SYDNEY--Exxon Mobil Corp. (XOM) is in exclusive talks with
InterOil Corp. (IOC) to invest in the latter's natural gas assets
in Papua New Guinea, a move that could cement the impoverished
Southeast Asian country's position as a new significant energy
exporter.
International energy companies are upping their bets on regions
that have previously played only small roles in the global energy
industry in response to Asian demand for clean fuels. Papua New
Guinea, better known for its jungles and tribal society, is due to
start receiving a major revenue windfall next year when the Exxon
Mobil-led $19 billion PNG LNG project starts up.
Houston-based InterOil owns the Elk and Antelope natural gas
discoveries in Papua New Guinea. In 2009, it signed an agreement
with the government to develop a large-scale liquefied natural gas
project on the country's south coast.
"ExxonMobil is in exclusive negotiations with InterOil over the
Elk and Antelope developments," an Exxon spokeswoman said by
telephone from Port Moresby, Papua New Guinea's capital,
Friday.
In a statement confirming the talks with Exxon, InterOil said it
is discussing whether gas from the Elk and Antelope fields would
support an expansion of the PNG LNG project or a new gas-export
facility. It didn't specify financial terms.
Papua New Guinea's government has insisted that InterOil bring
in a company with experience in building and operating a
multibillion-dollar LNG facility, and in the past has threatened to
terminate the 2009 agreement if its demands weren't met. In
September 2011, InterOil hired UBS AG, Morgan Stanley and a unit of
Australia's Macquarie Group as advisers to find a buyer for stakes
in the gas fields and a proposed export plant.
Relations between InterOil and the government have warmed as it
became clearer the company was closing in on a preferred
development partner.
Papua New Guinea, which has around 6.4 million people and covers
an area slightly larger than California, is a challenging country
to do business in. Little infrastructure exists outside Port
Moresby, and the hilly, densely forested terrain makes moving
around difficult.
The country comprises several thousand separate communities and
has a long-running history of tribal conflict. That lawlessness has
been exacerbated by an influx of guns and other weapons into urban
areas. The Economist Intelligence Unit ranked Port Moresby as one
of the worst cities in the world in 2011, measured in terms of
stability, infrastructure and other indicators.
Wood Mackenzie, a U.K.-based consultancy, estimates Papua New
Guinea has 26 trillion cubic feet of natural gas--roughly
equivalent to U.S. consumption of the clean-burning fuel in a year.
That likely underestimates its true potential, as Papua New Guinea
has only been lightly explored for oil and gas up to now.
Unlike rival LNG suppliers in the Middle East, shipments to Asia
from Papua New Guinea won't pass through the Malacca Strait choke
point near Singapore, increasing its appeal to investors. Shipping
costs are also lower.
On Thursday, Japan's Osaka Gas Co. (9532.TO) agreed to pay
Australia's Horizon Oil Ltd. (HZN.AU) $204 million to acquire
stakes in natural gas assets in Papua New Guinea. Horizon has made
a string of discoveries and is considering a new gas-export
facility.
Japan's Mitsubishi Corp. (8058.TO) and France's Total SA (TOT)
were among international companies to acquire stakes in gas
discoveries and exploration blocks last year.
Write to David Winning at david.winning@wsj.com and Ross Kelly
at ross.kelly@wsj.com
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