SHARING OPPORTUNITIES AND BENEFITS – A GLOBAL PERSPECTIVE

PNG has been good to us. Our total shareholder return since production started has been over 1400% and in the last 15 years,

Gutpela morning tru long yupela olgeta delegates

Bikpela tok hamamas igo long yupela long kam long ples bilong mipela. Mipela ihamamas tru long lukim yupela olgeta.

Delegates you are very welcome in PNG and we are very pleased to see you in this country.

Distinguished Guests, Ladies and Gentlemen,

It is really an honour and pleasure to be able to present to you today.

I would firstly like to congratulate the Honourable Peter O’Neill, the Prime Minister of Papua New Guinea and his Government for bringing the APEC Leaders’ Meeting and CEO Summit to this country. It is an unprecedented platform to further develop relationships,

understanding and deepen the relevance of Papua New Guinea in the APEC group. My talk today takes a slightly different slant on the Summit theme “Inclusion in the Age of Disruption: Charting a Common Future”. It addresses inclusion of communities in the development agenda and charting a future of ways resource developers can engage with them, Government and other stakeholders in future developments.

I represent a Papuan New Guinea Company, Oil Search which, although a relatively small oil and gas producer in a regional and APEC context, we are one of, if not the largest private sector investor in Papua New Guinea. We have significant interests in PNG LNG, the newly developing Papua LNG Project, we operate all the country’s oil fields and have the largest exploration portfolio in the nation. Since 2003, we have invested almost US$11 billion in exploration and development in Papua New Guinea and with almost all our assets

here in this country, our future is inexorably linked to the successful social and economic development of this nation.

We have been operating in PNG since 1929, but really only moved from survival to delivering shareholder returns in 1992, when the first oil development at Kutubu came on stream. Oil Search at that time was a small minority partner in those world class fields, holding around 7% equity in this project.

Since that time, Oil Search has grown substantially by continually reinvesting in PNG, building its business here by acquiring interests from Oil Majors such as BP and Chevron and having exploration and development success. We now have significant ownership in all major developments.

PNG has been good to us. Our total shareholder return since production started has been over 1400% and in the last 15 years,

since taking over operatorship of the Kutubu fields, has been 915%. It has been an interesting and dynamic ride.

My talk today will obviously discuss some of the critical success factors in the development of the oil and gas sector and its relevance to APEC and the Asian economies. I also would like to highlight the critical requirement of developers in PNG to address and participate in the social, as well as the economic development of the country and its people. There is a compelling business case and strong social responsibility to play an active role in working with Government, and most importantly our communities, in true private public partnerships, to ensure developments are done in a sustainable way. What happens here in PNG can be a model for economic and social development in other developing countries.

Although we don’t always get things right, the PNG development model does work to deliver economic and social change.

PNG is blessed by having abundant natural resources. Although relatively small on a world scale, oil and gas reservoirs are generally prolific. It is a pretty good place to find and develop oil and gas, although logistics challenges do not make this work cheap. Investors in oil and gas in PNG have benefited from a stable, consistent and fair fiscal regime, over many years. This has helped develop an impressive track record of reliable project delivery and stable operations, highlighted by the outstanding development of the world class PNG LNG Project. ExxonMobil, supported by Government and communities, did a great job in delivering this US$19 billion project. Since production started in 2014, production capacity has grown to where it now consistently averages around 9mpta, up from an original design capacity of 6.9mtpa.

This project has built the country’s reputation as a reliable supplier of energy to a number of APAC countries. It has also demonstrated

to shareholders, banks and financiers that world class projects can be delivered in PNG, good returns can be made and debt repaid in a reliable way. This project and its track record of delivery provides a tremendous platform for what will come next. But more on that later.

Success has been driven by the prospectivity and favourable geology, by fiscal stability and operational excellence. Importantly, programmes that strive to deliver sustainable social responsibility are embedded in all operations. This sets PNG apart from many countries! Without a significant effort in addressing the social development of the country, working in partnership with Governments and our communities to address social development challenges, the successful development of the oil fields and PNG LNG would not have been achieved.

Although common to other developing countries, addressing legitimate social development in PNG is central to our ongoing success.

You have no doubt heard that PNG is home to over 1000 tribal groups speaking over 800 languages. There is huge diversity in the way people go about their lives. In certain areas, land is owned by one man, in others it is owned by the women, in others by groups of people who have affiliations to the land that go back many years. Away from the cities, agriculture is the prime occupation, with work commonly carried out by the women in society. Understanding the cultural complexities and the strong affiliation the communities have for the land is critical for success in developing anything, as well as keeping operations safe and secure.

The reality is, community unrest can stop operations, fences do not keep people out and to achieve operating stability we must bring communities along on the development and operating pathways.

More than anywhere else in the world, this is critical to success in this country.

It goes much further than providing communities with project revenue by way of royalties and equity revenues, skills training, employment and business development opportunities. It goes to the requirement of developers to work in partnership with Government and communities to address social development, including delivery of core infrastructure – roads, bridges, hospitals and health centres. It involves delivery of health programmes, addressing a range of common diseases, working with communities to address gender based violence, as well as promoting sustainable long-term business development in non-project related opportunities. This is being

done by forming effective public private partnerships leveraging respective strengths of all stakeholders.

Of course various companies in PNG take a different place in the spectrum of what they are willing to support. Oil Search, as a PNG Company with, until recently, all its core assets in Papua New Guinea, recognise the social and business imperative to go the extra mile. We want and need to play an active role, working with Governments to actively address these challenges. We work with them, and a number of development agencies, to coordinate and deliver cost efficient infrastructure in a number of successful private public partnerships.

Under a tax credit scheme, where in lieu of paying project tax directly to the Government, we use those funds to carry out important infrastructure development programmes. These programmes are chosen by the Government and communities, they

are delivered using our operational expertise and supply chain, in a transparent and cost effective way, without waste or corruption. Under this scheme Oil Search has delivered over 280 projects over the last 20 years, to a total value of around US$400 million. Projects have included major infrastructure, such as APEC Haus, the National Football Stadium, Government office refurbishments and numerous regional road projects. They have also involved school and hospital buildings, Government workers’ houses, numerous other medical and educational facilities and churches – projects seen by Government and communities as essential in their economic and social development.

Leveraging the capacity of the private sector through innovative partnerships with Government, Community and Stakeholders has resulted in definition and then delivery of agreed development objectives.

Business brings substantial capital, provides jobs and training, can influence society by empowering women or addressing health concerns such as TB, malaria and HIV that impact our PNG workforce. Companies can promote changes in attitudes and behaviours to tens of thousands of staff under a company’s value system. Increasingly the private sector is recognising that business will thrive if it can improve society, whilst generating a fair return. The private public partnerships we have developed in PNG between National and Regional Governments, churches, donor agencies and NGOs represent a new and efficient model in improving social and development outcomes. It is a model that can be exported across the developing world.

Under these new partnerships, direct funding and support is also provided by Oil Search and the Oil Search Foundation for regional health authorities in Southern Highlands and Hela Provinces, where major oil and gas fields are located. Working with National and

Provincial Governments, churches and a number of aid agencies, support in health programmes and infrastructure are delivering sustainable improvements in health measures. These programmes include addressing child vaccination, TB, HIV and malaria control, pre and post natal programmes, child maternal health as well as development of sustainable business developments in agriculture and a range of literacy and education programmes. We are also working on a programme to deliver core skills development in carpentry, electrical and building trades for the many thousands of young people across our communities – a new initiative in craft skills training impacting the many unemployed youth in our project area villages.

This social investment is imbedded in our core business strategy as a company, not only to strive for a safe and secure operating environment but also to deliver sustainable social development in our communities, bringing them along our development journey. I

stress this is core to our corporate DNA and is part of a comprehensive coordinated strategy to ensure our PNG Operations and value capture are optimised – as well as being the right thing to do!

Innovative partnership models built on shared objectives and leveraging respective strengths are the key to sustainable long-term delivery. This is working in PNG now.

As most of you would know, part of the Highlands of PNG experienced a serious 7.5 scale earthquake in February this year, along with numerous strong aftershocks. This had a significant impact on our oil and gas operations but I am very pleased to say that the 3,500 staff members and contractors working in 23 work sites across the Highlands were uninjured by these events. The communities in and around our operations were seriously impacted. There was unfortunately loss of life and many people injured, people

were buried under landslides, many communities cut off, food gardens wrecked. There was also significant infrastructure damage, including roads, schools, health centres and churches impacted throughout the region. Our operated Moro Airfield was the only usable runway in the earthquake impacted area and with roads cut, it became the focus of coordinated relief operations. Working with Government, Contractors and partners, Oil Search organised the purchase and delivery of food, water, shelter, as well as providing aid requirement assessments and immediate medical treatment and evacuations. We provided what we called “emergency first responder services and last mile aid delivery.

This was supported by many partners and agencies, in terms of donation of aid supplies, money and provision of heavy lift aircraft from the Australian and New Zealand Government. This was a true

private public partnership addressing critical needs of our communities. Oil Search used its supply chain logistics support and helicopters to deliver and provide medical support to over 150 communities in the earthquake impacted area. The UN has estimated that Oil Search was responsible for the delivery of almost 80% of food aid over the first month after the initial earthquake. Our important participation in this relief effort was absolutely fundamental from a social and moral perspective but it clearly has business ramifications in building long-term relationships and trust with our communities. As one Landowner leader said to me “Many thanks for all your help. We remember those who came to help us in our hour of need but also who didn’t come”.

We continue to work with development partners to carry out restoration work in the earthquake affected areas. There is a lot more to do! Successful and timely delivery of this work is very

dependent on partnerships driven by the private sector, supported by Government and development partners.

Well, what is next for Papua New Guinea?

The country has substantial yet to be commercialised gas resources, highlighted by the Elk Antelope and P’nyang gas fields. Project participants are discussing with Government the potential development of the Papua LNG Project, operated by Total, and expansion of PNG LNG to add a third production train.

The announcement yesterday that an agreement describing core fiscal terms for the Papua LNG Project is a significant step forward in defining the value balance between the State and Developers. The Agreement prescribes a path forward, where we now have greater certainty on fiscal issues and investment parameters leading to closure of a Gas Agreement and all terms by the end of March 2019.

This will then be a precursor for Front End Engineering and Design and Final Investment Decision, sometime in 2020. There is more work to do but it does represent a significant step forward in bringing this Project to reality.

Along with Papua LNG, PNG LNG will also be negotiating fiscal terms for the development of a new LNG train contemporaneously with Papua LNG, in a highly capital efficient and coordinated development, bringing new jobs, new skills and investment opportunities for local and international groups.

With these projects moving forward, it is now likely that PNG has the capacity to double LNG production to around 17mtpa by 2024/25, with this energy fuelling customers in APEC countries, especially in the northern Pacific, a place where energy demand is growing strongly.

A lasting message from a Company who has lived its life primarily in Papua New Guinea – This country is a place where responsible investors can thrive and grow. To be successful though, in all industry spheres, you need good partners, you need to understand the dynamic operating environment, listen, but most importantly, be sensitive to community engagement – play an active role in working with Government and other stakeholders in addressing core social and development needs of the country.

In PNG, key stakeholders in the country’s development are working together in new ways, in new partnerships, to address important challenges in service delivery in this rapidly developing country. We believe that these initiatives will meaningfully contribute to Papua New Guinea progressively realising the true potential of its abundant and rich resources, especially its dynamic and growing population. The private sector must be a catalyst in this process. Results have already demonstrated the model works.

Thank you for the opportunity to speak to you today. I would also like to thank the organisers of the APEC CEO Summit and the hard work of the APEC Business Advisory Council of PNG in successfully delivering this conference.

Please enjoy your stay in this wonderful country.

Peter Botten Speech
November 18, 2018