PNG in bid to spike exploration
  from: Asian Oil & Gas
  by: John Mueller
  Friday, October 27, 2006

Papua New Guinea has entered the competitive world of petroleum concessions in a big way, promoting extensive acreage in the nation's first licence bidding round, launched in September by Sir Moi Avei, deputy prime minister and minister for petroleum and energy. John Mueller was among the observers when the PNG roadshow made its inaugural appearance, in Singapore on 13 September, before moving on Calgary, Houston, London and, finally, Perth on 10 October.

Fifteen blocks, covering 107,000km² onshore and offshore are up for grabs, located in the Gulf of Papua and Papuan Plateau, selected because of their prospectivity and proximity to discoveries in the Papuan Basin.

New fiscal incentives have been introduced for the petroleum exploration and production sector in recognition of the difficulty of exploring and operating in rugged and remote territory where there is a lack of infrastructure and unease over moderate oil production from relatively few fields.

This push to attract more investors was given a significant boost by a recent comprehensive study of the frontier region of the deepwater Gulf of Papua and surrounding area.

Reinforcing the study were a new seismic survey of around 4500 line-km and reappraisal of 30,000km of old seismic data undertaken by Fugro Multi Client Services, all of which is included in the bid package.

The Singapore bid round launch was well attended, attracting executives from more than 30 oil and gas companies including Chevron, Petronas, British Gas, CNPC, Hunt Oily, Korea Gas, Mitsubishi Oil, Nippon Oil Exploration, Repsol, Premier Oil and Singapore Petroleum.

The release takes in shallow and deepwater areas and adjoining onshore blocks. Water depths vary from 20m in the west, near the mouth of the Fly river, to over 2500m in the eastern frontier region.

The 15 blocks, grouped in the western and eastern regions of the Gulf of Papua, cover three general areas.

In the west, blocks L, M, N, O, J and K, ranging in size from 4300-6800km², are largely onshore and include shallow waters of the northwestern Gulf.

In the east, blocks A, B, C, and D, 1900- 6400km2 in extent, are located almost entirely onshore, following the coastline of a section of the southeastern shore of the Gulf.

The remaining blocks - E, F, G, H and I - are all offshore in the eastern and deepwater sections of the Gulf and vary in size from 10,300km² to 11,700km².

The bid package comprises more than 200 reports, 5000km of open file seismic transparencies, around 40 digital well logs with formation tops and gravity and magnetic, topographic and geological maps. Also included are a navigation database for historical seismic recorded in the Gulf of Papua, preliminary information to help contractors fulfill landowner and social mapping requirements, play concepts and leads and a map showing the location of oil seeps within the onshore licensing round blocks along the scarps of the Gulf of Papua.

Purchase of a bid package is a mandatory pre-qualification for any bidder, costing $65,000 each.

Bids are submitted on a work programme basis over a six-year term, split into three two-year phases, the first phase a firm commitment with the option to surrender the permit any time thereafter. In the event of a discovery, a development licence can be applied for. Relinquishment of 50% of a permit area is required after six years if no discovery is made.

Data has been assembled into a bid package and a data package, containing reprocessed and new seismic, available on DVDs. Awards will be made within two months after the close of the licensing round on 13 April 2007.

Fiscal incentives
To help kick-start exploration, petroleum prospecting licences (PPL) granted in the period 1 January 2003 to 31 December 2007 which lead to the issuance of petroleum developments licences (PDL) before 31 December 2017 will be eligible for a lesser corporate tax of 30%. This decrease is appreciable as the rate prior to 1 January 2001 was set at 50% and 45% for projects thereafter.

The government has also abolished the Additional Profits Tax with fiscal stability provisions available for a project's first 20 years.

In his presentation, Sir Moi Avei pointed out that PNG's fiscal regime allows developers to retain 69 cents on every dollar earned as gross profit, compared to 42 cents for Australia and 40 cents in the Philippines.

Also on the plus side is the exemption of oil and gas projects from GST (or VAT) and the non-application of Dividend Withholding Tax on oil and gas projects.

Other terms and conditions include the right of the government to take up a 22.5% equity in projects, bearing its share of costs, receive a 2% royalty, claimable as a deduction against corporate tax, and charge a 2% development levy, based on wellhead value.

Seismic
In preparation for the bidding round, Fugro obtained 4523km of new nonexclusive 2D seismic data, the largest regional survey undertaken in PNG. Acquired between February and May this year, the data is of particular importance in the deepwater area to the east where there was almost no existing seismic coverage.

Fugro also re-evaluated just over 30,000km of seismic data, reprocessing 16,702km of pre-stack and 9090km of post stack records and processing 4234km of scanned and vectorised information. The reprocessed vintage data in the eastern frontier area has revealed thick sedimentary deposits below what was previously believed to be a shallow basement reflector.

In order to image the deeper geological section, the survey used a 7200m cable, detecting the presence of previously unknown grabens in the eastern deepwater blocks.

Geology
Exploration in the Gulf of Papua has been sporadic and mainly focused in shallow water depths, resulting in a number of subcommercial gas and gas/condensate discoveries. The likelihood of prospects in the deepwater portion of the Gulf of Papua and surrounds has been significantly heightened through a major joint study conducted by Chinampa Exploration and the PNG Department of Petroleum & Energy, greatly aided by the new Fugro seismic survey.

Despite limited well control and paucity of seismic data, the regional study of the deepwater portion of the Gulf of Papua indicated a number of large structures at a variety of stratigraphic levels capable of holding appreciable volumes of hydrocarbons.

The newly reprocessed seismic data indicate plays, ranging from Permian through Jurassic and Crataceous to Late Tertiary, comprising 11 types that include extensional fault blocks, turbidites, fans, deltas, reefs, intra-basinal highs and stratigraphic onlaps, and plate compressional features.

Structure in the region is mostly basement involved and extensional, overprinted by a later compressional pulse. The recognition of a thick Paleozoic depositional system has led to a reinterpretation of the geology and an upgrading of prospectivity of the whole Gulf of Papua region and opened new exploration possibilities. A Permian petroleum system is inferred to contain liquid-prone source rocks and reservoirs, by comparison with the Bintuni-Salawati basins in Indonesia. Other new plays have been noted, including deeper sandstone equivalents such as to the Toro-Iagafu- Hedina formations.

The hydrocarbon resource figures for PNG so far indicate a very gas dominant depositional environment. Recoverable natural gas reserves are put at 15tcf with proven crude oil reserves variously estimated at only 170- 245 million barrels. Production is modest with gas output reported at 3.5-5bcf per annum and oil, by one authoritative source, put at 50,000b/d.

Development path
PNG poses considerable challenges to realising the benefits of its substantial gas and oil potential.

The ambitious PNG to Queensland gas pipeline is looking less and less likely as a result of both funding and customer base uncertainties and rising materials and construction costs. Under this transnational pipeline scheme, gas markets in Australia up to 3000km distant are envisioned as the recipients of dry gas from a number of fields in the Southern Highlands where the PNG Gas Project would extract gas liquids prior to transport (AOG July/August 2002).

Consequently, a number of alternatives employing gas to liquids technologies (GTL) are being investigated with greater intensity.

PNG LNG has been formed by a partnership of InterOil, Merrill Lynch and Pacific LNG, an affiliate of Clarion Finanz, to develop a proposed LNG facility adjacent to the InterOil oil refinery, located across the harbour from Port Moresby.

Oil Search has signed a pre-development agreement with Mitsubishi Gas Chemical and Itochu to review the feasibility of building a world-scale methanol/DME (dimethyl ether) plant in PNG.

Compressed Natural Gas (CNG) is also being examined as an alternative to diesel and fuel oil electricity generation for markets in PNG, some Pacific Islands, New Zealand and possibly northern Australia.

Acknowledging the drawbacks and law and order problems traditionally associated with his country, Sir Moi Avei emphasized that Papua New Guinea has experienced stability in the past few years and hosted several world-class mining and petroleum projects developed and operated by the likes of BHP Billiton, Chevron and ExxonMobil and major PNG asset holders InterOil and Oil Search. AOG

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