PNG LNG cost up by US$700m

By YEHIURA HRIEHWAZI
THE PNG LNG project is facing a cost blow-out of almost 5% increase from US$15 billion to US$15.7 billion due to the impact of a stronger Australian dollar on capital costs, according to project participants Oil Search Ltd and Santos.
The government was yet to comment on the blow-out of US$700 million and how it intended to meet its obligations which all participants must chip in amounts proportionate to their equity in the project.
Public Enterprises Minister Sir Mekere Morauta last week complained of a shortfall of K900 million to meet the state’s cash-call and he was faced with the problem of an appreciated Australian dollar forcing the financing cap to widen he may be forced to make another submission to cabinet to give him approval to source additional funding.
The K900 million shortfall he complained of had been catered for in the national budget expected to be handed down tomorrow.
However, government officials told The National over the weekend that the cost of funding the project should not be a burden on the national budget as it could be “very easily raised through a bank loan”.
They said financial institutions were eager to help the government because they knew that the first state dividend when gas is sold would be about US$700 million and the subsequent dividends would be more than US$1 billion a year.
“The government is in a very good position to raise funds and meet its cash calls and there is really no need for Sir Mekere to put the national budget under pressure and take K900 million out for something the state could easily meet through an alternate commercial arrangement,” they said.
Oil Search which has a 29% stake in PNG LNG said despite the foreign exchange impacts, the venture was on track to achieve first sales in 2014.
“We are pleased that, despite today’s highly competitive construction environment, the operator has confirmed the project schedule and that apart from exchange rates impacts, which, as highlighted previously, we have been monitoring for some time, the budget is largely unchanged,” Peter Botten, managing director of Oil Search, said in a statement.
Existing debt finance facilities would cover the increased debt component and it had ample liquidity to meet the higher equity contribution, Oil Search said.
The project was funded with 70% debt and the rest in equity.
With LNG project costs rising in the region, the announcement did not surprise some industry watchers.
“We do not consider the announcement to be a material surprise, and consider the reiterated start-up timing to be positive,” Mark Wiseman, an analyst with Goldman Sachs in Sydney said in a note.
Santos said last week it had equated cash reserves to meet its obligation in the project which saw its share price jump by over a dollar on the Australian stock exchange.