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Interoil Corp Earnings Q3 2014 Earnings Call Teleconference IOC

2014-11-14 13:58:09.693 GMT

Event Date: 11/14/2014

Company Name: Interoil Corp

Event Description:Q3 2014 Earnings Call

Source: Interoil Corp

For more event information and transcripts,

                             Q3 2014 Earnings Call

MANAGEMENT DISCUSSION SECTION

  Operator:

  Ladies and gentlemen, thank you for standing by, and welcome to the InterOil

  Third Quarter Earnings Conference Call. At this time, all participants are in

  a listen-only mode. Later, we will conduct a question-and-answer session, and

  instructions will be given at that time. [Operator Instructions] As a

  reminder, today's conference is being recorded.

  I would now like to turn the conference over to our first speaker, Senior

  Vice President of Investor Relations, Mr. Michael Lynn. Please go ahead, sir.

  Michael Lynn:

  Thank you, and hello, everyone. Yes, this is Mike Lynn. SVP of Investor

  Relations at InterOil Corporation. Before we start, I want to briefly remind

  everyone that some of the statements made on this conference call constitute

  forward-looking statements within the meaning of the U.S. securities laws,

  including such statements as those regarding expectations of future results,

  general financial performance, future business prospects and strategies.

  These statements are based on management's current expectations and are

  subject to a number of risks and uncertainties, which could cause actual

  results to differ materially from those described in the forward-looking

  statements.

  Investors are cautioned not to place undue reliance on these statements.

  Additional information about factors that could cause our results to differ

  materially from those in the forward-looking statements can be found in the

  company's filings with the U.S. Securities and Exchange Commission and SEDAR.

  Our speakers on the call today are the Chief Executive, Dr. Michael Hession;

  Senior Vice President of Exploration, Laurie Brown; and Chief Financial

  Officer, Don Spector. We have a presentation to accompany our comments today.

  The presentation can be accessed on our website at www.interoil.com. You can

  find the link on the Home Page. At this time, I'd like to turn the call over

  to Dr. Hession.

  Michael Hession:

  Thanks, Michael, and hello, everyone. Thank you all for dialing in to our

  third quarter call today. It's been a solid and productive quarter for

  InterOil. Now, let me start by saying our strategy is simple. We find gas,

  develop and monetize gas, and find more gas. Then we repeat this process

  again and again. It's all about adding value and that's what we've done this

  quarter. Execution of this simple, repeatable strategy positions us well to

  deliver more value to shareholders in 2015 and beyond.

  So, let's begin on slide 4 with a quick overview of the InterOil story. We

  have first-class assets. We are well funded. We have a first-grade team, and

  we are focused and disciplined in the pursuit of value, all of which are key

  ingredients for success. On top of that, Papua New Guinea has an abundant gas

  resource and sits in the belly of the world's biggest gas market.

  And InterOil has a commanding acreage position in one of the world's most

  exciting emerging exploration provinces. With those attributes in mind,

  today's presentation focuses on the development of the Elk-Antelope LNG

  project and our exploration campaign. Our [ph] measure (03:51) today is that

  we are closing our Q3 in a solid financial and operational position and we

  are well placed to execute our strategy and deliver value. In doing so, our

  focus is on running our business well in a disciplined fashion and delivering

  value.

  So, let's now turn to Elk-Antelope. If we go to slide 6, you will see we

  continue to operate Elk-Antelope and we are well under way to developing the

  resource. Elk-Antelope is the largest undeveloped gas field in PNG and one of

  the largest gas discoveries in Asia in the past 20 years. We believe this

  field will supply a multi-train LNG project.

  More importantly, Elk-Antelope is one field, with easy river access,

  manageable terrain, and closer to Port Moresby than any other developed gas

  field in Papua New Guinea. These key features support the economics that

  Elk-Antelope could be one of the lowest cost and most profitable LNG project

  in the Asia Pacific region. We will come back to that later.

  The final phase of appraisal of Elk-Antelope began with the spudding of

  Antelope-4 in September this year. Antelope-5 is expected to spud this

  quarter. And very importantly, there are now 500 people working on the

  development of Elk-Antelope, concept select [indiscernible] (05:33) are well

  advanced.

  In addition, onshore and offshore survey work is planned to commence before

  the end of this year. We are all very positive about Elk-Antelope, and we

  have a strong joint venture partner to move this project forward.

  Now, if we go to slide 7. On slide 7, we can see that Papua New Guinea's

  first LNG project, PNG LNG, has been a great achievement. It is credit to the

  Exxon joint venture and is widely recognized as one of the lowest cost

  greenfield LNG project in the world.

  The partners for this project have aggregated several fields and built

  facilities in some of the most rugged terrain on earth. It has been truly

  magnificent for the LNG industry and for Papua New Guinea.

  Now this project has helped de-risk a project like Elk-Antelope. A project

  that consists of only one field in relatively gentle countries and serviced

  by a major river. And as I've said before, we are [indiscernible] (06:52). In

  addition, PNG has attractive physical terms and a competitive labor market.

  They have a stable government and strong leadership of that government.

  All of these factors could provide huge cost benefits to our project and

  build on the PNG LNG foundation that has made Papua New Guinea among the most

  competitive LNG producers in the world.

  We turn to slide 8. On slide 8, the value proposition of a new Papua New

  Guinea LNG project is clear, especially when measured against other LNG

  projects in Australasia. This analysis shows the natural advantage of

  Elk-Antelope. It could make a two-train development of very attractive LNG

  project.

  In essence, we have to develop only one field and as I said before, we are on

  the belly of the world's largest gas market.

  So putting this into context, this project is forecast to be low-cost build

  and with a low breakeven price. Therefore, it could be one of the highest, if

  not the highest value-returning LNG project in this Asia-Pacific region. Our

  opportunity and the opportunity for Papua New Guinea is to make the most of

  these metrics in developing Elk-Antelope efficiently and effectively. This is

  clearly a good position from which to start, particularly when we stack up

  against our major LNG competitors.

  Now, let's have a look at our appraisal wells, and we go to slide 9. We have

  Antelope-4 which, as you know, was spudded in September and is on the

  southern flank of the Elk-Antelope field. Appraisal wells better define

  volumes and help us to better understand the geology and structure. That will

  also help with [indiscernible] (09:09) scope, size and plan the LNG project.

  And very importantly, it is a critical step for InterOil because it

  determines our certification payment under our deal with Total.

  From a cash perspective, Total caries 75% of InterOil's cost on this well,

  which means that we will contribute just under $5 million on the first $50

  million of gross cost. Appraisal of Antelope-4 is progressing and we're on

  track for certification in the second half of next year. We will you with the

  material used as soon as we have any.

  We can go to slide 10. Slide 10 is about Antelope-5. The other appraisal well

  in PRL 15. This will test the field's [ph] western plank (10:13), and again

  will tell us about the field's size, [ph] broad (10:17) property and

  structure. You could see from this slide that the preliminary rig structure

  is ready. We anticipate drilling Antelope-5 when the full rig has mobilized

  [indiscernible] (10:22). Now, these appraisal wells, in addition to new

  seismic that we have acquired over the southern portion of Elk-Antelope, will

  allow us to update our resource modeling in preparation for field

  development.

  I would like now to turn toTriceratops. On slide 11, you'll notice that

  Triceratops-3 is a step-out from the discovery and appraisal wells in PRL 39.

  We expect this [ph] progressive appraisal (10:53) well in 2015, with

  [indiscernible] (11:04) determining whether our additional volumes beyond the

  sub-area identified by Triceratops-1 and Triceratops-2.

  If so, Triceratops provides another opportunity for development as either a

  stand-alone project or as a tieback to Elk-Antelope. I think it's important

  to understand it's good to have optionality.

  So, if you can turn to slide 12 and here I'd like to talk about performance

  improvement. Before I hand over to Laurie Brown, I will take you through

  slide 12 and let you understand the key focus area.

  Let me start by giving you a sense of how the company is running because as I

  keep mentioning, we have a great team along with great assets and strong

  financing. InterOil has changed from a company that was looking for the best

  talent to a company where now the best talent is looking to InterOil. This is

  a very important change, and it reflects the team's hard work and the

  transformation over the past year.

  From my first day as CEO, we've worked to create a first-rate team to match

  our first-class asset and to build InterOil into a company that the best

  people want to work for. This mindset of constant improvement flow through

  everything we do every day. We strive to make every aspect of our work more

  efficient and more effective.

  We are improving all parts of our operation by using world-class contractors,

  strengthening our supply chain and improving our procurement procedures. So,

  this work is all about optimizing our performance, and we expect to see a

  continued market improvement next year.

  So, with that, I will now hand over to Laurie to update us on exploration,

  and he'll be followed by Don Spector, our CFO, who will go through our

  finances. Laurie?

  Laurie Brown:

  Thank you, Michael, and hello, everyone. To frame my talk today, I'll run

  through three aspects. First is our exploration position. Second is an update

  on our exploration wells Bobcat, Raptor and Wahoo. And third is the rollout

  of our exploration strategy which we have started.

  So let's turn to slide 14. This is zoom out of the Eastern Papuan Basin, and

  this puts our entire acreage position into context. After 11 years of

  exploration, we now have a commanding position over the basin, 16,000 square

  kilometers or 4 million acres that includes six licenses. We have two

  petroleum retention leases, PRL39, which housed the 2005 Triceratops

  discovery in the extreme northwest, and PRL15, which is in the heart of our

  acreage and includes the Elk-Antelope LNG developments, as well as the

  exciting Antelope Deep exploration target.

  Outside of those PRLs, which constitute less than 10% of our total area, we

  offer a full PPLs, or Petroleum Prospecting Licenses, and hold material

  equity in each of those of not less than 65%. Putting that into context and

  depending on where you are, our acreage is about 22 times the size of

  Singapore, 13 times the size of New York State or twice that of [ph] Greater

  London (14:52).

  The point of this is that we have a very large acreage position dominating

  the onshore high-graded portion of the Eastern Papuan Basin, most of which is

  being barely explored. To allow us to explore and do it thoroughly, we've

  secured [ph] tenure (15:08) over our exploration acreage for the next six

  years with an option to extend that for a further five. That's up to 11 years

  in total.

  The company's strategy is simple. As Michael said, it's about finding gas,

  developing and monetizing gas, and finding more gas. And it's this latter

  [ph] cause (15:30) in which I now wish to concentrate.

  So, turning to page 15. Our exploration and exploitation activity has two

  core drivers. One is centered on delivering additional near-field tie back

  potential to the Elk-Antelope project. And the second is focused on

  delivering possible stand-alone development projects outside of that area.

  On the first theme, Triceratops, Bobcat, Raptor and Antelope-Deep annotated

  on the slide, all fall within the range where tie back to Elk-Antelope could

  materially build scale for that project. For illustrative purposes, a

  45-kilometer tie back radius around Elk-Antelope is shown on the slide.

  Clearly, the incremental value associated with tying back nearby discoveries,

  groomed into an ongoing project is much more attractive than that for a

  stand-alone project.

  And this is the principal reason behind this approach. To that end,

  successful results in the next year or so from Triceratops appraisal and the

  Bobcat, Raptor and Antelope-Deep exploration wells are significant to

  InterOil's LNG project. The key, as Michael as mentioned is optionality.

  Triceratops-3 is in the drilling sequence [indiscernible] (16:55) appraisal

  in 2015. It's a stack up well beyond the current [indiscernible] (17:05)

  within the field, which to date has been independently evaluated by GLJ.

  Therefore, it has the potential to materially upgrade the current resource

  assessment for that field.

  Antelope-Deep within PRL15 is a large scale, high impact, low risk

  exploration target that's strongly supported by the Elk-Antelope joint

  venture. It continues the trend from Triceratops through Bobcat, Elk and

  Antelope on which InterOil has successfully drilled three discoveries.

  Subject to joint venture approval, Antelope-Deep will be part of the drilling

  sequence for 2015. And may I remind you, InterOil will be carried by Total

  for 75% of the first $60 million (sic) [$50 million] (17:48) gross of that

  well. I'll give you an update on Bobcat and Raptor separately later.

  Let's now turn to the second theme of delivering potential stand-alone

  developments. Wahoo, lying equidistant between Elk-Antelope and Port Moresby

  is a standout candidate, but I'll talk more about that later.

  Both of these drivers, near-field tieback and stand-alone developments

  provide the basis for InterOil's long-term strategy of generating and

  monetizing additional PRLs. And that is to find gas, monetize gas, find gas

  again, and repeat. That is creating what we term a PRL factory.

  This provides the mechanism to help underpin and fund delivery of continuous

  long-term exploration and appraisal drilling, which may I remind you, is the

  single largest value-add phase in the entire E&P cycle.

  I'd now like to take you through a brief update of our exploration

  operations, starting with Raptor on slide 16. We have taken some considerable

  effort for us to reach reservoir in this, the deepest test to-date on the

  Kapau limestone. It's also the first test of the most southern of three

  mechanized trends around Elk-Antelope.

  The well was initially located on a strongly dipping, elongated thrust

  [indiscernible] (19:25) to the north of which existed surface seepage of oil.

  And this was influential in our decision to choose Raptor. Further

  endorsement of liquids in a system in a regional context came from a

  particular well, Puri-1, drilled 8.5 kilometers northwest of Raptor in 1959.

  Puri-1 flowed 1,610 barrels of oil a day albeit for short period. The point

  of this, however, is that the combination of local seepage supported by

  nearby Puri-1 well that was drilled more than 50 years ago supported the

  presence of liquid hydrocarbons in this part of the Eastern Papuan Basin.

  Therefore, we were always aware of the potential for liquids in drilling

  Raptor.

  Without getting ahead of ourselves, the possible presence of substantial

  liquids offers game-changing potential and could accelerate monetization

  relative to gas. Raptor-1 flared gas and condensate during the initial open

  hole test. This was conducted over a 330-meter total interval and turning

  about 200 meters of Kapau limestone. Consequently, today, we have notified

  the Department of Petroleum and Energy of the Raptor-1 discovery. With the

  indications and the information that we now have, we are now planning to

  appraise the accumulation to additional seismic, followed by appraisal

  drilling and comprehensive long-term testing. We will move the Raptor-1

  drilling rig to the Antelope-5 appraisal site while we finalize those

  appraisal funds and the intention of returning to Raptor in 2015.

  Next, we turn to Bobcat in PPL476 on slide 17. Bobcat lies on trend with our

  Triceratops, Elk and Antelope discoveries, which, on the basis of simple

  mineralogy is a good address. As we announced on October 21, we've got

  through the ore body and we're getting ready to drill to the Kapau limestone.

  Well, to-date, we have drilled to a final total depth of 3,208 meters which

  includes some 320 meters of Kapau limestone and we are logging the well

  currently to determine the presence of hydrocarbons.

  Now, let's turn to Wahoo-1 on slide 18. As you will recall, we suspended

  Wahoo-1 in July following significant safety concerns over the high pressures

  in the well as well as gas influx. We continue a detailed review so we may

  return as certainly and as quickly as possible to reach reservoir target. All

  options are on the table including appropriate well engineering to handle

  these high pressures. We're reviewing the complete well design including mud

  weights and mud types.

  We intend to resume drilling in 2015, noting that we still have a rig on site

  ready to go. Timing is driven principally by safety and practically by the

  procurement of long-term - long lead items such as suitable wellhead for the

  job and where it sits in the drilling sequence. Having definitively

  established the presence of the ore body and proximity to the thermogenic

  [ph] picture (23:02), we believe that the fairway which has delivered [ph]

  and suppressed (23:06) in the north appears to extend all the way from

  Triceratops in the northwest, down to the acreage to Wahoo in the southeast.

  Although Wahoo is a considerable distance from Elk-Antelope, note that it is

  close to the coast in the existing pipelines. Again, optionality is a key.

  And finally, turning to slide 19. On our previous quarterly, I emphasized the

  importance of gravity surveying and seismic acquisition in the Eastern Papuan

  Basin as significant pre-drill exploration risk reduction tools. With that in

  mind, we're pleased to be starting the largest seismic exploration campaign

  ever undertaken in this basin.

  Along with the 465-kilometer Murua 2D seismic campaign, which we have

  started, we intend to blanket our acreage with high-resolution Airborne

  Gravity Gradiometry, thus covering the 40 potential targets we have

  identified. This will ensure we will be well placed to mature all of our

  targets in our inventory.

  Our objective of this extensive data collection surveying is to deliver a

  fully-risked and ranked high-graded prospect inventory across the entire

  acreage within the next 18 months. And I look forward to keeping you all

  updated with our developments.

  With that, I hand you over to Don.

  Donald Spector:

  Okay. Thank you, Laurie, and welcome to everyone listening to today's

  presentation. If we start with our financials on slide 21, the company made a

  net loss after tax for the quarter of $16.9 million. The loss was due to the

  expensing of costs associated with seismic activities, our financing

  facility, and other corporate commitments and overheads.

  For the nine months ended 30th September, the company returned the net profit

  after tax of $353.9 million, which includes the profit on the sale of the

  interest in PRL15 to Total, and the profit on the sale of the refinery and

  downstream operations to Puma Energy.

  And turning to slide 22, let's take a look at our current liquidity position.

  We started the third quarter with funding capacity of $885 million,

  consisting of $585 million of cash and the Credit Suisse-led facility of $300

  million which was fully undrawn. And expenditure during the quarter consisted

  of $41.7 million for the share buyback; $56 million for our share of the

  drilling cost of Raptor, Bobcat and Wahoo; and $33 million of other costs

  associated with seismic activities, the purchase of inventory, Antelope-4 and

  Antelope-5 costs, and our corporate-related expenditure.

  Now, on slide 23, we have set out our share of the year-to-date spend for the

  three exploration wells. At the start of the third quarter, the accumulated

  spend across the three wells was $95 million. During the third quarter, our

  share of costs for the three wells was $56 million, leaving accumulative

  year-to-date spend of $151 million. Now, to be clear, that is $63 million for

  Raptor, $34 million for Wahoo, and $54 million for Bobcat.

  If I can return to slide 22, at the end of the third quarter, the company had

  $754 million of funding capacity, consisting of $454 million of cash and

  receivables and the Credit Suisse-led facility of $300 million remaining

  fully undrawn. As we look forward, with Raptor and Bobcat nearing completion,

  we are now moving into a phase where our drilling costs and, in particular,

  all the Antelope wells in PRL15 will be substantially carried by Total. For

  the appraisal wells, the company will pay only $4.6 million of the first $50

  million per well. But we pay our equity share above the $50 million. For the

  PRL15 exploration well, the company will pay only $5.6 million of the first

  $60 million spent. Again, above the $60 million, we'll pay our equity share.

  The company is also expecting to receive the first certification payment from

  Total during the second half of 2015. [ph] It's worth (28:15) quickly,

  revisiting the Total deal and in particular, the payment we expect to receive

  next year. The deal [indiscernible] (28:23) was set out on slide 24.

  Now, the number to focus on here is in the blue bar. On a base volume of 7.1

  Tcfe, the payment from Total next year will be $594 million. For every Tcfe

  above that, an additional $400 million will be received. So, if the volume is

  9 Tcfe, the payment will be $1.35 billion. If the volume reaches the GLJ high

  case of 11.8 Tcfe, the payment gets up to nearly $2.5 billion. And the

  appraisal wells on Antelope will ultimately determine what this number will

  be.

  Now, we also need to remember that we have the potential for a second

  certification payment, which we can call at any time between the first

  certification event and the production of 25% of Antelope field. If the

  volume goes up during this period, the company will receive an extra $400

  million for every Tcfe that volume increases.

  To close my part of the presentation, we could summarize where we are finally

  today. One, the company has $754 million of funding capacity at its disposal.

  Two, we have now entered a period where the majority of our drilling cost for

  the Antelope wells are being carried by Total. And three, we expect to

  receive the first certification payment from Total during the second half of

  2015. Our balance sheet is in pretty good shape as we work our way through

  the current drilling program.

  So, on that note, I'll hand you back to Michael.

  Michael Hession:

  Thank you, Don. With that, I'll turn over to the operator to take your

  questions.

Q&A

  Operator:

  Of course. [Operator Instructions] And our first question today comes from

  the line of Evan Calio with Morgan Stanley. Please go ahead.

  <Q - Evan Calio>: Good morning or good evening, guys. Congratulations on 1

  Raptor. I mean, that's the first discovery under new leadership, and I

  appreciate your comments. My first question relates to what information you

  can share with us to help investors ascertain reservoir quality whether it's

  log results, flow rates, area under closure potentially from seismic and/or

  potential resource or even composition of that resource albeit at an earlier

  stage.

  <A>: Well, Evan, that's an excellent question. And it's where you finished.

  It's early days. It really is early days with respect to Raptor. We are

  pleased that we have tested and we flared gas and condensate. But to be

  clear, the testing is continuing, and we've yet to establish a stabilized

  flow rate. And we are at a point now where we're happy to notify the [ph] DP

  (31:51) in Papua New Guinea of the discovery. And we're happy to start

  planning the appraisal process to fully appraise this Raptor accumulation.

  That's probably all we can say at the moment. But let's complete that thing,

  and we'll put a plan together to appraise this discovery. But as I've said

  before, it's good news, but it's very early days.

  <Q - Evan Calio>: Maybe just help us understand that this loader strategy

  regarding exploration and appraisal, I mean how do we - how should we expect

  to get this closure? For instance as it relates to the Total payment, and the

  Antelope appraisal wells. What are we going to get when you get results for

  each well? And I mean, I raised in the context that many - most SMID or large

  cap peers would give pre-drill P50. You have a lot of that information to

  help assess, help investors assess the potential of at least on the

  exploration side. I mean, what should we expect going forward or how are we

  thinking the information that would help dimension this discovery and/or

  assess appraisal on wells as they come in?

  <A>: Well, first of all, Evan, if we have something material to disclose, we

  will disclose it. Now, in terms of looking for P50 potential sizes of

  exploration prospects, that's not something that we're in a position to do

  for a number of reasons. Well, first of all, we're in Papua New Guinea. And

  it's onshore seismic and it can be very difficult to actually lock down the

  potential size of [ph] prospect Seadrill (33:33). And it will take quite a

  bit of an interpretation in seismic, in fact, first of all choosing the

  seismic, interpretation of seismic and the drilling of appraisal wells before

  you can understand what you've got. So what we've generally done is we've

  told people it's multi-Tcf prospect, and that's realistically as much as we

  can do in this space.

  <Q - Evan Calio>: Okay. All right. I should put in context Pacific Rubiales,

  for instance, last night at their conference publicly opined that they had

  trapped, there was a 10-Tcf discovery now. I appreciate that there's one

  penetration and limited amount of data. It's just kind of within that

  context, it's hard to kind of quantify how potential that could be and I

  mean, even Exxon in their conference call.

  And the third quarter was - it appeared more open into sourcing third party

  cash out of, third party activities, of which we could limit that group

  pretty tightly for sourcing and [ph] training (34:44) in PNG. So, I guess a

  little bit of ramble. But I mean, any - what is your thoughts to your

  partner's statements?

  <A>: Well, I think you've said it. It's one penetration on a limited data

  set. What we're going to have to do is we're going to have to go back, shoot

  for the seismic and drill more appraisal wells.

  You can't say that you've got 10 Tcf on the basis of one well. We are not

  prepared to say that. So, I'll go back to my opening statement. We see these

  prospects. We're drilling this potentially multi Tcf. And what we want to do

  is, as we go through, we'll work through, and when we have something material

  or we have some real understanding of the size of what we've got, we will

  disclose it to the market at the appropriate time.

  <Q - Evan Calio>: I mean - and do you think that would, at least, for Raptor,

  is that then subject to the completion of the appraisal process before you

  anticipate having an ability to mention that to the market? Is that what we

  should expect?

  <A>: Well, I think as Laurie said, we intend to go back next year. So,

  there's a bit of planning to do first. We've got to look at all the data

  we've got. We're gathering data virtually now. We need to plan and inquire,

  and interpret more seismic. From that, we'll select appraisal locations and

  then we'll drill that appraisal campaign. And I fully imagine that we'll be

  going through a comprehensive long-term testing program.

  Once we got through that, then we'll really start to understand what the size

  of this prospect - actually, what the size of this discovery is. But I'll

  take you back to when we're pleased to have brought in hydrocarbon surface,

  but there's more work to do.

  <Q - Evan Calio>: Okay. Well, it's all really good news, guys, so I

  appreciate the update.

  <A>: Thank you very much, Evan.

  Operator:

  And we do have a question from the line of Neil Beveridge with Bernstein.

  Please go ahead.

  <Q - Neil Beveridge>: ...gentlemen, for the presentation, just two quick

  questions. First of all, you mentioned the Puri-1 Well, which is close to the

  Raptor Discovery, which flowed for a relatively short duration. Is there any

  read across from the performance of that well to what we could expect to see

  from Raptor?

  The second question is around Bobcat. Obviously, you're logging at the

  moment. Just curious if you've seen any gas returns with the drilling to-date

  that would suggest that we're likely to see hydrocarbons in that well also.

  Thank you.

  <A - Laurie Brown>: I'll answer that [indiscernible] (37:36)...

  <A>: Yeah. I think Laurie, he wouldn't mind answering that.

  <A - Laurie Brown>: Puri-1 and its relevance to Raptor is totally different

  positions, totally different targets are quite independent in that regard. I

  wouldn't read anything into the performance of a 1959 well drilled fairly

  shallow compared to one that's drilled deep somewhat offset with different

  pressure systems, so no relevance, I would say.

  The main thing is both have liquids present. That was the whole point of that

  is that there's a kitchen in the area, which is supplying not just gas, but

  liquids.

  As to your Bobcat question, we are looking at the moment, and I'm going to

  reserve any judgments until I see the results of those logs.

  <Q - Neil Beveridge>: Thanks very much, Laurie. And just one quick follow on,

  if I may, just on Wahoo, you mentioned that you plan to re-drill this

  prospect in 2015. At this stage, will you be able to use the existing well

  bore, and will this well have to be drilled from surface again?

  <A>: Our options are on the table, Neil, using that existing well bore with

  that existing rig is one of those options.

  <Q - Neil Beveridge>: Okay. Thank you.

  <A>: Thanks, Neil.

  Operator:

  And we do have a question from the line of Ed Westlake with Credit Suisse.

  Please go ahead.

  <Q - Edward Westlake>: Yes, a whole host of questions, but firstly just

  congratulations on Raptor discovery. Just on Antelope, what do you think is

  it four or five which is going to be the main determinant of the resource

  uncertainty. I believe in the past, you've said that it was the Western test

  that might be the step out. I just want some color there to confirm if that's

  the case.

  <A>: Ed, an excellent question. With these appraisal wells, I mean, it seems

  I tell you that four tend to be more significant. You always guarantee that

  five will end up being more significant.

  <Q - Edward Westlake>: Right.

  <A>: So, we're drilling them both for very good reasons. We see them both as

  high-impact appraisal wells on the positive side. And I think we better - to

  quote Laurie, just reserve judgment on what they bring in when they bring it

  in.

  <Q - Edward Westlake>: Right. And then on the comments about [indiscernible]

  (40:05) and oil flows and have to take completely different reservoir,

  different setting, it raises some concerns about things like retrogrades,

  condensates in the sense of, yes, you get some liquids but they obviously

  drop out perhaps over time. Are there any concerns about that in the Raptor

  discovery or, again, too early to say?

  <A>: I mean, I think what we - and Laurie has talked about this, we're

  pleased that there are liquids in the region. There's obviously a source and

  a kitchen at Laurie's desk pumping out liquids. What we need to understand is

  how these liquids are going to Raptor and to what degree they're going to

  Raptor. And there are all sorts of geochemical tests. So it really is early

  days. We don't - we're not even sure at the moment what the condensate ratios

  will be, et cetera, et cetera. So early days.

  <Q - Edward Westlake>: Okay. But still helpful. And then a picture on, I

  guess, financials. You've talked in the past about trying to improve the

  drilling efficiency and obviously lowering the cost per well. Appreciate that

  it's difficult terrain and rocks. But maybe some comments about your thoughts

  on what percentage of efficiency you think you could achieve over the next

  few years?

  <A>: What we've done and if I take you back to where we were a year ago, we

  started drilling three wells with what we all recognize were not necessarily

  ideal rigs. There were legacy rigs, legacy teams. This is a company that was

  used to drilling one well a year and then recently took it to three wells

  simultaneously in a question of months.

  So, there were inefficiencies. What are we going to do? It's really standard

  oil and gas stuff. We'll go out and we'll get more efficient rigs. We're

  actually bringing in new people, more people. We'll also be bringing in and

  applying newer technologies. And most importantly, we'll be learning about

  the performance of these wells. If you think about it, we'll look at more

  systems. We'll look at our supply chain. We'll look at our leasing strategy.

  We'll look at a whole rack of issues, which you can now apply, because we're

  in a cost substantial sequence drilling campaign going forward.

  <Q - Edward Westlake>: And so you, I guess, report back down the road in

  terms of the level of efficiency as you fill these wells over time.

  <A>: Yeah. Yeah. It's a better way to say. We've got some ideas, but I'd like

  to understand properly how these wells have gone and then work through the

  new rigs, the new strategy and new people, and we'll come out and tell you in

  due course about what we think we can achieve. But, obviously, we think we

  can do this cheaper, and we can do at least a lot faster.

  <Q - Edward Westlake>: Thank you.

  Operator:

  And we do have a question from the line of Pavel Molchanov from Raymond

  James. Please go ahead.

  <Q - Pavel Molchanov>: All right. Thanks for taking the question, guys.

  Congrats on the declaration of discovery. Obviously, since the time you

  signed the deal with Total almost a year ago, Brent is down about 25% and the

  price of LNG in Asia is down about 25%. Have you had any discussions with

  your partners about kind of the new environment for liquefaction economics?

  And can you say unequivocally whether Total is still as committed as they

  were before to the project?

  <A>: Well, first of all, thanks for the question, Pavel. Yes is the answer.

  Total are actually committed to this project. I think one of the things is

  you got to use the lowest cost projects are the ones that goes first. Lowest

  cost projects are the ones that are most robust. Now, fortunately, we have a

  low-cost project anyway you look at it in terms of LNG, whether you compare

  it to Asia or you compare it globally. So, this project ranks very well

  globally as you saw from the slide we put up earlier. They have also rank

  well in the Total inventory of possible projects. So, we're absolutely

  confident this is top of the registered projects they want to get after.

  <Q - Pavel Molchanov>: Okay. Let me turn to PRE. Obviously, the market is

  quite interested in what the resource payment will be from Total next year.

  But can you all clarify are you on schedule to receive a resource payment

  from your PRE partners as well? And if so, when?

  <A>: No.

  <A>: We'll deal with that. (45:07)

  <A>: Yes. No, they're certainly not aware of that. The resource payment is

  clearly going to come from Total in the second half of this year. So...

  <A>: 2015?

  <A>: Yes. In 2015. So...

  <Q - Pavel Molchanov>: Right. I guess I'm thinking in relation to

  Triceratops. Is PRE going to pay you anything for their share of Triceratops?

  <A>: We've not closed a deal. The Total deal is the one we're focused on in

  terms of resource payments and in terms of quantum and actuality. So, we're

  not in a situation where we expect any significant payments from PRE with

  respect to Triceratops.

  <Q - Pavel Molchanov>: Okay. All right. I appreciate the clarity on that.

  Thanks, guys.

  Operator:

  And we do have a question from the line of Chris McDougall with Westlake

  Securities. Please go ahead.

  <Q - William McDougall>: Hello, gentlemen, and congratulations on the

  discovery and also on cleaning up the refining and downstream business for

  the drop in oil. It's nice to have to not worry about the mark-to-market cost

  there.

  So, with the focus on the appraisal coming up in the next year, I want to

  understand the range on the low side of the GCA estimates and what the

  management's thoughts are there around where you're thinking as far as what

  we could see there. So just as a narrow question, the GCA P50 at 7.1, what is

  their low case?

  <A>: It's Chris. It means [indiscernible]  (46:52).

  <A>: It's Chris, [indiscernible] (46:53). Hey, Chris. Chris, our auditors are

  GLJ and the GLJ ranges are available.

  <Q - William McDougall>: Okay.

  <A>: And our GLJ range is low side 7.5 and the mid-estimate is 9.9 and the

  high is 11.8. I actually don't think it's appropriate to talk about capital

  decline because they are not our lord at this.

  <Q - William McDougall>: Okay. And so, you have not disclosed those. All

  right. That's fine.

  So, then back on PRL15, Antelope Deep has been discussed and I know in the

  early days, there was some chance that there is a connection between Antelope

  Deep and the main Antelope reservoir. Has there been any kind of additional

  thoughts on the possibility of that connection or are we just going to have

  to drill the well to see?

  <A>: Look, let me start and then I'll hand over to Laurie. Antelope Deep

  remains a very, very exciting prospect for us and it's multi-Tcf as Laurie

  described it before. But to give you a little bit more color about Antelope

  Deep, let me pass over to Laurie.

  <A - Laurie Brown>: Hi, there.

  <Q - William McDougall>: Hi. Laurie.

  <A - Laurie Brown>: In the recent months, we've required a lot of seismic

  over a certain part of Antelope and extending over into Antelope Deep. So,

  that's given as a great deal more of a look into how Antelope Deep works and

  whether it does in fact flow into or not into Elk-Antelope. I am fairly sure

  that Antelope Deep is quite a separate target and not likely to connect to

  Elk-Antelope, which is good. You don't want it connecting to Elk-Antelope

  because it will spill up and that will be the end of Antelope Deep.

  <Q - William McDougall>: Okay. Perfect.

  <A>: And basically it remains an exciting multi-Tcf prospect until we drill

  it. And then we hope it's going to be a very exciting multi-Tcf discovery.

  And excuse me for jumping in that, Laurie. Thank you.

  <Q - William McDougall>: Okay. Great. And then on the Raptor discovery, so

  can you give us any color in total how long you've been plowing that test and

  if there's any kind of volume estimates on kind of cumulative volume of gas

  out of the testing?

  <A>: Well, Chris, it's generally best practice to stop talking about tests

  when you are testing. So what we prefer to do is let this testing program run

  its natural course. And then, and say, if we got material information, we

  will disclose it appropriately.

  <Q - Chris McDougall>: All right, gentlemen. Well, thanks a lot for the color

  and congrats on the discovery.

  <A>: Okay. Thank you very much, Chris.

  Operator:

  And for closing remarks, I turn the conference back over to the CEO, Michael

  Hession. Please go ahead, sir

  Michael Hession:

  Thank you very much. So let me close by thanking you for your attendance and

  for your questions. We've come a long way in relatively short time. The last

  nine months have been very busy and very productive. And let me remind you,

  we have first-class assets, first-class team, and we're well-funded. And as

  always, we remain absolutely focused on the pursuit of value.

  This next year is going to be really exciting, and we remain just as

  determined to deliver for our shareholders and for the people of Papua New

  Guinea. So, I really am looking forward to the next 12 months.

  And with that, I think we'll end the call. Thank you very much for joining

  the call this evening.

  Operator:

  And ladies and gentlemen, that does conclude your conference for today. Thank

  you for your participation and for using the AT&T Executive Teleconference

  Service. You may now disconnect.

This transcript may not be 100 percent accurate and may contain misspellings

and other inaccuracies. This transcript is provided "as is", without express or

implied warranties of any kind.

http://seekingalpha.com/article/2683045-interoils-ioc-ceo-michael-hession-on-q3-2014-results-earnings-call-transcript?part=single

Maybe a better version.

'jft310' pid='52031' datel Wrote:Hession has reasons for his style.

No doubt, jft, but just what are they?  I doubt they are grounded in an ADHD affliction.  What do you think he is up to?  Don't tell me he's hiding data to support ignorant bidding unless you are ready to call IOC a hoax.

(11-15-2014, 11:18 PM)jft310 Wrote: I have stated several times that Hession has reasons for not telling us all . One is to make up for Phil speak $4-5 per mcf talk . Second is a fear that Interoil may be offered a today price that appears robust but doesn't come close to real value . We need to get to the Total payment to be ok for awhile . Phil M summed it up the best time for Interoil to sell out will be right before LNG production starts . Any long term follower of Interoil should understand the above without further detail . But for newbies in order to get this perspective requires a full understanding of the past and an understanding of what Board of Directors are supposed to do . The BOD has a fiduciary duty to fulfill for shareholders . That includes full value in a buyout. Interoil full value can't be determined without years more drilling and sell downs . Thus I don't think Interoil gets sold for years if we can navigate the time period between the Ant 4 and 5 drilling and the Total dollar receipt . That payment is truly transformational . I expect Interoil to receive $3-4 Billion at recertification. As usual use or flush .

I  don't agree with your thesis that hiding good news somehow increases the ultimate value of the company, or that disclosing it makes us more susceptable to a cheap takeover.  To think those who are in this business with people on the ground don't know and understand far more than is publicly released by MOH just doesn't seem rational.  After all, it was Beveridge at Berenstein who told us Raptor was to be a discovery (actually not us, but Berenstein's clients) before the government was notified and publicly announced by MOH.  How did he know if the information was made freely availabe to the right people or clearly evident to knowlegeable people on site.

OK, so that's how this business works today.  The last people to know the facts on the ground are the general investing public.  I just don't see how that benefits share price.

As to MOH giving out almost no information as some antidote to Mulacek's free and open releases?  That doesn't ring very true either if for no other reason than it's a case of water over the dam.