Showing posts with label PNGLNG. Show all posts
Showing posts with label PNGLNG. Show all posts

ExxonMobil-PNG To Take Defensive Measures By Cutting PNG Jobs Amidst Energy Price Collapse?

The tumbling oil price has forced major oil and gas companies to slash cost. FTSE 100 Oil and gas major, Tullow Oil, has cut back US$2.3 billion on expenses. Other companies in the energy sector are also cutting back as they are hit by over 60% drop in the Energy price in just seven months – Brent Crude Oil for example, has fallen by nearly 50% from US$110 a barrel to US$48 a barrel.

So, where does the huge fall (and continual dip in price) leave Papua New Guinea’s much-talked-about gas development led by ExxonMobil-PNG?



The PNGLNG development has moved onto production since April 2014. That meant that it has completed exploration and development phases of the initial project. To date, over 50 shipments have left the country.

At the peak of energy price, the Prime Minister of PNG (in a response to the Opposition questions) said one shipment was valued at, an average of, US$50 million – yes that is 50 million US Dollars. If price fluctuated at US$50 million ExxonMobil-PNG would have recovered the development cost in less than five years. This also means that if the company continues production at current rate, the time it takes to recover development cost would double. Would ExxonMobil-PNG want to recover US$19 billion development cost in 10 years, instead of 5 years?

The prime minister gave his response to the Opposition MPs when Energy price was at record US$110 a barrel. The price has, since, dropped to US$48 a barrel. Here is what ExxonMobil-PNG’s accountants would have worked out by now – value of a shipment would have averaged at US$25 million.

There is prediction that the price is likely to fall even further based on the fact that Opec countries have not slowed down on production to spike energy price. Major Oil and Gas producing countries like Russia, USA, Venezuela, Nigeria, Saudi Arabia, Libya, etc. have not reacted at all.

What can ExxonMobil-PNG do? 

Apart from shelving any plans for exploration and further development, one thing is for sure – ExxonMobil-PNG does not have to cut down on production. The company must produce at full capacity. This has to be done as the Opec group of countries are not cutting down on production, either. Their economies are dependent on oil and reducing production would have drastic consequences on government’s revenue. Russia, for example, whose economy is very much dependent on Oil has considered its options.  

A BBC report indicated that many oil and gas dependant countries have not cut down on production to spike Energy price. If they had cut-back on production their economy would have been shaken to the ground.

There are two defensive measures ExxonMobil-PNG can (has to) contemplate on doing. Look within its structure and readjust main expenditures. That would imply that ExxonMobil-PNG would have to either make adjustment to its expanses or increase production (and increase revenue).

Here is one option.

First, ExxonMobil-PNG would have to reconsider its employees’ remuneration and benefit. Many top level employees may have to take a pay cut or agree to some in-house cost cutting measures, like halting fly-in-fly out arrangements.

Second, casual employees the company has used during (and in) exploration and development phases will have to be laid off. This also applies to apprentices, interns and others on the job training exercises. This could, probably, affect their awareness and charity programs too. 

Third, the project developer would have to evaluate performance of contractors. Those who have been given chance to partake in contracts awarded by the company will have to prove their worth to remain with it. 

Another option would be to increase production like what many Opec counties are doing by producing at full capacity - even increase production capacity. By doing this the company does not have to take the three measures highlighted above, but expand on each area.

This will create more opportunities and increase production – a win-win situation for the company, PNG government and every stakeholder who participates in this project.

All in all, it is eminent ExxonMobil-PNG takes defensive measures now by finding areas where cost can be minimised. But, any cost cutting measure taken in the name of maximising revenue for the company must not compromise Papua New Guinean jobs.

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