers that sit on reserves and don’t do anything,” Duma said. “There are things that a government can do and we haven’t ruled out imposing penalties.”
Duma said the government had warned several companies which have sat idle on the licences, but he declined to name the firms.
Apart from Exxon’s planned LNG project, Liquid Niugini Gas Ltd, a Merrill Lynch & Co-backed company MER.N, is planning a rival LNG project in the Pacific nation that would have a production capacity of 9-10 million tonnes a year.
Duma said the government will meet with officials from Liquid Niugini Gas this week to discuss fiscal and technical terms.
“I would say we are halfway through the negotiation process,” Duma said.
The government was still waiting for Liquid Niugini Gas to provide drilling results of the Elk and Antelope fields and did not have information on the gas reserves yet, he said. (Editing by Ramthan Hussain)