Exxon Mobil Corp. is in exclusive talks with InterOil Corp. 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. agreed to pay Australia's Horizon Oil Ltd. $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. and France's Total SA were among international companies to acquire stakes in gas discoveries and exploration blocks last year.