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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Papua New Guinea Clans Unite Against Exxon

Papuan landowners and communities in the vicinity of Exxon’s Papua New Guinea LNG project are growing increasingly disgruntled about how the company and the national government are handling royalty distribution, a Reuters investigation has found. This sentiment has led to inter-communal clashes in some areas and might lead to more serious trouble for the project.

“Our clans fought each other, but now there is peace; we are one team fighting Exxon.” These are the words of a local clan leader, Johnson Tape, one of 16 such leaders who are claiming rights over the Komo Air Field, which is used by the PNG LNG project, Reuters’ Jonathan Barrett and Tom Westbrook write.

They also relate the story of one local landowner who was promised a much higher royalty once PNG LNG began operating than she actually received. This landowner and others blame both the local government and the project operator for failing to fulfill their compensation promises. For now, it seems that this disgruntlement is more of a passive attitude, but Tape’s words could be an early warning for something worse to come.

There is a precedent. Last year, a devastating 7.5-magnitude earthquake shook the country, suspending operations at PNG LNG. The earthquake came amid growing tensions among local landowners already unhappy with Exxon’s project and with the government, sparking protests among the locals. In one part of the country, the Southern Highlands, the protests were violent enough to prompt the government to declare a state of emergency for the province.

In the Hela province, where a lot of PNG LNG production and transport facilities are located, protesters set some construction equipment on fire and landowners blockaded a wellhead in the production part of the PNG LNG project, threatening to shut it all down. That spurred the authorities into action and a little later representatives of the landowners said they were getting close to a deal with the government. Apparently, they haven’t gotten close enough to end the bad blood to date.

Related: There Is Still Room To Run For Oil Prices

The PNG LNG project cost US$19 billion and had a nameplate annual capacity of 6.9 million tons of liquefied natural gas. Yet in 2017, the project yielded as much as 8.3 million tons of LNG, according to the Reuters investigation. Since 2014, when production began, Exxon has raked in some US$18.8 billion in revenues, also according to Reuters since the company does not release figures for PNG LNG.

However, the Papuan government’s expectations for its own revenues were revised substantially down from the initial 2012 estimate of US$22 billion over the productive lifetime of the project, until 2040. Last year, these were calculated at just half the initial amount, on the back of tax deductions for the operator and its partners, and lower gas prices.

An investigation by the World Bank found that the companies behind the project had developed “a complex web of exemptions and allowances that effectively mean that little revenue is received by government and landowners.” This doesn’t really bode well for the future of PNG LNG unless Exxon and its partners somehow renegotiate the terms of their agreement to avoid a buildup of tensions with unpleasant consequences all around.

By Irina Slav for Oilprice.com

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  • Dan Foster on January 20 2019 said:
    They might have a very good case against Exxon if they were told something that didn't happen. One side of the contract did not fully understand what they signed. Therefore, not a mutual agreement of the minds.

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