Monday, 12 November 2012 08:02
The cost of a liquified natural gas (LNG) project in Papua New Guinea part-owned by Santos and Oil Search has increased by $US3.3 billion ($3.18 billion) to $US19 billion ($18.34 billion).
The PNG LNG project, the country's largest resources project, is being operated by Esso Highlands Limited, a subsidiary of Exxon Mobil Corporation, and Oil Search has a 29 per stake partner.
Santos, Japan's JX Nippon Oil and Gas Exploration, a unit of JX Holdings, and the Papua New Guinea government are also stakeholders.
Esso has indicated the cost estimate for the project has risen from $US15.7 billion to $US19 billion, due mainly to foreign exchange factors, Oil Search said on Monday.
Delays from work stoppages and land access issues, and adverse weather conditions have also added to the cost of the PNG LNG project, it said.
The increased cost is expected to be met in line with the project's existing financing terms, Oil Search said, and it expects to contribute an additional $US300 million ($289.90 million) in equity.
Santos expects to contribute an additional $US130 million ($125.62 million) in equity.
"The increase in the estimated final costs of the project is disappointing," Oil Search managing director Peter Botten said in a statement.
"The extent of the change is considerably beyond the upper end of what might have been expected from cash drawdowns and project progress to date.
"In addition, the estimated foreign exchange impacts and the amount allowed for additional contingency is higher than we would have anticipated.
"Oil Search intends to fully review the revised estimates and is committed to working with the operator to seek to mitigate these estimated cost increases."
But Mr Botten and Santos chief financial officer Andrew Seaton each said the PNG LNG project remained a "highly robust economic project".
The project remains on track for first production in 2014.
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