The PNG government is fundamentally a seller of gas. They own 2T's of gas free and clear 10% of which could power the entire country. They won't need it however, util 5 years from now when they have built the power plants.

Splitting the project in two frees them from not only having to come up with a lot of money for their portion of the LNG plant costs, it allows them to sell it for cash today. Cash is what they need to tide them over till revenues from PNG LNG arrive.

They want the best price they can get for the gas. IOC offering to sell them additional gas facilitates a higher price. It is an empirical fact that the larger the amount of gas the higher the per mcf price.

I believe the market has completely misunderstood this. PNG and IOC's interests are perfectly aligned.

'sfiaes' pid='14213' datel Wrote:

The PNG government is fundamentally a seller of gas. They own 2T's of gas free and clear 10% of which could power the entire country. They won't need it however, util 5 years from now when they have built the power plants.

Splitting the project in two frees them from not only having to come up with a lot of money for their portion of the LNG plant costs, it allows them to sell it for cash today. Cash is what they need to tide them over till revenues from PNG LNG arrive.

They want the best price they can get for the gas. IOC offering to sell them additional gas facilitates a higher price. It is an empirical fact that the larger the amount of gas the higher the per mcf price.

I believe the market has completely misunderstood this. PNG and IOC's interests are perfectly aligned.

'johnwgrant' pid='14222' datel Wrote:Sfiaes states: "It is an empirical fact that the larger the amount of gas the higher the per mcf price." What are you basing this statement on? It is fairly common "rule-of-thumb" that buyers want a volume discount. Now, there is a "control premium" that someone might pay to buy 51% of a company (and thus control all decisions)...

When you buy the future, you have a volume advantage.

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'ebster123' pid='14225' datel Wrote:Spartina, are you from downeast??

Ayuh.

"Sfiaes states: "It is an empirical fact that the larger the amount of gas the higher the per mcf price."

What are you basing this statement on? It is fairly common "rule-of-thumb" that buyers want a volume discount. Now, there is a "control premium" that someone might pay to buy 51% of a company (and thus control all decisions)..."

First off, you need a considerable amount of gas to justify an LNG facility. Let's say 4T's for a stick built plant. Less for modular, but evidently that won't do for PNG. So by definition the less gas you have the more "stranded you are" and the less some one will pay for it.

So aggregator's like Talisman go around buying up contingent reserves till they have enough to justify a plant. Each deal is different but in general they are far less than 500Bcf and range from .14 to .36 per mcf.

Interoil bought out some of its minority interests for .34 cents amounting to 164Bcf.

On the high end Nippon bought 3.8% of PNG LNG which has 6.2T's for the equivalent of around $1.54 - $2.00 per mcf.

With E/A we are in uncharted territory. There has never been this much gas for sale all in one place in PNG. With one transaction you can have enough gas for a stick built plant requiring a minimum of wells.

I'm sure someone in the O&G M&A business could give you a more comprehensive answer, but in general the more you have the more you get.

'sfiaes' pid='14230' datel Wrote:

"Sfiaes states: "It is an empirical fact that the larger the amount of gas the higher the per mcf price."

What are you basing this statement on? It is fairly common "rule-of-thumb" that buyers want a volume discount. Now, there is a "control premium" that someone might pay to buy 51% of a company (and thus control all decisions)..."

First off, you need a considerable amount of gas to justify an LNG facility. Let's say 4T's for a stick built plant. Less for modular, but evidently that won't do for PNG. So by definition the less gas you have the more "stranded you are" and the less some one will pay for it.

So aggregator's like Talisman go around buying up contingent reserves till they have enough to justify a plant. Each deal is different but in general they are far less than 500Bcf and range from .14 to .36 per mcf.

Interoil bought out some of its minority interests for .34 cents amounting to 164Bcf.

On the high end Nippon bought 3.8% of PNG LNG which has 6.2T's for the equivalent of around $1.54 - $2.00 per mcf.

With E/A we are in uncharted territory. There has never been this much gas for sale all in one place in PNG. With one transaction you can have enough gas for a stick built plant requiring a minimum of wells.

I'm sure someone in the O&G M&A business could give you a more comprehensive answer, but in general the more you have the more you get.

Point made - great explanation !!!