Exxon Mobil Corp.’s US$11 billion liquefied natural gas venture in Papua New Guinea signed its first sales accord with a customer, making it more likely other buyers will agree to purchase contracts.
The agreement, which needs government approval, is for the sale of 2 million metric tonnes of LNG a year to “a major Asian customer,” Port Moresby-based Oil Search Ltd, a venture partner, said today in a statement to the Australian stock exchange. Two or three further agreements are expected “in the near term,” said Managing director Peter Botten.
Exxon and its partners, which include Santos Ltd, are aiming to give their final go-ahead for the project, the largest investment in Papua New Guinea, by the end of the year. Progress in marketing the LNG amid the recession gives the partners increased confidence all the plant’s capacity will be contracted by mid-year, Oil Search said today.
The preliminary sales accord “is fantastic news,” said Adrian Wood, an oil and gas analyst at Macquarie Group Ltd in Sydney. “Everyone was worried about securing a contract in this market, and they are basically there.”
Oil Search dropped 4 cents, or 0.8%, to A$5.10 on the exchange at 2:38 p.m. in Sydney, a better performance than the 2.9% slump in the benchmark energy index.
The LNG market outlook for the 2013-14 period, when the 6.3 million tonnes-a-year venture is due to start shipments, remains “robust,” Botten said. Oil Search is “extremely comfortable” with the terms in the first sales accord, he said in an interview.
Oil Search is talking to potential customers in China, India, Japan, South Korea and Taiwan, Botten said. The sales agreement should build momentum for the project among other LNG buyers, he said.
“As one signs up that certainly gives confidence to others to come and join,” he said by phone. News of the accord follows prime minister Sir Michael Somare’s visit to China last week.
Agreements on long-term LNG sales contracts have been slowed by caution among buyers because of the recession and uncertain demand outlook. LNG spot prices are being hurt by increased supply and waning consumption, making buyers reluctant to sign contracts at higher prices, Singapore-based consultant FACTS Global Energy said last month.
‘Beacon of Profitability’
Talks with financiers, which Oil Search said last year may provide more than US$9 billion of debt financing for the project, are on schedule, the company said today. The financing will probably be provided mostly by export credit agencies and may include a bond sale should that market continue to “open up,” Botten said.
The project is well placed to go ahead as it breaks even with prices as low as about US$36 a barrel, Macquarie’s Wood said.
“So many competing projects that Exxon would be looking at would be underwater at this kind of oil price,” Wood said. “This one stands out as a beacon of profitability.”
Crude oil traded in New York has dropped about 69% since a July record of US$147.27 a barrel and was at US$45.96 at 3:11 p.m. Sydney time.
Oil Search, Papua New Guinea’s biggest oil producer, today reported a 59% dive in first-quarter sales because of lower prices and output.
Sales dropped to US$71.4 million in the three months ended March 31, from US$172.5 million a year earlier, the company said. Production slid 14% to 1.9 million barrels of oil equivalent, hurt by an unscheduled shutdown of a loading terminal in the Gulf of Papua for repairs and maintenance.
The company sold crude oil for an average of US$45.83 a barrel in the quarter, less than half the level of a year earlier. Oil Search maintained its full-year production forecast of between 8 million and 8.3 million barrels of oil equivalent.
LNG is natural gas that has been chilled to liquid form for transportation by ship to destinations not connected by pipeline.