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Since the resignation of former prime minister Peter O’Neill, PNG has taken a tougher line in negotiations with operators seeking to extract its mineral and petroleum resources, demanding a greater share of wealth to help lift the country out of poverty.

“The gas belongs to PNG’s people,” Mr Marape said. “We are willing to allow international oil companies to develop the field and achieve decent returns by exporting most of the gas, but PNG must also benefit.”

The P’nyang deal was one of two agreements needed in the plan to double the Pacific nation’s LNG exports in four years. The government sealed the other agreement – the Papua LNG pact – with Total SA and Oil Search in September.

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Papua LNG can no longer proceed as planned without the P’nyang deal, as the two projects were to be carried out simultaneously to minimise cost duplication. Oil Search’s outgoing managing director Peter Botten said discussions would continue and he hoped a deal could still be struck, but in the meantime he would meet with Total SA to focus on re-drawing plans for Papua LNG. The Papua LNG expansion would add 5.5 million tonnes per annum to the plant’s capacity of 8 million tonnes.

“We will seek to advance the Papua LNG project in a timely way, recognising that several engineering and commercial modifications will need to be made now that the P’nyang development is delayed,” Mr Botten said.

“Joint venture meetings are planned in the short term to discuss the forward program and we will update the market following these discussions.”

Morgans analyst Adrian Prendergast said the fate of the Papua LNG expansion was now unclear.

“With the talks failing, and P’nyang now stalled, we now see the most probable outcome being the PNG expansion, including Papua, stalls,” Mr Prendergast said.

“The Papua LNG development could be revised into a different development concept given P’nyang’s absence, but this would likely risk exposing the project once again to the government.”

Mr Prendergast, who elevated Oil Search’s risk profile in December amid concerns about how the new government’s negotiations were progressing, has lowered the stock’s valuation from $7.83 to $6.86.

Citigroup’s James Byrne said the viability of Papua LNG would be the “main point of contention” for the market in the near term.

Other analysts said Oil Search, which has a long history of operating in PNG since 1929, could “play peacemaker” in negotiations between ExxonMobil and the government, as it did in talks between the government and Total late last year.

“Outgoing managing director [Peter] Botten’s last three weeks in the office are shaping up as busy ones,” RBC Capital Markets’ Ben Wilson said.

An ExxonMobil spokesman said the company was disappointed it could not reach an agreement with the PNG government on P’nyang.

“We are hopeful that we can continue to work toward an outcome that benefits all stakeholders,” he said.

Santos – which last year bought a 14 per cent interest in P’nyang last year but has a more extensive portfolio of other growth projects and earnings contributors – closed 5 per cent lower at $8.25.

Business reporter for The Age and Sydney Morning Herald.

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