Papua New Guinea lowers its taxes to attract foreign investors.
Papua New Guinea (PNG) needs new exploration badly enough that it opened its pockets to draw international money to its underexplored interior.
Current exploration activity in PNG is the lowest it's been in the last 5 years. And while Venezuelan President Hugo Chavez raised taxes on oil and gas company operations, PNG lowered its taxes. Seeking new foreign investment, the PNG government reduced its tax rate for petroleum operations from 45% to 30% and is offering petroleum prospecting licenses (PPL) to encourage exploration for development of petroleum assets. "If you take what's happening in Venezuela and reverse it, you get PNG," said Garth Braun, chief executive officer and chairman of Cheetah Oil and Gas Ltd. The tax for normal petroleum operations is currently assessed at 50% of taxable income for petroleum projects established prior to Jan. 1, 2001, and 45% for projects after that.
The new tax rate is for petroleum companies in compliance with a petroleum development licenses granted on or before Dec. 31, 2007. To receive the new rate, companies must receive a petroleum prospecting license between Jan. 1, 2003, and Dec. 31, 2007.
"There are lots of exploration opportunities there, and the country is being under-explored," Braun said. "Although the rugged terrain of PNG presents many drilling and exploration challenges, big potential assets are still available to be drilled with large rewards. There are many challenges to overcome in PNG. And you must have an exploration team that can work with the terrain and overcome challenges."
PNG estimates reserves at 500 million bbl of oil and 15 Tcf of gas with an average oil production of about 50,000 boe/d - down from 143,000 boe/d in 1993. PNG has five major basins, and all under-explored: Papuan, North New Guinea, Cap Vogel, New Ireland and Bougainville.
The Papuan Basin is by far the most explored and developed region, with more than100 exploration wells drilled and a 15% success rate. Papuan's Fold belt has an approximate land area of 38,610 sq miles (100,000 sq km). It has 54 exploration wells drilled, 10 wells seismically constrained and seven gas and condensate fields, and current production is approximately 50,000 b/d. Papuan's Foreland land area is approximately 69,498 sq miles (180,000 sq km). It has 48 exploration wells drilled, 41 wells seismically constrained, one oil discovery, seven gas and condensate fields, and no production.
North New Guinea, last explored in 2001, has a land area of about 43,629 sq miles (113,000 sq km). There are 11 drilled exploration wells, eight wells seismically constrained, and no discovery. Cape Vogel, New Ireland, and Bougainville have a combined land area of 77,220 sq miles (200,000 sq km). The three basins were last explored in 2000. There are four exploration wells drilled with no discoveries.
There are currently three major petroleum companies operating in PNG: Oil Search Limited, InterOil Corp. and Cheetah Oil & Gas Ltd. Oil Search Limited, which has been operating in PNG since 1929, owns approximately 70% of PNG's oil reserves and more than 50% of gas reserves dedicated to the PNG Gas Project. In 2003, Oil Search bought the Chevron oil fields, and operators all of PNG's producing oil and gas fields.
InterOil Corp., a Canadian company, holds roughly 8 million exploration acres in the Papuan Basin. InterOil owns three petroleum prospecting licenses in the Eastern Papuan Basin, where field size is estimated to be 5 million bbl of oil. It recently constructed its Napa Napa refinery, the only petroleum refinery in Papua New Guinea.
Cheetah Oil & Gas Ltd. started regulatory qualification work in 2001 and graduated to licensed operator 2 years later. Braun stated, "It took Cheetah 2 years to get a license. In that time, we had to build a relationship with the government. We had to prove that we would work to develop assets, prove that we would bring money into the country and prove that we would develop our license."
Initially a small operation, Cheetah went into PNG because it could license fields on trend with successful producing wells in the Papuan Basin.
Cheetah owns five petroleum prospecting licenses and one petroleum retention license (PRL) in PNG. With its PPL 246 near the PNG Gas Project pipeline, Cheetah is a potential supplier to the PNG Gas project.
A development group headed by ExxonMobil recently approved construction on the often-delayed PNG Gas Project, a pipeline from the PNG gas fields across the Torres Strait to Australia's Cape York Peninsula and down the east coast of Australia to gas-hungry industrial markets. That pipeline offers new operators a chance to market newly discovered gas resources. The project involves transporting natural gas from PNG's southern Highlands via a pipeline over 1,863 miles (3,000 km) to Queensland, Australia. It will be the longest pipeline in the Southern Hemisphere. Expected to cost around US $3.5 billion, it has been in front end engineering and design (FEED) stage since October 2004.
PNG wants to rejuvenate petroleum exploration and production and welcomes foreign investments. However, according to Braun, it takes time to get in. "The PNG government will work with companies in exploring, and in getting a license; however, the companies must build a relationship with the government," Braun stated.
Braun also noted that PNG wants North American companies to come in to develop and explore, and there is room for a lot of exploration companies. Braun says Cheetah would like to have other companies come in and work with it on its licenses where potential producing zones are already established.
Companies interested in exploration in PNG may acquire a license through direct negotiation with the State. PNG offers five types of licenses to successful applicants: petroleum prospecting license, petroleum retention license, petroleum development license, petroleum pipeline license, and petroleum processing facility license.
The basic licensing requirements are the name and particulars of applicant, details of financial assets and technical resources, previous petroleum industry experience, and a work and expenditure program. The application fee is $2,500.
The expected turn-around time is 8 weeks from the date of application to the granting of a license. The licenses are for an initial 6-year term followed by a 5-year extension.
While PNG's reserves and production capacity don't fit the profit profiles of major oil companies, the nation may hold the key to profitable operations for a growing smaller operator.