Strange coincidences in oil and gas

A CABINET reshuffle was always on the cards in Papua New Guinea but what many didn’t see coming was the dumping of William Duma as petroleum minister. By Wantok
Strange coincidences in oil and gas Strange coincidences in oil and gas Strange coincidences in oil and gas Strange coincidences in oil and gas Strange coincidences in oil and gas

Duma was probably the longest serving petroleum minister, having retained the position consecutively under the current and previous Somare government.

However, there were perhaps some signals that Duma's departure was coming.

At the Mining and Petroleum Seminar held in December last year, Prime Minister Peter O'Neill and Duma both gave interesting opening addresses.

While the PM gave an overview of major government's policy shifts in the mining and petroleum sector, Duma was given the minor task of giving an overview of the proposed petroleum authority.

What was prophetic about Duma's speech was the number of times he kept thanking the PM for retaining him as petroleum minister.

Perhaps the writing was on the wall and either Duma was making a pitch to retain the post or simply thanking the PM and saying farewell.

Duma was petroleum minister under the Somare regime when the LNG project came to fruition.

His removal this week came a day before Oil Search was supposed to release its full year results.

However, at the last minute, Oil Search pulled the plug on the announcement and halted trading of its shares.

In an email to PNG media, a spokeswoman advised that the company had entered into a trading halt pending an announcement in regard to a "material transaction".

What is this material transaction? But in the context of last year's scandal surrounding Newcrest's stock market announcement, it might be a wise move.

There may be a number of reasons for the shock announcement by Oil Search but it is possible it may be related to the International Petroleum Company of Abu Dhabi (IPIC) loan.

In November 2008 at the height of the worst financial crisis since the Great Depression, the Somare government raised $A1.681 billion from IPIC to fund its stake in the $US19 billion PNG LNG project.

The deal with IPIC was an exchangeable bond arrangement linked to the government's 14.64% shareholding in Oil Search.

At the time of the deal Oil Search shares were worth less than $A3.

The PNG government made a bet with the Abu Dhabi company that by March 2014, those shares could be acquired at a strike price of $8.50 and the debt forgiven.

Oil Search shares are trading well above the strike price and are ready for plucking by IPIC.

With March just around the corner, this may indeed be the material transaction announcement that is being awaited.

Last year there was speculation that the government of PNG was dealing with major international banks to refinance the IPIC loan and retain its stake in Oil Search.

However, there is no mention of any such financial arrangement in the 2014 budget papers.

That is not to say the government won't use some other financial instrument the same way the Somare regime obtained the IPIC loan.

Within PNG, there has been much debate about the IPIC loan.

It was criticised earlier for fears that the Oil Search shares would not hit the strike price and that the state would be in huge debt.

With the share price up due to the completion of the PNG LNG project, the tone has shifted to a debate over PNG's ownership of Oil Search.

What has been lost in the conversation has been the story of one of the most successful trades by any government.

Papua New Guineans are proud shareholders of the PNG LNG project because of a clever gamble that took place at the height of the global financial crisis.

While major banks were going bust and credit was running dry, the Somare government secured a major financial deal that helped change the economic landscape of Papua New Guinea.

But given the tone of the current government regarding ownership of PNG assets, what has happened to Duma may be collateral damage for the takeover of the government's stake in Oil Search.

Duma's downfall comes just a few months before first exports from the PNG LNG project.

We are not absolutely sure of what has caused the delay in Oil Search's announcement of full year results, nor are we closer to the truth regarding Duma's downfall.

The strange coincidence of both events does, however, spell interesting times ahead for business and politics in the land of the unexpected.

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