PNG gas job blows out by $3bn plus
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MELBOURNE, Nov 12 AAP
November 12 2012, 6:24PM
Oil Search insists it will meet its funding share of the massive Papua New Guinea liquefied natural gas (PNG LNG) after costs blew out by 21 per cent to $US19 billion ($A18.34 billion).
Oil Search managing director Peter Botten said he would be chasing further information from operator Exxon Mobil about the levels of foreign exchange exposure carried by the project.
It was not currently particularly transparent, he told an analysts' briefing.
The biggest share of the $US3.3 billion ($A3.18 billion) blowout was blamed on foreign exchange costs of $US1.4 billion ($A1.35 billion), including a high Australian dollar and PNG kina.
Delays from work stoppages by unhappy workers and land-access issues had added $US1.2 billion ($A1.16 billion.) Building and drilling costs, and adverse weather caused a $US700 million ($A676.43 million) hike.
The bad news was announced by project operator Exxon Mobil Corporation, which owns 33 per cent of the project compared to Oil Search's 29 per cent stake.
The project is Oil Search's most important - and the largest resources project in PNG.
Mr Botten said it was a difficult and disappointing day.
Oil Search still owed $US740 million ($A715.08 million) in equity share costs through to the end of 2014, including an additional $US300 million ($A289.90 million) in equity following Monday's statement .
"There is capacity we believe to cover this ... the indications from the operator and our initial discussion with the banks is that the capacity is there," Mr Botten told an analysts' briefing, adding that a re-financing of funds was due in 2013.
Exxon Mobil appeared to have assumed levels of productivity based on past results, when estimating project costs.
"I believe $US19 billion as presented to us - subject to further review - is a reasonably conservative number which should take us through to first sales with contingencies covering ongoing issues," Mr Botten said.
"The extent of the change is considerably beyond the upper end of what might have been expected from cash drawdowns and project progress to date."
There have been previous foreign exchange effects, bringing the total cost increases so far to $US2.1 billion ($A2.03 billion).
Santos, Japan's JX Nippon Oil and Gas Exploration, a unit of JX Holdings, and the Papua New Guinea government are also stakeholders in the project.
Santos expects to contribute an additional $US130 million ($A125.62 million) in equity.
Shares in Oil Search fell 25 cents to $7.11, while Santos dropped 25 cents to $11.02.
Mr Botten and Santos chief financial officer Andrew Seaton each said the PNG LNG project remained a "highly robust economic project".
The project is 70 per cent complete and remains on track for first production in 2014.
The project capacity had increased from 6.6 million tonnes a year to 6.9 million tonnes, Exxon Mobil said.
The project could double PNG's gross domestic product but is opposed by many landowners near its proposed pipeline, delaying progress and requiring security.
By Greg Roberts