Trouble ahead of InterOil

By YEHIURA HRIEHWAZI
THE Gulf LNG and gas stripping project being proposed by InterOil Corp is likely to hit a snag despite assurances by its chief executive officer Phil Mulacek in a conference last week that all is in order for financial investment decision (FID) next month.
Industry and government sources explained to The National yesterday that the project being proposed by InterOil and Liquid Niugini Gas Ltd (LNGL) does not meet the project specifications originally agreed to with the state in December 2009, like a “world-class single plant size of 7.6 million to 10.6 million tonne per annum to be operated by an “internationally recognised” LNG operator.
The government maintained that IOC and LNGL had deviated from the agreement and worse still, they had gone ahead and committed the state’s huge gas resources in Elk and Antelope to a fragmented and phased project without the consent of the state.
InterOil could not be reached for comment yesterday.
“LNGL and InterOil are promoting a different project based on LNG plans without seeking the state’s prior approval or amendments to the project agreement … if they continue and don’t follow the agreement, they may commit repudiatory breach of the agreement and the state could terminate the project agreement,” they said yesterday.
IOC/NLGL were already in breach by promoting a project outside of the agreement, they said.
IOC/LNGL were awarded special concessions similar to the PNG LNG project currently under construction, which included huge tax waivers on certain plant and equipment.
“Those special concessions are for the project in the project agreement, not for the fragmented and phased LNG projects,” they said.
Mulacek told the conference last week that they could still go ahead and build the project and without submitting for the petroleum development licence (PDL), something which the industry and government officials yesterday scoffed at, saying it was a “blatant disregard of the norms of doing business in this country”.
“This is not a cowboy country like Texas where you come and operate in complete disrespect to the laws of the land and the normal process,” they said.
They questioned how Mulacek could decide on FID next month without even being granted the PDL by signing a gas agreement.
“IOC/LNGL have yet to apply for PDL,” they said.
Without the gas agreement, the company cannot raise funds to build the project, let alone make any financial investment decisions because the pricing and marketing mechanisms were supposed to be spelled out in the gas agreement.
They warned that any companies that had already entered into any form of agreements with InterOil like Flex LNG, Mitsui of Japan and Energy World Corp were at great risk of losing their investments.
They said all the Elk and Antelope gas resources were dedicated to the large scale LNG project in the December 2009 agreement with the state. “Any other project and agreements with EWC and Flex LNG “has no gas dedicated to it.
“Basically if InterOil announces FID, the Gulf Project does not have any dedicated gas for it,” they said.
The officials were concerned that the IOC/LNGL had sold 14.5% of the state resources to EWC, Flex and Mitsui.
“That is clearly illegal,” they said.
InterOil has no right to pre-commit and sell gas through discounted price in order to build infrastructure by “forward selling” the gas for free and at no cost to InterOil, they said.
Another serious concern was that InterOil had also not been granted a facility processing licence for the phased small-size project it was proposing for the Gulf province.
This was bothering the industry and the government, according to our sources.
They accused InterOil of playing the stock market to “beef up” its share value at the expense of the people of PNG.
The National yesterday sighted a NEC decision of September 21, 2011, signed by Prime Minister Peter O’Neill, specifically stating that the Elk and Antelop gas resources were to be developed under the Dec 2009 project agreement and if IOC/LNGL announce FID on a project outside of that agreement, then the contract will be terminated.