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Speeches, 01 December 2014

PNG LNG Project: Transition from construction to production

PNG Chamber of Mines and Petroleum Conference, Peter Graham, Managing Director, ExxonMobil PNG Limited

Good morning. It is an honour to be invited to speak at this Conference once again.

As you will all be aware, 2014 has been an incredible year for Papua New Guinea as the PNG LNG Project moved from construction to production, with over 45 cargoes now safely dispatched.

The main subject of my talk today is the transition from the construction phase of the Project into production.

I have to say this is not so much a switch from one phase to the next but rather it is a journey.

It’s a journey we began years ago when this project started, and it’s a journey that will continue for many years to come.

To deliver this Project we have been working closely with our co-venture partners – Oil Search, NPCP, Santos, JX Nippon Oil and Gas Exploration, Mineral Resources Development Company and Petromin – along with the PNG national and local governments, key contractors and the communities near which we operate.

Without the support of these stakeholders, what we have achieved would not have been possible.

These next few slides illustrate some of our achievements, although it is difficult to convey a sense of the magnitude of challenges faced through these photos alone. The end product is a set of world class facilities, something we are very proud of and testament to the skills, creativity, persistence and courage of our Project Management Team and contractors.

We installed hundreds of kilometres of steel pipe and two modern gas processing facilities into one of the most remote, rugged and socially complex locations in the world, and did so in an environmentally and socially responsible manner.

However what is important is not just the physical assets that were built; we also committed to building capacity in Papua New Guinea and creating a positive Project legacy.

To this end, we developed and implemented a National Content Plan set on three pillars – Workforce Development, Supplier Development and Strategic Community Investments.

During construction we employed more than 9,000 Papua New Guineans and delivered more than two million hours of training through some 13,000 training courses. Watching our Papua New Guinean workforce develop has been inspiring. They have a thirst for learning and given an opportunity to do so, invariably exceeded our expectations.

We have worked with local suppliers, which has resulted in an in-country spend of almost 11 billion Kina including more than 2.7 billion kina with landowner companies.

We have invested more than 650 million Kina in community programs and infrastructure, with a particular focus on education.

We delivered the Project months ahead of schedule and within our 2012 revised budget – a real accomplishment that sets us apart from many other gas projects. 

Importantly, we have demonstrated what can be achieved in Papua New Guinea, and have set the stage for future investments in this resource-rich nation.

Reaching our early production milestone generated an almost indescribable feeling of excitement throughout the company.

The departure of that very first cargo on May the 25th was an historic moment that many of us, myself included, will never forget.

The construction phase took over four years, and the scope and progress was visible to all. Preparations for start of production were far less visible, but have been underway since the start of the Project’s detailed design and continued through startup. 

From the outside it may have seemed as if the contractors completed the design and constructed the facilities, handed the facilities and manuals over to Operations, and then the Operations team simply hit the start button and the process started. That could not be further from the truth.

We established a team – Building the Production Organisation, or BTPO – dedicated to ensuring the operability of the plant and equipment, and ensuring that the organisation and processes were all in place and functioning to ensure both a safe startup and ongoing safe operations.

Our objectives were to develop a safe, efficient production facility with minimum life cycle costs; to develop a multifunctional team with the necessary skills and experience to safely and efficiently operate the new facilities from day one; to ensure field support systems were in place and functioning for startup; and to ensure incorporation of the company’s standards and regulatory requirements.

Some of the keys to success included starting early in the design life, by embedding maintenance and operations personnel in project design offices.

Our BTPO process is very comprehensive. Based on ExxonMobil’s extensive operations experience and incorporating lessons learned from other projects, we identified all of the deliverables required, including operating procedures and equipment strategies, reference manuals, business systems, spare parts lists and post-startup contracts, and ensured we were ready. The devil is in the detail and we worked the details hard.

Clearly, a highly skilled workforce is needed to operate and maintain the safety and integrity of facilities. Given that this was the first of its kind in the country the training load was enormous.

Since the process facilities were still under construction, we developed and used sophisticated process simulators, specifically developed to mimic the control panels at Hides Gas Conditioning Plant and the LNG Plant. Simulator Training was also used for the PNG Ports pilots who would be responsible for safely bringing the huge LNG tankers to berth in Caution Bay.

As just one aspect of the two million training hours we delivered, we trained almost 140 Papua New Guinean Operations and Maintenance technicians, who are now gaining on-the-job experience and learning from highly experienced expatriates at the LNG and Hides Gas Conditioning Plants.

You can see two of those trainee technicians in this photo, turning on the first well at Hides, an important moment in our history.

We have begun recruitment for a third intake of Operations and Maintenance trainees who will commence training in 2015. Like their predecessors, these trainees will complete Basic Skills, Advanced Skills and on-the-job training.

Safety for us is a core value, not just a priority, with no job started if we could not determine how to complete it without anybody getting hurt. Our Operations teams comprise a mix of experienced process employees from ExxonMobil facilities around the world, and freshly trained young Papua New Guineans with no previous operations experience. We systematically assessed the hazards and risks associated with each task, and we assigned additional personnel to act as mentors. For high risk tasks, such as line handling to tie up the LNG tankers, we brought in experts for several months to train and coach PNG Ports staff.  And we trained and drilled to ensure we were ready to deal with emergencies.

We were determined to define the organisational culture that we wanted, rather than allow a culture to develop by default, and implemented a program called Em Pasin Bilong ExxonMobil long PNG to define the values and specific behaviours that we wanted.  This program also aimed to ensure we were helping our Papua New Guinean workforce to succeed in a new company.

A workforce cannot function without tools. We developed and installed a suite of business and process control systems, developed equipment strategies for our critical equipment, and procured, preserved and stocked the spare parts required. We negotiated a multitude of contracts for services required to support ongoing operations – everything from catering to lawn mowing, waste management to logistics. While seemingly not significant, the absence of such services could prove critical.

Not forgetting our very important customers. To avoid any potential disturbances during startup affecting our long-term customers, we sold cargos over the first few months on a spot basis. Product sampling and laboratory testing equipment and procedures needed to be verified. Shipping arrangements had to be made to ensure coverage of cargos and compatibility of ship-to-shore arrangements including surveillance, piloting, tug assistance in berthing, and line handling.

While all of this work was progressing, construction was being finalised and the startup processes initiated. Here, our one-team approach really delivered. We embedded some of the operations team members in the commissioning and startup teams, and walk-downs of equipment and procedures were completed on a tripartite basis – Contractors, Project and Operations. The result of this strong alignment was fewer punchlist items, rapid closeout of items, and a smooth startup. 

When we “pushed the start button” we did have an essentially trouble-free startup. Aside from the preparations already mentioned and others, we had the benefit of early gas from the Kutubu oil fields to allow commissioning and startup at Hides ahead of bringing the new Hides wells on-line, and likewise the gas from Kutubu allowed early defrost and cool-down activities to be completed at the LNG Plant.

Here’s a short video clip of the button being pushed for the first time – to load our first ever cargo.

A wonderful moment in our history.

So what changes now that we are in production?

The most obvious change is that with the end of construction comes a reduction in employment and business opportunities.  People who have worked on the Project have all acquired or improved their skills and gained valuable work experience. 

We provided personal viability training to help workers recognise and market their skills and other assets and where possible we phased the release of workers. Many have successfully transitioned into other formal employment, while others have returned to traditional pursuits.

The Project-established Enterprise Centre has helped set landowner companies and other local businesses up for success with training, mentoring and operational assessment programs. While construction support business opportunities have declined, it is pleasing to see a number of the landowner companies continue to prosper and diversify. We hope that other companies in PNG will step up and support the continuation of the Enterprise Centre to build capacity of small and medium enterprises in PNG.

One critical aspect of the Project that has yet to be completed is the identification of Project beneficiaries from the Project areas. We will continue to offer support to the Department of Petroleum and Energy to expedite completion of this work. We recognise the importance to landowners of the government meeting its commitments under the various Benefit Sharing Agreements, and will offer our support to ensure this is achieved.

Even though we are now well and truly into production, our presence in Papua New Guinea does not stop here – we want to build upon the legacy that we have all worked hard to build.

We are currently in the midst of the Lender Operational Completion Test, which is how the Lenders – the group of banks and export credit agencies that funded a large portion of the cost of the PNG LNG Project – test our readiness and reliability over a period of 120 days against a defined set of performance criteria.

We will continue to explore for additional resources to meet the growing LNG demand of the Asian market, as well as the demands locally in Papua New Guinea.

We have an active exploration program in PNG. Over the last half decade or so, ExxonMobil, with its JV partners, have invested over $400 million in exploration.

We are currently drilling the Hides Deep well, and have other exploration activities planned in the Fold Belt trend.

We will continue to evaluate opportunities for expansion, both incremental debottlenecking of existing and additional facilities, leveraging the investment we have already made. The performance of the Foundation Project facilities is encouraging in terms of demonstrated capacity.

The first challenge, though, for any development is the accumulation of sufficient proved reserves to underpin expansion and to this end we have a number of activities underway.

It is important to recognise that PNG is a high cost, high risk, and technically challenging environment. The incentives for exploration and development must continue to recognise this fact to ensure that Papua New Guinea remains globally competitive.

As we continue to explore for new opportunities in Papua New Guinea, we can build upon our lessons learned during the development of the PNG LNG Project – and I can assure you we learned a lot.

While ExxonMobil has nine decades of experience in PNG by the time construction work on the Project began, this Project was well beyond what we had ever done before in PNG.

We found out very quickly that Papua New Guinea wouldn’t simply adapt to the way that ExxonMobil does business – we had to adapt some of our proven processes and develop plans to fit the local context and challenges. Having said that, we always remained true to our core values and beliefs.

It took a team of dedicated people to work through the complexities, and we were not afraid to be flexible if there was a demonstrated need to do so.

A “one integrated team” approach was critical to our success. Success in one part of the Project without the other was never going to deliver the Project on time and budget.

Industry, government and community came together on the PNG LNG Project in a way that does not appear to have happened before in Papua New Guinea, at least not in recent times. The importance of this Project for the economic future of the nation was clearly broadly recognised.

The physical challenges of the Project were so immense that it simply would have been impossible to deliver without a rock solid working partnership between our organisation, our co-venture partners, and the Papua New Guinean Government.

Long-term security of the Project depends on our relationship with the traditional owners of the land on which we operate and with the government of PNG. To this end we understand the importance of transparent dealings and will continue to support government efforts to ensure that clan vetting is completed in a timely manner, and that PNG’s application for membership of the Extractive Industries Transparency Initiative is successful. For our part, we will continue to work to be seen as a good neighbour in the communities in which we operate.

Ladies and gentlemen, once again I express my gratitude for being given the opportunity to speak to you all today and to share the PNG LNG story with you. It has been a privilege to work on this Project and is an experience I will treasure when I retire at the end of January 2015.

The PNG LNG Project is a story about the power of people and of overcoming challenges.

And it is a story that has no end in sight.   

Thank you.