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Businessexcellence ACHIEVING




Papua’s natur


With almost complete anonymity, Papua New Guinea has become one of the most important sources in the world for gas products, as Jeff Daniel discovers


apua New Guinea is more often in the media for anthropological or botanical surveys than the oil and gas variety. So it may come as a surprise to learn that Papua New Guinea has a burgeoning oil and gas industry and that InterOil in particular has been beavering away for the past 13 years in the endeavour of creating a complete, vertically integrated exploration, production and distribution business to satisfy that remote country’s needs.





Townley Group International TGI has been working with InterOil for a number of years now, and InterOil has come to rely on our ability to perform at a moment’s notice. “InterOil often has a requirement for urgent freight or aircraft charters and TGI delivers the solutions within a matter of hours—24 hours a day, seven days a week, 365 days a year,” said Townley Group’s managing director, Peter Townley. Our clients’ needs are always met and expectations are often exceeded. At TGI the focus is on the customer’s needs and our ability to deliver to the letter what they require. From complex project forwarding through to general cargo, TGI has the solutions, with state-of-theart technology including GPS and RFID cargo tracking. “At TGI we keep you moving even when you think you have been grounded.”

to the refinery project including a loan amount of US$85 million from the US Government agency OPIC to complete the project—an investment protected by a 30 year agreement with the state which expires in 2035. During that period, the state undertakes to ensure that domestic distributors purchase their refined petroleum product needs from InterOil according to an import parity pricing (IPP) structure. The idea behind this is that distributors are no worse off than if they had imported product, while InterOil captures most of the freight costs and refinery margins which were previously paid to international shipping and oil companies. Even if a further refinery was to be built during the life of the agreement, it would be unable to undercut the prevailing IPP rates. The primary products produced for the domestic market are jet fuel, diesel and petrol. The refining

“The well results establish Papua New Guinea as a world class gas resource strategically close to the largest and most well developed liquid natural gas (LNG) market in the world” Prior to the 1990s, Papua New Guinea was one of a few oil rich countries that did not have its own refinery. Instead, it relied entirely on imported petroleum products from Singapore and Australia with the corresponding transport costs associated with journeys of anything up to 4,000 miles. As such, InterOil was formed in 1997 with the principal objective of being able to satisfy Papua New Guinea’s domestic needs. The InterOil refinery, which went live in 2004, is the only petroleum refining facility in Papua New Guinea. It can process 36,000 barrels per day, a volume sized to meet the current and predicted demand for the whole of the Papua New Guinea market and consequently is currently working well within its design capacity. The refining process has been chosen to suit light sweet crude and so avoids the need for hydro-treatment or complex and expensive heavy oil processing such as catalytic cracking and coking. As a result, the refinery comprises only atmospheric distillation plus a modest catalytic reformer for production of gasoline blend-stock. An amount of US$214 million was committed

process also results in the production of naphtha and low sulphur waxy residue but rather than converting naphtha to gasoline, it is exported to Asian markets in order to avoid the more complex technology that would otherwise be necessary. Total revenue in 2009 amounted to just short of $700 million—down on the previous year but more than offsetting losses incurred in the upstream exploration process and thereby putting the company into net profit for the first time. In fact, Phil Mulacek, chairman and CEO of the company, said that 2009 had been the most successful year to date, with all of the major objectives set for the year having been met. Revenue comes from distribution and refining. The refinery itself is across the harbour from the city of Port Moresby and has been carefully sited in an area surrounded by hills and shielded from view. In fact, InterOil has gone to considerable lengths to minimise visual impact and the attention paid to environmental matters meets or exceeds the recommendations of the World Bank for new refinery installations. At the same time, the operation can utilise the



Hamilton Group

AMC has been supporting InterOil since 2003, and is

Hamilton Group and PEI applaud InterOil’s success.

a leading supplier of products and solutions to the oil

We are proud of the contributions that our drilling

& gas industry. AMC’s dedicated Oil & Gas Division

consultants continue to make in logistically difficult

develops, manufactures and provides a complete range


of drilling fluids, treating chemicals and engineering

project management skills of our consultants with our

solutions. The company maintains a philosophy of

experienced staff and proprietary assignment matching

continual development of drilling and completion

database, we efficiently and effectively provide world-

products that are innovative, technologically advanced

class engineering, consulting, and project management

and environmentally friendly.

solutions to our upstream clients.

wonderful natural harbour that is Port Moresby, the only sheltered deepwater harbour in the region, with clear water that exceeds that of both Sydney and Brisbane. The design of the refinery jetty and deep draught of the harbour allow easy access for tankers of all sizes up 110,000 tons dead weight tonnage. Smaller vessels can also unload crude oil from the PNG river systems and unload at the refinery. InterOil’s upstream activities began when it bought assets from Shell and BP and now centre






on some of the largest exploration rights in the country, covering an area of around four million acres. Currently drilling is taking place in three 100 per cent owned onshore areas within petroleum prospecting licences (PPLs) 236, 237 and 238, to the north-west of Port Moresby in the Eastern Papuan Basin. InterOil also has 15 per cent equity in PPL 244, located offshore in the Gulf of Papua. In the second half of 2006, InterOil drilled the exploration well Elk-1 located within PPL238, which

resulted in a significant gas/condensate discovery. Since then, Elk-2 and Elk-4 have been drilled to test the adjoining Antelope feature. Both Elk-1 and Elk-4 flowed gas at excellent rates in excess of 100 million cubic feet of natural gas per day (mmcfpd), establishing record PNG flow rates. Consequently, in October 2008, InterOil started drilling the Antelope-1 well, located approximately four kilometres south of Elk-1. Antelope-1 targeted an area that had been seismically interpreted to have superior reservoir characteristics and InterOil has since announced that it flowed at 382 mmcfpd with 5,000 barrels of condensate per day for a total 68,700 barrels of oil equivalent per day. This set a new record rate for the country of Papua New Guinea and amazingly, qualified for a Guinness World Record for an onshore vertical well! Whichever way the results are measured, InterOil feels justified in announcing that the well results establish Papua New Guinea as a world class gas resource strategically close to the largest and most well developed liquid natural gas (LNG) market in the world. So much so that it plans to proceed with the construction of an LNG plant adjoining the InterOil refinery and by 2015, aims to have built a direct pipeline from the gas fields to the plant. The idea of an LNG plant was first floated in 2006 but at an estimated cost of $6 billion; and without any domestic market as such, the costs and risks are high. InterOil has entered a joint venture

agreement with Pacific LNG Operations to form Niugini Gas Limited which will build and operate the gas processing facility. The proposed LNG plant is a two train plant with a nominal four million metric ton per annum processing capacity for each train. Downstream, as a result of buying BP’s entire commercial and retail distribution assets in 2004 and the subsequent acquisition of Shell’s Papua New Guinea assets in 2006, InterOil has the largest wholesale, retail and aviation petroleum product distribution base in Papua New Guinea, accounting for 70 per cent share of the country’s refined petroleum product needs; although by Western standards, the 51 retail outlets is extremely low. To put this in perspective, InterOil operates 12 aviation refuelling stations, making it the largest in aviation outside the main Port Moresby centre. To complement InterOil’s own diesel, jet fuel, gasoline, kerosene and fuel oil products, it also sells Shell and BP branded commercial and industrial lubricants, such as engine and hydraulic oils. However, these imports account for only a small percentage of total sales. InterOil owns and operates six large terminals and 11 depots used to supply product throughout Papua New Guinea. By far the largest volume of product goes to commercial customers engaged in such activities as mining, agricultural, fishing and logging. Many of these agreements call on InterOil to supply and maintain company-owned,


above-ground storage tanks and pumps. In 2008, more than two thirds of volume was accounted for in this manner, albeit at a lower margin than retail sales. Nevertheless, as PNG increases in prosperity, the importance of the retail sector will grow; and InterOil is already well positioned to take advantage of that growth. InterOil has minimal capital tied up in transportation and instead leases just two tankers to deliver refined products to both self owned and independent distribution terminals and depots, and relies on independent transport operators for interior movements. Most of the distribution to both commercial and retail customers is by road, although a number of the larger commercial consumers are served by coastal ships. In all cases, though, InterOil passes transportation costs through to customers. As would be expected in a country as underdeveloped as Papua New Guinea, InterOil is closely

linked with the social progress of the country’s citizens. As well as employing 750 people who make a positive contribution to the country’s economy and driving improvements in living standards, through its Community Affairs department, InterOil is working closely with communities and government to spread the benefits of the operation. The aim is to create a balance between respecting a traditional way of life while making meaningful improvements to the quality of life. The Community Affairs department oversees all assistance programmes and manages land acquisition, related compensation claims and payments. The overriding philosophy is based on ‘bottom-up planning’, hoping to take the local community into account during planning and development. Around the refinery there is a long-term community development assistance programme to benefit the villages and villagers.


Inter Oil AUG10 emea broch  

Inter Oil AUG10 emea broch

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