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Raymond James on InterOil, April 16

April 16th, 2009 · 2 Comments

Well, we’ve hinted at it several times, we hope you realize that even in these rumors, we’re quite conservative.. But they turned out to be right. And it will not be the end of things, it’s only the beginning… Here is RayJay’s take.

  • In a Bloomberg story published this morning [see below], it was reported that China National Offshore Oil Corp. (CEO/$116.81) has entered into an agreement with InterOil and PNG’s government-owned Petromin PNG Holdings to negotiate participation in the proposed PNG LNG project. The Chinese company, more commonly referred to as CNOOC, is the smallest of the country’s three state-owned oil firms. To be crystal-clear, this signed accord does not represent a definitive agreement for CNOOC to join the project, but rather to enter into discussions that may eventually lead to that outcome.
  • InterOil has confirmed to us that such an agreement was indeed signed, while underscoring its preliminary nature. The agreement was in fact signed earlier this week in conjunction with the visit to Beijing by PNG’s Prime Minister Sir Michael Somare. We would point out that this is not the first time a visit by Sir Michael to a major economy has led to heightened interest from a large international energy company in the development of PNG’s energy resources. Recall, an agreement for upstream investment was signed between the PNG government and Italian integrated major ENI (E/$38.80) last October.
  • The more potential suitors, the merrier. Whether or not CNOOC ultimately joins the project, the fact that a major international energy company is making an indication of interest itself sends a positive signal. A multi-phased asset monetization deal remains high on InterOil’s agenda, though of course there is no firm timeline for it.
  • That said, there are a number of near-term catalysts that we foresee over the next three to six months. Over the next several weeks, we expect to get additional data from the Antelope-1 side-track, providing further clarity not only on the oil potential but also the high condensate levels encountered in the Elk and Antelope fault blocks, including the prospects for a liquids stripping facility. After the side-track is wrapped up, the rig is set to move to drill Antelope-2 nearby, with drilling there likely to extend well into the summer, if not early fall. Following the eventual multi-phased transaction with one or more strategic partners, which includes the sale of interests in the Elk/Antelope field and the LNG project along with associated off-take agreements, we believe InterOil would have sufficient capital to fund further exploratory and development drilling operations for the next several years. We reiterate our Strong Buy rating.

Cnooc Group Joins InterOil in Papua New Guinea LNG

By Angela Macdonald-Smith

April 16 (Bloomberg) — China National Offshore Oil Corp., the country’s biggest offshore petroleum explorer, agreed to work with InterOil Corp. on a proposed liquefied natural gas project in Papua New Guinea.

The initial accord commits the Chinese company, InterOil and the Papua New Guinea-owned Petromin PNG Holdings Ltd. to agreeing commercial terms for the financing of the government’s stake in the project, Petromin said today in an e-mailed statement.

Papua New Guinea granted initial approvals last month for the Pacific nation’s second LNG project, which would follow a plant proposed by an Exxon Mobil Corp.-led venture. InterOil hired BNP Paribas Capital (Singapore) Ltd. and ABN Amro Corporate Finance Australia Ltd. in March to advise on the sale of interests in the LNG project and associated gas fields to strategic partners.

“Both InterOil and Petromin have commenced discussions with a number of major oil and gas companies to bring in a strategic partner to the InterOil project who will underwrite the project,” Petromin Managing Director Joshua Kalinoe said in the statement. “The heads of agreement now allows China National Oil to participate in that process.”

Kalinoe didn’t say whether China National, the Beijing- based parent of Hong Kong-listed Cnooc Ltd., would have a stake in the project. The venture would cost about $5 billion for a plant producing about 3.5 million metric tons a year of LNG, with shipments due to start in 2014, InterOil said last month.

Cnooc Group spokesman Li Shiqiang and Xiao Zongwei, who speaks for the listed unit, said they weren’t aware of the agreement.

The accord was signed yesterday in Beijing after talks between Chinese Premier Wen Jiabao and Papua New Guinea Prime Minister Michael Somare, Petromin said.

LNG is natural gas chilled to liquid form for transportation by tanker to destinations not connected by pipeline.

Tags: IOC · Research Reports

2 responses so far ↓

  • 1 rory mcgowan // Apr 17, 2009 at 12:50 am

    who can tell us what china history is once they start down this path. According to Rigzone china has been approaching new find projects with long life reserves to reduce pollution and gain security. Last years sporting event was quite an eye opener for the chinese that we won’t come again unless its cleaned up. Solar & LNG is the only way. With the current funding climate the chinese are in 1st place, and their people can build the LNG plant and the stripping plant. I wouldn’t be surprised if they expanded the refinery also. when they come in it will be with both feet.

  • 2 admin // Apr 17, 2009 at 12:57 am

    We actually couldn’t agree more, Rory.