After receiving strong backing from one of the biggest energy analysts on Wall Street, the problem with InterOil’s LNG project seem to be that it is too competitive, threatening the progress of the rival Exxon/OilSearch LNG project on the island…
At half the cost and with a lower break-even price ($3.70 per Mcf versus $5.01 per Mcf for Exxon/OilSearch, according to Morgan Stanley), InterOil’s LNG project seems superior to the Exxon/OilSearch venture. That insight has reached some concerns in PNG politics, they might want to nurse the Exxon/OilSearch project to the final investment decision first. Is this a problem for InterOil?
In a newspaper article, Energy Minister Duma argued that PNG doesn’t have the capacity to deal with two LNG projects at the same time. He went on to say that “our priority now is to make sure the Exxon Mobile project gets off the ground as soon as possible.”
We know that Exxon Mobil is expected to make a final investment decision by December this year, with construction due to start in early 2010. We also know that nobody has ventilated any criticism on the 13th and final draft of the agreement on the table, and nobody argues it is a bad agreement.
So we know it will get signed and implemented, it is a matter of time. More importantly, the parties with which InterOil is negotiating will also know that. There seems to be little reason not to proceed as normal. There is an agreement, nobody says it has to change, it will get signed, but not just yet.
The fanfare of an official signing might have to wait some more months until Exxon got it’s finances sorted out, but we don’t really see much reason for panicking. It’s not even that they are fishing for the same buyers, as the Exxon project has already sold out to capacity.
We tink that after Raymond James pointed this out as their reason to change their stance and this newspaper article, most of the delay has now been discounted in the share price.
One further thing: at this time it’s not even known whether Energy Minister Duma actually said what he said. It’s not unknown for shorts to plant stories in the press, and the same Mr. Duma had, together with the Prime Minister, expressed his support publicly for InterOil’s LNG project only recently. We’re trying to find out exactly what was said, so stay tuned.