The lush jungles of Papua New Guinea are proving to be a fertile hunting ground for ExxonMobil and its Australian partner Oil Search.
The two have enjoyed more success from their exploration campaign up in the PNG highlands, which is being undertaken to support a possible expansion of the $15.7 billion PNG LNG gas-export project down on the coast near Port Moresby.
The giant terminal is on track to ship LNG cargoes from its foundation stage comprising two LNG production units to customers in China, Japan and Taiwan in 2014.
An expansion to three production units could precede another string of multibillion dollar offtake deals that would improve the project’s economics substantially, especially since extra bits bolted onto existing LNG developments are always cheaper to build than the foundation stage.
All that’s needed is more gas and Exxon and Oil Search are coming up with the goods. In the latest development, Oil Search told the Australian Securities Exchange that what’s known as a “sidetrack well” to the recent P’nyang South-1 well has found the original gas zone extends about 200 meters deeper, indicating an increase in the total gas column to about 380 meters.
A gas column of that magnitude is big by any standards. What’s more, Oil Search said early testing such as seismic interpretation and structural mapping indicates their could be more gas further up the geological structure, indicating a potential vertical gas column in the P’nyang field of over 650 meters.
Given the company-transforming nature of PNG LNG to Oil Search, it’s not surprising it’s shares had jumped 4.6 percent in early trade in Sydney Friday. Shares in Santos, which has a minority stake in PNG LNG, tacked on 0.6 percent in a wider market down 0.1 percent.
James P. Bullen, an analyst at Merrill Lynch, reckons the Greater P’nyang area could hold over 3 trillion cubic feet of gas. It’s widely recognised in LNG circles that about 4 trillion feet is needed to support a single LNG processing unit, also known as a train.
Exxon and Oil Search still have more ground to test including the Trapia and Hides prospects, while Oil Search individually is sitting on vast untested acreage in the Gulf of Papua that could underpin a another LNG development in PNG.
Given the rate of discoveries so far, the idea of a fourth train at PNG LNG will be moving to the front of investors’ heads, regardless of what Oil Search may do with its Gulf of Papua assets.
Any expansion will have significant implications for the likes of Chevron, Shell and Woodside, which are mulling expansions to their LNG projects nearby in Australia that will have to compete with Exxon and partners for customers and funding.-By Ross Kelly