Esso Highlands Approves EPC Contracts for $15 Billion Papua New Guinea LNG Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Esso Highlands Limited (Port Moresby, Papua New Guinea), a subsidiary of Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), recently announced that it has approved engineering, procurement and construction (EPC) contracts for the Papua New Guinea liquefied natural gas (PNG LNG) project. These approvals are subject to final project authorizations, including completion of sales and purchase agreements with LNG buyers and project financing agreements with lenders. These authorizations are expected to be concluded by early 2010. Esso Highlands is the operator of the project.

Approvals were given for the following EPC contracts:

• Hides Gas-Conditioning Plant
  Estimated at more than $1 billion in value, the EPC contract for the gas-conditioning plant was awarded to a 65:35 joint venture of Chicago Bridge & Iron Company NV (NYSE:CBI) (CB&I) (Amsterdam, Netherlands) and Clough Limited (ASX:CLO) (Perth, Australia). Under the contract, the joint venture will undertake EPC activities for the gas-conditioning plant and develop wellheads, piping and other infrastructure for the LNG project. The companies expect nearly 1,200 personnel to be employed in this venture during peak construction.
  
  
• LNG Production Plant
  Awarded to a joint venture of Chiyoda Corporation (TYO:6366) (Yokohama, Japan) and JGC Corporation (TYO:1963) (Tokyo, Japan), the $4.47 billion contract entails development of the 6.6 million-ton-per-year LNG plant, each comprising two 3.3 million-ton trains. The joint venture will also develop facilities for processing, treatment and liquefaction of natural gas, and handling, storage and loading of LNG. Construction is scheduled for completion in 2013. Nearly 8,500 workers are expected to be employed during peak construction.
  
  
• Pipelines
  Spie Capag SA (Colombes, France) will develop onshore pipelines and infrastructure for the project. Saipem SA (OTC:SAPMY) (Milan, Italy) will develop the offshore pipeline, EPC2. The firm will engineer, transport and install a 34-inch-diameter, 407-kilometer-long pipeline, linking the Omati River landfall point on the southern coast of Papua New Guinea with the onshore point near Port Moresby. Saipem will also undertake excavation and backfilling activities at Port Moresby, as well as trenching and backfilling work of a 75-kilometer section of the sea line at the Omati River landfall.
  
  
• Support Infrastructure
  A joint venture of McConnell Dowell Corporation Limited (Victoria, Australia) and Consolidated Contractors Company (Athens, Greece) will construct the Komo airfield, which will be 10 kilometers southeast of the Hides gas-conditioning plant. Construction work is scheduled to begin this month and conclude within 24 months.

In addition, Mitsui & Company Limited (NASDAQ:MITSY) (Tokyo) recently awarded a $170 million contract to Bredero Shaw (Houston, Texas), the pipe-coating division of ShawCor Limited (TSX:SCL.A) (Toronto, Ontario), to provide pipeline coatings and allied products and services for the PNG LNG project. Bredero Shaw will provide coatings for approximately 900 kilometers of pipelines with diameters ranging between eight and 34 inches, which will be protected with dual-layer fusion bonded epoxy coating or three-layer anticorrosion coating, SureFlo internal coating, and Rock Jacket mechanical protection and concrete weight coating. The contract will be executed at the firm's production units in Kuantan, Malaysia, and Kabil, Indonesia.

The $15 billion PNG LNG project is being developed in the Southern Highlands of Papua New Guinea. According to the preliminary schedule, companies participating in the project were to take a final investment decision in late 2009. The final investment decision was taken earlier this month with approvals from all the participating firms, pending completion of sales agreements and financial arrangements by early next year. ExxonMobil and its affiliates such as Esso Highlands hold a combined stake of 33.2% in the venture. Other participating interests include 29% from Oil Search Limited (OTC:OISHY) (Sydney, Australia), 16.6% from state-owned Independent Public Business Corporation (Port Moresby), 13.5% from Santos Limited (OTC:SSLTY) (Adelaide, Australia), 4.7% from Nippon Oil Corporation (TYO:5001) (Tokyo, Japan), 2.8% from Mineral Resources Development Company (Port Moresby), and 0.2% from Petromin PNG Holdings Limited (Port Moresby).

The PNG LNG project will commercialize undeveloped petroleum resources in the Angore, Hides and Juha fields, and associated gas resources in the Agogo, Gobe, Kutubu and Moran fields that are currently operational. Gas will be piped from the country's highlands to a processing facility in the northwest of Port Moresby. The project is estimated to have a production lifespan of 30 years. The first LNG cargo from the project is scheduled for shipment in late 2013 or early 2014.

It was public knowledge that ExxonMobil and Liquid Niugini Gas Limited (Cairns, Queensland), a subsidiary of InterOil Corporation (NYSE:IOC) (Cairns), had presented projects, but the government would not develop both at the same time. For additional details, view October 5, 2009, article - Papua New Guinea Government Analyzing Two LNG Projects.

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