You can read the PR here. We’ll highlight two items:
- After mechanical completion of the CSP, Mitsui has a right to convert its contributed investment in the CSP into a 2.5% interest in the Elk and Antelope fields and the proposed LNG Plant.
- Mitsui also has conditional rights under a separate call option to purchase an additional 2.5% interest in the Elk and Antelope fields and the proposed LNG Plant.
So, let’s see some of the implications:
- It’s contributed investment is $550M
- They can convert this into a 2.5% stake of Elk/Antelope and LNG plant
- This implicitly values Elk/Antelope and LNG plant at 40x550M=$22B
- IOC has a 57%+ stake (taking the 22.5% of Petromin into account) at present.
- Mitsui has a second option to buy another 2.5% stake at the exact criteria of a strategic partner.
- Valuation wise, $22B is really not such a stretch, as it includes the LNG plant, and it’s comparable to the 3.6% sale of OilSearch fields and LNG plant by AGL to Nippon Oil in Dec 08 for $800M, which also happens to be, well, $22B (and change)!
- We think the OilSearch part was based in the order of 9Tcf so indeed this is remarkably similar. Ramond James analyst Pavel Molchanov, by the way, has made exactly such a calculation a year or so ago..
- There are pretty good reasons to assume the IOC project is better than the Oil/Search one. There is probably more upside in Elk/Antelope, compared to the five OilSearch fields (GLJ hasn’t included the large amount of dolomite found in the horizontal). The LNG plant is way cheaper (locational and infrastructural advantages). Elk/Antelope wells flow much more profusely and are much larger.
So in the end, we think Mitsui has done a good deal. So has InterOil. They’ve given Mitsui a “first mover discount” in the form of interesting options because this also helps them, they gain credibility, cash, and improving their negotiating position vis-à-vis others.