PNG’S PETROLEUM INDUSTRY “An Exciting Opportunity”

1. PAPUA NEW GUINEA PNG’S PETROLEUM INDUSTRY “An Exciting Opportunity”

2. INDEX • PNG in Context • Why explore PNG? • Regional geology • Wells, fields and activity, • Recent developments and • Opportunities • New investment initiatives – Government support • Licensing Process

3. PNG – IN CONTEXT • PNG is a democracy with a population of 5.2 million • Government is based on the Westminster system • PNG lies on the northern margin of the Australian Continental plate • Land area of 462,243 km2Total 3,120,000 km2 (EEZ inclusive) • 5 sedimentary basins with total area of 594,260 km2 • Diverse tectonic settings from passive margin continental shelf, thrust belts, back arc to rift basins • Current 2P reserves are 500 mmbo & 15 Tcf Gas • Very supportive Government focused on encouraging activity in the country • World class oil and gas fiscal terms

4. A Major Hydrocarbon Province PNG lies on the northern margin of the Australian Continental plate, and contains comparable reserve potential and play systems to Papua Province (Indonesia), & Timor Sea area of Australia

5. PNG SEDIMENTARY BASINS

6. INDEX • PNG in Context • Why explore PNG? • Regional geology • Wells, fields and activity, • Recent developments and • Opportunities • New investment initiatives – Government support • Licensing Process

7. Why invest in PNG? • Favourable Economics: • Finding costs are modest:- Kutubu <US$1.50/bbl, Gobe <US$1.50/bbl, Moran <US$1.00/bbl, Hides <US$0.20/bbloe • Development costs are modest: Kutubu <US$4.00/bbl, Gobe <US$3.50/bbl, Moran <US$3.50/bbl • Competitive & stable fiscal terms • State take compares well with neighbouring countries • World class Gas legislation focussed on encouraging the development of the Country’s Gas reserves

8. PAPUAN BASIN SUMMARY • Fold belt • Area 100,000 km2 • 54 exploration wells drilled • only 10 wells seismically constrained • 10 oil fields (6 producingfields) • 7 gas/condensate fields • 500 mmbo oil (2P) & 13 Tcf Gas (2P) • 345 mmbo produced since 1992 to June 2003 • Current production approx 50kbopd • Foreland • Area 180,000 km2 • 48 wells drilled • 41 wells seismically constrained • 1 oil discovery • 7 gas/condensate fields • No production Port Moresby 45km

9. Why invest in PNG? • Impressive exploration success rate • Commercial Success rate 1 in 7 in Fold belt • 15 wells drilled in Foreland post 1980 - 5 gas/condensate discoveries & 1 oil discovery • Recent encouragement in Aure Fold belt (potentially a new petroleum system) • Sparsely explored and restricted focus of activity • 96 exploration wells in an area 280,000 km2 • Focus of activity dominantly on the fold belt “drilling the bumps” • Seismic now opening up new areas • Fiscal terms encouraging activity in foreland and frontier areas • Exploration potential ranks high in the region • oil prospects generally >100mmbo • large gas prospects untested with focus on options for developing gas

10. Wells Cumulative Reserves ACTIVITY LEVEL Close correlation between exploration activity & reserves growth 14 4000 93-98 Gobe-Moran discoveries 98-02 Post oil price collapse Majors inactive in PNG 86-91 Kutubu & Hides discoveries 3500 12 3000 10 2500 8 Introduction of heli-rigs 2000 Exploration Wells Cummulative Reserves BOE Introduction of Fold belt seismic 6 1500 4 1000 2 500 0 0 Year 1968 1972 1978 1984 1990 1994 1996 1970 1974 1976 1980 1982 1986 1988 1992 1998 2000 PNG Exploration History and Cummulative Reserves

11. INFRASTRUCTURE SUMMARY Hides Gas Plant Gobe/SE Gobe Facility Kumul Marine Terminal Kutubu Oil Facility

12. INDEX • PNG in Context • Why explore PNG? • Regional geology • Wells, fields and activity, • Recent developments and • Opportunities • New investment initiatives – Government support • Licensing Process

13. PAPUAN BASIN Under-explored frontier Source for Australia Data: United States Geological Survey’s (USGS) World Energy Resources Program

14. PAPUAN BASIN GEOLOGY • Effectively a continuation of the Australian plate. Key elements: • reservoir: • Prolific Late Jurassic to E. Cretaceous sandstones (Production rates >10,000bopd) • Miocene reefs (tested @ 12.2mmcfgd) & Plio-Pleistocene turbidites (untested) • source rock: • Proven Jurassic and Cretaceous source (Type I & II) – HI’s > 500mgHC/gTOC • Tertiary shales (oil seeps) • seal: • Intra Jurassic & Cretaceous shales • Plio-Pleistocence mudstones • traps: • thrusted anticlines, carbonate reef build ups, Jurassic rift basins with horsts and rotated fault blocks

15. NORTH NEW GUINEA BASIN • Area 113,000 km2 • 11 wells drilled • 8 wells seismically constrained • No discovery • Numerous oil and gas seeps • Last explored 2001

16. NORTH NEW GUINEA BASIN GEOLOGY • Fore-arc basin with clastic shelf sands and Tertiary reefs. Potential Petroleum systems include: • Reservoir: • Miocene reefs (analogous to Salawati “Birds Neck” Papua Province, Indonesia) • Plio-Pleistocence clastics (120m net quartzose sand penetrated in Tsumba-1) • Late to Early Cretaceous turbidites • Source rock: • Tertiary shales/carbonates/coal • Seal: • Plio-Pleistocene mudstone and shales • Traps: • Thrusted anticlines, carbonate reef build ups, stratigraphic traps

17. CAPE VOGEL, NEW IRELAND & BOUGAINVILLE BASINS • UNEXPLORED FRONTIER BASINS • 4 wells drilled • Water depth 0-1000m+ • 200,000 km2 area • Back-arc and forearc basins • reservoir: Late Mio-E. Plio carbonates • source rock: Mid-Late Mio. shales • seal: Late Miocene to E. Pliocene shales • traps: anticlines and carbonate build ups

18. FOLD BELT SEISMIC Iagifu Field Technological advances & cost improvements –Unlocking potential in the fold belt 1988 seismic Iagifu Field 1999 seismic

19. INDEX • PNG in Context • Why explore PNG? • Regional geology • Wells, fields and activity, • Recent developments and • Opportunities • New investment initiatives – Government support • Licensing Process

20. Terms Standard Fiscal Incentives 2003-2007 Exploration Oil Tax/Royalty Old rate 50% CT 2001 rate 45% CT APT 2% Royalty 30% CT No APT 2% Royalty Gas 30% CT 20%/25% APT 2% Royalty 30% CT No APT 2% Royalty Depreciation Exploration Costs (EC) – lessor of 4 years or project life EC – lessor of 4 years or project life Capital Costs (CC) – project life 10 years +, 1/10, 10 years -, 25% CC – project life 10 years +, 1/10, 10 years -, 25% FISCAL SUMMARY

21. COMPARISON OF FISCAL TERMS AUSTRALIA : OFFSHORE PNG : GAS PNG : INCENTIVE RATES 2003 TO 2007 EXPLORATION PNG : STANDARD OIL MALAYSIA INDONESIA : FRONTIER INDONESIA : STANDARD 0 10 20 30 40 50 60 70 80 90 Total State Take %

22. RECENT DEVELOPMENTS • Improved Fiscal terms for new licenses • Corporate tax reduced from 50% to 30% • Gas development options include: • Gas to Australia pipeline project inevitable • Gas recycling and liquids stripping • LNG, methanol, ammonia, and/or fertiliser • Intra-country development options (LPG sales, CNG, gas pipeline to Port Moresby) • Companies now focussed on cost reduction programs • Developing continuous drilling programs • New licenses and new operators • Slim hole drilling program E. Papuan Basin underway • Government now focussed on new generation • Sixteen new applications for PPLs

23. INDEX • PNG in Context • Why explore PNG? • Regional geology • Wells, fields and activity, • Recent developments and • Opportunities • New investment initiatives – Government support • Licensing Process

24. LICENSING PROCESS • Licenses may be acquired through direct negotiation • ~ 50% of the Papuan basin licensed • 10% of North New Guinea basin licensed • 0% of eastern basins under license • Licensing period includes: • 1st Period 3 x 2 year period (6 yrs) • 2nd Period 5 year extension option • Development period – 25 yrs • All open file data are accessible & can be acquired for cost of copying only • Licence holders have full access to all relevant data

25. LICENSING PROCESS 1. Types of Licences issued • Petroleum Prospecting Licence • Petroleum Retention Licence • Petroleum Development Licence • Petroleum Pipeline Licence • Petroleum Processing Facility Licence 2. Licensing Requirements • Name and particulars of applicant • Details of financial assets & technical resources • Previous exploration experience • Work and expenditure program • Other relevant information + application fee of K10,000 (US$2,500) for Petroleum Prospecting Licence 3. Turn-around time 8 weeks from application to grant of licence

26. LICENSING PROCESS APPLICANT LODGES APPLICATION APPL INCLUDES: • FINANCIAL & TECHNICAL CAPACITY • WORK PROGRAMS • K 10, 000 APPLICATION FEE ONE MONTH APPLICATION (APPL) IS PUBLISHED IN THE NATIONAL GAZETTE FOR ONE MONTH PETROLEUM ADVISORY BOARD (PAB): CONSIDERS APPL, REPORTS TO MINISTER TWO WEEKS MINISTER CONSIDERS REPORT FROM PAB: OFFERS TO GRANT PPL OR REFUSES TO GRANT PPL MINISTERS OFFER TO GRANT PPL HAS: DRAFT LICENCE CONDITIONS ANNUAL RENTAL K 100, 000 SECURITY GRANTING APPROXIMATELY TWO WEEKS MINISTER AWARDS PPLFOR AN INITIAL 6 YEAR TERM

27. DEPARTMENT OF PETROLEUM AND ENERGY PAPUA NEW GUINEA PNG’S PETROLEUM INDUSTRY “An Exciting Opportunity”