U.S. Markets closed

Papua New Guinea parliament meets to elect new prime minister

(Corrects spelling of opposition leader's name to Pruaitch, not Pruiatch, paragraph 11)

SYDNEY, May 30 (Reuters) - Papua New Guinea's parliament is set to convene in Port Moresby on Thursday to elect a new prime minister after outgoing leader Peter O'Neill resigned following weeks of political turmoil sparked by natural resources deals.

Four government and opposition sources say that the front-runner for the leadership is James Marape, who quit as finance minister in April over a gas deal with France's Total SA he called too generous to the oil major.

It will not be clear whether he can carry the 111-seat house - or whether the turmoil will sink O'Neill's government - until parliament sits at 10 a.m. local time (midnight GMT Wednesday).

Political instability is not unusual in the poverty-stricken but resource-rich country but Marape's defection from the government tapped into growing concern over governance and resource benefits not reaching the poor. Those concerns ultimately led to O'Neill's resignation on Wednesday.

Should he assume the leadership, he and his allies have indicated that April's agreement, which allows Total, Oil Search Ltd and ExxonMobil Corp to begin work on a $13 billion plan to double gas exports, could be reviewed.

"Agreements and resources laws will be relooked at as a matter of priority," Philip Undialu, a lawmaker aligned with Marape, told Reuters by text from the Grand Papua Hotel where his supporters are based.

"It's going to be a fair deal not necessarily radical," he said.

Undialu said he believed Marape could command the backing of 79 members of parliament, a clear majority.

Marape told Papua New Guinea's National newspaper two weeks ago, in reference to the April deal, that "something is wrong somewhere when the government is not unlocking ... resources for our people".

"We have a government that wants to save the interests of corporate giants," he said.

Opposition leader Patrick Pruaitch is another possible replacement and, in a parliament with few ideological divides, any number of other contenders could emerge.

The political uncertainty has knocked almost 6% from shares in Oil Search, an Australian partner in large liquefied natural gas developments in PNG, since the challenge to O'Neill gained traction on Friday.

Business leaders and another development partner, Santos Ltd , dismissed immediate concerns but said political developments would be watched closely. (Reporting by Tom Westbrook Editing by Paul Tait)