Opportunities in smallcaps header image 2

Questions and answers with Wayne Andrews

September 22nd, 2011 · 2 Comments

A couple of investors take some initiative..

1) Henry’s recent presentation in Australia stated “FID 5mtpa by YE 2011”. From an investor’s standpoint is that a realistic expectation as opposed to this being more of a “marketing” perspective?

A: Realistic but obviously no guarantees as we are working with many entities, the gov, etc. IOC is doing all that’s required and all that IOC controls is a go. Mitsui, Samsung, EWC feedback is that they are still on schedule.

2) Petromin’s buy-in will be in what all areas of the project? Upstream, CSP, LNG modular, and FLNG? If not, which areas do you expect they will participate?

A: Petromin interest is expected to be ownership in all of these phases

3) For Petromin’s buy-in, will it all be back-loaded, or do you expect any of it to be front-end and possibly funded by Shell per their recent agreement?

A:Expectation per statement in presentation and cash flow projection is that it will all be back-loaded (come out of production proceeds).

4) The Mitsui agreement states that for them to reach FID all licenses must be in place. Is that how they will proceed, or do you think they would go FID with only certain licenses granted?

A: Discussions have been that they will proceed to FID when all engineering is complete and financing is in place. Permits not necessary for them to announce FID.

5) One criticism of the project is that we have not heard directly from Mitsui in much of this. They have never issued a PR, nor is there anything on their website, in financials, etc. Have they ever addressed that, or have you ever requested that they make some sort of statement?

A: The fact that they have not said anything means nothing. They have many projects around the world they are working on; we have one. They make statements when and how they decide is best for their shareholders.

6) Assuming a Mitsui FID do you expect that they will exercise all options in both upstream and the LNG plant? As far as the LNG plants (EWC and FLNG), does Mitsui have buy-in rights to both of these, or did the JV agreement anticipate a traditional LNG plant financed by IOC?

A: They will only have options in the upstream of E/A.

7. Henry also states on slide 8 that there is “No need for additional wells to reach 5mtpa.” Is he saying that Elk 1and 4 and Ant 1 and 2 are all we need; ie that they will be finished out as production wells for the 5 mtpa? More recently presentations have shown a reinjection pipeline (yet Henry’s slide 12 still states “no reinjection wells or pipeline”). Can you explain that, and will there be one or more injection wells drilled? Slide 27 mentions “Produced water re-injection pipeline from CSP to fields injection well.”

A: Correct that we have enough capacity with what has been drilled; however will probably drill possibly 2 more wells at E/A for redundancy/backup. Understands that water produced by CSPs will be reinjected, but these are relatively low cost wells and these are normal part of the process.

8) CSPs- A little confused on how these will work. On slide 7 it mentions that the JV with Mitsui “Covers CSP No. 1”, yet it shows starting with 2 CSP’s. Where will these 2 be located; Purari or in Elk/Ant field. Slide 7 shows Elk/Ant field and to the left it shows “CSP 3” and “CSP 5” with corresponding orange squares; CSP 3 in SW corner of field and CSP 5 next to Proposed Ant 3. Where is CSP 4; Bwata? Please explain the CSP part of this initial plan.

A: As far as he knows there is no relevance to the numbering in the presentation; CSPs will be in the E/A field closer to source as shown/mentioned in recent presentations.

9) What is the “trigger” for EWC to obtain (announce) financing for either/both PNG and The Philippines? Have they told you that they have or are secure in getting financing for either/both projects?

A: Financing needed should be easily obtained. For instance in Indonesia they have power plant where they have invested $80 million of own capital and have said they have $200 million financing lined up. Recent capital injected by Richard Chandler also provided important equity. EWC has strong backing from its banks. Also the Noble OT provides all that is needed to secure financing for LNG plant (however, Noble not specifically tied to EWC plant, but most likely to EWC or Flex whichever gets to FID the quickest).

10. In regard to the IOC/Pac LNG requirement to provide Samsung with a “conditional security package to ensure final payment.” Can you explain what this “package” is or will be?

A: As clearly stated, Samsung is financing 100%. This ship which has been partially paid for already will cost $1.1 – $1.2 billion. The cash flow from the FLNG is projected to be $2 billion/year. They should have no trouble obtaining financing. But if they do not, and we (IOC/Pac LNG) must guarantee final payment, we are prepared to do that. Samsung has high interest in building ships and getting the first FLNG into production. Our project offers them the least operational risk (jetty, not in open sea, only has to take conditioned gas and produce LNG, etc.). Samsung only wants to build ships, not get into offtakes, etc.

11) How are things progressing with the Samsung/Flex FEED? Does it still appear that we will have FID on that this year?

A: All is proceeding as previously stated and still expecting FEED by YE. They are close; Samsung has 150 engineers dedicated to the topside design/operation/testing.

12. Do you expect IOC/Pac LNG will exercise all of their buy-in rights in Flex and end up owning a combined 30%?

A: The buy in options IOC has with Flex are considered penalties for Flex not obtaining alternative financing. We don’t have specific interest in owning more of Flex, but we have conditional options.

13) Will we be likely to see more than one FLNG from Flex in the Gulf LNG project, or other IOC projects?

A: That is possible- not sure. Not surprised if it were to happen. IOC likes the setup and the fact that Samsung is building the ships. Model works well.

14) The PNG government appears now with O’Neill as PM to be very favorable to us. Is Duma as Petroleum Minister seen as friend or foe by IOC, and what is your take on his recent statements which prompted the reaction by O’Neill?

A: What we see going on is politics toward the 2012 elections. Not concerned as we get along very well with PM O’Neill, and always had very good relationship with Somare. Mr. Duma is neutral at worst and certainly not seen as a foe. He has been in that position before as Minister and understands the project. Not concerned overly with what he had to say recently.

15) Approx when do you expect PDL and other licenses to be applied for and how long do you expect approval will take? The PRL went very quickly; with these licenses be similar? Has anything been submitted to the Department toward the licensing?

A: About ready for PDL submittal as we have mentioned. These are not necessary for FID to occur. Have submitted some info on all of licenses already.

16) The original Napa Napa site has been talked about a bit. In the pictures it shows that it has been pretty much excavated as if there will be an LNG plant there some day. Is that still in the plans and/or is the PNG gov pushing for a plant there?. Seems hard to believe all that excavation is just for staging for the Gulf LNG project.

A: There are not plans being pursued currently for an LNG plant at Napa Napa. Could happen some day, but desire now is for everything to be in The Gulf. Still working on Napa Napa site as a staging area and have yet to build a new wharf there.

17) Concerns around keeping licenses for current license areas. How does IOC see holding on to all of best prospects and getting them drilled as necessary to keep licenses? Do you anticipate the need to bring in a drilling partner?

A: We really have no concerns with license areas and see keeping all we need for best prospects. OSH operated doing what they did in Highlands for 15 years just on a PRL. We are doing all that is necessary to keep licenses. Really not concerned at all.

18) How does IOC view Shell as a partner for Petromin, and did you have any input on that process with Petromin. Any perceived negatives with Shell coming in? Shell overall seen as good thing for Petromin.

A: Do not see/feel anything negative as far as IOC concerned. Strengthens Petromin financially which is good. If Shell would want to talk to us we would listen.

19) Lots of talk about Exxon/OSH. Is it within realm of possibilities that IOC and Exxon/OSH might enter into a JV and/or offtake agreement?

A: No doubt they are having delays in the Highlands due to the very heavy rains we have experienced. This has also slowed us down some at Tri. Their LNG plant construction is on schedule. Should they experience continued delays in Highlands as far as developing source and want to talk, we would talk. They have Phil’s number.

20) Obviously a lot of confidence that things will happen with the ordering of the $100 million of long-lead pipeline/equipt. Have those orders been placed and or shipped?

A: Nothing spent at this point. We received permission from BOD to utilize up to that amount and we are soliciting and receiving bids, quotes, etc. When time is right as needed we will order necessary supplies to be sure we have what we need when we need it.

21) We heard at the beginning of the year that the EWC equipment would be shipped “soon”. Is that still in Louisiana?

A: Still in Louisiana. The staging area at Napa Napa will be ready before too long, and once it is the EWC modules can be shipped. Also finalizing land lease with landowners where plant will be constructed in Gulf. Those modules are mostly paid for already.

22) The OPIC release of collateral of IOC shares in PIE Corp was interesting. Was that done as part of a request to OPIC for new funding for the Gulf LNG Project? If so, do you expect any funding from that or any other US Ex/Im body?

A: Strictly done to free up personal capital of Phil and others. They put all they had at time up as collateral for the refinery. Time had come when debt had been paid down far enough for the release. There is no current request to OPIC or another Ex/Im entity. If there ends up being a need, they would consider. Nothing in the works now.

23) With so many entities working together to reach FID, what happens if 1 not able to commit? Is there contingencies for smaller scale/ partial FID ie. just Mitsui and EWC and no Flex or vice versa? What in your view is the weakest link/ greatest concern to reaching FID by year end…govt pdl, Flex, EWC, general economic climate, financing for any entity or some other event?

A: Not an all or none proposition. We need 1 FID for CSP and 1 FID for EWC or Flex/Samsung. FID final is a signing “ceremony” with immediate PR since that is a material event.

24) Sir Robbie appears to be a great add for IOC. Who else is anticipated to be on the PNG Advisory Board? Is Sir Robbie handling those asks?

A: He is already being very helpful. They are working together to consider the others that will be asked to serve on Advisory Board.

25) Mr. Zirgulis brought on from Marathon; what will his role be exactly, and in which entity is he employed?

A: He is already onboard and will serve as the Project Manager for the Gulf project. He will be an LNGL employee since that entity will own/operate.

26) Will the FIDS be all at once, or will they be phased in?

A: Could be either way.

27) In Grand Rapids, Phil said early in the meeting itself that it would require “an act of God” for us not to reach FID this year. Is that still holding true or has God acted?

A: At this point nothing has changed with schedule.

28) How will FID(s) be announced? Will you announce it coming up on a certain date before the fact or would it happen and then be announced after the fact?

A: Again, this is a signing event with the multiple parties that will take place and be required to immediately be announced.

29) Regarding Phil’s famous 5-7 dollar quote, at what point in the stream does that price apply? In the ground? As it comes out of the CSP? Out of the LNG facility?

A: This is an offtake contract in the form of a “forward sale.” For instance, if Noble were to do this they might take 10-20% of the contract and pay it up front, then buy the rest over the contract period. That forward sale is a market price discounted for immediate payment. This gives purchaser some flexibility in selling the LNG.

30) Can we expect any new brokerage cover any time soon? In the U.S.?

A: Can’t say when any may come. We are constantly talking with analysts/firms, and they choose if and when they will initiate coverage.

31) Final comments- The world has changed a lot. Most don’t understand the boom that is going on in Asia. Since the Japan tragedy the LNG market has taken off. There are many planned large projects, but we continue to hear that they are being delayed. IOC is in excellent position.

Tags: IOC

2 responses so far ↓

  • 1 Bruce // Sep 23, 2011 at 8:30 pm

    Did a mapquest satellite view of NAPA NAPA a month ago (photo probably older than that). Looks like it is already being used as a staging area. Anybody know what is there in the laydown area?

    Great DD work guys. Thanks for sharing

  • 2 Bruce // Sep 23, 2011 at 8:34 pm

    Sorry. That was Google Maps, not MapQuest. Google has more detail.