PNG oil and gas

I FEEL compelled to write about a subject close to my heart after nearly 40-years of working to build up PNG’s capacity in the sector for the good governance of the oil and gas industry in PNG and PNG’s oil and gas resources.
These resources are not easily found, and their identification and location require immense efforts and piles of money.
The PNG Government, like most governments around the world, invites capable oil and gas firms from around the world to explore these resources deep in the ground across all the lands and seas that constitute this sovereign nation.
This is done in the national interest of all the people in PNG and expressed in law to be for public purpose, and the firms are given exclusive rights over a specific area for a defined period of time to explore.
When those oil and gas companies fail to find any accumulation of oil or gas, they depart empty-handed; that is the nature of the game.
But when they do find accumulations that may be worthy of commercial development, they are allowed to stay and develop those resources under the lawful conditions of the Oil and Gas Act, its regulations, the specific conditions of their licences and any formal agreements that they may have made with the State.
The firm has to recover the costs of: the underlying exploration efforts that gave rise to the oil and gas discovery; the delineation and appraisal of the extent of the discovered oil and gas accumulation; the extensive planning and design of wells, plants, storage and pipelines that constitute the development; the execution of works for that development of the oil and gas accumulation; the on-going production operations; the sales and marketing of the oil and gas to be sold; and finally, the abandonment of all the wells, facilities, pipelines and other facilities at the end of the project.
However, that is not the end of the story.
While the production and sale of the recovered oil and gas must cover all these exploration, development, operating, and abandonment costs, the firm still has to afford payments to and other terms of sharing with the government in recompense for being allowed to recover and sell the oil and gas.
This includes payments to the government of royalty, development levy, fees, rentals, and importantly income taxes on profits and other taxes and duties, charged by the government; and finally, in the PNG regime, up to 22.5 per cent of the project for the recovery of the oil has to be assigned to the State at the bargain price of the proportionate share of those costs attributable to the project, without any consideration of the value of the underlying oil and gas.
Only after all these expenses may the company hope to realise a profit and be able to pay a dividend to its shareholders.
In the case of the PNG regime for natural gas developments, this spilt in the profit, or take was designed to be 50:50 and even then, it took almost 20 years before we realised any gas production of significance with the start-up of the PNG LNG project exports in 2015.
These resources can be produced once only; they are the patrimony and treasure of PNG, so it behoves not just the oil and gas companies to manage their operations very well, but for the government to manage its oil and gas business very well.
It means having a strong well-staffed Department of Petroleum, or as has been planned for many years a highly competent Petroleum Authority where the very best nationals of the industry are tasked with looking after the sector.
This is not an industry for amateurs, armchair enthusiasts or charlatans. It is complex one and our political masters and community leaders need the very best advice on how to deal with it.
All of us must better understand the scale of these projects, not just in the amount of financing and costs, but in time during the full project cycle and its preparation.
We must look after our petroleum resources professionally and in a reasoned and managed way throughout the value chain right up to the point where we spend the monies created from their exploitation.

Michael McWalter, OL
Petroleum adviser-at-large