shareholdersunite.com

Wait, you mean Shell is not the only big operator that will be allowed in PNG? That can’t be. This article mentions several very important things:
1. This price is based on prospects, not any drilled wells
2. NG/LNG from PNG is cheaper than Australia’s
3. Proximity to Japan is important
4. Japan is velly velly thirsty

Nice find Pet!

I find something very disturbing here. The article states that Mitsubishi and OSH filed a term sheet in “the middle of last year” for these prospects. Yet in scanning the OSH website I see NOTHING disclosing this matter. OSH is WAY too much like IOC. Management keeping secrets, not making disclosures that paranoid shareholders might want to know, and they are missing deadlines left and right. These two companies are way too much alike and can’t be trusted.

Who can we get involved with this and maybe have them go to the OSH Yahoo Board to raise these questions? This has to stop.

Guuuuud One Tom.

DJ UPDATE: Mitsubishi Inks US$280M Deal For Papua New Guinea Gas Assets

9:59 AM (GMT-05:00) Eastern Time (US & Canada) Feb 22, 2012
–Mitsubishi to hold average 20% interest in nine licenses, Talisman 40% –Companies to work together on possible 3 million ton/year LNG exports –Deal includes license containing discoveries containing 2.4 tcf of natural gas throughout) By David Winning and Mari Iwata Of DOW JONES NEWSWIRES SYDNEY (Dow Jones)–Japan’s Mitsubishi Corp. (8058.TO) has agreed to a US$280 million deal to buy stakes in nine of Talisman Energy Inc.’s (TLM) natural-gas blocks in Papua New Guinea, Talisman said Wednesday. The deal comes as Japan vies for access to natural-gas developments globally as it looks for alternative fuel sources to nuclear energy, which as recently as 2010 accounted for 30% of the country’s power supply. Japan is facing a big drop in nuclear-power output following a series of explosions and radiation leaks at the Fukushima Daiichi reactor complex, which was damaged by the devastating earthquake and tsunami nearly a year ago. Since then, other reactors across Japan that shut down for regular inspections have stayed offline. Canada’s Talisman has invested aggressively in expanding its footprint in the western forelands of Papua New Guinea with a view to aggregating several natural-gas discoveries, including the US$177 million takeover of Rift Oil PLC in 2009. “Talisman and Mitsubishi have agreed to work together closely to aggregate natural gas in the Western Province of Papua New Guinea with a view to potential liquefied natural gas export of approximately 3 million metric tons per annum,” Talisman said in a statement. Mitsubishi will now hold an average of 20% in the nine licenses and Talisman will own 40%. The deal includes the PPL 235 license, which contains the Puk Puk, Douglas and Langia discoveries that contain a combined 2.4 trillion cubic feet of gas in place. Three exploration wells have been drilled so far in PPL 235, which Talisman acquired through the Rift Oil takeover, and all have discovered natural gas. “Mitsubishi brings extensive experience in liquefied natural gas development and marketing and I am confident they will be a key success factor in helping us unlock the value of our Papua New Guinea assets,” Paul Blakeley, Talisman’s Executive Vice-President of International Operations East, said. Japan is the world’s biggest buyer of liquefied natural gas, or LNG, which is a natural gas supercooled to a liquid form so it can be transported by ship. In the final three quarters of last year, Japan’s power utilities boosted imports of natural gas by some US$7.5 billion, contributing to Japan recording its first trade deficit in more than three decades. LNG purchases again rose sharply in January, up 39% to 5.19 million tons. Analysts expect Japan’s LNG demand to remain strong in the medium term as nuclear power plants face extra scrutiny after the earthquake and coal-fired power falls out of favor because of the emissions it produces. This shift to LNG is benefiting projects that are planned or under construction in Papua New Guinea and Australia, which are accessible by tanker without passing through the potential choke point of the Strait of Malacca, near Singapore. Inpex Corp. (1605.TO) and French partner Total SA (TOT) have signed binding agreements to sell most of the planned annual output of 8.4 million metric tons of LNG from the US$34 billion Ichthys LNG project in Australia to Japanese companies. Japanese companies have also firmed up preliminary deals for LNG supply from the Chevron-led A$43 billion Gorgon LNG project offshore Western Australia state, and BG Group PLC’s (BG.LN) Queensland Curtis LNG project in eastern Australia, since last year’s earthquake. Two proposals for LNG export terminals have already been unveiled in PNG, with the ExxonMobil Corp.-led PNG LNG project under construction and due to ship its first gas in 2014. The US$15.7 billion project has gas sales agreements in place with customers in China, Japan and Taiwan. In addition to the Exxon-led venture, an LNG project has been proposed by Liquid Niugini Gas Ltd., a consortium of companies including Canada’s InterOil Corp. (IOC).

They paid USD 280 million for 20% of 2.4T. If you apply this calculation to IOC, we should be at $90 per share right now just to be equal. I might add that Talisman’s assets are not equal to IOC’s.

I figure IOC has a bit less than 5 billion MCFs and a market cap of a little over 3 billion. That works out to 60 cents per MCF. I don’t know how you get 90 bucks from that.

I was waiting for the T2 drill bit to show what is in Bwata. That said this is how talisman is proving their reserves.

“Talisman RECONS it can aggregate between 2 trillion and 4 trillion cubic feet of gas in Papua New Guinea-–enough to underpin a single unit producing liquefied natural gas, or LNG, for export.”

And I think that some of the aggregate is off-shore.

VS-Here is an accumulation of information from many sources about the fields and licenses Talisman is farming out to Mitsubishi. I also throw in a few comments/opinions along the way. (By the way I think Talisman only paid $177 million for all of Rift Oil PLC. So it might not be too bad a deal for them to sell 20% to Mitsubishi for $280 million.)

http://online.wsj.com/article/BT-CO-20120222-711345.html

“SYDNEY (Dow Jones)–Japan’s Mitsubishi Corp. (8058.TO) has agreed to a US$280 million deal to buy stakes in nine of Talisman Energy Inc.’s (TLM) natural-gas blocks in Papua New Guinea, Talisman said Wednesday.”

Comment: It is not clear to me exactly which licenses Mitsubishi is participating in. We do know “ MC will participate in five PPLs and four PRLs, including discovered resources in PRLs 4, 8, 21, 28 and PPL 235.” So there are four more PPL’s. Talisman has 14 licenses but MC will only participate in 9.

“Canada’s Talisman has invested aggressively in expanding its footprint in the western forelands of Papua New Guinea with a view to aggregating several natural-gas discoveries, including the US$177 million takeover of Rift Oil PLC in 2009.
“Talisman and Mitsubishi have agreed to work together closely to aggregate natural gas in the Western Province of Papua New Guinea with a view to potential liquefied natural gas export of approximately 3 million metric tons per annum,” Talisman said in a statement.
Mitsubishi will now hold an average of 20% in the nine licenses and Talisman will own 40%.
The deal includes the PPL 235 license, which contains the Puk Puk, Douglas and Langia discoveries that contain a combined 2.4 trillion cubic feet of gas in place. Three exploration wells have been drilled so far in PPL 235, which Talisman acquired through the Rift Oil takeover, and all have discovered natural gas.”

Comment: Note that the 2.4 TCF is gas in place not recoverable sales gas. This probably needs to be reduced for a recovery factor of about 80% and fuel use of 10% and a bit more for liquid removal.
(2.4 x 0.20 x 0.80 x 0.90= 0.345 TCF) or they paid about $ 0.81/MCF for the gas in the ground.

Puk Puk Field (PPL 235)

http://www.scandoil.com/moxie-bm2/news/rift-oil-upate-drilling-at-puk-puk-1-in-papua-new-.shtml

“Puk Puk-1 has reached Total Depth at 1,999 metres, after encountering granitic basement at 1,983 metres. Electric logs are high quality and indicate a gross gas column of 159 metres from 1,820-1,979 metres (48.5 metres net) within good quality Toro, Upper Hedinia and Lower Hedinia sandstone reservoirs. Each zone lies on a slightly different pressure gradient, but all are consistent with oil condensate bearing gas in reservoir; and downhole sampling has recovered oil condensate. As indicated in earlier releases, Puk Puk-1 has come in 150 metres high to prognosis and 50 metres higher than our previous discovery at Douglas-1. Net gas pay is more than twice that seen at Douglas and about 50% greater than expected. Oil condensate yields also appear likely to be higher than at Douglas-1.”

Comment: Puk Puk-1 has 48.5 meters of net pay, all in sandstone, and net pay is more than twice that seen at Douglas-1. That means Douglas-1 must have less than 24.25 meters of net pay. Top of the zone is at 5,971 feet, just above basement.

Puk Puk-1 Test Result
http://www.rigzone.com/news/article.asp?a_id=74545
Each of the three test zones has very high calculated permeability, consistent with the results from core and log analysis; and calculated Absolute Open Flow Potential is in the range 50-60 MMCFD for each zone, or a combined 150-180 MMCFD for the three zones.
There is no evidence of depletion during testing, consistent with the presence of sizable reserves; and all three zones were still cleaning up and improving at the completion of test operations.
The percentage of CO2 in the well stream is very low, which is excellent; although condensate to gas ratios are only in the range 1-3 barrels per million cubic foot of gas.
All potential pays were perforated, and other than at the base of the lowest sand in the Lower Hedinia, no gas-water contacts were encountered.

Comment: Gas wells NEVER produce anywhere near their calculated Absolute Open Flow Potential. The gas is relatively dry at 1-3 barrels per million cubic feet of gas. Production rates of 100 MMCFD seem a bit on the optimistic side to me.

Douglas-1 (PPL 235)
http://www.energy-pedia.com/news/papua-new-guinea/rift-oil-signs-gas-deal-
“PPL 235 has two wells: Douglas-1 and Langia-1 which are both gas discoveries with potential condensate. In Langia-1, the discovery consists of a net 7m of gas pay in a high quality reservoir. Douglas 1 consists of a net 25m pay in two sections with an estimated flow potential of up to 30 million cubic feet per day.”

Langia-1 (PPL 235)
http://www.newswire.ca/fr/story/107825/austral-pacific-energy-ltd-announces-memorandum-of-understanding-mou

“PPL 235 has two wells, Douglas-1 and Langia-1, which are both gas
discoveries with potential condensate. In Langia-1, the discovery consists of a net 7 metres of gas pay in a high quality reservoir.”

Comment: Note pay thickness is 7 meters. Saw one note that said Langia-1 was considered to be non-commercial.

Elevala/Ketu Fields (PRL 21)

Elevala-1 flowed 11.9 MMCFD with 634 barrels of 54 degree API condensate (53 Bbl/MMCF). Elevala-2 was drilled 2.3 km west of Elevala-1 and found 18 meters of Elevala sandstone and no water. Elevala-2 was expected to be 60 meters down dip from Elevala-1 but it fact was only 20 meters down dip. Elevala-2 was sidetracked.
http://www.energy-pedia.com/news/papua-new-guinea/new-148821

The sidetrack was kicked off at a measured depth of 2,446 m on 1 January and reached a measured total depth of 3,630 m in the Toro sandstone (below the Elevala sandstone) on 9 January. Logging while drilling, sampling and pressure measurements have defined a gas-water-contact to the hydrocarbon accumulation, successfully fulfilling the primary objective of the sidetrack well. This establishes a field gas column height of greater than 50 m and further implies that the Elevala structure is full to spill point. Horizon Oil has previously advised (pre-drill) certified mean recoverable contingent resources of 302 bcf of gas and 19.3 million barrels of condensate. Based on the drilling results and the existing seismic data, the well outcome is to the high side of expectations.”

Comment: Note size of resource, 302 bcf and 19.3 million barrels of condensate.

http://www.postcourier.com.pg/20111121/business03.htm “Following Elevala 2 the rig will move to Ketu 2 to be drilled in February, 2012. Ketu 2 is an appraisal of Ketu 1, also drilled by BP in 1991 and was also a gas discovery in the Elevala Sandstone.”

“British Petroleum drilled Elevala 1 and Ketu 1 wells in 1990 under farm in agreement with Santos.
Santos carried forward with area drilling of Stanley 1 in 1999, which discovered gas-condensate in the Toro Sandstone. Post relinquishment in 1999 the Stanley discovery was preserved as PRL 4 and effective 14 February 2000, Elevala and Ketu as PRL 5.
On March 18, 2011 PRL 5 was reissued as PRL 21 to a joint venture comprising Horizon 70%, Kina 20% and Elevala Energy 10%.”

Comment: Note PRL-5 became PRL-21.

“Active drilling programs in adjacent licences during 2011-2012 will result in significant
improvements in our understanding of the basin. Wells are planned for PRLs 4 and 21
(Horizon) and PPLs 235 and 261 (Talisman),
The apparent gas-condensate discoveries in Eaglewood’s Ubuntu-1 well and Horizon’s
successful Stanley-2 and Stanley-4 appraisal wells attest to the prolific nature of this
portion of the PNG Foreland gas play. In fact, of the ten wells drilled from the Stanley
area in the northwest to the Douglas-1 area to the southeast, eight wells (Stanley-1,
Stanley-2, Stanley-4, Elevala-1, Ketu-1, Ubuntu-1, Puk Puk-1 and Douglas-1) are
12 discoveries likely to be commercialised and only two wells (Kiunga-1 and Langia-1) are
dry or sub-commercial. A success rate of 80% in this fairway provides significant
encouragement for future drilling in NGE PPLs 266, 268 and 269.”

Ubuntu-1 (PRL 28)

Ubuntu-1 had 8 meters of net pay. http://www.eaglewoodenergy.ca/investors/documents/EaglewoodEnergy_CorporatePresentation.pdf
Chart 11.

It appears to me that much of the gas in these fields is scattered in relatively small accumulations some of which appear to be noncommercial. These relatively small accumulations would have to be aggregated to some central location by installing a pipeline network to bring the gas to a central CSP for treatment i.e. dehydration and removal of the condensate. They mention trying for a 3 mtpa LNG plant or possibly putting the gas into the PNGLNG pipeline. Just a CSP for 3 mtpa would require an expenditure of more than $550 million. I think the Government requires the operators of pipelines to take the gas from other Operators if there is excess capacity. I do not think the PNGLNG pipelines will have excess capacity.

All of these fields are small, isolated in the far west of PNG with no pipeline within +/- 100 km, no CSP and no LNG Plant. It looks like this gas is still stranded and may be noncommercial due to location and small accumulations.

This likely means this gas is worth far less than the huge accumulations found in thick limestone reefs at Elk/Antelope and Triceratops which are in far better locations near the coast and planned LNG facilities. I think some of the estimates of resource size and anticipated flow capacity for the Talisman/Mitsubishi fields discussed above may be a little high but I suggest that you make a comparison of pay thickness, resource size, location and flow capacity with what we have at Elk/Antelope and Triceratops.

So who got the best deal, Talisman or Mitsubishi? The Japanese are paying $15-17/MCF for LNG delivered to their shores. Here is a chance to buy gas in the ground for $0.81/MCF. Sounds good for Mitsubishi.

Talisman paid $177 million for Rift and got the licenses. They drilled a couple of wells and sold a 20% interest to Mitsubishi for $280 million. Sounds good for Talisman.

If the Fields are all too small to be placed on production and the gas remains stranded the gas is worth nothing. So, if that turns out to be the case Talisman is the winner.

Does this have anything to do with placing a value on IOC’s resources at Elk/Antelope and Triceratops? I don’t think so.

petro,

Yet again, you demonstrate invaluable talents to synthesize information incomprehensible to those of us who are seriously “geo-challenged.”

I echo Gator’s comments.

Somewhere in one of the original articles, the word “farm-out” appeared. Would that kind of deal characterization indicate anything special about contractual arrangements, in light of your comments that only 9 of the leases are included in the deal with Mitsibushi?

VS

Pet,

From what you’ve presented, and connecting some dots, I suspect that this is less a sale of existing resources than a future funding agreement.

The up-front money is likely relatively insignificant compared to the commitment to spend in the future — and perhaps carry some, or all, of Talisman’s funding of exploratory wells, etc.

That would explain the seemingly low price relative to OGIP and support the case that this deal tells us zippo about anything relative to IOC’s pending transactions.

VS