Managing director Peter Botten told The Australian that he believed the construction figures presented by AGL were not robust and had not been put out to competitive tender.
PNG sources told the newspaper that the AGL estimate contained about $900 million in contingencies, making it very rubbery.
Botten told reporters and analysts that there were a range of estimates on the project, varying from "the low $4 [billions] to the low $5 billions", and much more engineering work was needed to get the numbers right.
However, AGL and its pipeline construction partner Petronas have called a halt to front-end engineering and design activities.
Oil Search has ruled out taking a stake in the Australian leg of the PNG-Queensland pipeline.
But Botten reaffirmed Oil Search's commitment to the pipeline project, describing it as the “best commercial option” for developing its sizeable gas reserves at both Kutubu and Hides.
“The PNG Gas Project infrastructure will be a quality asset and strong market interest has been received from a number of pipeline specialists and infrastructure owners for long-term participation,” Botten said.
Botten said Oil Search still believed the project had the ability to deliver “solid returns based on reasonable oil and gas price levels and achievable pipeline capital costs”.
But it was now essential that the project confirmed gas offtake quantities and locations so that the pipeline configuration and construction costs can be finalised, he said.
Botten said there were other options for commericalising its gas, including a liquefied natural gas development and a petrochemical plant.
“We recognise that there has been a fundamental change in both the oil and gas markets over the past few years and there is now a range of other attractive projects that have the capacity to commercialise our large gas resource,” he said.
But an LNG plant could not be set up before 2012, while the PNG Gas project and petrochemical developments in PNG could be brought to market in the 2009-2010 time frame.
“These projects take advantage of existing oil and gas fields and their infrastructure," he said.
"Liquids cycling opportunities and LNG developments represent robust medium-term options in the 2012-13 timeframe, utilising new pipeline infrastructure and additional fields such as Juha, to deliver further substantial growth.”
Last month, Oil Search said it was seeking $US750 million in debt financing for its portion of the PNG Gas project. Botten said the company had received a strong response from a range of banks to lead and or support financing for the project.
“The terms offered by bidding banks are the most competitive seen for any major project development in PNG, reflecting the more mature view of country risk and the demonstrated good production record over the last 14 years,” he said.
