Twinza Oil is the developer of the first offshore hydrocarbon development project in Gulf. News editor Gynnie Kero spoke with the managing director of Twinza Oil, Huw Evans, following a ministerial determination signed last month.
Huw Evans
Q. Now that the determination has been signed, where does this place Twinza?
Evans: The Ministerial Determination is an important pre-requisite for the development forum, a forum prescribed by the Oil and Gas Act which is held between the national government and the landowner beneficiary on the project.
Twinza will only be an observer in this forum if invited by the Government. The Pasca A project is 85km out at sea within the Exclusive Economic Zone and given that there is no clan landownership over the Pasca A field, as indicated in the gazetted Ministerial Determination, we understand that the development forum will be between the Gulf government and the National Government.
Q. Does this mean Twinza will commence the FEED stage soon? If so, when?
Evans: The commencement of the front-end engineering and design, or “FEED”, stage will be after the conclusion of approvals with the national government on the project’s gas agreement and development licence. Agreement of the project’s fiscal terms under the gas agreement with the National Government will be a significant step for the project to commence FEED.
We are currently in discussion with the Government on the commencement of the gas agreement.
Q. When is it likely for the PDL (Petroleum Development Licence) to be granted?
Evans: We are currently concluding the final steps with the Petroleum Department prior to the awarding of the PDL. All the technical and economic reviews and assessments on the project are complete.
Twinza has met all the requirements for the PDL application and the next step is for a meeting of the Petroleum advisory board of the Petroleum Department to consider the awarding of the Pasca A PDL.
The other key requirement besides the PDL is the gas agreement which sets the fiscal terms and legal framework between the National Government and the project.
As stated, Twinza is working closely with the Petroleum Department and the Petroleum minister (Kerenga Kua) and hopes to conclude these negotiations before the end of the year.
Q. I understand that Twinza has begun seeking expressions of interest from PNG vendors seeking to participate in the project. Who in particular does Twinza have in mind? What is the role of the vendors in PASCA A?
Evans: Twinza is seeking expressions of interest from potential vendors who are PNG-owned or registered companies who wish to participate in our development story for the Pasca A project.
This is the first offshore project far out in open sea so we do not expect to find capable vendors and companies right from day one but as part of our local content plan, we hope to work with bona-fide PNG entities who are looking to develop their business or seek to provide their services to the project.
While some scope will be highly technical in nature, there are other scopes such as in logistics and transportation or catering which could be easily taken up by local PNG companies. Local content development is a large part of the Government’s aspiration for new projects in oil and gas within Papua New Guinea and for Pasca A project, Twinza is fully on board with maximising local content where possible. For now we are only seeking expressions of interests (EOIs). These EOIs will be screened and following approvals from the National Government for the project to go ahead, suitable service vendors responding to the EOI will be invited to bid their services for the project.
This will most likely be after the project has completed its FEED.
Q. What will be the products from Pasca A? How much will be produced on a daily, monthly, quarterly or yearly basis?
Evans: The project will be producing condensate, LPG and natural gas. Condensate and LPG will be produced initially followed shortly after by monetisation of natural gas through LNG production and export.
Production will average approximately 19,000 barrels per day of which 55 per cent is condensate and 45 per cent is LPG. These levels of production will be steady throughout the liquids’ extraction phase of the project.
Gas monetisation of the Pasca A field alone will produce around 700,000 tonnes of LNG per year for 12 years, starting a few years after production of LPG and condensate. This equates on average to about one LNG cargo per month.
There are opportunities to expand the LNG production in the Gulf of Papua with the Pasca project as the catalyst for a wider aggregation of discovered yet undeveloped gas resources and we are working closely with the State to explore how we can bring that about.
Q. How will the products be stored and sent to markets since Pasca A is an offshore project?
Evans: The LPG and condensate will be stored on a floating storage and offloading vessel (FSO) which is essentially a ship with separate storage tanks in its hull which hold the condensate and LPG in a liquid form.
Cargo ships for the LPG and condensate products will berth alongside the FSO to load the products into their own tanks and from there transport them to market. A good portion of the products will be going to international markets within the Asia-Pacific region.
We are yet to finalise discussions with the State but a portion of the LPG production is being considered for the PNG domestic market in line with the Government’s aspiration for domestic market obligation for new upstream oil and gas projects.
Gas monetisation of the field through LNG export will be through a floating LNG barge which will produce and store LNG for export to market using LNG cargo carriers.
As described earlier, this scheme will be in place a few years after production and export of condensate and LPG.
Q. Project timeline and costs?
Evans: The cost for the liquids phase of the project is approximately US$640 million (K2.17bil) with most of the cost arising from development drilling, construction of the production facilities (a small wellhead platform and a larger production platform) and construction of the FSO.
All the facilities will be installed offshore in the Gulf of Papua using industry-proven offshore designs that have been successfully deployed in other offshore locations for many decades.
The schedule involves approximately eight months for FEED followed by 28 months for detailed engineering, fabrication and installation.
This is 36 months or three years overall.
As previously mentioned, Twinza is working closely with the Petroleum Department and the Petroleum minister (Kerenga Kua) to conclude negotiations on the Gas Agreement which could lead to award of the PDL before the end of the year. On this basis Twinza would anticipates first liquids production at the end of 2022.
Looking a little further beyond the initial production phase, the full field development includes export of the gas using floating LNG. This scope would involve addition of a short flowline to a liquefaction barge moored close to the production facilities.
Initially, the barge would have capacity to produce around 0.7 million tonnes per annum of LNG at an additional cost to the project of US$790 million (K2.68bil).
Q. How different will this project be compared to onshore projects?
Evans: The key difference is the location – being 85km from the nearest shoreline. This distant and remote setting places the project outside landownership claims which simplifies stakeholder engagement as we have primarily the National Government and its relevant arms to interface with.
Nevertheless, it also presents some logistical and technical challenges. For example, space for the surface facilities will be constrained and the design of the facilities will have to consider conditions such as the sea state through the year and occurrence of weather events such as monsoons and tropical storms.
The Gulf of Papua has a six-month weather window which means the sea state is generally calmer from October to April. Rough seas are generally experienced from May to September during which time, activities on location requiring a steady sea state such as installation will be limited.
This is a constraint that the project must consider in its design and operational planning to ensure continuity of operations and production. Another difference between Twinza’s Pasca A concept and other onshore projects in PNG is the scale of the LNG scope.
The size of the Pasca A field places it into the category of a small-scale LNG facility. Since only a single train of liquefaction equipment is required, this can easily be built onto an offshore barge as a far smaller footprint is required in comparison to a large onshore plant. While the downside to this approach is that there is less opportunity for economics of scale that are afforded to large developments, because the Pasca A field is already located at location accessible to LNG cargo tankers, there is no need for a long (and expensive) pipeline to deliver the gas from the field to a separate export location.
Q. Benefit sharing, since there will be no landowner issue, how will the benefits be distributed?
Evans: The Ministerial Determination is that there are no project area landowners. However, the Oil and Gas Act prescribes a two per cent wellhead value royalty and a two per cent development levy to go to landowner beneficiaries. Two per cent of free carry equity for the landowner beneficiary is also stipulated under the Act for the national government to carry in its 22.5 per cent back-in on the project.
Given there is no clan landownership on the project site where Pasca A is, our understanding is that the Gulf province, through its provincial government will be the beneficiary in this case.
This of course will be finalised during the development forum for the project where the national government will sign a development agreement with the bona-fide beneficiary.
Q. How much stake does the government have in this offshore project?
Evans: The Oil and Gas Act provides for the Government to have a back-in right of up to 22.5 per cent equity on the project – this is 20.5 per cent for the national government plus two per cent state carry for the landowner beneficiary. The Petroleum ministry has indicated that Kumul Petroleum Holdings is the nominee for the National Government’s equity share. This will be finalised in the Gas Agreement with the national government.
Equity returns on the project will go to Kumul Petroleum on behalf of the national government. Besides this equity the project is also subject to 30 per cent corporate tax as per the Income Tax Act and other prescribed taxes in PNG.
The gas agreement, when finalised, will set out all the fiscal terms for the project which will ultimately determine the share of revenue to the state. As mentioned earlier, Twinza has been working closely with the Petroleum Department and the Petroleum minister with respect to the development licence application process which includes negotiation of the gas agreement.
Q. Besides Twinza and the PNG Government, who are the other partners in the Pasca A project?
Evans: Twinza is currently the Operator of the Pasca A license and holds a 100 per cent interest in the licence. If the national government elects to back-in for its full entitlement of 22.5 per cent interest, then Twinza’s holding interest on the project would be diluted down to 77.5 per cent. The National
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Huw EvansQ. Now that the determination has been signed, where does this place Twinza?
Evans: The Ministerial Determination is an important pre-requisite for the development forum, a forum prescribed by the Oil and Gas Act which is held between the national government and the landowner beneficiary on the project.
Twinza will only be an observer in this forum if invited by the Government. The Pasca A project is 85km out at sea within the Exclusive Economic Zone and given that there is no clan landownership over the Pasca A field, as indicated in the gazetted Ministerial Determination, we understand that the development forum will be between the Gulf government and the National Government.
Q. Does this mean Twinza will commence the FEED stage soon? If so, when?
Evans: The commencement of the front-end engineering and design, or “FEED”, stage will be after the conclusion of approvals with the national government on the project’s gas agreement and development licence. Agreement of the project’s fiscal terms under the gas agreement with the National Government will be a significant step for the project to commence FEED.
We are currently in discussion with the Government on the commencement of the gas agreement.
Q. When is it likely for the PDL (Petroleum Development Licence) to be granted?
Evans: We are currently concluding the final steps with the Petroleum Department prior to the awarding of the PDL. All the technical and economic reviews and assessments on the project are complete.
Twinza has met all the requirements for the PDL application and the next step is for a meeting of the Petroleum advisory board of the Petroleum Department to consider the awarding of the Pasca A PDL.
The other key requirement besides the PDL is the gas agreement which sets the fiscal terms and legal framework between the National Government and the project.
As stated, Twinza is working closely with the Petroleum Department and the Petroleum minister (Kerenga Kua) and hopes to conclude these negotiations before the end of the year.
Q. I understand that Twinza has begun seeking expressions of interest from PNG vendors seeking to participate in the project. Who in particular does Twinza have in mind? What is the role of the vendors in PASCA A?
Evans: Twinza is seeking expressions of interest from potential vendors who are PNG-owned or registered companies who wish to participate in our development story for the Pasca A project.
This is the first offshore project far out in open sea so we do not expect to find capable vendors and companies right from day one but as part of our local content plan, we hope to work with bona-fide PNG entities who are looking to develop their business or seek to provide their services to the project.
While some scope will be highly technical in nature, there are other scopes such as in logistics and transportation or catering which could be easily taken up by local PNG companies. Local content development is a large part of the Government’s aspiration for new projects in oil and gas within Papua New Guinea and for Pasca A project, Twinza is fully on board with maximising local content where possible. For now we are only seeking expressions of interests (EOIs). These EOIs will be screened and following approvals from the National Government for the project to go ahead, suitable service vendors responding to the EOI will be invited to bid their services for the project.
This will most likely be after the project has completed its FEED.
Q. What will be the products from Pasca A? How much will be produced on a daily, monthly, quarterly or yearly basis?
Evans: The project will be producing condensate, LPG and natural gas. Condensate and LPG will be produced initially followed shortly after by monetisation of natural gas through LNG production and export.
Production will average approximately 19,000 barrels per day of which 55 per cent is condensate and 45 per cent is LPG. These levels of production will be steady throughout the liquids’ extraction phase of the project.
Gas monetisation of the Pasca A field alone will produce around 700,000 tonnes of LNG per year for 12 years, starting a few years after production of LPG and condensate. This equates on average to about one LNG cargo per month.
There are opportunities to expand the LNG production in the Gulf of Papua with the Pasca project as the catalyst for a wider aggregation of discovered yet undeveloped gas resources and we are working closely with the State to explore how we can bring that about.
Q. How will the products be stored and sent to markets since Pasca A is an offshore project?
Evans: The LPG and condensate will be stored on a floating storage and offloading vessel (FSO) which is essentially a ship with separate storage tanks in its hull which hold the condensate and LPG in a liquid form.
Cargo ships for the LPG and condensate products will berth alongside the FSO to load the products into their own tanks and from there transport them to market. A good portion of the products will be going to international markets within the Asia-Pacific region.
We are yet to finalise discussions with the State but a portion of the LPG production is being considered for the PNG domestic market in line with the Government’s aspiration for domestic market obligation for new upstream oil and gas projects.
Gas monetisation of the field through LNG export will be through a floating LNG barge which will produce and store LNG for export to market using LNG cargo carriers.
As described earlier, this scheme will be in place a few years after production and export of condensate and LPG.
Q. Project timeline and costs?
Evans: The cost for the liquids phase of the project is approximately US$640 million (K2.17bil) with most of the cost arising from development drilling, construction of the production facilities (a small wellhead platform and a larger production platform) and construction of the FSO.
All the facilities will be installed offshore in the Gulf of Papua using industry-proven offshore designs that have been successfully deployed in other offshore locations for many decades.
The schedule involves approximately eight months for FEED followed by 28 months for detailed engineering, fabrication and installation.
This is 36 months or three years overall.
As previously mentioned, Twinza is working closely with the Petroleum Department and the Petroleum minister (Kerenga Kua) to conclude negotiations on the Gas Agreement which could lead to award of the PDL before the end of the year. On this basis Twinza would anticipates first liquids production at the end of 2022.
Looking a little further beyond the initial production phase, the full field development includes export of the gas using floating LNG. This scope would involve addition of a short flowline to a liquefaction barge moored close to the production facilities.
Initially, the barge would have capacity to produce around 0.7 million tonnes per annum of LNG at an additional cost to the project of US$790 million (K2.68bil).
Q. How different will this project be compared to onshore projects?
Evans: The key difference is the location – being 85km from the nearest shoreline. This distant and remote setting places the project outside landownership claims which simplifies stakeholder engagement as we have primarily the National Government and its relevant arms to interface with.
Nevertheless, it also presents some logistical and technical challenges. For example, space for the surface facilities will be constrained and the design of the facilities will have to consider conditions such as the sea state through the year and occurrence of weather events such as monsoons and tropical storms.
The Gulf of Papua has a six-month weather window which means the sea state is generally calmer from October to April. Rough seas are generally experienced from May to September during which time, activities on location requiring a steady sea state such as installation will be limited.
This is a constraint that the project must consider in its design and operational planning to ensure continuity of operations and production. Another difference between Twinza’s Pasca A concept and other onshore projects in PNG is the scale of the LNG scope.
The size of the Pasca A field places it into the category of a small-scale LNG facility. Since only a single train of liquefaction equipment is required, this can easily be built onto an offshore barge as a far smaller footprint is required in comparison to a large onshore plant. While the downside to this approach is that there is less opportunity for economics of scale that are afforded to large developments, because the Pasca A field is already located at location accessible to LNG cargo tankers, there is no need for a long (and expensive) pipeline to deliver the gas from the field to a separate export location.
Q. Benefit sharing, since there will be no landowner issue, how will the benefits be distributed?
Evans: The Ministerial Determination is that there are no project area landowners. However, the Oil and Gas Act prescribes a two per cent wellhead value royalty and a two per cent development levy to go to landowner beneficiaries. Two per cent of free carry equity for the landowner beneficiary is also stipulated under the Act for the national government to carry in its 22.5 per cent back-in on the project.
Given there is no clan landownership on the project site where Pasca A is, our understanding is that the Gulf province, through its provincial government will be the beneficiary in this case.
This of course will be finalised during the development forum for the project where the national government will sign a development agreement with the bona-fide beneficiary.
Q. How much stake does the government have in this offshore project?
Evans: The Oil and Gas Act provides for the Government to have a back-in right of up to 22.5 per cent equity on the project – this is 20.5 per cent for the national government plus two per cent state carry for the landowner beneficiary. The Petroleum ministry has indicated that Kumul Petroleum Holdings is the nominee for the National Government’s equity share. This will be finalised in the Gas Agreement with the national government.
Equity returns on the project will go to Kumul Petroleum on behalf of the national government. Besides this equity the project is also subject to 30 per cent corporate tax as per the Income Tax Act and other prescribed taxes in PNG.
The gas agreement, when finalised, will set out all the fiscal terms for the project which will ultimately determine the share of revenue to the state. As mentioned earlier, Twinza has been working closely with the Petroleum Department and the Petroleum minister with respect to the development licence application process which includes negotiation of the gas agreement.
Q. Besides Twinza and the PNG Government, who are the other partners in the Pasca A project?
Evans: Twinza is currently the Operator of the Pasca A license and holds a 100 per cent interest in the licence. If the national government elects to back-in for its full entitlement of 22.5 per cent interest, then Twinza’s holding interest on the project would be diluted down to 77.5 per cent. The National
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