Papua New Guinea said Sept. 3 it will honor a gas deal that Total SA signed with a previous government for a $13 billion plan to expand gas exports, after securing minor concessions from the French company.
The decision removes uncertainty over the plan to double LNG exports from the Pacific nation that arose after new Prime Minister James Marape came to power in May promising to win more benefits for the impoverished country.
The Papua LNG gas agreement is one of two agreements needed for Total and its partners, Exxon Mobil Corp. and Oil Search Ltd., to go ahead with the LNG expansion plan.
"The government has now cleared Total to proceed full steam ahead with the implementation of the Papua Gas Project," Petroleum Minister Kerenga Kua said in a statement.
Doubts about the gas deal escalated in August, when the government suddenly called for talks to revise the agreement.
Kua said Total had made some concessions, promising to prepare a detailed plan outlining how much local equipment and services would be used in the project and to negotiate with any third party wanting access to the project's petroleum pipelines.
It would also be willing to negotiate for Papua New Guinea to take a stake in the pipelines after the state has repaid all its loans and costs on the project, and would consider buying LNG carriers in a joint venture with the state.
"Most of these are substantial new concessions on potential future benefits," Kua said.
The companies had insisted that the Papua LNG gas agreement that Total signed in April should be honored, and Oil Search warned in August that costs on the project could rise if it was delayed by prolonged talks.
An analyst said the government had capitulated to Total, winning only non-committal offers to consider future steps that might benefit the country.
"This is a big win for the industry, but they can't say that, because they need to let the prime minister and Kua save a little political face," said the analyst, who declined to be named as he had yet to publish a note to clients.
The three companies welcomed the government's decision.
"We are looking forward to working with the Government of PNG to conclude the required gas agreement for the P’nyang project," Exxon Mobil said in an emailed comment, referring to the second of the two agreements needed.
Shares in Oil Search, which have dropped over the past three months amid uncertainty over the gas agreements, closed 2.1% higher shortly after the government's announcement in a flat broader market.
"There should be a handsome re-rating," Adrian Prendergast, an analyst at Morgans, said a day ahead of the announcement.
"In the time the political developments have been happening it [Oil Search] has really derated more than the total value that we place on this expansion."
At Sept. 2's close, Oil Search shares were down about 14 percent since the previous prime minster stepped down.
Island residents receive reliable flow of LNG for power generation.
The Texas Petro Index declined in November and December 2018 on the heels of 23 straight months of growth, in response to dramatic declines in crude oil prices in the last two months of the year.
The U.S. has become the world's largest oil producer, boosted by output from shale formations, with production of nearly 11 million barrels in 2018, which broke the country's annual record set in 1970.