Exxon's PNG LNG project cost balloon to $19 billion
SYDNEY (Reuters) - The cost of Exxon Mobil's (XOM.N) massive gas export project in Papua New Guinea will soar more than 20 percent to $19 billion due to foreign exchange impacts and delays from work stoppages and land access issues, but it is still expected to start in 2014.
Exxon's Papua New Guinea liquefied natural gas plant, known as PNG LNG, is the country's biggest-ever resource undertaking and is expected to boost GDP by 20 percent. The gas export project spans a large portion of the island nation and will pipe gas hundreds of kilometers to an LNG export plant near the capital in Port Moresby.
Exxon told its venture partners in a letter published on Monday the project remains on schedule for start-up and delivery of the first LNG in 2014 and forecast production capacity had been increased by 5 percent to 6.9 million tonnes per year.
Australian partner Oil Search (OSH.AX) said the increase in the final estimated costs of the project was "considerably beyond the upper end of what might have been expected."
"Oil Search intends to fully review the revised estimates and is committed to working with the operator to seek to mitigate these estimated cost increases," Oil Search Managing Director Peter Botten said in a statement.
Oil Search said it expected the capital cost increase would be funded in line with the project's existing finance terms of 70 percent by debt and 30 percent by equity contributions from the projects partners.
Exxon said that foreign exchange was the largest single contributor to the cost increase at $1.4 billion.
Delays from work stoppages and land access issues had pushed up construction and drilling costs, adding $1.2 billion to the total.
Landowner protests against the project earlier this year prompted the PNG government to approve the deployment of troops to the country's Southern Highlands province to "restore law and order", according to local media reports.
Adverse weather conditions, including rainfall exceeding historic norms for most of the last two years, were estimated to have added $0.7 billion.
"Despite the cost increase, project economics are helped by the 5 percent increase in plant capacity and approximately 30 percent increase in commodity pricing since project funding in 2009," Decie Autin, PNG LNG Project Executive, said in a statement.
Exxon said it continues to asses new exploration opportunities in PNG, and the exploration results are being used to support future development studies that may include a potential third LNG processing plant.
(Reporting by Jane Wardell; Editing by John Mair)