The liquefied natural gas project joint venture is expected to be supplied with almost half of PNG's discovered reserves of natural gas from Oil Search's fields, with the Hides field alone accounting for one-third of the nation's known gas reserves.
Having obtained a gas agreement with the PNG Government, PNG LNG has moved into the front-end engineering design (FEED) phase, which Oil Search expects to take about 16 months.
FEED targets include securing market off-take agreements for the LNG exports in the 2008-09 period and the award of engineering procurement and construction contracts in 2009.
The execution of benefit sharing agreements with landowners and local community groups are slated for the first half of 2009 while environmental plans are set for the third quarter of that year.
Oil Search's role in the project involves delivering their component of the upstream aspect of FEED and optimising the future delivery of gas to the LNG plant from the company's numerous oil and gas fields.
Oil Search will also have to support operator ExxonMobil and the PNG Government in securing a Landowners Benefit Sharing Agreement; establishing business development opportunities for local PNG industry; training and localisation of the workforce; and providing in-country project management skills.
The company, which is listed on the Australian Securities Exchange and 17.6%-owned by the PNG Government, is also required to coordinate key parts of the project finance and meet its own equity funding needs.
The current stakeholdings in PNG LNG will change in accordance with the phase the project is in.
ExxonMobil holds 41.6% in the venture, Oil Search has 34.1%, Santos 17.7%, AGL Energy 3.6%, and Nippon Oil 1.8%. The remaining 1.2% is held by landowner interests.
Should PNG LNG become fully operational, as expected in 2013, the PNG Government will take up a 19.4% interest in the project, forcing other stakeholders to relatively scale down their holdings.
Oil Search also noted recent deals this year for Asian LNG markets. In April, the Qatar Gas II Project signed a 25-year, 2 million tonnes per annum contract with China National Offshore Oil Corporation, which Oil Search has thought was at a crude oil parity price, although the pricing of LNG deals can often be shrouded in secrecy.
With natural gas far cheaper than crude oil, and with the current high price trend of the latter, an LNG deal made at a crude oil parity price would be an encouraging indication of the strength of demand in the Asian LNG market place.
Oil Search has determined its competitive advantages compared to other LNG developments taking place around the world, with nearby Australia no exception.
The advantages outlined include its large proven gas reserves that have high liquid content and minimal impurities, and the existing infrastructure base with the Kutubu and liquids pipeline.
Oil Search said it has an excellent location for Asian markets with more competitive labour costs than Australia and the company also cited the strong government support for its project.
Despite the upsurge of LNG development activity around the world to meet Asian market demands - with at least 11 LNG developments involving new plants or plant extensions taking place in Australia - Oil Search said only a few will reach commerciality between 2013-14 when PNG LNG is expected to start production.
In its UK roadshow presentation, Oil Search said it holds one-third of PNG's known gas reserves at its Hides field.
The company said the gas supply from its various fields will have PNG LNG accounting for around half of PNG's discovered gas resources.
