Global corporations are lining up to extract mining, gas and petroleum resources, but the country's complex land ownership system is making it difficult to pass on the benefits

Peter O'Neill's first two months in office as Papua New Guinea's prime minister have seen him having to apply political damage control more often than he may have expected.

There was the tidying up after members of his new-look cabinet moved to suspend certain provincial administrations – including that of East Sepik which, as the power base of Sir Michael Somare, had just launched a legal challenge to the parliamentary ruling that dramatically ousted PNG's longtime prime minister and enabled the ensuing vote that saw O'Neill replace him.

Then O'Neill was kept busy clarifying the government's position on the prime ministerial jet. Though he announced that this luxury item from the Somare era would be sold, it was being used to ferry his ministers around the country.

But the biggest retreat was made in relation to new mining minister Byron Chan's intention to significantly change the rules about ownership of resources in PNG, so that traditional landowners gained control from the state. That sent jitters through the investment community, particularly the mining sector. So at a recent Brisbane business luncheon, where O'Neill addressed the "who's who of the PNG mining and petroleum investment sector", he was at pains to reassure them it would be business as usual.

"The goalposts have not been shifted. The playing field remains the same and shall be maintained that way for the foreseeable future," O'Neill reassured the group.

Nevertheless, the issue of resource ownership continues to dominate public discussion in a country experiencing an unprecedented resources boom. The biggest development now under way is Exxon Mobil's $15bn gas field project in the remote Highlands. The oil giant plans to pump the product down a 850km pipeline across several provinces, starting in 2014.

Peter Graham, the managing director of Exxon's subsidiary Esso Highlands Ltd, who is managing the project, says Papua New Guineans should benefit from the development. "Some analysts forecast a doubling of the GDP of the country; I think education and health will also benefit in the communities," he says.

All this sounds promising for a country beset by failing public administration and systematic corruption, and that looks set to fail all of the UN Millenium Development Goals despite strong economic growth of the last few years.

But even in the midst of construction, the gas field project is clouded by landowner issues, particularly among those who didn't sign up to a benefits sharing agreement that the government oversaw in six weeks of negotiation in 2009. One of these is Simon Ekanda, a landowner from Tugubu in Southern Highlands. He says the focus of those talks on thousands of individuals who claimed, often illegitimately, to be land rights holders is in conflict with customary culture.

"We've been here for a long time," Ekanda says. "The land is owned by the tribe, not the individual. Individual ownership is a western concept. That's not our culture." Ekanda claims that the state, which has 19.4% equity in the gas project, is playing the wrong role in developing the country's natural resources. "Developer should be dealing with landowner directly and the government should be the regulator alone."

A series of landowner protests and several work shutdowns both in the Highlands and coastal sites have stalled the gas project on and off since 2009.

Paul Barker, of the Institute of National Affairs, a privately funded think tank, says there's considerable frustration in the wider community about the lack of equity and participation in the project, and about the resource law in general. "The frustration relates not so much to the resource developers themselves, but to government's managing of the benefits from resource extraction."

Barker says PNG's government has been receiving considerable revenue from mines for years, though this has provided little benefit for provinces and landowners. "People see the resources being extracted, they see the apparent flow of wealth flowing to certain players, but then on the ground they just see problems."

Rapid social change brought by the LNG project is clearly evident in Highlands towns such as Tari, where foreign faces and cash are pouring in, mobile phone technology has emerged, and bulldozers and excavators are building roads and carving airstrips to facilitate bringing in large aircraft and even more heavyweight equipment.

Simon Koaria, a school principal from Tari, says the project is especially disruptive for young people who, like teachers, are steadily moving away from education. "People become preoccupied about getting a piece of the action with the project," he says, claiming that locals who get work often misuse the money, while those who aren't involved in the project become resentful. Domestic abuse has skyrocketed and people are tending to crop gardens less.

The World Bank's country manager for Papua New Guinea, Laura Bailey, has linked the corruption problem with resource development, saying poor governance is feeding off the mining sector, in particular.

Barker, of the national affairs institute, also sounds a cautious note. "It's going to be critical that government manages revenue from the project very carefully and avoids the wasteful expenditure of the last few years," he says.

O'Neill knows that in the country's volatile political environment, there's no guarantee his current configuration of government will be in place after national elections next year. But he says he "will use every day until then to try and address some of the challenges like serious public sector capacity and delivering problems."

These were commitments that Somare also frequently made, but never quite fulfilled during his last stint in office, which lasted nine years. Aside from securing an ongoing interest in Papua New Guinea from investors, O'Neill's challenge is to show people how it won't just be "business as usual" as resource wealth is further tapped.