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InterOil strikes deal for land based LNG plant

September 28th, 2010 · 2 Comments

This really is good news, but the market needs a little perspective…

Now for the perspective:

  1. It means InterOil needs NO upfront money (apart from building a pipeline which they were already going to build for the CSP)
  2. If finished in time, the gas stripped of the liquids does not need to be re-injected
  3. It means early and massive monetization
  4. It means reserves can be booked sooner rather than later
  5. It means InterOil can keep a large part of the resource themselves
  6. It means off-take deals/farm-out/partial resource sell-offs (take your pick) might be around the corner
  7. It means InterOil could quite possibly finance the bigger LNG plant in Port Morseby by themselves if further pieces of the puzzle (as listed above) fall into place, obviating the need for a strategic partner or at the minimum hugely improving their bargaining position.

The market is not valuating the deal properly. The upside is that much less of the resource has to be given away at ‘in-the-ground’ prices and monetization will arrive a good deal earlier (apart from the synergies with the CSP).

So the short-bet is that IOC won’t be able to sell 2.5% stakes in Elk/Antelope or farm-out prospects, necessary to get the money for the much more modest capital outlays. Any such deal will provide them with the necessary cash.

To us, that seems a particularly bad bet..

The market doesn’t seem to wholly agree with our take (for now), but we think that won’t last too long..

Tags: IOC

2 responses so far ↓

  • 1 Bruce // Sep 28, 2010 at 9:40 pm

    Where does this leave the XOM project? XOM most likely needs IOC gas for their project in PM. Does this mean XOM will have to fund the pipeline from the highlands on their own? Will this delay XOM project or make XOM locate a smaller plant near OREO bay? Or force XOM to use IOC’s EWC plant? My head is spinning with questions on XOM? Not so many questions anymore about IOC. Henry A is getting it done!

  • 2 Roger // Sep 29, 2010 at 12:50 am

    STP,

    Thank you so much for summing all of this up today. Its been quite a whirlwind of a day but the pieces of the puzzle are slowly coming into shape. Its such an exciting time right now.

    Take care.