Approximately one month has passed since it was announced that XOM entered exclusive negotiations with IOC for the purchase of 4.6 Tcf of gas from Elk/Antelope for its PNG LNG project.  As Gaylen Byker conveyed to PNG Industry News this month, “major terms had already been agreed to” and the deal is “not contingent on re-certification of the Elk/Antelope resource”.

While certain parties are still devising schemes to derail InterOil’s deal with XOM and spreading misinformation on deal terms to confuse and discourage InterOil’s shareholders, I am confident that the final selection process involved at least 4 large bidders, three of which were supermajors.  There was fierce competition for the resource.  Contrast this with the PRE deal for PPL237, which is many years behind PRL15 in development – PRE is contributing initial cash payments and work program consideration estimated to represent a combined total value of $345 million and an estimated NAV based on my calculations of approximately $1.50 per mcf for 2C resources.  PPL 237 is in a much more speculative phase than PRL 15, monetization is much further off, and there was no competition for PRE's 10% stake, yet the terms secured by InterOil were very accretive to shareholder value.

As investors begin to anticipate progressively higher values ascribed to InterOil’s resources in conjunction with accelerated exploration and resource growth following the announcement of the XOM transaction, the stock will undergo a swift revaluation that more than makes up for its stagnancy in the past 3 years.

With closure of the XOM transaction imminent, a new floor for the stock will soon be established, and there will be additional monetization opportunities in the coming months.  Importantly, Gaylen Byker informed PNG Industry News that “The Gaffney, Cline and Associates estimates are sufficient to underpin two LNG trains”, insinuating that the GCA certified resource could be in excess of 9Tcf (4.6 Tcf of which will be used for train 3 of PNG LNG).  The resource will expand slightly with additional wells, providing InterOil with even better economics in its sell-down of PRL 15.

O’Neill has already accepted InterOil’s deal with XOM, and discussions are already underway to use InterOil’s gas in PRL15 for a petrochemical plant and he is proceeding as if the transaction has already been consummated and approved, implying virtually no possibility of government resistance to a deal.

The InterOil story has been almost completely derisked, and I anticipate that the company's entire value will be justified by just the XOM purchase and sale agreement for 4.6 Tcf.  The residual value of the company is at least several hundered dollars per share, and there is a near-term opportunity to monopolize additional PNG LNG trains.  Oil Search's dominance in PNG has been ceded to InterOil unless it succeeds in securing IOC's acreage in a hostile approach with TOT prior to the XOM deal being consummated. The next few weeks should be very interesting.

Hey ResArb,

Partly true and the' two-train' is not a revealation by Byker.  Phil clarified this point in last Nov. CC.  The two trains he referred to in Nov. were Gulf LNG trains.

GC #s of 6.6T would produce 138 Mt LNG.

That volume could supply two 4.6 Mtpa trains for 15 yrs.  More gas needed for 20-30 yr. PNG LNG trains and will be located with further drilling in PRL15.

It is critical to recognize that while IOC's impending deal with XOM is a best case scenario for IOC shareholders, it is a worst case scenario for OSH (in spite of what its ignorant cheerleader analysts convey).  Until now, OSH effectively retained a free option on the upstream underpinning PNG LNG's expansion.  OSH's future growth and premium to NAV is now predicated on its speculative Gulf drilling program, as there will be no interest in developing P'nyang for PNG LNG.  TOT believes that it has received O'Neill's blessing to become a big player in PNG, the company has much bigger aspirations than its farm in agreement with OSH.  Neither company has given up on IOC, and they know they must act quickly.

'Tree' pid='24458' datel Wrote:

Hey ResArb,

Importantly, Gaylen Byker informed PNG Industry News that “The Gaffney, Cline and Associates estimates are sufficient to underpin two LNG trains”, insinuating that the GCA certified resource could be in excess of 9Tcf (4.6 Tcf of which will be used for train 3 of PNG LNG).

Partly true and the' two-train' is not a revealation by Byker.  Phil clarified this point in last Nov. CC.  The two trains he referred to in Nov. were Gulf LNG trains.

GC #s of 6.6T would produce 138 Mt LNG.

That volume could supply two 4.6 Mtpa trains for 15 yrs.  More gas needed for 20-30 yr. PNG LNG trains and will be located with further drilling in PRL15.

Tree, my understanding is that the year-end 2012 GCA resource estimate was significantly increased subsequent to Antelope 3.  Byker's recent comments contemplated 4.6 Tcf being devoted to train 1 of PNG LNG, leaving at least 3-4 Tcf for a second train.

'Resourcearb' pid='24461' datel Wrote:

'Tree' pid='24458' datel Wrote:

Hey ResArb,

Importantly, Gaylen Byker informed PNG Industry News that “The Gaffney, Cline and Associates estimates are sufficient to underpin two LNG trains”, insinuating that the GCA certified resource could be in excess of 9Tcf (4.6 Tcf of which will be used for train 3 of PNG LNG).

Partly true and the' two-train' is not a revealation by Byker.  Phil clarified this point in last Nov. CC.  The two trains he referred to in Nov. were Gulf LNG trains.

GC #s of 6.6T would produce 138 Mt LNG.

That volume could supply two 4.6 Mtpa trains for 15 yrs.  More gas needed for 20-30 yr. PNG LNG trains and will be located with further drilling in PRL15.

Tree, my understanding is that the year-end 2012 GCA resource estimate was significantly increased subsequent to Antelope 3.  Byker's recent comments contemplated 4.6 Tcf being devoted to train 1 of PNG LNG, leaving at least 3-4 Tcf for a second train.

Seems like a safe bet that further drilling will yield those 15-16 Ts that Phil stated in CC.

'Spartina' pid='24464' datel Wrote:Phil tried to get Henri over for years, when Henry saw the stem tests and the data from Ant he was compelled to come out of retirement and join IOC . He has seen the data and believes we have much more than 10 t's @ prl15. I believe with Equatorial Guinea they started with only 3 t's estimated at the start of the project if memory serves - there is usually more as you begin development . Triceratops, 40 plus prospects, we have plenty of gas gentlemen no worries there.

If my memory serves me right it was just 1.5T with what Marathon started in Equatorial Guinea..