Oil Search arbitration could 'open the door' for ExxonMobil

HONG Kong-based analysts with Bernstein Research believe Oil Search’s arbitration proceedings over the Elk-Antelope joint venture could be designed to replace French supermajor Total with ExxonMobil.
Oil Search arbitration could 'open the door' for ExxonMobil Oil Search arbitration could 'open the door' for ExxonMobil Oil Search arbitration could 'open the door' for ExxonMobil Oil Search arbitration could 'open the door' for ExxonMobil Oil Search arbitration could 'open the door' for ExxonMobil

Oil Search is pursuing its dispute over the Elk-Antelope operating agreement through the Papua New Guinea courts and arbitration proceedings in London.

But analysts have speculated that the move is intended to replace Total with PNG LNG operator ExxonMobil to expedite progress on Petroleum Retention Licence 15, which is considered to be the largest undeveloped gas-condensate resources in PNG.

The dispute related to the transaction announced by InterOil that saw it assign an interest in the Elk-Antelope project area to Total shortly after Oil Search entered the project.

It has since issued a notice of dispute to InterOil in relation to the Elk-Antelope PRL 15 joint venture operating agreement.

Writing for Platts' The Barrel blog, Christine Forster noted that that analysts were speculating arbitration proceedings launched by Oil Search were ultimately aimed at replacing Total with Oil Search's partner in the operating PNG LNG project.

"Hong Kong-based analysts with Bernstein Research, which previously dubbed Oil Search's purchase of the stake in Elk-Antelope an ‘inspired move', are now suggesting the arbitration is designed at opening the door for ExxonMobil," she noted.

Quoting Bernstein in a recent note, the blog continued: "Oil Search has challenged the Total buy-in, claiming that its own purchase of Pacific LNG Group's interest vested it with pre-emptive rights in the joint venture.

"Both InterOil and Oil Search are claiming confidence that they will prevail in the dispute, set to go to the London Court of International Arbitration for a ruling in late November. A decision is expected during the first quarter of 2015," Forster added.

"In our view the arbitration is aimed at replacing Total with ExxonMobil to achieve a more timely and efficient development of Elk-Antelope.

"Bernstein agreed that Elk-Antelope was expected to be significantly lower in cost than PNG LNG on the basis that it would not require an airport in PNG's Highlands or inter-field infrastructure.

"In addition, the pipeline would be 50% shorter and over a considerably easier route, and the project could take advantage of synergies from being built on a brownfield LNG site."

Bernstein analysts added: "Given the likelihood of a two-train development at Elk-Antelope and the capacity of PNG LNG to accommodate only three trains, the synergies with Elk-Antelope on cost and schedule could be overstated."

InterOil CEO Dr Michael Hession recently described the Eastern Papuan Basin as an exciting and emerging petroleum province.

He told investors InterOil had material interest over most of the Eastern Papuan Basin and was focused and funded to deliver two key strategies - LNG development and exploration.

The field has 9.07 trillion cubic feet of initial recoverable sales gas, according to GLJ Petroleum Consultant's best-case estimate.


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