Two of Australia's largest oil and gas companies could be rewarding shareholders earlier than expected, with news out today that production had started ahead of schedule at the Papua New Guinea LNG plant.
Project operator Exxon Mobil says that first cargoes are expected to ship before the middle of 2014, as a result of the early commissioning. Managing Director Peter Graham said in a statement, "Completion of commissioning activities and the first LNG production ensures the project remains on target for its first LNG cargo before the middle of 2014".
Exxon says production will be ramped up in phases over the next several months. Work on the second production unit, known as a train, is progressing and production should start from that train in the next several weeks. Oil Search Limited (ASX: OSH) and Santos Limited (ASX: OSH) hold 29% and 13.5% respectively, with Exxon holding 33.2%.
Both Oil Search and Santos have previously flagged that rising cash flows from the project should pave the way for the companies to increase dividends to shareholders. And it's not just a one year temporary increase either.
The PNG LNG project is expected to produce more than 9 trillion cubic feet of gas over its lifetime, and 6.9 million tonnes each year. By comparison, Woodside Petroleum Limited's (ASX: WPL) Pluto LNG has just one processing train and was forecast to produce 4.3 million tonnes of LNG per year.
While PNG LNG is Oil Search's only LNG project, Santos also holds an 11.5% share in the Bayu-Undan / Darwin LNG plant, and 30% of the Gladstone LNG project (GLNG), in which it is also the operator. GLNG was 80% complete at the end of March 2014, and on track for first LNG in 2015.
Foolish takeaway
PNG LNG is likely to be a transformative project for Oil Search and its patient shareholders. Santos on the other hand, has its fingers in many pies, including LNG, but both companies are likely to start rewarding shareholders in the near term with dividends as the cash flows in.
