InterOil discovers large LNG reserves

A DISCOVERY of commercial gas reserves placed at several trillion cubic feet by InterOil Ltd at its Elk 1 well in the Eastern Papuan Basin is likely to drive the development of the country’s liquefied natural gas (LNG) industry. The development of an LNG industry involving refrigerated ships and a large processing plant on the coast, probably near Port Moresby, would entail an investment approaching K10 billion, by far the largest resource development ever to be undertaken in PNG.Prime Minister Sir Michael Somare said yesterday he was excited by the positive test results from the Elk 1 gas and condensate discovery in the Eastern Papuan Basin. For PNG, the confirmation of Elk as a commercial discovery has come at a good time, with some recent disappointing announcements regarding the gas-to-Australia pipeline project.“The Elk 1 well will be officially declared a discovery after tests showed gas and condensate at high pressure, with gas reserves estimated at several trillion cubic feet,” Sir Michael said.Distinctly different from the gas-to-Australia pipeline proposal, an LNG development would see PNG gas shipped to a range of customers in North Asia and the west coast of America.“The discovery is good news for our country,” Sir Michael said. “Both the Government and the company are hopeful that the two to three additional wells that InterOil intends to drill on the Elk and adjoining structures will be a large step forward in confirming the commercial value of the gas field, and that this will accelerate the LNG future in PNG.“InterOil’s sometimes unorthodox approach to kick-starting projects may be what is needed to bring together some of PNG’s rich but dispersed petroleum assets, and overseas investors who are now looking at PNG in a new light,” Sir Michael said.“We can’t allow super-major developers to place our projects on a list with many other targets world wide, and leave us on the back burner for a decade.“We have been working effectively with InterOil and chief executive officer Phil Mulacek for 10 years. “He arrived with a vision to build a refinery which in those days seemed to be a huge undertaking. “He did it with his team. “I now have confidence that we are witnessing the beginning of an LNG project, in the company of additional partners Merrill Lynch and Clarion Finanz of Switzerland,” Sir Mi-chael said. Mr Mulacek echoed the optimism and gave credit to the Government.“We are very encouraged by our Elk discovery,” he said.“This is a proud moment for me, which would not have come without the foresight of the Somare Government, and its drive to change the fiscal policy affecting oil and gas exploration in country.“The final test recorded gas flow at 21.7 million standard cubic feet/day at a flowing bottom hole pressure of 3,577.7 psias as reported to the Department of Petroleum and Energy, which is an extremely healthy flow rate. “We believe that there is an oil leg below the gas cap, and we'll drill that in the follow up wells.” If oil is confirmed, it will add greatly to the value of the discovery.“This may result in Elk becoming the largest discovery in the new Eastern Papuan Basin,” Mr Mulacek said.Bernard Pawih, who administers the PNG Oil and Gas Act, said the Government’s technical staff had reviewed the drill stem test data. “The pressure data suggests a reservoir demonstrating an extremely high flow capacity to gas,” he said.