Ahead of a targeted signing date on the 20th April 2021, the PNG Government has again increased its demands from the Pasca A Gas Agreement. The Government informed Twinza on 16th April 2021 that it now requires a 6% Production Levy in order to sign the agreement. This is 4% higher than the Production Levy that was agreed as part of the comprehensive terms (“Agreed Terms”) for Pasca A, negotiated by the State Negotiating Team and announced by the Prime Minister, the Hon. James Marape, on 24th September 2020.
The additional levy which has been requested would make the Pasca A Project unfinanceable for any investor.
The Agreed Terms would have delivered the highest State take from any resource development in PNG and were widely regarded as meeting all of the demands of the State, including early revenues, full royalty and development levy entitlement and a Domestic Market Obligation of 5-10%, whilst satisfying the requirements of project financiers.
The State formally sought to change the Agreed Terms via a letter from the Petroleum Minister, the Hon. Kerenga Kua, on 4th February 2021 (Attachment 1). The Government’s demand to raise fiscal take to 55-60% nominal share, which is 75-85% of the actual project value, would make Pasca A unviable for investors and financiers alike.
Notwithstanding the changing State positions, Twinza remains committed to PNG and progressing the Pasca A Project on the Agreed Terms. In an effort to close-out the agreement, Twinza has offered an additional concession to the Agreed Terms, to increase the Production Levy to 4%, with a further increase to 6% at higher oil prices. This will provide some 65-70% of project value to the State or 52-54% of nominal take. The State take has been independently verified by Deloitte in a comprehensive report commissioned by the Department of Petroleum and delivered to the Minister this month.
In expectation that the Gas Agreement would be signed by year-end 2020 after the Agreed Terms were announced in September by the Prime Minister, Twinza has maintained its Project team for FEED-readiness. The signing of the Pasca A Gas Agreement this month would have allowed the Project to immediately move into the Front-End Engineering and Design phase, with a final investment decision in 2022 and first production in 2025. Given the continued delays, Twinza will now stand-down the Pasca Project team until there is clarity on terms and execution of the Gas Agreement.
Chairman and CEO, Ian Munro, commented that,
“Twinza was awarded the Pasca license nearly 10 years ago as a foreign direct investor and since this time the Company has spent more than K350 million in developing a field that was discovered over 50 years ago and passed over by other industry players. It is disappointing that at the closing stages of a drawnout 10-month Gas Agreement process, the State is now seeking to again revise terms to ones that are demonstrably unacceptable to any investor. Consequently, whilst Twinza remains committed to progressing the Pasca A Project on a fair and equitable basis, the Company will streamline its costs whilst awaiting a Gas Agreement signing on acceptable terms. We remain focused on developing PNG’s first offshore oil and gas field and opening up the Gulf of Papua to much-needed investment as soon as circumstances allow.”