UPDATE: PNG's Oil Search Says PNG LNG Cost Update Next Month

Oil Search Ltd. (OSH.AU) Chief Executive Peter Botten said Tuesday that a revised cost for the ExxonMobil Corp. (XOM) led PNG LNG project should be released next month.

"The (engineering) bids are progressively rolling in through this month and we anticipate a revision to capital costs some time in mid-October," Botten told reporters on the sidelines of a conference in Perth.

Botten said there are "early signs of downward pressure on costs" and the company remains comfortable with earlier capital expenditure estimates.

The last forecast for the project, which is due for a final investment decision by the end of 2009, was US$10 billion-US$11 billion two years ago, equivalent to roughly US$12.5 billion in current terms, he said.

Oil Search and its partners are planning an eventual expansion of PNG LNG, which would involve construction of a third liquefied natural gas processing train.

But there are no plans to move the expansion into front-end engineering and design, or FEED, next year, with the partners focused on proving more gas reserves, Botten said.

"You are going to have to spend 2010 and 2011 primarily looking for a proven resource base," he said, adding that the venture plans a "very active appraisal and exploration program" in the next two years.

It is "too early to say" whether the PNG partners will look at buying gas for the expansion from external sources.

"There is a lot of third party gas out there and undoubtedly that will be part of our overall review," he said, referring to an ongoing strategic update for the company as it moves toward LNG construction.

All of the 6.3 million metric tons a year of LNG production from Trains One and Two have been sold to customers in Japan, China and Taiwan.

Last month Petronet LNG Ltd. (532522.BY) Chief Executive Prosad Dasgupta said the Indian company was interested in buying LNG from the PNG venture.

Botten expects a deal, unveiled last month, to sell a 3.5% stake in PNG LNG to Abu Dhabi-based International Petroleum Investment Co. will be finalized this month.

The sale may be subject to preemptive rights, he said.

"For sale of license interests, some parties do have preemption," he said.

Asked whether Oil Search may consider other asset sales as part of its review, Botten said there will be "some portfolio management over the next 12 months or so."

The company will "review" its Middle Eastern projects at the end of the year, once a drilling program is concluded, he said.

-By Stephen Bell, contributing to Dow Jones Newswires; 61-8-9244-4243; sgbell@bigpond.com

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