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Exxon and PNG Near Deal on LNG Project

U.S. oil major Exxon Mobil and Papua New Guinea (PNG) could reach an agreement on the financial terms for a proposed liquefied natural gas (LNG) project as early as mid-April, sources said on Thursday.

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Steven Senne

The agreement, when finalised, will pave the way for Exxon Mobil

and its venture partners, including Oil Search and Santos, to begin front-end engineering and design (FEED) work on the proposed $10-$11 billion project.

"The parties are very close to reaching an agreement. The earliest timeframe would be by mid-April. The government wants to finalise the issue by the end of the month," said one of the sources with direct knowledge of the negotiations.

"We are talking about small percentages here. It won't be difficult to reach a middle ground," he said.

An agreement was originally due to be finalised with the PNG government by the end of last month.

Exxon is seeking to reduce the tax rate on gas revenues from the LNG project to about 25 percent from 30 percent, said a second source with knowledge of the discussions.

Other issues include when the PNG government should change taxation terms for current oil producing fields, such as Kutubu and Moran, the source said. Oil fields have a tax rate of approximately 50 percent, while the tax on gas fields is 30 percent.

Exxon's Port Moresby-based spokeswoman Anna Schluze declined to comment on the timeline but said negotiations were still underway.

"As soon as the gas agreement is resolved, we will move into FEED," Schluze said.

The Exxon-led LNG project proposes to commercialize the Hides, Angore and Juha gas fields and the associated gas resources in the currently operating oil fields of Kutubu, Agogo, Gobe and Moran in the southern highlands and western provinces of PNG.

The proposed project, which will have a production capacity of 6.3 million tonnes a year, is targeting first delivery by 2014.

ExxonMobil has a 41.6 percent interest in the proposed project. Australian-lised oil and gas producer Oil Search has 34.1 percent, Santos 17.7 percent, while AGL Energy, Nippon Oil and PNG landowners own the rest.