InterOil to forgo 10-year tax holiday in PNG

INTEROIL's hopes for a 10-year tax holiday for its 5 million tonne per annum liquefied natural gas plant in PNG have been dashed by the Government's approved fiscal terms for ExxonMobil's 6.3Mtpa plant, sources told's sister publication
InterOil to forgo 10-year tax holiday in PNG InterOil to forgo 10-year tax holiday in PNG InterOil to forgo 10-year tax holiday in PNG InterOil to forgo 10-year tax holiday in PNG InterOil to forgo 10-year tax holiday in PNG

Prime Minister Sir Michael Somare recently told Parliament that fiscal terms agreed to with ExxonMobil for its PNG LNG project ensured the Government would also stand to benefit from higher oil and LNG export prices.

Somare said he was pleased an additional profits tax component had been agreed on for the US$10 billion (K26.64 billion) project, which aims to start LNG exports in late 2013 or early 2014.

Industry sources told that PNG would reintroduce an additional profits tax for PNG LNG and consideration was being given to extend this tax to all resource projects.

"The additional profits tax will be triggered after investors recoup development costs and after specific threshold rates of return are reached," the sources said.

It is understood ExxonMobil strongly resisted the additional profits tax idea during initial negotiations because of previous PNG Government assurances that only a flat 30% corporate tax rate would apply.

"However, top executives from Houston eventually endorsed the idea and commended the stance of PNG Government negotiators because sovereign risk issues were likely if company profits soared while corporate taxes remained stagnant," one source said, pointing to expropriation of oil and gas assets in Venezuela in recent months.

InterOil's one-third-owned Liquid Niugini Gas, which has yet to conclude fiscal negotiations with the PNG Government, had hoped it would obtain a 10-year tax holiday.

Government officials said it was "next to impossible" that InterOil would now be given more favourable terms than ExxonMobil and the company would have to also accept imposition of an additional profits tax.

The sources said InterOil, which hopes to commence LNG exports in 2012, could enjoy significantly lower development costs than ExxonMobil because it would need to build a shorter gas pipeline from Gulf Province.

Its proposed LNG wharf is also in a much better deep water location close to the current facility for its crude oil refinery, while ExxonMobil may be forced to ship LNG from a point up to 1-2km offshore.

The Liquid Niugini team has had its LNG development hopes buoyed by InterOil's recent gas discovery at Elk-4, where initial drill stem tests have flowed at 7.2 million cubic feet a day along with 11.2 barrels a day of condensate per million cubic feet of gas.

The well will be completed in the next few weeks before further tests are carried out.

From's Man Undercover