It actually could be a world record…
There is so much good news today, let’s list it:
- The flow test came back with the mind boggling number of 382 MMcf/d.
- 5000 barrels of condensates per day
- Just three wells (Elk1&4 and Antelope1) are able to supply 120% of a single train LNG facility
- The issue with Merrill Lynch has been settled
- In fact, InterOil has taken over Merrill’s part of the LNG facility!
- Independent resource reports will be out in a matter of weeks.
Let’s put this all into perspective. First, that enormous flow rate. The pipe they used was opened for only 1/3 of it’s capacity, apparently for safety reasons (there were dignitaries present, like the PNG prime minister).
Comparing it with the previous record in Elk4 (105MMcf/d), it’s almost four times as much. No surprise there, actually:
- The pay zone in Antelope1 is more than ten times that in Elk4
- The porosity at Antelope1 is much higher
The previous record flow rates of Elk1&4 (102 and 105 MMcf/d) were already enormous, and rare events. This one really is a whopper. The three wells can already supply 120% of the daily needs of a single train LNG facility.
Just these wells together flow 600MMcf/d, that’s over 200Bcf/year, or gross revenue (say at a, for Asia, low $5 per Mcf) of $1 billion. With just three wells, and we’ve taken a very low price for the gas. A more realistic $10 or $15 per Mcf would double or triple that..
Three very important conclusions:
- There is enough gas out there to supply an LNG facility
- The resource is incredibly cheap, very few wells need to be drilled.
- There is enough value there to finance the LNG facility
All they need now is some party to recognize this, and pre-finance much of the LNG facility. We have no doubt that this will happen. And it could very well happen fairly soon.
InterOil’s competitive position is just way too good. It’s gas is cheaper than most in the region, especially Australian coal seam gas, where still tens of billions of dollars are invested even today. Just to compare, to get the same 600MMcf/d flow of the three InterOil wells, Aussi coal seam gas have to drill thousands, probably at least five thousand wells. (Conoco figured it needed 20500 wells to supply a four train LNG project)
And these wells have to be treated first, which is expensive, and bears such environmental risks that there is a moratorium on that in parts of Canada. In addition, the labour and regulation environment in Australia are an order of magnitude more expensive compared to PNG.
The other good news is that Merrill is gone. They are in such a mess that they did not have any negotiating position, and their new masters Banc of America apparently didn’t feel for projects that have little to do with it’s core capabilities. Good riddance.
Which means InterOil’s stake in the LNG facility has gone up, probably to over half, which means it’s free to negotiate offtake agreements with any party, and after today we expect many interested parties. It also means InterOil will earn much more from that facility, or could sell part of it to speed up the drilling process.
One missing link, reserves on the books, is also going to be solved within weeks, as the two third party engineering companies will finish their assessment.
It’s been a wonderful day for InterOil shareholders.