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This was followed by the first shipments of the Snapdragon system-on-chip product, which includes a CPU, GPS, graphics processing unit, camera support and other software and semiconductors, in November 2007. The Gobi family of modems for portable devices was released in 2008. Gobi modems were embedded in many laptop brands and Snapdragon system on chips were embedded into most Android devices. Qualcomm won a government auction in India in 2010 for $1 billion in spectrum and licenses from which to offer broadband services. It formed four joint ventures with Indian holding companies for this purpose. A 49 percent stake in the holding companies was acquired by Bharti in May 2012 and the remaining was acquired in October 2012 by AT&T.
5G According to Fortune Magazine, Qualcomm has been developing technologies for future 5G standards in three areas: radios that would use bandwidth from any network it has access to, creating larger ranges of spectrum by combining smaller pieces, and a set of services for internet of things applications. Qualcomm's first 5G modem chip was announced in October 2016 and a prototype was demonstrated in October 2017. Qualcomm's first 5G antennas were announced in July 2018. As of 2018, Qualcomm has partnerships with 19 mobile device manufacturers and 18 carriers to commercialize 5G technology. By late 2019, several phone were being sold with Qualcomm's 5G technology incorporated.
Software and other technology Early software Qualcomm acquired an email application called Eudora in 1991. By 1996, Eudora was installed on 63 percent of PCs. Microsoft Outlook eclipsed Eudora, since it was provided for free by default on Windows-based machines. By 2003 Qualcomm's Eudora was the most popular alternative to Microsoft Outlook, but still had only a five percent share of the market. Software development for Eudora was retired in 2006. In 2001, Qualcomm introduced Brew, a smartphone app development service with APIs to access contacts, billing, app-stores, or multimedia on the phone. South Korean carrier KTFreeTel was the first to adopt the Brew system in November 2001, followed by Verizon in March 2002 for its "Get it Now" program.
There were 2.5 million Brew users by the end of 2002 and 73 million in 2003. Other technology In 2004, Qualcomm created a MediaFLO subsidiary to bring its FLO (forward link only) specification to market. Qualcomm built an $800 million MediaFLO network of cell towers to supplement carrier networks with one that is designed for multimedia. In comparison to cellular towers that provide two-way communications with each cell phone individually, MediaFLO towers would broadcast multimedia content to mobile phones in a one-way broadcast. Qualcomm also sold FLO-based semiconductors and licenses. Qualcomm created the FLO Forum standards group with 15 industry participants in July 2005.
Verizon was the first carrier to partner with MediaFlo in December 2005 for its Verizon Wireless' V Cast TV, which was followed by the AT&T Mobile TV service a couple months later. The MediaFlo service was launched on Super Bowl Sunday in 2007. Despite the interest the service got among carriers, it was unpopular among consumers. The service required users to pay for a subscription and have phones that were equipped with special semiconductors. The service was discontinued in 2011 and its spectrum was sold to AT&T for $1.93 billion. Qualcomm rebooted the effort in 2013 with LTE Broadcast, which uses pre-existing cell towers to broadcast select content locally on a dedicated spectrum, such as during major sporting events.
Based on technology acquired from Iridigm in 2004 for $170 million, Qualcomm began commercializing Mirasol displays in 2007, which was expanded into eight products in 2008. Mirasol uses natural light shining on a screen to provide lighting for the display, rather a backlight, in order to reduce power consumption. The amount of space between the surface of the display and a mirror within a 10 micron-wide "interferometric modulator" determines the color of the reflected light. Mirasol was eventually closed down after an attempt to revive it in 2013 in Toq watches. In June 2011, Qualcomm introduced AllJoyn, a wireless standard for communicating between devices like cell phones, televisions, air-conditioners, and refrigerators.
The Alljoyn technology was donated to the Linux Foundation in December 2013. Qualcomm and the Linux Foundation then formed the Allseen Alliance to administer the standard and Qualcomm developed products that used the AllJoyn standard In December 2011, Qualcomm formed a healthcare subsidiary called Qualcomm Life. Simultaneously, the subsidiary released a cloud-based service for managing clinical data called 2net and the Qualcomm Life Fund, which invests in wireless healthcare technology companies. The subsidiary doubled its employee-count by acquiring HealthyCircles Inc., a healthcare IT company, the following May. Qualcomm life was later sold to a private equity firm, Francisco Partners, in 2019.
Recent developments In 2016, Qualcomm developed its first beta processor chip for servers and PCs called "Server Development Platform" and sent samples for testing. In January 2017, a second generation data center and PC server chip called Centriq 2400 was released. PC Magazine said the release was "historic" for Qualcomm, because it was a new market segment for the company. Qualcomm also created a Qualcomm Datacenter Technologies subsidiary to focus on the PCs and servers market. In 2017, Qualcomm introduced embedded technology for 3D cameras intended for augmented reality apps. Qualcomm is also developing and demonstrating laptop processors and other parts, as of 2017.
In 2000, Qualcomm formed a joint venture with FORD called Wingcast, which created telematics equipment for cars, but was unsuccessful and closed down two years later. Qualcomm acquired the wireless electric car charging company, HaloIPT, in November 2011 and later sold the company to WiTricity in February 2019. Qualcomm also started introducing Snapdragon system-on-chips and Gobi modems and other software or semiconductor products for self-driving cars and modern in-car computers. Patents and patent disputes As of 2017, Qualcomm owns more than 130,000 current or pending patents. By the early 2000s, Qualcomm had more than 1,000 patents. As the sole early investor in CDMA research and development, Qualcomm's patent portfolio contains much of the intellectual property that is essential to CDMA technologies.
Since many of Qualcomm's patents are part of an industry standard, the company has agreed to license those patents under "fair, reasonable, and non-discriminatory" terms. Qualcomm's royalties come out to about 5% or $30 per mobile device. According to Fortune Magazine, this is about 5-10 times more than what is typically charged by other patent-holders. Qualcomm says its patents are more expensive because they are more important and its pricing is within the range of common licensing practices. However, competitors, clients, and regulators often allege Qualcomm charges unreasonable rates or engages in unfair competition for mandatory patents. Broadcom In 2005, Broadcom and Qualcomm were unable to reach an agreement on cross-licensing their intellectual property, and Broadcom sued Qualcomm alleging it was breach ten Broadcom patents.
Broadcom asked the International Trade Commission to prohibit importing the affected technology. A separate lawsuit alleged Qualcomm was threatening to withhold UMTS patent licenses against manufacturers that bought their semiconductors from competitors, in violation of the standards agreement. Qualcomm alleged Broadcom was using litigation as a negotiation tactic and that it would respond with its own lawsuits. Qualcomm sued Broadcom, alleging it was using seven Qualcomm patents without permission. By late 2006, more than 20 lawsuits had been filed between the two parties and both sides claimed to be winning. In September 2006, a New Jersey court judge ruled that Qualcomm's patent monopoly was an inherit aspect of creating industry standards and that Qualcomm's pricing practices were lawful.
In May 2007, a jury ordered Qualcomm to pay Broadcom $19.6 million for infringing on three Broadcom patents. In June 2007, the ITC ruled that Qualcomm had infringed on at least one Broadcom patent and banned corresponding imports. Qualcomm and Broadcom reached a settlement in April 2009, resulting in a cross-licensing agreement, a dismissal of all litigation and Qualcomm paying $891 million over four years. During the litigation, Qualcomm claimed it had never participated in the JVT standards-setting process. However, an engineer's testimony led to discovery of 21 JVT-related email Qualcomm lawyers had withheld from the court and 200,000 pages of JVT-related documents.
Qualcomm's lawyers said the evidence was overlooked by accident, whereas the judge said it was gross misconduct. Qualcomm was fined $8.5 million for legal misconduct. On appeal, the court held that Qualcomm could only enforce the related patents against non-JVT members, based on the agreements signed to participate in JVT. Nokia and Project Stockholm Six large telecommunications companies led by Nokia filed a complaint against Qualcomm with the European Commission's antitrust division in October 2005. They alleged Qualcomm was abusing its market position to charge unreasonable rates for its patents. Qualcomm alleged the six companies were colluding together under the code name Project Stockholm in a legal strategy to negotiate lower rates.
These events led to a protracted legal dispute. Qualcomm filed a series of patent-infringement lawsuits against Nokia in Europe, Asia, the United States, and with the ITC. The parties initiated more than one dozen lawsuits against one another. Several companies filed antitrust complaints against Qualcomm with the Korean Fair Trade Commission, who initiated an investigation into Qualcomm's practices in December 2006. The dispute between Qualcomm and Nokia escalated, when their licensing agreement ended in April 2007. In February 2008, the two parties agreed to halt any new litigation until an initial ruling is made on the first lawsuit in Delaware.
Nokia won three consecutive court rulings with the German Federal Patent Court, the High Court in the United Kingdom, and the International Trade Commission respectively. Each found that Nokia was not infringing on Qualcomm's patents. In July 2008, Nokia and Qualcomm reached an out-of-court settlement that ended the dispute and created a 15-year cross-licensing agreement. Recent disputes ParkerVision filed a lawsuit against Qualcomm in July 2011 alleging that it infringed on seven ParkerVision patents related to converting electromagnetic radio signals to lower frequencies. A $173 million jury verdict against Qualcomm was overturned by a judge. In November 2013, the China National Development and Reform Commission initiated an anti-trust investigation into Qualcomm's licensing division.
The Securities and Exchange Commission also started an investigation into whether Qualcomm breached antibribery laws through its activities in China. The Chinese regulator raided Qualcomm's Chinese offices in August 2013. The dispute was settled in 2015 for $975 million. In late 2016 The Korea Fair Trade Commission alleged Qualcomm abused a "dominant market position" to charge cell phone manufacturers excessive royalties for patents and limit sales to companies selling competing semiconductor products. The regulator gave Qualcomm a fine of $854 million, which the company said it will appeal. In April 2017, Qualcomm paid a $814.9 million settlement with BlackBerry as a refund for prepaid licensing fees.
In October 2017, Taiwan's Fair Trade Commission fined Qualcomm another $773 million. However, in late 2018 Qualcomm paid a settlement to Taiwan for $93 million in fines and a promise to spend $700 million in the local Taiwan economy. Apple In January 2017, the Federal Trade Commission initiated an investigation into allegations that Qualcomm charged excessive royalties for patents that are "essential to industry standards." That same year, Apple initiated a $1 billion lawsuit against Qualcomm in the U.S. alleging Qualcomm overcharged for semiconductors and failed to pay $1 billion in rebates. Apple also filed lawsuits in China and the United Kingdom.
Apple alleged Qualcomm was engaging in unfair competition by selling industry-standard patents at a discount rate in exchange for an exclusivity agreement for its semiconductor products. An FTC report reached similar conclusions. Qualcomm filed counter-claims alleging Apple made false and misleading statements to induce regulators to sue Qualcomm. Qualcomm also sued Apple's suppliers for allegedly not paying Qualcomm's patent royalties, after Apple stopped reimbursing them for patent fees. Qualcomm petitioned the International Trade Commission to prohibit imports of iPhones, on the premise that they contain stolen Qualcomm patents after Apple's suppliers stopped paying. In August, the International Trade Commission responded to Qualcomm's complaints by starting an investigation of Apple's use of Qualcomm patents without royalties.
Qualcomm also filed suit against Apple in China for alleged patent infringement in October 2017. The following month, Apple counter-sued, alleging Qualcomm was using patented Apple technology in its Android components. In December 2018 Chinese and Germany courts held that Apple infringed on Qualcomm patents and banned sales of certain iPhones. Some patents were held to be invalid, while others were infringed by Apple. In April 2019, Apple and Qualcomm reached an agreement to cease all litigation and sign a six-year licensing agreement. The settlement included a one-time payment from Apple of about $4.5 to $4.7 billion. Terms of the six-year licensing agreement were not disclosed, but the licensing fees were expected to increase revenues by $2 per-share.
In January 2018, the European Competition Commission fined Qualcomm $1.2 billion for an arrangement to use Qualcomm chips exclusively in Apple's mobile products. Qualcomm is appealing the decision. Operations and market-share Qualcomm develops software, semiconductor designs, patented intellectual property, development tools and services, but does not manufacture physical products like phones or infrastructure equipment. The company's revenues are derived from licensing fees for use of its intellectual property, sales of semiconductor products that are based on its designs, and from other wireless hardware, software or services. Qualcomm divides its business into three categories: QCT (Qualcomm CDMA Technologies): CDMA wireless products; 60 percent of revenue QTL (Qualcomm Technology Licensing): Licensing; 19% of revenue QSI (Qualcomm strategic initiatives): Investing in other tech companies; 1% of revenue Qualcomm is a predominantly fabless provider of semiconductor products for wireless communications and data transfer in portable devices.
According to the analyst firm Strategy Analytics, Qualcomm has a 39 percent market-share for smartphone application processors and a 50 percent market-share of baseband processors. Its share of the market for application processors on tablets is 18 percent. According to analyst firm ABI Research, Qualcomm has a 65 percent market-share in LTE baseband. Qualcomm also provides licenses to use its patents, many of which are critical to the CDMA2000, TD-SCDMA and WCDMA wireless standards. The company is estimated to earn $20 for every smartphone sold. Qualcomm is the largest public company in San Diego. It has a philanthropic arm called The Qualcomm Foundation.
A January 2013 lawsuit resulted in Qualcomm voluntarily adopting a policy of disclosing its political contributions. According to The New York Times, Qualcomm's new disclosure policy was praised by transparency advocates. See also Qualcomm Snapdragon References External links Official website Category:1985 establishments in California Category:Companies listed on NASDAQ Category:Display technology companies Category:Electronics companies established in 1985 Category:Fabless semiconductor companies Category:Graphics hardware companies Category:HSA Foundation Category:Information technology companies of the United States Category:Manufacturing companies based in San Diego Category:Multinational companies headquartered in the United States Category:Networking hardware companies Category:Semiconductor companies of the United States Category:Technology companies based in San Diego Category:Technology companies established in 1985 Category:Telecommunications companies established in 1985 Category:American companies established in 1985 Category:Telecommunications companies of the United States Category:Telecommunications equipment vendors Category:1991 initial public offerings
The Kleihauer–Betke ("KB") test, Kleihauer–Betke ("KB") stain, Kleihauer test or acid elution test, is a blood test used to measure the amount of fetal hemoglobin transferred from a fetus to a mother's bloodstream. It is usually performed on Rh-negative mothers to determine the required dose of Rho(D) immune globulin (RhIg) to inhibit formation of Rh antibodies in the mother and prevent Rh disease in future Rh-positive children. It's named after Enno Kleihauer and Klaus Betke who described it in 1957. Test details The KB test is the standard method of quantitating fetal–maternal hemorrhage (FMH). It takes advantage of the differential resistance of fetal hemoglobin to acid.
A standard blood smear is prepared from the mother's blood and exposed to an acid bath. This removes adult hemoglobin, but not fetal hemoglobin, from the red blood cells. Subsequent staining, using Shepard's method, makes fetal cells (containing fetal hemoglobin) appear rose-pink in color, while adult red blood cells are only seen as "ghosts". 2,000 cells are counted under the microscope and a percentage of fetal to maternal cells is calculated. In those with positive tests, follow up testing at a postpartum check should be done to rule out the possibility of a false positive. This could be caused by a process in the mother which causes persistent elevation of fetal hemoglobin, e.g.
sickle cell trait. Comparison with other more expensive or technologically advanced methods such as flow cytometry has shown that the KB stain, like the more advanced methods, is sensitive in its detection of FMH. Background counting errors can result in estimates of as much as 5 mL fetal blood loss when there actually is no such blood loss, but standard methods available in most laboratories admit an extremely low probability of the return of a false positive when more severe FMH has taken place.
Uses Fetal–maternal hemorrhage severity estimation To determine if a positive test for FMH indicates the likely cause of fetal death, the percent of total fetal blood volume lost should be calculated, making appropriate adjustments based on the following known relationships: the size of a fetal red blood cell is 1.22 times that of an adult red blood cell; the KB stain is known to have a mean success rate of 92% in detecting fetal red blood cells; in a woman at or near term in her pregnancy, the mean volume of maternal red blood cells is approximately 1800 ml; the mean fetal hematocrit is 50%; and at stillbirth, the mean fetal blood volume is These constraints can then be applied to yield the formula where is the percentage of fetal blood lost; is the observed number of fetal red blood cells; is the observed number of maternal red blood cells (N.B.
we have that , where is the total observed number of red blood cells, both maternal and fetal); is the stillbirth weight of the fetus in kilograms. Stillbirth resolution Suppose that a KB stain is performed and total red blood cells are observed, of which are found to be fetal red blood cells. Suppose further that the stillbirth weight of the fetus under consideration is . Then we would conclude that the total percentage of fetal blood lost is approximately to five significant digits. We would hence conclude that the fetus under consideration lost 66.667% (two-thirds) of its blood via FMH.
Generally, stillbirth is highly probable for any value of , particularly if the fetus abruptly loses this much blood; in this example, we would hence be likely to suspect FMH as the cause of the stillbirth. It is important to note, however, that such a diagnosis is still not completely conclusive; fetuses losing large quantities of blood over long periods of time are able to compensate for this slower blood loss; since the KB stain tells us nothing with regard to the level of acuity of FMH. This means that it is not possible to entirely correlate a positive KB stain and high with a stillbirth, though in many cases, given other information, such as known hereditary complications of pregnancy, extremely high positive correlation coefficients between FMH and stillbirth have been observed.
Fetal red-blood-cell detection problems Since fetal and maternal blood cells have the same life expectancy in the maternal bloodstream, it is possible to obtain informative results from a KB stain for a fair period of time after a stillbirth. However, if the mother and fetus are ABO incompatible, it is more crucial to quickly perform the KB stain following a stillbirth, as the fetal red blood cells will be eliminated from the maternal bloodstream very quickly, causing the KB stain to underestimate the degree of FMH, if any. Lots of concern has been raised in the literature concerning false positives when sampling is done after delivery.
In general this is not a problem. Delivery does result in higher frequency of detection of micro-hemorrhages but this should not confound interpretation of FMH as a possible cause of stillbirth. It is not necessary to draw the sample before induction, onset of labor, delivery, placental delivery etc. despite what some published literature purports. However, if caesarean section is to be used, failure to draw the sample prior to that will result in a 2% false positive rate. Finally, anything which causes persistence of fetal hemoglobin in maternal blood cells will make interpretation much trickier. Certain hemoglobinopathies, the most common of which is sickle cell trait, do this.
Overall, somewhere around 1–3% of the time this could result in false interpretation. See also Apt test References External links The Kleihauer Test, King Edward Memorial Hospital,Perth Western Australia Category:Blood tests Category:Tests during pregnancy
The Innovia APM 100 (formerly known as the CX-100) is an automated people mover (APM) rolling stock first developed by Adtranz (now Bombardier Transportation), intended mainly for airport connections and light rail in towns. They are operated by Automatic Train Control (ATC), making it fully automatic and driverless. The Innovia APM 100 is an evolution of Adtranz's previous people mover vehicle, the C-100. Bombardier's intended successor to the Innovia APM 100 is the Innovia APM 200 (originally simply known as the Innovia), which made its debut on Dallas-Fort Worth International Airport's Skylink APM. However, the Innovia APM 100 continues to be offered by Bombardier and will remain in service at many airports for years to come.
In addition to being used at many airports, the Innovia APM 100 is used on the Miami Metromover which runs throughout Downtown Miami, Florida, United States. Airport connections A popular rolling stock for intra-terminal connection in large airports, it operates in a number of airports: Current: AeroTrain, Kuala Lumpur International Airport, Malaysia AirTrain, San Francisco International Airport, United States Automated Guideway Transit System, Denver International Airport, United States Beijing Capital International Airport, People's Republic of China Madrid Barajas International Airport, Spain McCarran International Airport People Movers, McCarran International Airport (Las Vegas, Nevada), United States Orlando International Airport, United States (Gates 70-129 Only.)
Pittsburgh International Airport People Movers, Pittsburgh International Airport, United States Satellite Transit System, Seattle-Tacoma International Airport, United States SkyBridge, Leonardo da Vinci Airport, Italy SkyLine, Frankfurt Airport, Germany SMF Automated People Mover, Sacramento International Airport, United States Tampa International Airport Airside, United States TerminaLink, George Bush Intercontinental Airport, (Houston, Texas), United States The Plane Train, Hartsfield-Jackson Atlanta International Airport, United States Tracked Shuttle System, London Gatwick Airport, United Kingdom Track Transit System, London Stansted Airport, United Kingdom Urban lines Miami Metromover The Bombardier Innovia APM 100 is used on the Metromover in Miami, Florida, United States. The trains were introduced in 2008, replacing the system's older Adtranz C-100.
The Metromover is one of the world's few rail systems that uses the Innovia APM 100 for non-airport operations. Bukit Panjang LRT The Innovia APM 100 (C801) began operations on the Bukit Panjang LRT Line in 1999. These cars are similar to the C-100s formerly used at Singapore Changi Airport's Skytrain system in the early 1990s, jointly built by Westinghouse and Adtranz (acquired by Bombardier). Most of the new features available in newer MRT train cars are found here as well. Instead of metal wheels on metal tracks, rubber-tired wheels on a concrete track are used making it very quiet.
Also, the windows mist within of (mostly) HDB apartment blocks ensuring residents' privacy. 19 individual cars (which can be coupled in pairs if necessary during peak hours) were purchased. The line suffered numerous technical problems in its initial years, and subsequent LRT lines in Singapore used the Crystal Mover instead. SMRT also announced that they will upgrade the LRT system with full cost paid by the company. 13 more trainsets for the Bukit Panjang LRT Line (C801A) have been progressively introduced since late-2014 to ease the 100% peak hour congestion. As of 4 September 2015, all C801A trains are on revenue service.
Guangzhou APM Line The Zhujiang New Town Automated People Mover System, or officially known as the Guangzhou Metro APM Line, is operated by a fleet of 14 Innovia APM 100 rolling stock. It serves the Zhujiang New Town area in Guangzhou, the new CBD of the city. The system began operations in November 2010 and is completely underground. In terms of construction cost per kilometre, it is the most expensive APM system in the world, yet it is the shortest and least used line in the Guangzhou Metro network. Technical specifications Manufacturer : Adtranz, now Bombardier Transportation System operation : Automatic (Driverless) Gauge : Central guideway with rubber tyres Maximum speed : Capacity : 105 (22 seating, 83 standing) Unladen weight : Size : length, width, height.
See also Bombardier Innovia APM – automated people mover systems Light Rail Transit Mitsubishi Heavy Industries Crystal Mover – a competing APM rolling stock References External links Bombardier Transportations : Bukit Panjang LRT CX-100 Innovia APM 100 Innovia APM 100 Category:Light Rail Transit (Singapore) rolling stock
The Centre for Innovation, Research and Competence in the Learning Economy (CIRCLE) is an interdisciplinary research centre situated in Lund, Sweden. It is spanning several faculties at Lund University and Blekinge Institute of Technology. The activities cover the field of innovation, entrepreneurship, knowledge creation and economic growth. History CIRCLE was initiated in July 2004 with long-term funding by VINNOVA (Swedish Governmental Agency for Innovation Systems), Lund University and Blekinge Institute of Technology. It is one of the four national research Centres of Excellence funded by VINNOVA. It has established connections with renowned research environments in the fields of innovation, entrepreneurship and economic growth.
Guest researchers and visiting scholars are regularly invited to enhance the exciting international research and teaching milieu through presentations and seminars. Research CIRCLE’s research is organized into the four main research areas addressing different aspects of innovation and knowledge creation. They are: learning in innovation systems and the consequences of R&D and innovation for productivity growth international comparison of regional innovation systems the entrepreneurial university and the creation of research-based firms public policy in the field of innovation, R&D and competence building in a comparative perspective. The research focus lies on the socioeconomic and policy aspects of three kinds of learning: Innovation (in new products as well as processes) which takes place mainly in firms.
Research and Development (R&D) which is carried out in universities and research organizations as well as in firms. Competence Building (e.g., training and education), which is done in schools and universities (schooling, education) as well as in firms (in the form of training, learning-by-doing, learning-by-using and individual learning, often throughout life). Competence building is the same as enhancement of human capital. References Category:Innovation organizations Category:Research institutes in Sweden Category:Scientific organizations based in Sweden Category:Lund University Category:2004 establishments in Sweden Category:Research and development in Sweden
Papua New Guinea has been an exporter of liquefied natural gas (LNG) since 2014. The LNG sector is important in the economy of PNG. : The value of LNG exports in 2017 was estimated at US$3.6 billion while GDP was estimated at US$20.5 billion. However, on a world scale PNG is a minor producer. In 2017 PNG ranked no 17 on the list of exporting countries. PNG exports were 1.5% of the world total of exported LNG. Exports from neighbouring countries dwarf these amounts. Australia is number four on the world ranking list (8.8% of world exports and a value of US$20.5 billion) and Indonesia is number eight (3.8% of world exports and a value of US$8.9 billion).
There are four LNG projects in PNG: the Hydes project is fully operational, An agreement between the PNG government and a consortium of companies for developing the Elk/Antelope field. These companies will operate under the name: PAPUA-LNG. The development of the Pn’yang gas field is in an advanced planning stage. A fourth LNG development is the Western Gas field which is also in the planning stage. The benefits of the LNG development for the country is a controversial issue. Government participation in the projects is as well controversial and has been a dominant theme in PNG politics in the past decade.
It became a major issue in the events leading to the resignation of Peter O'Neill as prime minister. The result was a period of uncertainty. PNG/LNG The Hides gas field is the main field operated by LNG/PNG. It was discovered in 1987 by BP. However, BP sold it to Oil Search company. Originally the idea was to transport the gas through a pipeline to Australia. Chevron was the big fossil fuel company that would carry it forward. It came close to a production phase but the project was dropped jn 2007 after big Australian customers dropped out of the conditional sales agreements.
At present Australia exports a manifold of LNG as compared to PNG and the project would not be of interest for that market anymore. In 2008 Exxon/Mobil took the leadership to develop a gas project sourcing the Hides field for the export of LNG to the Asian market. This was completed in 2014 after rapidly completing planning and construction phases: 2008 (a): Cooperating partners came to an agreement. Shareholding in LNG/PNG is distributed as follows: Exxon Mobil (32.2%) ; Oil Search Ltd. (29%); Kumul holdings representing the PNG government)(16.2%) Santos (13,5 %%); Mineral Resources Development corporation representing landowners (2.8%): JX Nippon Oil and Gas exploration (4.7%) 2008 (b): The fiscal and legal environment was established through a Gas agreement between the participating partners (ExxonMobil; Oil Search, Santos, the IPBC and MRDC) and the government of PNG.
It also laid down the proposed government equity in the project. '2008 (c)': An economics impact study was commissioned by ExxonMobil from the Australian consulting firm Acil/Tasman. It outlined many beneficial effects of the project for PNG. '2008 (d)': At the end of the year the FEED (Front End engineering and Design) stage was reached. 2009 (a): In October agreement was reached on environmental impact with the PNG government, The environmental Impact Statement was based on 16 studies. 2009 (b):Final agreement among partners paving the way for production. 2010: Sales and marketing agreements were completed with four major customers: JERA (for the Tokyo Electric Power Company); Osaka Gas company), Sinopec (China Petroleum and chemical Corporation); CPC Corporation (Taiwan) 2011: Financing arrangements with the lenders to the project completed.
The project was heavily geared. Loan capital (US$14 billion) was much bigger than share capital (US$3.3. billion) These loans were sourced in the first place from export credit agencies and were therefore government guaranteed (US$8.3 billion) Commercial Banks were the second source for loan capital (US$1.95 billion) a Thirdly, Exxon Mobil, the company executing the project lent money(US$3.95 billion). 2009-2014: The construction of the LNG project consisted of a distinct number of sub-projects (a) Seven gas fields supply the project. The main one is the Hides gas field in Hela province in the middle of the highlands of Papua New Guinea.
It required the drilling of eight boreholes of 3600meter deep. A Gas Conditioning plant was built in Hides where the gas is separated from oil and water. (b) The gas then needed to be transported to the coast for shipping. That required a pipeline of 290 km to the mouth of the Omati river..This pipeline was extended under water for 407 km to Caution Bay near Port Moresby where the LNG processing plant is. (c) At Caution Bay gas is chilled to minus -161C to make it liquid enough for transporting. Two such processing plants –called trains- were built. Two huge storage tanks were built auxiliary to this.
Thirdly, a loading pier for LNG tankers was constructed. (d) The Hides gasfield produces a mixture of oil and gas (condense). The oil is separated in the highlands and transported in a separate pipeline to the loading facilities of Oilsearch company for the Kutubu oilfield at the Kumul Marine Terminal offshore in Gulf Province.. (e) The construction of these projects was in extremely difficult terrain consisting either of very steep mountain ranges in the hihglands or swamps near the coast. The project built at Hides a special long runway that could take Antonovs- the largest cargo planes in the world- to bring in material as road transport could not cope with this.
(f) Oil Search acquired the management contract for the Hides installations. Exxon Mobil manages the installations at Caution Bay. Achievements of the project (a) The construction of PNG/LNG is a major engineering achievement. It was a massive project in extremely difficult terrain. The project was completed ahead of schedule in 2014. That was within four years. There was however an expenditure overshoot of: US$3.3 billion. (b) The project required massive training of PNG nationals. : 10.000 nationals during the time of construction. The project employs after construction 2600 PNG nationals and they constitute 82% of the workforce. Twenty two percent are women.
(c) The project produces above planned capacity. It was expected to produce 6.9 million tonnes of LNG per year. The actual average output is however 8 million tonnes a year. In 2017 the production was 8.3 million tonne . It decreases in 2008 to 7.5 million tonnes due to the shutdowns as a result of an earthquake. The plant was however again in production after 8 weeks.It is estimated on the basis of the highest monthly figures that output may grow to 9.2 million tons. (d) The project is a low cost producer. The project's break-even price of around $7.40 per million British Thermal Units compares favorably to an average over $10 per million BTU for eight recent gas projects in the region, according to analysis by consultancy Wood Mackenzie and Credit Suisse.
(e) The project is bigger than mere focus on the major Hides gasfield suggests. Project gas is sourced from seven fields: the Hides, Angore and Juha gas fields and from associated gas in the Oil Search-operated Kutubu, Agogo, Moran and Gobe Main oil fields, which provides approximately 20% of PNG LNG Project gas. Gas is also purchased on a third party basis from the SE Gobe field. (f) The reserves in the gasfields were evaluated anew in 2016. This resulted in an estimated increase of 50% as compared with the estimates made before construction in 2009. (g) The project supplies about 20% of the domestic energy markets which leads to considerable savings.
This is an afterthought. The original degree there was nodid not provide for domestic market obligations or local. Disappointments of the project (a) ExxonMobil commissioned study by ACIL-Tasman,t Australian consultants to calculate the benefits and costs to PNG. They projected large gains for the PNG economy as a result of the project. However, two Australian economists – Paul Flanagan and Luke Fletcher- compared in 2018 the predictions of this report with actual outcomes. This study was commissioned by Jubilee Australia. They found an actual fall in employment, household incomes, employment, government income and imports where the ACIL-Tasman study predicted increases.
GDP was expected to double as a result of LNG/PNG in the ACIL-Tasman study, but the researchers found a mere 10% growth. These disappointments cannot be explained by lower energy prices than expected. The Jubilee study has been criticised because the researchers did not produce a credible counterfactual: What would have happened in the absence of the PNG/LNG project and in how far are the observed effects related to PNG/LNG? Prime minister Peter O’Neill rejected the Jubilee report mentioning low energy prices as the main factor. Exxon Mobil has responded by mentioning social and economic benefits of the project such as stimulating entrepreneurship and supporting local communities.
(b) Second, specific questions were asked already before the start of the project about the depreciation allowed and tax concessions. Sir Mekere Morauta challenged in parliament the exemption of GST and interest withholding tax given to LNGPNG. The exemption of interest withholding tax is particularly important as the project is highly geared and much income is needed to service these loans. Arthur Somare, the relevant minister at the time, stressed that a 30% corporation tax on profit remained despite these concessions. A second concern was raised by Aaron Batten while presenting a seminal report by the Asian Development Bank: Papua New Guinea: Critical Development Constraints.
He mentioned specifically the taxation concessions to the LNG project. The Internal Revenue Commission argued that companies need the time to extract, produce, export and sell their products before they can generate a continuous income that is taxable. However, the Internal Revenue gave no definite and precise information of income flows from LNG/PNG. Substantial income was not expected until after 2020 as a result of these concessions. The actual arrangements between government and companies are in a secret Resource Development Agreement.. However, Flanagan and Fletcher suggest : Exxon and Oil Search should be paying half a billion dollars (AUD) to the PNG government every year, since the gas started to flow in 2014.
Instead, they are paying a fraction of this amount, partly because of their use of tax havens in the Netherlands and the Bahamas as they do in Australia. (c)The local beneficiaries of the project have not had their dues in time. The design of the PNG/LNG project is enlightened with respect to distribution among local residential groups. In 2009 before the start of the project there was a large meeting of local stakeholders in Kokopo: representatives of provincial and local government as well as representatives of local communities that made claims to be landowners in the area involved. This resulted in a written agreement on the sharing of benefits.
There have been regular announcements that benefits would be distributed, but these do not seem to have been followed up. Landowners have threatened to shut down the projects. The most serious clash took place in Angore in 2017.It actually led also to destruction of property. Property was destroyed by protesting landowners again in 2018 and they demanded a big payment of US$10million as a fee for maintaining security at the plant. Payments for that purpose were not foreseen in stakeholders agreements. Exxon Mobil as well as Oil Search insist that they have paid the amounts due to landowners. The problem is a question of distribution and not of payment.
This was followed a few days later with a message that it was not the intention to blame the government, According to Oil Search this was a misinterpretation of journalists. From reporting it is difficult to find out what the actual situation is. Exxon Mobil says that it has a good working relationship with the Mineral Resources Development Corporation which is in charge of looking after the interests of the landowners, Some money has been released to downstream landowners along the pipeline and in Boera village near the loading bay landowners near the pipeline. Government argues that identification is most difficult in the upstream areas.
Most of the royalties seem to be locked in trust accounts. The amounts mentioned are around US$200million. Government argues that identifying the landowners and the actual resident clans is much more difficult than assumed and this causes the delay. Prime Minister O'Neill puts the blame on the previous government who should have sorted out this issue. However, it can be argued that such an identification is almost impossible where oral testimony is the only source available to identify descent and territory. There are calls for revision of the Oil and Gas Act 2018 to sort out the problem as well as calls for revising the whole process in the light of what has been learnt until now.
(d)The income dependent on profit is disappointing. According to Exxon Mobil, they have paid US$1.4 in royalties, development levies, taxes and dividends to the PNG government. They argue that after 2025-2027 these amounts will increase greatly. The project is to the largest extent financed by loans. These will then be paid off and no longer depress profits. Income from corporation tax and income from equity will rise as a result. Nevertheless, there is a strong current of feeling that the PNG government has been outdone in negotiations with the companies. As a result, there is an important debate among politicians about the mining and taxation legislation: Charles Able as a treasure in the government made also the following perceptive statement; “We need to develop a mineral and petroleum regime where we take a smaller equity for free and a higher royalty rate, introduce domestic market obligation and local con- tent.
We need to understand why a large current account surplus (from mineral and petroleum exports) still leaves us with a foreign exchange shortage.” PAPUA LNG: the second LNG company in PNG When the proposals for an LNG facility in PNG were mooted there were two camps in the cabinet: one headed by Prime Minister Michael Somare advocating partnering with Interoil for the development of the Elk Antelope gas field and the other by his son Arthur Somare advocating partnership with ExxonMobil/ Oil Search developing the Hides gas fields.The latter party won, but once PNG/LNG was up and running, then attention went to Inter Oil's Elk Antelope Gas Field.
The fields are located to the West of the Capital Port Moresby in a marshy area in the eastern margin of the Papuan Basin: 90 kilometres from the Gulf of Papua coast. )The size of the gas field is certified at about 6.5 trillion cubic feet and this compares to the estimated 7.1 trillion cubic feet in Hides and associated fields. Whereas planning and implementation of the LNG/PNG project went smoothly, this is not the case with the Elk/Antelope gas field: the project is mired in political and technical controversy. Fierce competition for control of the Elk/Antelope gasfields Two relatively small oil and gas companies are major players in the struggle for control of the Elk/Antelope gasfield: Interoil and Oil search.
Interoil was a very small player in the gas and oil industry. It acquired in 2005 exploration licenses for oil and gas in PNG. The driving force in Interoil was its charismatic founder: Phil Mulacek. They announced in 2007 the discovery of a very large gasfield on the edge of the Gulf of Papua in the South of the Country: "the InterOil Corporation, made the kind of announcement investors crave: explorations near the refinery had uncorked a vast pool of natural gas potentially larger than the United States' total residential consumption of the fossil fuel in 2005. The size of the discovery was so large, Phil E. Mulacek, InterOil's chairman and chief executive, informed an analyst, that simply controlling its output 'was sort of like trying to stop the Mississippi.'"
An agreement was made with the PNG government to proceed towards exploitation, but there was one strong condition: they had to partner with a company that had experience in developing and running a gas field. Shell and ExxonMobil were mentioned as possible partners when Interoil entered negotiations. The investment bank Merrill Lynch was also involved. However, at the end of 2012 they had not managed to find a partner to reach an FID (Final Investment Decisions) and they were in danger of losing the licence. The idea was launched that the PNG government would become a 50% shareholder instead of taking the proposed equity of 22.3%.
However,that was a pipedream because government did not have the money and it would not solve the problem of expertise. The French multinational Total is a major player in the world of oil and gas and they filled the void buying a 60% interests in the gasfield. Oil Search Company entered the fray at about the same time. It was already a stakeholder in the LNG/PNG project and it extended its interests by buying into the Elk/Antelope gasfields. They bought the Pac LNG group that had a 22.8% stake in the gasfields. Oil Search paid about US$900 million for this participation.
That money was sourced from equity bought by the PNG government financed from a loan from the Swiss bank UBS. OilSearch ambitions went further and it contested the participation of Total before a London court of arbitration. Oil Search claimed to have priority rights (pre-emptive rights) in buying into Interoil because of its acquisition of Pac LNG. Out of the negotiations came a continued presence of Total in Papua-LNG but at a reduced rate of 40% instead of 60%. Interoil remained however with an interest of about 40% in the Elk/Antelope Gasfield. If it was for sale then these shares would be very expensive: OilSearch had paid a much higher price than Total.
Oil Search made nevertheless a bit for Interoil's remaining shares in the gasfield of US$3 billion. The question was where OilSearch would source the capital for this acquisition unless it would be an exchange of shares. The quest for a major and very experienced oil and gas operator remained as well. It was thus not surprising that OilSearch had to give way to ExxonMobil. They offered US$2.2.billion for the remaining shares of Interoil in the gasfield. The resistance of the founder of Interoil was the last hurdle to take. Phil Mulacek had however in 2013 been removed form the position of ceo and replaced by Michael Hession.
Nevertheless, Mulacek challenged the deal in courts and in the shareholders meeting, but he was in both instances defeated. It ended a period of volatility surrounding the ownership of the Elk/Antelope field. This pattern of fierce competition and shifting alliances resulted in the following shareholding and proposed structure for the project: Total is the largest shareholder of the Elk-Antelope fields with a 31.1% interest. Partners are: ExxonMobil (28.3%) and Oil Search (17.7%). The State back-in right of 22.5% and 2.5% of this is for landowners.. The plan assumed that construction is 70% debt financed. Oil Search will have the management contract for the upstream facilities while Exxon Mobil will manage the gas liquidification plant and loading bay.
The latter facilities will be at the same place near Port Moresby as those installations serving LNG/PNG. These will be expanded with a three trains, installation to liquidify and deliver. Fixed costs will therefore be less because of shared facitlities. The agreement contained an obligation to provide gas for domestic use (a reserved 5%) so that PNG is for 70% self sufficient for electricity supply in 2030. The State and landowners are not obliged to pay for their equity (US$900 million) before revenues start coming in. Payment for the Interoil shares by Exon Mobil is partly deferred until the Final Investment Decision and partly deferred until the first shipments are made.
Interoil retains residual rights to income from the gasfield if it performs above certain expectations. Pac-Lng has similarly retained residual rights to income if the output is beyond a certain expectation. Total has also deferred cash payments for equity to the date of the Final Investment Decision (US$230 million). Reactions to the Elk Antelope field agreement. The Memorandum of Understanding between the PNG government and the companies involved in the Elk/Antelope field was announced at the end of the APEC conference in 2018. The intention was to buttress the international status of PNG. This was followed by an agreement in April 2019 to start the Front End Engineering Design process.
The Final Investment Decision (FID) that makes construction possible is expected in 2020. Output is expected to flow in 2024. This is much later than was earlier envisaged. For example: in 2011 the final investment decision was expected in the same year. In 2017 the first LNG exports expected in either late 2020 or early 2021 The new dates are also speculative because the financial underpinning of the announced agreement is virtually absent. There is only commitment of a small proportion of the necessary cash for construction. The cash paid for the gas field is for the shareholders of Interoil and is not working capital for Papua-LNG.
Nothing has been built or constructed with that money. It is merely a sum paid in the expecttion of income to come. This in contrast to investing in a company that starts from scratch. The most imponderable factor is the possibility to generate credit. The project is expected to be financed from loans for 70% and there is not yet an indication where this loan capital could come from. The agreement was also politically controversial. Authoritative voices had argued that the mistakes of LNG/PNG should be avoided. Prime minister Peter O’ Neil; agreed with that position albeit that he also said that there should be an ‘environment for our development partners to maximise returns on their investment ‘.
He was under pressure of a comment in the March Monetary Policy Statement from the Bank of Papua New Guinea. This urged the government not to be to generous with tax concessions. The current policies with respect of tax and natural resources projects had led to less availability of foreign exchange and had not strengthened tax revenues. PNG had in 2018 a strong positive balance on the current account. This should lead to an increase in foreign exchange and this did not happen. The deputy prime minister Charles Abel had made very critical comments on the benefits of natural resource projects for PNG.
Charles Abel was together with mines minister Fabian Pok on the government negotiating team for the Papua/LNG project. He was content about the agreement: We made compromises, but he considered it a significant improvement over the PNG/LNG project: “ “this Agreement provides earlier, less risky flows to the State, reduces the States financing burden to buys its shares, and provides some gas for domestic use at a discounted and fixed price. There are strong provisions for third party access to infrastructure and national content.” However, the agreement was immediately controversial. It is striking that some of the initial criticism came from Hela province.
That is the locus of LNG/PNG and benefits should have been coming in.. Philip Undialu, the Governor of Hela Province submitted a long list of critical questions .) The finance minister James Marape, also originating from Hela, resigned. More MPs followed him and resigned from the governing party (PNC). Four out of five resigning MPs originated from resource rich areas The analysis of Mekere Morauta. Ex-Prime minister Mekere Morauta has formulated the most coherent criticism of the agreement and these cover three areas in the agreement.. First, the agreement has been formulated without the necessary and required consultation.. Landowner groups have not been properly identified in the PNG-LNG project after ten years of operation.
Government claims that the money is reserved for the time when the process of identification is complete. But it is not clear where the money is. It is thus seen as a cardinal mistake in the PNG-LNGproject that this identification was not completed before the start of the project. .Therefore, landowner groups need to be identified before the APDL (Application for a Petroleum Development Licence), is submitted. Charles Abel, the deputy prime minister, defends this as the agreement is simply provisionally. There is not yet an APDL None of the members of the SNT (State Negotiating Team) has publicly broken ranks with government.
However, there are strong statements claiming that this team as well as the Department of Petroleum have been sidelined, Mekee Morauta distributed a letter from the Department of Energy to Secretary of the Government demanding that a proper APDL is made together with the necessary documentation about the size of the field and its economic viability. Total should have furnished ten documents that are absent or deficient, but they did not follow up requests.. The necessary information for decision making is simply not there and the required procedure is not followed. Second, the tax arrangements are not very different from the ones in LNG-PNG.
There is no indication of lessons learnt from LNG-PNG. The State has agreed with the ongoing operational and depreciation costs. Depreciation was in the LNG-PNG project tied to the repayment of loans. Profitability will therefore be low until the loans are repaid with interest. If the participating partners furnish the loan capital themselves then they have assured themselves of a steady income stream irrespective of profitability. The faster the depreciation the less profit will be made. There will be no withholding tax on interest or dividend. That means the companies can export their income to a destination where little or no tax is paid without any taxation by the PNG government.
Two of te participating companies – Total and ExxonMobil- will also have a steady income stream from the management contract. The companies have also got exemption from GST, import duties and taxes on project goods and consumables.. The management of the project is thus virtually tax free and this makes the management contract more profitable. Morauta argues that nothing seems top be learnt from the LNG/PNG project and mentions two specific instances: first, there is no proper taxation for windfall profits and there is no mention of taxing the oil that comes out of the well mixed with gas (condensate).
That oil is sold to Oilsearch: this can be seen as a compensation for Oilsearch losing out on the management contract. The third area of criticism concerns the domestic gas obligations of the project. The domestic provision of gas is in the agreement an option to 5% of the output. It is striking that this is an option and it may thus be that no gas will be domestically supplied. The agreement is also contrary to the National Energy Policy which demands 15% of all gas output to be available for domestic use, The agreement mentions only provision of gas for electricity supply and therefore ignores possible wider industrial use.
The gas will also be expensive as it will be indexed from a high base to the world market price while it is domestically supplied. Doubts about the value of the field. At the time of concluding the agreement great doubts returned with respect to the value of the field. Interoil has always presented the Elk/Antelope gas field as their own original find. That is not true. There is an earlier exploration of the area that found gas, but had great doubts whether this field is exploitable. This was a well known story, but a whistleblower in the Department of energy has brought this in the open again at the time of signing the agreement.
According to the report: the field has five major problems: the gas may not be anywhere near as extensive as first thought, nor as easily extractable, there is a high water content, the gas is of low quality, requiring expensive treatment, and the geology of the field is suspect. The nature of the field is such that the initial impression is made of great gas pressure leading to high flames.. however they soon diminish to a relatively low level. There is no definite judgement on the issue yet, but the call is for new research. Government’s response Dr. Fabian Fok, the minister of mines wrote a reply to the Governor of Hela province, Philip Undialo,s concern about the Gas agreement.
He denied all accusations and considered them lies for political purposes. He stress particularly that none of the members of the State Negotiating Team had publicly spoken negatively about the Gas Agreement. He denied that this team had been sidelined, but “Mid way through the negotiations In order to increase the level of scrutiny and due diligence on the negotiations. The Prime Minister, Deputy PM and I further added an oversight committee (A higher level committee consisting of the SNT Chairman and members with external advisors) so the country gets the best deal possible with as much clarity and scrutiny as possible.
Effects of the change of government The agreement on the Elk-Antelope gasfield became the core of intense political controversies about PNG’s policies with respect to natural resources.It led to the resignation of Prime Minister Peter O’Neill. His successor, James Marape, announced changes in the management of PNGs natural resources in his maiden speech. Yet at the same time he was keen to reassure investors: “he did not intend to chase industry away, but asserting that reforms were needed to ensure benefits are spread more evenly.” Oil Search's Peter Botten proclaimed immediately after Marape's appointment even confidently that it was likely that nothing would change and that arrangements would even remain as before when the third gasfield Pn'yang would come into production.
Botten didn't expect therefore any significant new concessions on the deal. This led to a bristling reply from Marape, yet he remained vague as regards to envisioned changes. The minister for petroleum announced two months after the change of government that a revision of the “regulatory and commercial terms of the so called LNG agreement was ready for political approval”. The companies involved were however not sympathetic to proposed changes. Total declared that no change in the agreement will be entertained. Oil Search warned that revisions may push back the final investment decision to 2021 and projects elsewhere in the world may then take precedence over Papua-LNG There is however internationally trust in the project.
In the meantime three government-backed lenders – Japan Bank for International Cooperation (JBIC), the US Overseas Private Investment Corp (OPIC) and Australia's Export Finance and Insurance Corp (EFIC) announced an initial commitment to lend to Papua-LNG The Petroleum Minister Kerenge Kua negotiated with Total in Singapore during August 2019 in order to get better terms. This resulted in a number of non binding statements of intent. The Papua-LN project will however in first instance proceed as envisaged.His most important statement was however that in future contracts will be made on the basis of Production Sharing Agreements which will lead to early free cash flows in petroleum and mining contracts.
The Pn'yang gas field: the third project The Pn’yang gas field is situated in the heart of the highlands, north of the Hides gas field. Originally it was thought to be a relatively small gas field, but a certification exercise revised this as composing of 4.37 trillion cubic feet. ( For comparison: Hides is estimated ar 7.1 trillion cubic fee and Elk Antelope 7 6.43 trillion cubic feet. The development of this gasfield would require relatively less overhead: the pipeline from Hides to the coast merely needs to be extended inland. At the Caution Bay loading point it would need one extra train to condense the gas for shipping.
This would mean building one extra train besides the two extra trains for the Elk-Antelope gasfield. Synergies are expected. ExxonMobil has been the main actor in this field but it is not the only participant. ExxonMobil as lead operator owned 49%, Oil Search held 38.5%, and JX Nippon of Japan held 12.5% interest. The Australian company Santos has bought into the project a 14.3% stake. Santos' acquisition sees current participant ExxonMobil's stake drop from 48.99% to 36.86%, Oil Search's from 38.51% to 36.86% and JX Nippon's from 12.50% to 11.96%. This is before possible government participation The deal with Santos is however contingent on the award of a product development licence and reaching a final investment decision.
Oil Search was before the political changes optimistic about the development of Pn’yang. They expected an agreement with the PNG government similar to the one with Papua LNG in the second quarter of 2019 and a final investment decision (FID) in 2020 in conjunction with the FID for Papua-LNG. It is unlikely that these deadlines will be met because of the political changes. The Western Gas Project: number four The Western Gas Project is a fourth lng development and it is still in the planning stage. The major operator there is Horizon oil. The collaborating partners are Oil Search, Kumul, the PNG state company.
The Chinese company Balang is another probable partner since it bought the interests of the Spanish company Repsol in PNG. A considerable amount of condensate – oil that comes along with the gas- is expected in the project. That is of particular interest to OilSearch as the company is stabilising. It entails the building of a processing (conditioning) plant at the wellheads, a separate pipe line to Daru and the building of a liquidification plant in Daru. The planning was to complete pre-FEED studies (concept engineering and design) in the second half of 2018. That deadline is not met and the prospects have been affected by the political changes and landowner concerns.
The financing of equity participation The financing of the equity participation in LNG projects through loans is a major issue in the politics surrounding LNG projects. The mining Act in PNG allows a government participation of maximum 30% in natural resources projects. In the case of PNG/LNG this was projected as a 19.4% share. This translated in a contribution to the construction of the project and a contribution to the mining rights about US$800 million. This payment was to be made following the Final investment Decision (FID). A concurrent phase in the project was the Front end engineering Design (FEED) and this raised the cost of the project and therefore the share to be financed by equity.
As a result, the PNG government had to find US$ 1 billion when the FID was made on 8/12/2008. In early March 2009 the PNG government acquired that sum (US$1 billion) through a loan from IPIC (International Public Investment Corporation), a tyoe of sovereign fund of the government of Abu Dhabi. It was however not an ordinary loan, but an exchangeable bond. IPIC acquired the right to either being repaid in cash or through the security in the loan: PNG's equity in Oil Search Limited. These shares ideally would be at the time of redemption to at least equal in value to the loan which was pegged at a share value of A$8.55.
If the value of the shares is lower than the loan then the PNG government had to lay out the missing cash. If the value of the shares would be more than the loan and IPIC wanted to buy the shares then the PNG government was entitled to the extra value in cash. The loan was expected to mature after five years, but IPIC could opt for a shorter period. The interest was 5%. When the loan matured in 2014 the share price was around A$8.55 and IPIC wanted the shares as repayment for the loan. The PNG government sent a delegation to Abu Dhabi in an attempt to dissuade them and accept cash.
They refused and the Oil Search shares were transferred from the PNG government to IPIC. The share price also fell back and PNG had to add US$70.8 million. This financial construction has been defended by the prime minister, Michael Somare, at a time when the deal was concluded. He made the contentious argument that the government did not want the loan to add to government indebtedness. Indeed, it was fundamentally the sale of an asset –the Oil Search shares- in the first place. The year 2008 was also the year of the worldwide financial crisis and it was very difficult to raise money.
“The exchangeable bond effectively involved a future swap in shares held in Oil Search for immediate funding for a direct equity stake in the LNG venture.” The latter was expected to be much more profitable:The government also expected to raise much more money from the equity participation in LNG/PNG than from Oil Search dividends. It was expected that the revenue stream from the LNG project would redeem the loan. Arthur Somare was the government minister in charge of public companies (IPBC) and particularly of the relations with the LNG project. Mekere Morauta challenged Arthur Somare from the moment the IPIC loan was concluded.
He criticised Arthur Somare's position as minister in charge in charge of IPBC and Somare's use of his position to monopolise negotiations about the loan. He criticised at the onset already the mortgaging of national assets (the government's shares in Oil Search). Mekere Morauta became minister of IPBC in 2011 and reiterated his criticisms: ‘A loan in which Treasury was not involved; a loan which never had NEC approval; a loan which was never tabled in Parliament. It was negotiated and signed behind closed doors by people with no experience in the complex world of international high finance. He criticised technicalities of the loan: The loan was drawn half a year before it was needed for financing and this led to a loss of interest.
Currency risk was not hedged either. The most fundamental criticism was that A longer running time of the loan could have resulted in financing it from the income stream of PNG/LNG. That was due to early maturing of the loan not realistic. The government of PNG lost its equity in Oil Search after the redemption of the IPIC loan and had exchanged this for equity in LNG/PNG . Prime minister Peter O’Neill wanted to redress this situation with a new shareholding in Oil Search Oil Search on their part was looking for fresh capital to buy a stake in the next LNG project : the Elk/Antelope gas field.
They needed US$900 million to buy the share of Pac lng group of companies in that field. These interests coincided. Oil Search issued new share capital to finance this acquisition. These shares were bought by the government of PNG and financed with a loan from the Australian branch of the UBS bank. This loan was similar to the IPIC loan to finance shares in LNG/PNG: the shares that PNG bought in Oil Search were security for the loan, It was a so-called collared loan. This implies hedging your bets on the movement of share prices –the high and low were the collar- in order to guarantee a loan purchasing the shares.
The risks for the bank were also lessened because the loan was to be serviced directly from an escrow account in Singapore where PNG's income from LNG/PNG was paid. UBS had a first claim on that money, This financial construction was mired in controversies from the beginning and these were similar to those in the debate around the IPIC loan. First, the loan was concluded bypassing the legally required channels and the little consultation that took place was perfunctorily. For example: The board of the State Petroleum organization. Was presented with a decision that they were expected to follow. Important doubts were ignored..