In a story which quoted Petroleum and Energy Minister William Duma on Friday, the Post-Courier reported the National Executive Council of the government had rejected the Gulf LNG project.
But this PNG newspaper has today reported this was not the case.
According to its rival The National, O'Neill said the Gulf LNG project will go ahead if conditions of the 2009 project agreement are satisfied.
Part of those conditions include that the project will be operated by a suitable world class LNG operator - and InterOil is still in the process of selecting such a candidate with the help of three investment banks.
O'Neill also reportedly warned Duma to "desist from confusing the investment community" in regards to the Gulf LNG project.
Last week Duma told Platts he had urged InterOil to talk to Royal Dutch Shell instead of pursuing modular LNG plant development through Energy World Corporation.
"I've been encouraging InterOil to talk to Shell, but they are not in negotiations with them," Duma reportedly said.
"Shell has told [InterOil] that they want to talk [about the Gulf LNG project], so why haven't they been talking to Shell and other [majors]?"
Duma also confirmed InterOil had held preliminary discussions with a consortium comprising of Korean Gas Corporation, Japan Petroleum Exploration Company and Mitsui for LNG development.
InterOil chief executive officer Phil Mulacek has previously told PNGIndustryNews.net they are very interested.
"It's a strong consortium - it represents the largest single buyer; Kogas in Korea and a lot of Japanese interest so it's the two largest LNG markets joining together - I feel that's a positive," he said.
But Duma is clearly not supportive.
"Kogas is not an LNG plant operator, it is an importer of LNG," he told Platts.
The Gulf LNG project is targeting 5 million tonnes per annum in 2014, with 3Mtpa from an EWC-designed onshore modular LNG plant and the rest from a floating LNG facility.
There is also a proposed ramp-up aiming to hit up to 8Mtpa from the total project through 2015 and 2016.
However, these plans do differ from InterOil's project agreement in late 2009 which was based on an onshore 6-9Mtpa LNG plant adjacent to InterOil's oil refinery at Napa Napa.
InterOil recently extended final investment decision timelines with project partners Mitsui and EWC.
The FID for the condensate stripping project with Mitsui has been moved to the end of June, while the new FID deadline with EWC over the onshore modular LNG plant is December 31.
Both FIDs were previously expected in late 2011.
Shell opened its Port Moresby office in Petromin Haus in February - an event Duma attended.
Shell and state-owned Gulf LNG project partner Petromin are working on a joint technical study agreement over the "major hydrocarbon basins in PNG", which is due for completion this year.