Seems to have gone quite swell..
And for some interesting accounts:
I had some time on the plane to put my thoughts together. There is a lot there and I am not really interested after a long travel day to spell and grammar check, so take it for what it is worth. Please note that the questions being asked were either from myself or from other people that were speaking with the executive at the time. For both the questions and answers they were what I recalled the topic to be about and they are not exact wording. In some cases I forgot what the answer was and just remember the impression. I give my opinion throughout the posts based upon what I read between the lines or from body language.
If I royally misinterpreted something, for those that were there please, by all means correct me.
Please don’t respond to the wingnuts that post responses to this, as I have them all on ignore anyways and won’t see their posts.
So without further torture, here are my detailed notes.
Long term vision for drilling: Wayne admitted that IOC did this wrong in the past where they would drill and then do seismic. This is not going to happen going forward. They will seismic the hell out of it and then drill once at the optimal location. Spend small amount of time logging then convert to a PRL and then off to the next prospect (to satisfy criteria for the PPL).
They are building the Triceratops location right now and reserve the right to move it after the last round of seismic, but obviously they feel very comfortable. They will get a more aggressive plan for exploration after FID. FID is the absolute #1 priority. Wayne mentioned the refinery is definitely beginning to generate enough revenue to cover 1 rig drilling and potentially 2.
I asked Wayne why drill Bwata instead of Mule Deer? Mule Deer has a reef and is extremely close to Antelope so it makes sense from an infrastructure perspective. Wayne responded that this has to do with the PPL agreement as Mule Deer falls in PPL 238 and they need to satisfy some drilling requirements in PPL 237.
Phil started off the presentation portion with this quote: “Other than an act of god, nothing will delay FID, but there is still a lot of work to do.” Take it fwiw.
I asked Collin what is the biggest risk for FID? He mentioned that there is risk in everything that they do but in reality it is more like a task list that just needs to be completed. No single item was singled out. There really just seemed to be an attitude of “Still a lot of work to do, but no more or less risk than any other time in the company history.”
This was a very large area of concern for investors and Collin described the process to us so that it is very very clear. Permitting is 98% bureaucracy and then it is getting the minister of energy to sign it off. Of the bureaucracy work that is completed it is almost entirely done through consultants to PNG who happen to be ex government employees from Australia that have worked in comparable positions. Christian added that this process does not need to have the government to be in session for completion.
Phil added that Interoil has been through 8 PMs and 15 Petroleum Ministers and the work didn’t stop because of the political situation. PNG government positions are understaffed and as such permitting sometimes takes a little longer than normal. It is also important to note that this isn’t filling out a form and SHABLAM you have a permit. There are ridiculous amounts of studies that need to be completed, including (apparently most importantly) social mapping. These take time and effort to execute.
This is clearly a question that has been beating the IOC exec too death as Phil addressed it in the presentation before anyone could even ask the question. My gut says that there is work to do there, potentially a lot still, but this is in no way going to jeopardize or extend FID.
There is no permit required to spud at Triceratops, it is just an application that goes through the bureaucracy machine.
EWC financing is absolutely not an issue. IOC sat in the meetings with the commercial banks that will be financing EWC and they were assured on multiple occasions that financing will not be an issue. This was done upfront before signing with EWC and I got the sense it was done again at a later date. Phil also hit this head on in the presentation before any questions could be asked, so once again I believe they continuously get hammered with this question.
My gut feel is that this is absolutely, 100%, clearly no doubt of an issue. As investors we are too detailed focused and become obsessed with something must be wrong. We need to keep site of the big picture. I will post another thread on that thought later.
As mentioned in the presentation the location for the Gulf plant has been picked. I know it sounds trivial but I believe it is a monster step, fwiw, and I believe it has significant impacts to EWC (my thoughts only).
Once FID is finished there will be consultation with all the parties and the board of directors and then the deal will be announced, likely a few weeks later. Imagine the government will want the glory for that.
This man is absolutely amazing and I was personally thrilled that he made it to the AGM. As he said he is one of the largest shareholders, but was there not from a presentation perspective but we were still able to question him. He exudes confidence, commands respect but is very approachable and open to discussion. This change in focus from traditional LNG is HIS vision and I believe HIS legacy as he will be remembered for changing the industry.
Henry came on in Jan 2010 and my realization is that the work to get to FID actually started at that time. This means in 18 months to date and with 24 months, Henry will have driven this project to a new FID using the new LNG concepts of the floater and modular. Why the new technology (really not new technology a new configuration as I was corrected by Mr. Aldorf himself), Henry stated himself that he hated the idea of incurring the additional and unnecessary cost of reinjection and thus started looking at alternative options.
I think this is public knowledge, but it was Henry who brought EWC to the table. Through the vetting that Tokyo Gas did (Henry knows and worked with Tokyo gas), and another company (can’t remember the name) Henry recognized that EWC could get the job done in a unique way. Henry also mentioned that the LNG industry is an inflexible industry as the majors don’t have the ability to be nimble and change technology. It doesn’t look like Henry has that problem.
Henry made it very clear to me that the ultimate priority is to protect the go live production date (2014). This means buying the long lead time items now to avoid delays. Wayne mentioned that there were some customs issues at Napa and it was becoming difficult for PNG LNG to get in equipment. This is why IOC is bringing in equipment now (1800 separate pieces of equipment), pre-fid, to protect the production date. This is why the board approved 100 million for the purchase of the steel for the condensate and NG pipelines. That is a long lead time item and has to happen now.
Henry confirmed IOC will be using the same approach as EQ LNG by training local staff and building permanent housing structures instead of bringing in expats and renting hotels, for example.
Phil quoted a saying from Henry, “Not all barrels are created equal” – referring to the huge cost savings due to our amazingly low price point. It is very very obvious that Phil holds Henry in absolutely the highest esteem. At one point in the meeting Phil personally gave a huge thank-you out to Henry.
My gut on this, and I probably suspected but didn’t fully understand this until today, is that Henry coming on board was the second biggest event in the company history (first being the discovery of Antelope which enticed Henry to come on board). His existing experience, forward thinking and ability to be nimble is what is going to make IOC a super major, of that now I have no doubt. Remarkable individual indeed.
Random thoughts in no specific order.
I asked Wayne about Napa Napa and if it is off the table why is all that land cleared at Port Moresby. Wayne responded that the land is being used to store all the equipment that will be brought in. He said it just didn’t make sense to do a traditional plant any longer. The land initially was going to be prepared for the traditional LNG plant.
Wayne mentioned that a ballpark of 300 million cost for the jetty and pipeline. There are many financing options including the Mitsui asset purchase. Phil said they built the jetty in Port Moresby for 14 million, cost of steel is higher now then it was then so that 14 million might double. After hearing that from Phil I thought 300 million might be a little high, but I really have no idea about the costs of building a 70 mile pipeline. I believe that the Mitsui deal will provide a good portion of financing this, but I don’t recall the exact details.
Speaking of Mitsui, it is important to not forget that cash brought in by the Mitsui buy in with the 5% of elk/antelope. This is executed in 2 phases, first phase 2.5% when FID is reached and second phase when 2.5% when condensate plant goes live. The first 2.5% pays for IOCs half of the condensate plant and the second 2.5% is money in IOC coffers.
Collin mentioned that Mitsui has the option to get in sooner than when the condensate facility goes live as the price per MCF will continue to go up and they might decide to buy before then. The pricing for this (if no other percentage of Elk/Antelope is sold) will be determined by an arbitrator using the current prices of existing deals in the region. Phil said that he expects waaay more than 550 million for the Mitsui buy in, take it for what it is worth.
Someone mentioned that there was discussion of creating a railroad to key areas on the PPL license acreage. I wasn’t a part of that conversation, but perhaps another investor can comment.
Phil mentioned that Exxon is treating the PNG LNG project much like a super major does, with inflexibility and this is the way it has to be attitude. IOC is watching this very closely and learning from the mistakes of Exxon as they move forward.
Announcements and OffTakes
This should be a very good late summer and fall as the plan for announcements is not to wait until everything is finished. Announcements will come as they are completed, so expect an EWC, Flex, OffTake, Permitting, and FID news releases in the upcoming months. Of course once FID is done then we should hear something regarding the Mitsui buy in. All direct from the mouth of Collin.
Phil and Henry mentioned that the LNG marker was a buyers market up until the start of this year then it started to move to a sellers market. The unfortunate event of Japan has accelerated this market and then the negative nuclear backlash has also moved things faster into this direction.
The Philippine deal is very amazing as it eliminates the pressure for getting the FID done as no offtakes are required to complete FID. This gives Conrad additional leverage when cutting a deal today. Collin mentioned that 120 oil means 14.85 long term per MCF agreements.
Won’t be able to beat the EQ LNG price point but will try to beat the timeframe to bringing it online. Does this mean early 2014? Oh, just remembered, Henry was asked when in 2014 and he wouldn’t commit.
Collin confirmed that Bronte is indeed short IOC and I think I heard him say they were short at $20. Bronte is also long Oil Search, go figure. Collin said little could be done about it short of executing the IOC vision. It would be interesting to know what other large funds are a part of this short push.
The PNG folks feel that IOC is a PNG company not Canadian. 95% are all employees are local citizens with 5% expat.
One fellow, none other than Iluvioc, asked Collin the question about listing on the Singapore stock exchange as a method for dealing with some of the stock price manipulation. Collin neither denied or confirmed the question, but the look on his face was one of “You figured it out”. Don’t be surprised if we see something like this in the next 6-12 months.
I may have missed this previously, but officially we are the Gulf LNG project. Nice ring to it I think.
Interoil Investors/Board Members
Once again I would like to extend a massive THANX!! to all the people who I met (again) on Monday night and Tuesday morning. You are all amazing people who I definitely respect have learned a lot from. I truly enjoyed your company and already look forward to next year when we will be celebrating a much increased PPS.
To Tusker: Once again I would very much like to thank you for buying ALL the drinks for EVERYONE on Monday night and organizing this great event. You are a generous person indeed.
Rog – Thanx for lunch sir, I very much appreciated it!
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