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Raymond James on InterOil November 25

November 25th, 2011 · No Comments

A nice endorsement of the deal and the supportive comments of the Prime Minister of PNG

♦ Here is something for IOC shareholders to be thankful for: InterOil has announced a 15-year LNG offtake agreement for 1.0 million tons per year with Gunvor, a company headquartered in Geneva that is one of the world’s largest energy trading firms. This is InterOil’s second offtake agreement. The first, covering the same annual volume for a 10- year period, was signed with Singapore’s Noble Group in early August. Both agreements are currently non-binding heads of agreements that are expected to convert into binding
contracts after the final investment decision (FID).

♦ The volume of 1.0 million tons per year covers 20% of InterOil’s initial liquefaction capacity (3 million tons at the onshore plant and 2 million tons at the floating plant). As is typical of such deal announcements, pricing was not specified, but InterOil’s management has consistently noted that the default market price for PNG – set by ExxonMobil’s
(XOM/$74.58/Market Perform) LNG project – is a “slope” of 14.85, meaning 14.85% of the benchmark Japanese Crude Cocktail oil price.

♦ While the offtake agreement itself is a positive incremental datapoint, we also take note of the supportive comments from PNG’s prime minister that accompanied the offtake announcement. Prime Minister O’Neill, who was at the signing, provided what amounts to a public endorsement of InterOil’s LNG development. While we have never had any doubt
that the government wants this project to succeed (given the public benefits in terms of skilled jobs, foreign investment, and tax revenue), we understand that some investors felt apprehensive when in September the government instructed InterOil to bring an “internationally recognized” LNG operator into the project. In accordance with these
instructions, InterOil continues to be in talks with prospective partners; for details, see our company brief from September 30, “IOC: It`s Official: Major Strategic Partner on the Way – Get Ready For Selldown”.

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