(EnergyAsia, May 16 2012, Wednesday) — InterOil Corp is actively lobbying the Papua New Guinea government after it had been informed that the Department of Petroleum and Energy (DPE) plans to cancel its US$6 billlion liquefied natural gas (LNG) project.

Energy Minister William Duma has denied the contract has been cancelled.

Interoil has been in contact with senior government officials after it said it had received from “an unofficial channel” a copy of a DPE notice of intention to cancel the 2009 agreement establishing the project between its joint venture firm, Liquid Niugini Gas Limited, and the state of Papua New Guinea. Pacific LNG is InterOil’s partner.

“Having considered the issue carefully with our external advisers, we are strongly of the view that the state has no right at present to terminate the agreement. The notice does activate a six month consultation period during which the parties are to explore steps to deal with or remedy the DPE’s concerns,” said the NYSE-listed company.

Located beside an oil refinery that Interoil owns and operates, the complex is designed to process natural gas into LNG for export, mostly to Asia, when it starts up in 2015.

Interoil said the DPE notice provides for a six-month consultation period during which the parties are to explore steps to deal with or remedy the concerns raised by the department’s officials.

“Our sell down and partnering process has now reached a stage where we expect to be able to demonstrate to the DPE, in the coming weeks, our ability to abide by all of the terms of the 2009 LNG project agreement,” said the company.

The DPE told the company last year to revise plans for the project, which had been approved to produce between 7.6 and 10.6 million tonnes of LNG a year.

In a conference call with analysts, InterOil CEO Phil Mulacek suggested that the project, which he says has the support of Prime Minister Peter O’Neill, may have been drawn into the country’s domestic politics as it heads for an election in June.

InterOil is fully exposed to resource-rich Papua New Guinea as an oil producer, refiner and fuels retailer. Its relations with the country’s energy minister William Duma have deteriorated over the past year, in particular, over disagreements with the development of the LNG project.

Mr Duma said the government has not cancelled the project yet, but is deeply concerned that InterOil has yet to appoint an “internationally reputable” company to operate the complex.