OSH Oil Search Limited

By Rhiannon Hoyle and Rachel Pannett 

SYDNEY--Papua New Guinea, an impoverished South Pacific nation that joined the ranks of the world's significant energy exporters five years ago, installed a new prime minister who has called for greater local control of resources, in a move that may upset a gas deal with international energy giants.

The new prime minister, James Marape, was elected by lawmakers on Thursday to succeed Peter O'Neill, who led the resource-rich nation for seven years and stepped down this week amid intensifying political unrest and government defections.

Mr. O'Neill had come under intense pressure in recent weeks over a plan the government agreed to in April with French oil major Total SA, U.S. petroleum giant Exxon Mobil Corp. and Australia's Oil Search Ltd. The multibillion-dollar project is part of a broader industry expansion aimed at doubling Papua New Guinea's liquefied natural gas exports to help meet surging global demand. Local communities in the country's highlands have questioned projected revenues and employment guarantees.

"I think we will certainly see the project agreements be reviewed and the process slowed a bit" following the change of leadership, said Jonathan Pryke, a Pacific expert at Sydney's Lowy Institute. Still, he added that while Mr. Marape has been critical of the way the former prime minister managed the negotiation process, "I don't think he is hostile towards the sector or the project as a whole."

Mr. Marape defected from Mr. O'Neill's government and resigned from his post as finance minister in April, days after the Total deal was signed, citing differences with Mr. O'Neill over natural resources policy. Mr. Marape said at the time that he wanted "more local content participation in our gas, oil sector or mining industry."

"We will look into maximizing gain from what God has given this country--from our natural resources," he said on Thursday. "I have every right to tweak and turn resources laws for my country."

The change of leadership could delay production by roughly two years, to beyond 2025, consulting firm Wood Mackenzie said. The Total-led Papua LNG gas export plan and a separate expansion of an existing Exxon Mobil-led project are awaiting final investment decisions from the companies, and could also be deferred in favor of developments elsewhere. Total and Exxon couldn't immediately be reached for comment.

When Papua New Guinea signed its first big gas deal a decade ago, the government was betting on a revenue windfall it hoped would transform the nation better known for jungles, violence and corruption.

But the payday from the existing $19 billion Exxon Mobil-led project, which started operating in 2014, has so far been a trickle. That project was crimped by a downturn in gas prices that allowed Exxon and its partners to claim losses against royalty payments, fueling anger among residents over whether they were receiving a fair share of the country's resources wealth.

Governments of many developing nations rich in resources are pressing companies for a greater share of the wealth to plug budget deficits, via higher taxes and demand for greater stakes in mines and fields.

A former Australian colony of eight million, Papua New Guinea has long relied on foreign aid. The country has minimal infrastructure outside the capital, Port Moresby, and companies typically negotiate terms with local landowners to gain access to resources--a knotty problem in a country with hundreds of ethnic groups.

Despite its resource wealth, Papua New Guinea is still one of the world's least-developed nations. Gross domestic product per capita was just $2,745 in 2015, according to the International Monetary Fund. Many residents lack electricity and running water. The more affluent live behind high fences, protected by armed guards. An earthquake last year left thousands homeless.

The country is also battling health crises, including one of the world's highest rates of tuberculosis. In June, health authorities declared the country's first polio outbreak in 18 years.

To bridge the revenue gap and revive its slowing economy, Mr. O'Neill's government had increasingly turned to China for low-cost loans to fund infrastructure and other construction projects. Mr. O'Neill said on Sunday that he would stand down ahead of a planned no-confidence vote by opposition lawmakers.

"It will be interesting to see how Marape moves to differ himself from O'Neill," said the Lowy Institute's Mr. Pryke. After Mr. O'Neill stepped aside, Mr. Marape brought his supporters back to the ruling coalition, which likely means "a lot of familiar faces" in senior government positions, he added.

Robb M. Stewart Contributed to this article.

(END) Dow Jones Newswires

May 30, 2019 02:50 ET (06:50 GMT)

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