InterOil shares soar as feedstock deal gets closer

Shares were trading at more than US$80 on the New York Stock Exchange after chief executive Michael Hession revealed in an earnings call the company has received “offers from a number of mega-majors, and that leads me to believe that we can do this deal by the end of the year”.

InterOil has for more than five months been negotiating, initially on an exclusive basis, with ExxonMobil and then latterly with Shell and Total on the terms of a major gas sales agreement from its Elk-Antelope field.

InterOil has not confirmed the identities of either Shell or Total — instead their participation in the InterOil talks has been disclosed by sources in Papua New Guinea and Singapore.

ExxonMobil and InterOil had previously agreed on major terms for ExxonMobil to purchase 4.6 trillion cubic feet of Elk-Antelope gas as feedstock for an additional train at the Exxon-Mobil-led PNG LNG project.

However the Canadian company subsequently shifted the goalposts in an effort to secure a larger reward for itself.

Sources said a frontrunner has not emerged, and that it was possible for more than one of the supermajors to consummate a deal.

Hession was ebullient in the earnings call, not only about the progress towards a “transformational” deal, but also about a one-year US$250 million secured syndicated capital expenditure facility to fund a major new exploration and drilling programme.

The participating lenders, led by led by Credit Suisse, are Commonwealth Bank of Australia, ANZ, UBS, Macquarie, BSP, BNP Paribas and Westpac.

Hession said the loan was evidence of the banks’ confidence that InterOil can close the elk- Antelope deal.

Hession, who has been InterOil’s chief executive for just four months, also revealed some of the rewards he expected to achieve from the deal, starting with an up-front large cash payment.

“Very simply, we’re going to get delivered to us a price for the gas,” he said.

“We’re going to get delivered to us a series of payments for the gas.

We’re going to get delivered through a certain equity that we’re going to keep, because that’s going to tell you that we are very interested in keeping a significant equity in this place because we see ourselves as a major LNG player going forward.

“And there’s a number of other criteria that I can’t share with you, but I’ll tell you that it is a very straightforward, simple deal,” Hession added. his appointment was part of an effort to rejuvenate management.

Hession most recently headed up Woodside’s Browse LNG project and had a high-profile role on the Pluto LNG project.

Another big management change was the appointment of ex-Chevron executive Keli Taureka as executive vice president of corporate development and government relations.

Government relations are crucial to the elk-Antelope deal. The PNG government must approve any agreement and, despite the obvious benefits of new LNG developments,there are understood to be government factions that prefer ExxonMobil while others prefer Shell. Hession said: “We’re working together (with the government) on making sure there’s going to be no hiccups under way to delivering from PNG. So I don’t see any issues in this space…but we spend a lot of time making sure there’s no issues in this space.”

The Elk-Antelope fields sit in Block PRL 15 and are understood to contain best case contingent resources of 9.45 trillion cubic feet of wet gas.