Exxon's PNG LNG project costs balloon to $19 bn

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SummaryExxon Mobil said it faces a $3.3 billion spike in costs at its LNG project in Papua New Guinea.

by debt and 30 percent by equity contributions from the projects partners.

FX BIGGEST PART OF COST RISE

Santos said it had ample liquidity to fund its higher share.

With over $6 billion in cash and undrawn debt facilities, Santos is in a strong position to fund all of its capital programs, Santos Chief Financial Officer Andrew Seaton said.   Even including the higher costs, PNG LNG remains a highly robust economic project. Oil Search said that foreign exchange was the single biggest cause of the cost increase at $1.4 billion at PNG LNG.

The Papua New Guinea kina has risen 20 percent against the U.S. dollar in the last 19 months, while the Australian dollar has held above parity to the U.S. currency. Both Australian partners said they were assessing the impact of currency exchange movements on their overall costs, though much would depend on the eventual U.S. dollar gas sales contracts closer to the project's completion.

Santos is well positioned to manage the impact of a strong Australian dollar on project capital costs, a Santos spokesman  said, adding that its Australian dollar denominated balance sheet, cash balances and revenues provided an effective natural hedge.

Delays from work stoppages and land access issues had also pushed up construction and drilling costs, adding $1.2 billion to the total.

Landowner protests against the project this year prompted the government to deploy troops to restore law and order, according to local media reports.

Also, the impact of above average rainfall for most of the last two years, was estimated to have added $700 million.

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 Mobil five years ago shelved a troubled PNG-to-Australia gas pipeline project after cost overruns pushed the cost of development to more than $3.5 billion. Exxon and its partners at the time said they would focus on more profitable gas projects in the country, including PNG LNG.

The energy major said last month it would make a decision on developing the Scarborough gas field, considered one of the toughest projects in Western Australia, around the second half of 2013. Exxon has said it will weigh the development of Scarborough and any other new LNG project against potential exports of cheaper North

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