STATEMENT ON THE P’NYANG GAS AGREEMENT NEGOTATIONS

31st January 2020


I am very disappointed to announce that, because of Exxon Mobil’s unwillingness to agree to reasonable terms in line with other international gas projects, the State’s Negotiating Team (SNT) has been unable to agree with Exxon Mobil on a Gas Agreement to underpin the development of the P’nyang gas field.

In good faith, PNG has extended the negotiation deadline to reach a mutually beneficial deal a number of times. At the same time the SNT has indicated a willingness to make significant concessions if Exxon Mobil was prepared to do the same, however, Exxon Mobil’s final offer was delivered yesterday, only one day before the final deadline and this contained no such concessions.

After several months of dedication and good faith engagement by the SNT, Exxon Mobil’s offer had barely changed from its opening offer presented last November and is not substantially different from the Papua LNG Gas Agreement.

That is unacceptable.

The gas belongs to PNG’s people. 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. It is hugely disappointing that our negotiation partners will not  agree to such terms.

Our position has not, and will not, change. Naturally, every new project must build on previous projects with improved terms for PNG, particularly when the initial terms provided by PNG were so generous. That is a normal progression in nations as successive projects are approved and developed. We insist that this also occurs in PNG.

The “State take” proposed by project partners was significantly less than our APAC neighbours such as Malaysia, where Exxon Mobil has a huge operation, or indeed by our immediate neighbours Indonesia and Brunei. It is at the lower end of the estimated State take for nations around the world published by several authorities on the matter, such as Wood Mackenzie, Daniel Johnson and Co and the Boston Consulting Group.

It is simply not reasonable for PNG to accept this.

PNG is a developing nation where less than one in five people have access to electricity. We need funds and resources to address this and other fundamental development issues. The terms we proposed to Exxon Mobil were fair, ensuring PNG benefits from the project while the international oil companies made decent returns. Our proposals were rejected as these companies tried to extract even more profit for themselves.

In reality the only progress made by Exxon Mobil over the last three months was on fundamental issues underpinning such agreements that would usually not be contentious, such as: agreeing to put milestones in place to ensure P’nyang is actually developed and not “warehoused” by Exxon Mobil and its partners; that the Development License will be considered by the Minister through the normal regulatory process; and that any agreement would use PNG’s template agreement as a basis for negotiation for development of PNG’s own gas, not one imposed by Exxon Mobil. All of these things reflect standard international practice.

Further, despite the SNT making it clear they were willing to negotiate fiscal issues, Exxon Mobil has not been willing to make any significant fiscal concessions beyond the initial terms they proposed in November, despite these terms being well below international standards for these developments.


In summary, Exxon Mobil proposed a deal that was ‘out-of-the-money’ for PNG.

We know the world is watching. PNG continues to welcome international investment and is keen to work with global partners as we develop our nation and seek economic growth that will fairly share the rewards from exporting our resources to allow us to improve our people’s quality of life. We don’t believe the last offer made by Exxon Mobil would have done that, so we have stopped negotiations at this stage to allow us to concentrate on developments already in the pipeline.

 

HON JAMES MARAPE, MP
Prime Minister