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.
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.
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.