Exxon’s Papua New Guinea LNG Project Is On Track For Its First Delivery

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Exxon Mobil (NYSE:XOM) recently announced that its liquified natural gas (LNG) project in Papua New Guinea (PNG) is 90% complete and is on track to deliver its first LNG cargo in 2014. The company holds a 33% operating stake in the $19 billion project. Scalability, lower costs and proximity to Asian markets, which is expected to drive most of the growth in global energy demand over the coming years, are some of the key aspects of this project. The project is also crucial to Exxon Mobil’s plans of boosting the proportion of liquids and liquids-linked products in its portfolio. [1]

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About The PNG LNG Project

The PNG LNG project is a 6.9 million ton per annum (MTPA) integrated LNG project operated by Esso Highlands Limited, a subsidiary of Exxon Mobil Corporation. It is expected to produce over 9 trillion cubic feet (tcf) of gas and 200 million barrels of associated liquids over its life. The gas will be sourced from the Hides, Angore and Juha gas fields and from associated gas in the Kutubu, Agogo, Moran and Gobe Main oil fields. All of the contributing fields are located in the Southern Highlands and Western provinces of PNG. The gas will be conditioned in the PNG Highlands and then transported to an LNG plant located northwest of Port Moresby. After being liquefied at the LNG plant, the gas will be loaded onto ocean-going tankers to be shipped to international markets. [2]

Differentiating Factors

The PNG LNG project boasts of a substantial certified reserves base with a high liquids (crude oil and natural gas liquids) content and minimal impurities. Higher liquids content boosts revenues as oil companies earn more revenues per barrel of oil equivalent (BOE) on selling liquids rather than natural gas. Exxon’s consolidated subsidiaries sold liquids at an average price of over $100 per barrel in 2012, while the company realized average price of just over $23 per BOE of natural gas. [3] Moreover, lower impurities and the existing onshore infrastructure base from oil field development projects in the area also reduce the project’s operating costs. Proximity to the Asian markets, which will drive most of the growth in future energy demand, makes the project even more attractive due to lower transportation costs.

Because of these advantages, Exxon is looking to lock reserves for expansion of the LNG facility in PNG. During the second quarter earnings conference call, the company executives said that they are considering expansion opportunities for the project, including ongoing negotiations with InterOil Corporation and Pacific LNG for the Elk-Antelope resource. If the deal with InterOil goes through, Exxon and its partners can potentially add another LNG train at the PNG facility. [4]

Importance To Exxon Mobil

Amid depressed natural gas prices in North America, energy companies are increasingly focusing on boosting liquids production to realize better margins. Exxon Mobil is no exception to this trend. The $31 billion XTO acquisition made by the company in 2010 made it the largest natural gas producer in the U.S. However, natural gas prices have tumbled significantly since then and have weighed on the company’s upstream earnings. Exxon is therefore focusing on liquids and liquids-linked gas (LNG) production growth to boost its upstream earnings. Liquids and LNG projects are expected to contribute more than 90% to the company’s planned production ramp-up of 1 million barrels of oil equivalent per day by 2017. [5] The PNG LNG project is expected to boost Exxon’s annual production volume by more than 21 million BOE at its peak, which is equivalent to ~5% increase in its natural gas production over 2012. [3]

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Notes:
  1. PNG LNG on track for 2014, businessspectator.com []
  2. www.pnglng.com []
  3. Exxon Mobil SEC Filings, sec.gov [] []
  4. Exxon Mobil Management Discusses Q2 2013 Results – Earnings Call Transcript, seekingalpha.com []
  5. Exxon Mobil Corporation 2013 Analyst Presentation, www.exxonmobil.com []
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