OIL SEARCH and its partners in a proposed liquefied natural gas project in Papua New Guinea expect to decide whether the project will proceed to the next stage - front-end design and engineering - by the end of March.
The partners, led by operator Exxon Mobil, last year said a 6.3 million tonne a year, two-train LNG development with an onshore plant near Port Moresby was likely to cost around $US10 billion ($11.25 billion), but that figure is under review.
JP Morgan has assumed the project cost will rise to $US11 billion, given capital cost decreases are exceedingly rare in the current heated market for skilled construction workers and raw materials. Oil Search said a financing review presented to the partners in December indicated "considerable market depth and capacity to provide the funding required to support the project".
Exxon expects to start marketing the LNG on behalf of the joint venture participants, including Oil Search, Santos, AGL Energy and Nippon Oil, once it has decided to proceed to the two-year front-end design and engineering phase.
After a site visit in November, a JP Morgan analyst, Mark Greenwood, said the length of the engineering phase appeared "quite staggering". The project is expected to start production in 2013 or 2014.
"We believe that a faster schedule could be achieved," Mr Greenwood said. "The fact that Exxon is setting such a conservative schedule is somewhat of a concern, because there is a tendency for project teams to meet conservative targets."
The Papua New Guinea project has been Oil Search's key growth initiative since the collapse of the proposed $8 billion PNG-Australia gas pipeline last year. "The gas project is the key thing for Oil Search, the only thing that matters, and that looks broadly on track," a Morgan Stanley analyst, Stuart Baker, told Bloomberg.
Oil Search shares closed 35c lower at $4.35 yesterday after it revealed production at its ageing PNG oilfields had fallen 2.2 per cent during the December quarter versus the September quarter.
Oil Search produced 9.78 million barrels of oil equivalent last year, giving it a record sales revenue of $US690.2 million due to the higher oil price. The company sold two of its three December cargoes at prices above $US100 a barrel.
Oil Search is undertaking a company-wide review which may result in it deciding to sell its interests in the Middle East. The projects contribute only a small amount of production and revenue. Oil Search expects to release the initial results of the review towards the end of this quarter.
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