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China to bid for share in InterOil’s LNG project

June 29th, 2009 · 17 Comments

Things are heating up. Only to be expected as the other planned LNG project on Papua New Guinea run by Exxon/OilSearch, has already sold out and turned some customers down. Where do these go?

Energy giants to bid for US$500m gas project
CNOOC, PetroChina interested in PNG venture

China National Offshore Oil Corp and PetroChina are both planning bids for a stake in a natural gas project in Papua New Guinea owned by InterOil Corp, in a deal expected to fetch about US$500 million, market sources said.

Since Beijing typically allowed only one oil major to bid on any one project overseas, only one of the two companies was expected to gain approval to complete a bid or they could bid together, the sources said.

Thailand’s PTT Group was also among the parties angling for as much as a 35 per cent stake in the gas field development and terminal.

Cash-strapped InterOil is developing a vertically integrated energy business whose primary focus is Papua New Guinea and the surrounding region. Its assets consist of petroleum licences covering 1.86 million hectares, an oil refinery and retail and commercial distribution facilities, all in Papua New Guinea.

“I think the bigger, better, faster and stronger bidder is better positioned to win because that way, Inter-Oil gets a deeper pocket and can leverage a higher level of respect in the market,” said Curtis Trimble, an analyst at Natixis Bleichroeder.

A spokesman for CNOOC (SEHK: 0883), the parent of the Hong Kong-listed entity, and PetroChina declined to comment.

InterOil is seeking an equity investor after buying the stake from troubled investment bank Merrill Lynch, which was acquired by Bank of America Corp.

CNOOC signed an agreement in April to finance the Papua New Guinea government’s stake in the project but the announcement did not say if that accord included a stake. InterOil chief executive Phil Mulacek said the next round of discussions would be held by next month.

Beijing is trying to decrease its reliance on highly polluting coal, which accounts for 75 per cent of its energy production, by promoting the use of cleaner burning natural gas and alternative sources such as wind and solar energy. Currently, natural gas accounts for 3 per cent of total energy production and China intends to raise that to 8 to 10 per cent by 2020.

China continues to build infrastructure but it is still insufficient to meet demand, so it is looking to sources from adjacent countries like Russia and from [liquefied natural gas] shipments abroad. But because global demand for LNG is increasing, China has a lot of competitors,” said Gideon Lo, an energy analyst at DBS Vickers.

Beijing announced last week that it was providing a US$4 billion loan to Turkmenistan for use in the country’s gas sector.

At the same time, Turkmenistan agreed to increase by 10 billion cubic metres a year the amount of gas it pumps to China in a pipeline connecting the two countries.

CNOOC started operations at China’s first LNG terminal in 2006 and a number more are planned such as two PetroChina, the Hong Kong-listed subsidiary of China National Petroleum Corp, is building that will come on line in 2011.

The mainland’s oil majors have been acquiring equity stakes in projects and buying gas to ensure supply. CNOOC owns a 17 per cent stake in the BP-led Tangguh LNG development in Indonesia, and in May the company agreed to buy 3.6 million tonnes of LNG each year for 20 years from the Curtis LNG project in Queensland, Australia.

In February, Exxon Mobil Corp agreed to sell PetroChina 2 million tonnes of LNG a year for 20 to 25 years from its Gorgon gas field in Western Australia. PetroChina also signed an initial deal last year to buy 3 million tonnes annually for 25 years from Qatar, and will buy up to 3 million tonnes a year from Australia’s Woodside Energy for up to 20 years.

Tags: IOC

17 responses so far ↓

  • 1 Tom Johnson // Jun 29, 2009 at 3:55 am

    Wow! You can’t have enough publicity of this type. Let’s hope the article is dead on and one of the companies is ready to contribute 500 million cash in to Interoil’s bank account. Not sure what that buys them (35%?) of the Elk/Ant field, but all of the sudden a company trading at $25 will be sitting on $12 a share in cash and exponential top-line growth. May we never see the 20’s again…

  • 2 rory mcgowan // Jun 29, 2009 at 5:06 am

    where are those Koreans?

  • 3 shamrockoil // Jun 29, 2009 at 5:18 am

    Wonder what the $$$ is for? The Lng Plant? The asset sale?

  • 4 Roger // Jun 29, 2009 at 7:19 am

    We wait and let the chips fall as the may, unless our friend Janine can offer another riddle….patience.

  • 5 Janet L MacLauchlin // Jun 29, 2009 at 1:20 pm

    Meanwhile IOC is on sale. Could be a gift in the making.

  • 6 Lexinvest // Jun 29, 2009 at 8:48 pm

    “Cash-strapped InterOil is developing” — that sounds a little out of date, what with the recent $70 million sale of shares.

  • 7 Janine // Jun 29, 2009 at 11:07 pm

    Update: I hear the following: 1) For the LNG facility the number being thrown around is 1% interest equals to roughly 200 million. Gov own’s 20% , IOC owns 67% of the rest.2) 3rd party talk is that IOC has enough resources in the ground to add 10-15 years of reserves to any Major that is looking.3) Company is aware of the fact that down that they need a “Major’s help” to fully develop all their acres. Good Luck. Game is on.

  • 8 Julio // Jun 29, 2009 at 11:35 pm

    Janine, 1% for the LNG = 200M? Sincerely, I think it is a “crazy” number. I am optimistic and long, but this number sounds very “crazy” for me. Sorry if I am wrong.

  • 9 Brent // Jun 30, 2009 at 12:43 am

    Wow! IOC is looking at $1B per 5% stake…I love it when Janine posts!

    That’s just for participation in the LNG project, right?

  • 10 Roger // Jun 30, 2009 at 2:09 am

    Janine: thx for sharing.

    Julio: that may indeed seem crazy now but I’ve seen just as crazy under estimations on the other end of the spectrum…perhaps they settle in between

  • 11 bob // Jun 30, 2009 at 2:13 am

    drill baby, drill

  • 12 Janine // Jun 30, 2009 at 2:15 am

    Julio: I thought the same thing when I was told today. The reasoning behind the estimate was explained to me. I can’t tell you why, but it makes sense now. Hint: If you want a piece of the long term play…. National security issue’s etc… What price do you pay for the right to own energy over the long term??

  • 13 kencooksam // Jun 30, 2009 at 3:52 pm

    Julio, simple, do the math on the Nippon deal date Dec 08. OIl then $35 a barrel.AGL sold 3.6% of the fields and their LNG plant interest for $800 million. Thats 1% for $200 mill when oil was 1/2 what it is today..Thats the floor..Most have no idea how big these finds really are.Look up Arun and then you get it and why they will pay so much..

  • 14 Roger // Jul 3, 2009 at 7:20 pm

    Janine,

    Will you be listening to Tuesday’s conference call ? 🙂

  • 15 Janine // Jul 6, 2009 at 11:31 pm

    Roger: Of course… I was told a long time ago that when a material event happens the company will announce it in a different forum than normal. Could be a few surprises in the morning.

  • 16 Roger // Jul 6, 2009 at 11:57 pm

    I’m excited, looking forward to tomorrow.

  • 17 Roger // Jul 7, 2009 at 8:54 pm

    Well my excitement is now gone, don’t get me wrong I’m still long and I haven’t sold a share. I just have to put Interoil timelines in proper perspective. The company takes forever to do anything. We truly need that 25% partner to come in with the experience, personnel, and rigs to discover what we have on the 4 million acres. I’ve been in this stock for three and a half years now and have slowly been able to accumulate a very nice small position. I will now hold and see what happens.