Sonk outlines KPHL’s role

The National,Thursday June 23rd, 2016

THE petroleum sector is an emerging industry as indicated through the establishment of projects and emerging ones too. For the benefit of Papua New Guineans, the Government had established an entity to look after petroleum assets, the State and its people. Acting Business Editor SHIRLEY MAULUDU spoke with WAPU SONG, the managing director of Kumul Petroleum Holdings Limited (the national oil and gas company) on the State’s assets in the petroleum projects.

MAULUDU: Tell us briefly about Kumul Petroleum Holdings Limited. 
SONK: Kumul Petroleum Holdings Limited (KPHL) is Papua New Guinea’s national oil and gas company (NOC) mandated to protect and maximise the value of the country’s oil and gas assets such that it can contribute to the maximum wealth for its ultimate shareholders  – the seven million-plus people of Papua New Guinea. KPHL is created by an Act of Parliament through the Kumul Petroleum Holdings Limited Authorisation Act 2015. It replaced NCPC Holdings Limited. Since its inception in 2009 as NCPC Holdings, the national oil and gas company was operating as a commercial entity with its core interest being the interest in the PNG LNG Project. KPHL is currently responsible for managing the State’s 16.57 per cent equity in the $US19  billion (K58 billion) PNG LNG Project; becoming the third largest partner in this single largest investment made by the nation to date.
MAULUDU: Apart from the 16.57 per cent equity KPHL has in the $US19 billion PNG LNG project, we understand that the entity will also have a share in other petroleum projects in the country as well, like the Papua LNG. Does KPHL have plans to venture into and own licenses in potential gas fields in the country?
SONK: Certainly. The underlying rational in creating KPHL by the Government as a national oil and gas company is to maximise the value of the country’s oil and gas assets. This means KPHL is mandated to venture into all aspect oil and gas developments from upstream (exploration), midstream (development and productions) and downstream (export and marketing) in the country. In doing so, KPHL has acquired few assets (PRL licences) from Cue Energy in 2014 and more recently JX Nippon Assets (PRL 14).  Apart from Cue AND JX Nippon assets acquisition, KPHL is entitled to back-in to any oil and gas development licence in PNG for 20.5 per cent equity. As it stands, KPHL has the mandate to exercise the State’s equity option (shares) of any oil and gas projects in the country. As such KPHL as mandated by Kumul Petroleum Authorisation Act 2015 will take up 20.5 per cent stake in the two upcoming projects – the Papau LNG Project led by Total and the Stanley Gas project led by Repsol. the NOC is keen to promote ways to commercialise stranded resources of gas and condensate and encourage exploration around the country. KPHL is evaluating conceptual options to develop strategic infrastructure such as regional pipelines that would reduce the cost of development for small to medium-sized fields and also provide sustainable oil and gas industry. KPHL and internationally recognised Japanese company Sojitz Corporation have formed a joint working team to assess the potential benefits of constructing a methanol plant in Papua New Guinea, which further diversifies the industry and broadens the country’s revenue as well as skills development base. The plant would require a feedstock of 600bcf of cheap gas and produce methanol for export around the Asia-Pacific region and trigger domestic consumption.
MAULUDU: We understand that KPHL is also into areas of power supply and providing avenues such as the Kumul Academy for training.  
SONK: Power supply: KPHL commissioned a study with one of the world’s top consulting firms Mckinsey & Co in 2014 to develop a strategy on how best Papua New Guinea should develop its hydrocarbon resources, especially gas resource given we have certain volumes discovered in the country. And of that, close to 10.5TCF has been committed to the PNG LNG project. We found that we have close to 25TCF of discovered gas and possible and probable reserves based on current data could be around 40 to 50TCF of gas. So Papua New Guinea needs to ask the question on how do we monetise the discovered volume, how do we add more gas volume through exploration and then once we develop it, how do we prioritise them. We found that the most economical development option was for LNG development for export, followed by power generation for domestic use and balance of the gas can be used for petrochemical industry. We also found that only 13 per cent of our total population have access to power. And of the power produced so far, it’s expensive due to thermal generation cost. And because of low reliability and low efficiency in distribution, the power we produce does not reach the customers. This is why Kumul Petroleum has created a subsidiary company called Kumul Energy Limited to go into the power generation business using gas so we can hopefully improve the power generation and distribution. On the Kumul Petroleum Academy, the PNG industry-tailored Kumul Petroleum academy was launched last November. The academy is the subsidiary of Kumul Petroleum Holdings Limited that will soon provide the opportunity for Papua New Guineans to be trained at the “first live gas training centre in the South Pacific” under Kumul Petroleum Academy. It is situated at the world-class state-of-the-art training facility at Idubada near Port Moresby. The initiative is funded by KPHL’s participation in the South Pacific Employment Institute. The academy is an integral part of the Government’s overall skills and workforce development initiative. It is intended to increase national content in addressing skilled labour mobility, and where the country has failed to supply thousands of skilled workers for the PNG LNG project resulting in the outsourcing of skilled workers aboard. The academy compliments the overall Government skills training and development through our tertiary institutions but this is more tailored for each industry.
MAULUDU: What role does KPHL have in addressing landowners’ concerns, especially on issues such as Kroton Equity?
SONK: Kumul Petroleum will work with the Government to ensure the Kroton Equity option is exercised. We have been working on a solution which allows them to exercise their option. And I don’t think the beneficiaries should worry or raise issues. The option is due on June 30. And so far, no lando,J or provincial government has raised any finance to pay the State in exchange to receive the Kroton Shares, as agreed in Kokopo in 2009.
MAULUDU: Given the challenging economic times, how is KPHL managing the assets in its possession for the benefit of the people?
SONK: Kumul Petroleum is managed by professional people with many years of oil and gas experience. It has a strong and independent board. And we have prepared ourselves for the downturn in oil and LNG Prices. KPHL is a young company and has a small team so our operating cost is low and we are able to manage our operations efficiently. As for other licenses and assets outside of the PNG LNG Project, we have been adding value to the assets by way of seismic data repossessing, looking at development concepts to commercialise with our partners etc. The balance sheet has grown from 2014 onwards and we have a strong position to fulfil all our mandated responsibility of taking up State equity option in any petroleum development projects.
MAULUDU: What are some of the outstanding achievements of the entity since it came into operation?
SONK: Since KPHL’s inception as NCPK, a few notable milestones have been achieved over a few short period of time. They include:

  • The enactment by Parliament of the Kumul Petroleum Holdings Limited Authorization Act 2015 (“Kumul Petroleum Act”) which has mandated Kumul Petroleum Holdings Limited to be the national oil and gas company.  The creation of Kumul Petroleum Holdings Limited has been the result of efforts by the KPHL board, management and staff to drive the policy and legislative reforms introduced by the Government pertaining to the country’s oil and gas resources which led to the successful enactment of the Kumul Petroleum Act by Parliament;
  • KPHL joined the PNG LNG Project partners and stakeholder in celebrating the first LNG shipment bound for Japan on May 25, 2014;
  • Following the early LNG exports, KPHL paid its first dividend of K415 million to the Government;
  • Kumul Petroleum Purchased CUE Assets (PRL 9, 14, PDL 3) in September 2014;
  • On August 4, 2015, KHPL entered a MOU with Sojitz Corporation and subsequent MOA signing two months later. Sojitz is the leading proponent of a petrochemical project in PNG (methanol plant). They have invested time and financial capital in completing a pre-feasibility work and gave KPHL’s support and willingness to go next steps together under the MOU. KPHL understands such petrochemical projects would diversify and develop the nation’s industrial base;
  • October 2015 – KPHL purchased JX Nippon interest in PRL 14 (gas discovery in Bilip/Iehi/Cobra fields);
  • October 21 2015 – as part of KPHL’s corporate social responsibility programme, the NOC assisted five highly El Nino-impacted provinces with K750,000. This is the first ever major assistance given by KPHL to date apart from the K100,000 sponsorship funding towards the 2015 medical symposium;
  • KPHL launched the Kumul Petroleum Academy in November 2015. This facility will start taking the first intake in July 2016. The first 32 Papua New Guineans will start oil and gas training.

MAULUDU: What are some of KPHL’s plans going forward?
SONK: Moving away from being a passive investor, KPHL sees more advantages in recent major legislative changes. The Kumul Petroleum legislation envisaged more than just maximising oil and gas assets value. It is our intention to maximise our position in future LNG projects by actively pursuing opportunities in the open market. We will exercise our full rights as a JVP to maximise our participation, for instance in issues such as pre-emptive rights and other contractual, commercial or technical issues. We will take positions in licenses before the development licenses are issued. We are already doing this, buying into development and Petroleum retention licenses where gas has been already discovered. We are investigating alternative LNG development technologies such as mini LNG which may hold the key to unlocking some of the smaller remote gas fields, and even CNG which may be appropriate elsewhere. We are considering marketing our own LNG. By doing so, KPHL’s hare total volumes are expected to be more than 3MTPA. Some of that is currently locked up in SPA’s but a lot is not, and KPHL is considering options available. Also Kumul Petroleum Holdings Limited will apply for licenses in its own name if it believe they have potential as we progress through. The future is looking bright.