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InterOil to Pump Condensate to Entice LNG Partners

October 20th, 2009 · 12 Comments

Nice story from Bloomberg….

InterOil to Pump Condensate to Entice LNG Partners (Update1)
By Joe Carrol

Oct. 20 (Bloomberg) — InterOil Corp., the Canadian energy company whose shares have almost quadrupled in value this year, plans to pump oil in a Papau New Guinea jungle to generate cash and attract partners for a $6 billion gas-export project.

InterOil, based in Whitehorse, Yukon Territory, and run from Cairns, Australia, has begun designing a plant to be built beside the Purari River that will filter a type of light oil known as condensate from the Elk/Antelope field, Chief Executive Officer Phil Mulacek said yesterday in an interview.

InterOil plans to ship the condensate downriver by barge to its refinery in the capital, Port Moresby. The cargoes will relieve the company of the need to spend as much as $1 billion annually on crude for its refinery and will show potential partners, such as energy producers and Asian utilities, that InterOil can come up with its share of funding for a proposed liquefied-natural-gas project, Mulacek said.

“We could cash flow the LNG development with the liquids, and that changes the appetite of potential investors,” Mulacek said in a telephone interview from New York, where he was meeting with analysts and fund managers. “We think the early cash flow can totally cover the costs” of the gas project.

Mulacek, who gained a foothold in the South Pacific nation in the 1990s by disassembling an Alaskan refinery and rebuilding it in Port Moresby, said talks are continuing with prospective partners to replace Bank of America Corp.’s Merrill Lynch unit, which shed its 35 percent stake in the LNG project in February. Merrill sold its interest back to InterOil and Clarion Finanz AG, the other partner in the development.

Partner Needed

Without new backers, InterOil doesn’t have the financial heft to build a plant to liquefy gas so it can be shipped overseas on tankers, Evan Calio, an analyst at Morgan Stanley, said in a Sept. 18 note to clients.

The lack of a partner with the cash and technical expertise to construct an LNG plant would diminish the value of InterOil’s Papua New Guinea gas discoveries, Calio wrote. Mulacek wants to export the fuel to China and Japan, where it commands higher prices than in Papua New Guinea, a nation the World Bank ranks as poorer than Sudan and Uzbekistan.

InterOil may face a cash squeeze within 12 months if one or more partners aren’t lined up soon, Calio said in the report. By the fourth quarter of 2010, InterOil probably will burn through more than 80 percent of the $96 million in cash and cash equivalents it had at the end of June, forcing the company to sell new shares or curtail exploratory drilling, said Calio, who has an “overweight” rating on the stock.

Production Strategy

Mulacek, a Texas Tech University-trained petroleum engineer, said producing condensate will help forestall any liquidity crisis. The oil will be processed into diesel and kerosene for the domestic market and into naphtha for shipment to chemical makers in China and Japan, he said.

InterOil shares are heading for the biggest gain since Mulacek founded the company in 1997. Over the past decade, the stock generated returns averaging 44 percent annually, compared with 9.7 percent for Exxon Mobil Corp., the biggest U.S. oil company. InterOil rose $1.31 to $53.61 at 9:37 a.m. on the New York Stock Exchange.

Mulacek, 49, declined to say when he expects to settle on a final group of partners for the LNG project, which would produce an estimated 6 million to 9 million tons of liquefied gas a year. He said he’s wary that potential investors would use a deadline to hold out for better terms.

The company estimates the LNG project will cost $5 billion to $7 billion and will start shipments in 2014 or 2015. It would compete with a group led by Irving, Texas-based Exxon Mobil planning a $15 billion plant that would be 70 percent larger than InterOil’s. Exxon Mobil generates more than 400 times the revenue of InterOil.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net.

Tags: IOC

12 responses so far ↓

  • 1 Bruce // Oct 20, 2009 at 8:00 pm

    Not to be a “Worry Wart”, looking at Slide 30 of the presentation, IOC assumes liquid production to begin in late 2011. Drain of cash supplus by 4Q of 2010 per Calio. Slide 23 says oil recovery and increased condensate yield with depth would result is enhanced economics, pending data from Ant-2. I hope Janine is correct in that the results of Ant-2 are spectacular! Lots of liquids and probably oil in this well are going to be needed to prevent stock dilution and to avoid delays in picking a drilling partner that may be waiting for a cheaper deal by looking for IOC to get into a cash crunch.

  • 2 kencooksam // Oct 20, 2009 at 9:31 pm

    All deals done by year end. A new partner would finance the stripping plant.Commercial oil makes the transition better

  • 3 rory mcgowan // Oct 21, 2009 at 6:31 am

    Admin could you explain why Calio is talking about running out of money when the stock has gone from 28 to 50? Was it in responce to a question at the roadshow? You can always do a stock offerring just look at OILSEARCH. IF the oil or condinsate are present money won’t be an issue. I am also baffled the way their talking like the partners are backing away from an IOC deal.Sounds like investors are afraid because of ipic Dubia money backed away from OILSEARCH? R eading between the lines it sounds like Phil is saying we don’t need a large partner if IOC can self fund the lng plant . Phil seems to be playing hard ball with potential partners. Let me know what you hear. thanks

  • 4 Bruce // Oct 21, 2009 at 2:46 pm

    You can always do a stock offering as the assets are there to back it up, but investors, including Phil don’t want to dilute the stock. I do think Phil is trying to maximize the value and some of the potential partners are probably getting a little pissed as the longer the negoiations are taking, IOC keeps finding/expanding the assets. IOC does need some deep pocket partners in these unsettled financial times due to world economic and market risks. Phil is playing hardball, but I think he knows he is sitting on a caldron of liquids. I don’t think he sees much risk to holding out for what he wants. Don’t sell a share!

  • 5 Janine // Oct 22, 2009 at 1:27 am

    DST coming shortly. Huge well!!

  • 6 Roger // Oct 22, 2009 at 6:32 am

    Janine!!!

    Great news! Can’t wait to hear more!

  • 7 kencooksam // Oct 22, 2009 at 12:38 pm

    DST results next week ….Looks terrific.

  • 8 rory mcgowan // Oct 22, 2009 at 9:08 pm

    ADMIN & EVERYBODY ELSE : Why are they do another DST? the plan was casing then full test. Is this the full test or a bottom hole test because they found oil higher in the well then they thought.. This is not hype just a question

  • 9 Janine // Oct 23, 2009 at 3:12 am

    Rory: 2100 feet deep / 2 1/2 miles wide at the bottom of well. Oil was found already.. Article in the National today with Phil. Liquid #’s are huge.

  • 10 Harry Chamberlin // Oct 23, 2009 at 4:02 pm

    Janine, there seems to be some confusion. I think the National article is referring to Ant 1. Is your current info on Ant 2? Thanks as always, Harry

  • 11 rory mcgowan // Oct 23, 2009 at 7:59 pm

    I think Janine put the old PNG article to cover her ass in case of insider trading. She made it look like she was talking about ant-1but give me a break she knows that because of Ken and a couple or Names we love to read we’re up to date on the drilling on PNG. Shes telling us the well test will confirm oil in the 2100ft reef. The road to the river must be built for oil also. If you were Phil wouldn’t you wait for the down hole test in two weeks to be sure of NG liquids confirmation. Whats 2 weeks? But if you were confident in oil you would start immediately knowing you could truck oil to the river before your pipeline was approved and built. Just thinking outloud. Human nature says if this stock was up $3 on heavy volume you would feel oil was for sure. I try to think like Phil might think: I could be all wet, hope its oily.

  • 12 jdrouil12 // Oct 24, 2009 at 12:25 am

    How far can they go re condensates without the next level of govt approvals?