Kumul Petroleum has announced that the PNG government has negotiated an additional seven per cent equity with future joint venture projects with Total after ‘remobilisation talks’ regarding the Papua LNG project in Paris last week.

In November 2020, Prime Minister Marape [centre] celebrated the passing of the six bills that helped re-open the dialogue with Total for the Papua LNG project. Credit: Office of the Prime Minister and NEC via Facebook

He said the additional seven per cent free-carried equity in future joint exploration projects with Total SE will be on top of the State’s 22.5 per cent back-in rights.

‘This will effectively bring [KPHL’s] aggregate equity to near 30 per cent [in future projects].’

The equity increase for future projects was negotiated and secured on 3 May during discussions in Paris held between a PNG government delegation, led by Deputy Prime Minister Sam Basil, and a Total SE Delegation led by its Chief Executive, Patrick Pouyanné.

‘In an exceptional goodwill gesture, Mr Pouyanné has acknowledged the Marape–Basil government’s efforts to secure greater local participation for their country,’ said Sonk. ‘As part of Total’s strategic endeavour to continue cementing the relations with the national stakeholders, it was agreed that Total SE and PNG authorities would cooperate to create significant in-country value and to implement the Papua LNG project in an exemplary manner.’

The seven per cent free carry will allow Kumul Petroleum to access technical data and jointly participate as a joint venture partner without having to fund its additional equity up front.

Pushing the boundaries

Kumul Petroleum’s Wapu Sonk. Credit: WBG

The Papua LNG project, in which Kumul Petroleum is expected to take a 22.5% stake, will require US$13 billion (K48 billion) in capital expenditure by Total and its joint venture partners, ExxonMobil and Oil Search.

‘[Papua LNG] stands to turbo-charge and boost the local economy during this COVID-19 pandemic-induced economic recession and much more into the future,’ said Sonk. He said future joint exploration projects will be affected by the project, including the deep and ultra-deep offshore exploration blocks covered by the PPL 576 and PPL 579 exploration licences in the Gulf of Papua.

He said the Papua LNG agreement has ‘pushed the boundaries’ beyond PNG’s current Oil & Gas Act resource envelope provisions. Total is expected to speed up remobilisation works, with the aim of committing the balance of Pre-FEED (Pre-Front End Engineering Design) by the end of this year and commencing the FEED early in 2022. A Financial Investment Decision (FID) on the project is expected in 2023.

Marketing and finance

A positive FID will depend on a successful campaign to market the gas to customers in Asia.

‘Kumul Petroleum anticipates the resumption of our joint marketing efforts for our LNG entitlements with Total to ensure successful conclusion of Sales and Purchasing Agreements (SPAs) in the LNG Market. Kumul Petroleum will aim to conclude these SPAs by the end of third quarter of 2022,’ said Sonk.

Sonk said Total and Kumul will also explore joint equity financing options.

‘The outbreak of the COVID-19 pandemic has led to major needs for financial corporations to preserve their underlying liquidity positions. We recognise the financial stress and challenges induced by the pandemic in major financial markets, and will endeavour to leverage our combined synergies to attract major global financial institutions to finance our equity shares.’

In June 2020, Prime Minister James Marape said PNG’s oil and gas laws have been subordinated to ‘commercial Interest’ at great cost to the people of PNG. He proposed an amendment to PNG’s existing Oil and Gas Act 1998, the Oil and Gas (Amendment) Bill 2020, saying there must be a greater ‘share of revenue’ going to the government.

Editorial note: Following further clarification from Kumul Petroleum, this story has been amended to make clear that the free carry arrangement above refers to future exploration projects only and not to the Papua LNG project as previously indicated.