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Speeches, 03 December 2018

Why are we here?

2018 Chamber of Mines & Petroleum Conference, Andrew Barry, Managing Director, ExxonMobil PNG Limited

It is always a great honor and pleasure to be at this most important conference and to have an opportunity to discuss our achievements throughout the year and to look ahead at the bright future we have. 2018 will certainly go down as one of great triumphs and great tragedies of nature.

Before I begin, I would like to take this opportunity to congratulate Prime Minister Peter O’Neill and your government for an outstanding APEC program that literally took PNG to the world. 

What an incredible time for the government to host such an important event and the benefits that have, and will come, from the meetings and activities leading up to the Leader’s Summit will be felt for literally generations to come.

It was so exciting to hear the commitments that many countries made to improve the standard of living for Papua New Guineans and people right across the region.

It was a truly humungous task by so many people and ExxonMobil PNG was extremely proud to have partnered with PNG on a full range of APEC programs including the Women and the Economy Forum, The Micro, Small and Medium Enterprise & Innovation Summit and the CEO Summit.

We had many international guests who we hosted and who visited the PNG LNG plant. Every single one of them came away with a great appreciation and admiration for what can be achieved in PNG through partnership and teamwork. We are so fiercely proud of what we have achieved in PNG, and particularly proud on how our Papua New Guinean workforce are stepping up to show the world what they can do.

PNG has shown to the world what ExxonMobil has known for some time – that it is a great place to invest and do business.

Improving lives, advancing growth in PNG

I have titled this presentation today “why are we here” as I wanted to reflect on the culture deep within our organization which feels a great sense of pride and responsibility to do two things. To improve the standard of living for our project area communities and all Papua New Guineans, and provide affordable energy here in PNG and around the region.

That is what motivates us, that’s what drives us to do the best we can with the things that we control. It is seeing the smiles on the faces of people we touch, the impact of the revenues we generate and the development of people to become the leaders of the future.

So today I will take you through a story, a story that looks at the benefits of investments like the PNG LNG Project have in the country, to understand just how important capturing new opportunities are to the future. 

The benefits are widespread some measurable today, others will become more evident as the ripple effect of future decades of revenue, capacity building and further investments are realised. 

The benefits journey

Since startup nearly five years ago, more than 5 billion kina in revenue has been generated by the project and delivered to the PNG government and landowners though royalties, development levies, taxes and dividends.

The revenue stream is highly dependent on commodity prices. It is also dependent on our production performance which some is in our control and some not so much, as I will explain later.

As we entered 2018 we were extremely excited about the year ahead, commodity prices had recovered from the lows of 2015, 16 and 17 and, importantly, court injunctions that were holding up landowner identification processes by government were lifted and we were optimistic about the progress being made.

That all changed at 3:45am on February 26th. A time that many of us in this room will remember for the rest of our lives. I will talk about it more here shortly but in addition to the tragic cost of life and destruction to the communities, it shut down our facilities for nearly 8 weeks resulting in more than 500M kina in revenue that was not delivered to the Government and landowners. It also critically held up the landowner identification process which has since continued to move ahead. We are hoping that in the not too distant future all the identification work is complete and royalties will begin to flow in the pipeline and upstream areas.

What has been very pleasing is to see what happens when the revenues that are held in the trust accounts are unlocked and become available for distribution. We could not be more pleased to see how the benefits are flowing down to the communities at the LNG plant site. To see how investments are being made in important infrastructure such as schools and health demonstrate that the process is a good one, it works.

I especially would like to congratulate Augustine Mano and all of MRDC for their leadership in making this happen. And particularly would like to congratulate Ms Ulatu Avei chairperson of the Gas Resources Company. It is her leadership along with the other Directors that has managed and directed the available funds to projects that make the most impact in the community.

It has also been great to see the progress Upstream in the latter part of this year with accounts being opened along the pipeline, Directors elected and good progress being made in the important PDLs around the gas processing plant.

We are looking forward to the successes felt at the plant site being the same in the Upstream and would like to thank Minister Dr. Pok, Acting Secretary Kepsie Puye and all the Department of Petroleum for their continued focus on getting this completed during these challenging times.

2018: A year of adversity and triumph

The devastation from the earthquake in the Highlands was on an unimaginable scale and as I mentioned before, will be an event that is etched in the minds of many in this room for the rest of our lives. I know it will certainly be in mine.

Following the initial event, our immediate focus was to ensure the safety of our people and assist with the relief effort in the communities. I feel very proud about how all the operating partners and international communities worked together in those early weeks to do what we could to assist those in most need. Oil Search’s Moro facilities were some of the least impacted and this became an important hub for operations to be coordinated and based out of; and I would like to thank Peter and his entire team for the way they opened this up and coordinated the relief efforts from there.

I want to also thank all the parties that came together during those times to help. From the PNG government and its agencies, Australian and NZ governments, the UN, Salvation Army and other international aid agencies through to our partners Kumul, MRDC, Santos and JX Nippon who all contributed with the unique and additive contributions they made. It was a reminder of why we are so successful as PNG LNG.

Each partner has skills and abilities that complement each other and make us the high performing team we are. Each of us cannot succeed alone.

Importantly, our newest partner in country Total, who was not directly impacted, also reached out and helped by releasing important helicopter and logistics support.

There is still much work to be done for communities to recover and our focus has now turned to the long term where we continue to assist with donations through the Salvation Army and local churches to help repair education, health and sanitation infrastructure. We have also increased our funding to assist the government in building and repairing roads, bridges and other critical infrastructure that was so severely damaged by the earthquake. 

The earthquake also had a significant impact on our production.  Exports were shut down for nearly 8 weeks while damage to equipment, pipelines and the Komo airfield was assessed and repaired. 

It was an enormous task due to the simple fact that we had to check every piece of equipment and ensure everything was aligned to enable a safe restart. 

Fortunately, the damage to the Hides Gas Conditioning plant and pipelines were not as great as originally feared, which is a testament to project design and construction. 

Our workforce, supplemented with more than 50 technical experts from EM affiliates around the world, worked under extremely trying circumstances.  I cannot speak highly enough of the comradery and teamwork at Hides and Moro to get our facilities back on line while also providing humanitarian relief to the community.  It is during events like these that you appreciate the great depth of talent and capability that we have in ExxonMobil. I am not sure that there is any other company in the world that could have responded as quickly as we did and to bring the global expertise required to bring us back on line.

While not directly impacted by the earthquake the LNG trains near Port Moresby were also shut down.  Incredibly the team at the LNG Plant leapt into action and used the time to bring forward a major turnaround planned for later in the year.  They also completed many “firsts” for the operations with one of those reversing an export system to import a cargo of LNG to ensure we could continue to maintain power to Port Moresby and keep the facilities in a cooled down state for an efficient and safe restart.   

There are many examples like this, of resilience, professionalism and teamwork from our people - and those who support our business - to help us and the community recover. 

What I probably enjoyed the most was to see our Papua New Guinean workforce meet the challenge head on and gain experiences that might otherwise have taken years to build.  I believe we have become a stronger organization as a result, but I certainly would not want another one to prove it again.

2018: A year of adversity and triumph

2018 has certainly been a year of contrast.  

Our most important achievement is our continued outstanding safety performance.  In August the PNG LNG Plant recorded a milestone achievement of over 13 million work hours without a Loss Time Injury.

That is 5 years of operation without any serious injuries that prevents a person from returning to work. This significant accomplishment was achieved across the entire plant by both staff and business partners and was celebrated on August 15.

This is testimony to the actions of our staff and business partners to maintain their focus on safety every single day.  An incredible achievement.   

In August we recorded our highest daily rate of production – equivalent to an annualized rate of around 9.2 million tonnes - that’s more than 30% above the original nameplate capacity of the plant.  This was achieved by planned debottlenecking activity at the Hides Gas Conditioning Plant and the LNG Plant, which were brought forward as I mentioned earlier, while we were shut down following the earthquake, along with the amazing contribution of our Papua New Guinean workforce that optimize the production every day.

We expect that annualized production for PNG LNG this year will be around 7.5 million tonnes due to the impacts of the earthquake, and are targeting 8.7MTA next year.

As we reflect on our achievements, an area of continued challenge has been our construction work in the Angore area, which has unfortunately been halted due to recent security incidents targeting our personnel and assets. There can be no higher priority than the safety of our employees, contractors and community. While disappointing, we remain optimistic that with the right collaboration between stakeholders security can eventually be restored in Angore. 

Developing our future leaders

As mentioned earlier, our Papua New Guinean workforce has done an outstanding job this year. 

We have around 2600 employees and contractors.  82 percent are Papua New Guinean and we’re particularly proud that 22 percent are women, many in non-traditional roles. 

We have continued to invest significantly in professional training and accreditation for our workforce. Just last week one of our first 2010 intake of Operations and Maintenance Technician, Yasi Koriam, won four awards at the National Apprentice and Trades Testing Board awards ceremony, including 2018 Tradesman of the Year.  We are extremely proud of his achievement.

We are continuing to build depth in our organization through ongoing annual recruitment of new engineering graduates and operations and maintenance technicians - building a pipeline of Papua New Guinean experience that will support our business over many decades. 

Part of that development is international experiences which we are starting to ramp up now that we have been operating for a few years. It is so exciting to see some of our Papua New Guineans on the international circuit and I wanted to share just a couple of examples with you today. Seth is a Civil Engineer with 8 years experience and is now in Singapore as part of our gas and power marketing organization, while Stephen a Mechanical Engineer also with 8 years of experience now lives in Houston in the USA, and is putting his exceptional technical skills to work on projects all around the world. 

We are stepping Papua New Guineans up right across our operations with our first female board operator in the Upstream, first operations supervisor and many others increasingly taking on more responsibility.

It is an important element to why ExxonMobil is confident in investing more in PNG. Just last month we had our Chairman and CEO of ExxonMobil Darren Woods visit, and during his time we had our local Engineers take him through how we are using complex data analytics to optimize our production operations at the plant. They took him deep into the models and explained, with confidence, how they are using the absolute latest technology. 

It is one constant I hear from everyone who visits, the overwhelming praise for the quality of our amazing Papua New Guinean staff.  I am confident one day one of them will be addressing this conference as the managing director of our PNG operations.

Broadening the economic base

Another exciting development occurred in August this year when we announced a significant new public private partnership with the goal of developing a large scale commercial agricultural venture in the Hela Province.  The project aligns strongly with the government’s Medium Term Development plan and Budget for economic diversification and to provide expanded employment and business opportunities for more Papua New Guineans.

The venture – which is led by Innovative Agro Industry – is in partnership with MRDC, and the Hela provincial and local level government leaders.  The project will train and equip small-holder farmers to first produce stock feed and fresh vegetables and, over time, endeavour to rejuvenate the local coffee industry.  The venture will also importantly look at infrastructure and logistics, including Komo airfield, to get produce to local and eventually international markets. 

This ~300M kina project is targeting to positively impact as many as 5,000 small-holder farmers, all the while supporting Small to Medium enterprises and unlocking the incredible business potential that exists in the region.

While much work still needs to be done to complete a full feasibility study, Innovative Agro’s field teams in Hela have already made significant progress.  Detailed field analysis of soil and growing conditions is progressing well.  400 households have already been identified and some have commenced cultivating land for maize production. The Juni training centre will be used to implement a farmer training program which is currently being developed.  I’d like to acknowledge Governor Undialu and all Hela leaders for their support of this project. 

Providing economic opportunity for women

Two very important discussions took place at APEC this year.  The role of women in building sustainable economic growth and the importance of digital innovation for Micro, Small and Medium Enterprises.    

At ExxonMobil we believe that empowering women is essential to enhancing local and international economic development. Women are often the keys to building stronger, more stable communities.

One such program is our community Livelihoods program in Hela province which provides women with training in new agricultural technologies that improves quality and yield; and offers mentoring and coaching, that expands to many other facets of their lives including health, hygiene, financial literacy and management.

We are currently working with ~700 households through 20 women’s groups and we have been excited to see the program move from a position of food security to income generation.  We are now buying almost all our fresh produce from these amazing groups to feed our workforce in the Highlands.

It has been their success which has also given us confidence in the Innovative Agro project. The potential is out there and we are just helping where we can to unlock it.   

Supporting growth in MSMEs

We also spoke at APEC about the importance of utilizing digital innovation to advance MSMEs in this country.  Supporting local businesses is a priority for us. Without them, we wouldn’t be where we are today.

Together with the IBBM Enterprise Centre, we have assisted over 19,000 Papua New Guinean entrepreneurs, delivered more than 32,000 days of business training and completed over 500 free business assessments. 

We have been very proud to witness the development of Papua New Guinean businesses since 2010 – particularly the growth of businesses embracing technology and digital innovation.

We were delighted to see over 100 companies nominated in the inaugural MSMEs digital innovation awards sponsored by ExxonMobil PNG, and presented at the APEC Business Advisory Council MSME Summit Gala dinner this year. 

Digital innovation helps business grow and as result, contributes to the growth of the economy. The use of technology by businesses has important affects to productivity, efficiency and profitability.

Infrastructure improvements to enable progress

We have also been very proud to partner with the PNG Department of Works to improve roads infrastructure in the Hela Province.

Our public private partnership is focused on upgrading the Highlands Highway from Halimbu Junction to Komo and specified roads in line with the government’s medium term development plan for Hela and Southern Highlands provinces. 

This work is being delivered under a 3-year 150 million kina Infrastructure Tax Credit arrangement and has created around 750 local jobs

The partnership with the Department of Works also helped to enable the quick re-establishment of access on the Highlands Highway after the earthquake and is also working on permanent repairs to the road formation and bridges that were damaged or lost. 

We are confident of delivering more projects under this model in future years, to deliver infrastructure in partnership with the government to project area communities to enable business and economic development.

Powering the people

In 2018 PNG LNG gas continued to reliably supply around 20 percent of Port Moresby’s domestic power demand – even when the LNG Plant was shut down for nearly 8 weeks. 

PNG LNG will also be providing gas to the new 58 megawatt power plant starting up shortly, adding a further 40 percent of capacity to Port Moresby’s market.  This is expected to save PNG Power around PGK180K per day that would otherwise have been spent on running higher-cost diesel generators.  Gas fired generation is also a cleaner-burning fuel source with an anticipated reduction in GHG emissions of around 30 percent versus power generation using diesel.

We are also excited to support more gas fired power generation planned for Port Moresby and other regions in conjunction with MRDC and the Provincial Governments and have gas already reserved for these.  

Earlier today we announced a partnership and signed an MoU with PNG Power to commence studies into a potential project that could see the PNG LNG Hides Gas Conditioning Plant exporting up to 5MW of gas-fired electricity into the communities and business around the Plant. We are hoping we could be doing this sometime in 2019.

The future is bright - Construction

As we look into the future, I thought I would concentrate on what the new projects we have announced could mean for PNG. I think most in the room are familiar with our plans to double the LNG capacity at Port Moresby through 3 additional trains unlocking the Upstream resources of Papua and Pnyang.

We see two very distinct periods of benefits for the country. One during construction and the other during production. The benefits are different but both important.

As we reflect on the construction times of PNG LNG, I am sure those who were around can attest to the economic boom that occurred. The project alone generated more than 10,000 local jobs but the multiplying effect was much greater than just that.

The hotels were full, the airlines were full, ports, restaurants, trucking companies and car hire companies were busy, and taxes to the government flowed from the project and all associated businesses. The GDP growth during 2010 – 2014 averaged 7 percent of which PNG LNG was a significant contributor. 

We now have two more projects ahead of us with Papua and P’nyang with the plan to follow one directly after the other. Creating a long term sustainable economic growth period for the country. We recognize the challenge that has occurred with the PNG LNG project where there was not another significant project that followed directly after and we are hopeful that with the support of the government and the communities we can improve on this as we go forward.

Having two projects back to back not only helps with sustainable economic growth but importantly avoids a boom and bust scenario and greatly improves the development of local Papua New Guinean skills and talent which is so critical to the success of the country.

The Future is Bright - Production

As you move from construction to production the nature of the benefits change. The project requires significant financing, which for PNG LNG was almost 50 billion kina, and to put that into perspective it is more than three times the annual budget for the entire country. During the time these loans are paid off the benefits of the project to the government is highly dependent on the commodity price.

As we saw through 2015-2017, if commodity prices are low the benefits are modest. Importantly the long term benefits remain unchanged and once the loans have been paid off (2024-2026 period) the impact on the revenues to the country are significant.

As an example, if commodity prices remained at around $60 per barrel in the future as 2018 year to date, the average annual return to government would likely more than quadruple after the loans have been paid off. Commodity prices will change year on year, but project fundamentals are based on a long term approach which will deliver significant revenues to this country when averaged over many decades.

Hopefully, you can now get an appreciation of why we believe the future for the country is so bright. We have two projects that can be executed back to back providing significant economic benefits through to the period when the loans are paid off for PNG LNG.

Domestic opportunities – PNG LNG

Another key benefit from the upcoming projects is the increase in domestic gas and energy opportunities.

ExxonMobil PNG does now and always has supported the governments’ desire for domestic gas to enable growth in industry, provide more jobs and to increase access to gas fired electricity for communities where it makes economic sense. 

The existing PNG LNG facilities and pipeline infrastructure provide opportunity for gas to be utilized for domestic purposes at Hides, Kutubu and Port Moresby although it is recognized that the volumes are limited by our pipeline capacity constraints within the existing system.

As mentioned previously, we have been very pleased to see more gas fired opportunities already moving ahead within our existing infrastructure capacity.

Domestic opportunities – PNG LNG + P’nyang

As we look forward to the future we are excited by what the infrastructure improvements can open up. A major existing pipeline debottlenecking opportunity is planned with installation of compression at Kopi required to support the additional LNG train capacity.

The proposed P’nyang development will then open additional opportunities with the new pipeline having access points at 50km intervals along the onshore pipeline with potential domestic gas and third party access opportunities.

In addition to these, the Papua LNG joint venture participants are also actively looking at domestic gas opportunities and third party access as part of that project. 

Meeting the supply / demand gap

So hopefully you have an appreciation of the benefits of the plans we have ahead of us. I would like to now to turn our attention to why the now is so important.

It has only been in the last 12 months or so that the LNG supply/demand market has begun to open up. This has been driven by China and Asia Pacific countries increasing their use of gas in addition to the lack of new investments in LNG capacity.

The gap is real and LNG buyers are out looking for supply opportunities. The challenge for PNG is that everyone can see it and competition is starting to ramp up. You can see on the right hand side of the chart the demand gap over the period and the available supply.

PNG has got to get in front of the line. Both from a LNG supply perspective but also importantly from a contractor availability perspective. It comes down to basic economic fundamentals, if you are at the back of the queue your deal is typically worse and your costs are higher.

PNG cannot afford to be in that position.

Partnering to capture the next round of growth

So how do we make sure that PNG does not get left behind in the global race to fill that gap, to make wise decisions that will stimulate new investment in this country and bring capacity online in the right timeframe, to help drive economic growth and improve the lives of Papua New Guineans? 

We work together as one team, working with a common purpose. That has been the theme of my previous presentations at this conference and today it could not be more relevant and important. We and our partners know what we want to build.

Now we all must work together like we did for PNG LNG to make it happen and to fulfil the objective of “why we are here”. To improve the standard of living for our project area communities and for all Papua New Guineans and provide affordable energy here in PNG and around the region.

Thank you.