XOM + PNG GVT

[Putncalls]

What if you were the PNG GVT and you found out that XOM would pay 7$/MCF (700M$/year) for 2MTPA? Would you exersize your option for 2.3Ts at 2-3$/MCF? I think the XOM pipeline is pretty close to E/A

[Ass0ciatedPress]

Why wouldn't Interoil take the same deal?

[Putncalls]

Why wouldn't Interoil take the same deal?

Interoil wouldn't have enogh left after the goverrment exersized their 27.5% option.

[bertl05]

I think the point assoc is trying to make is that if PNG wants gas for their own internal consumption (fertilizer palnts , electricity ect), take it out of the 22.5%, and if XOM is willing to pay $7, why on earth would IOC give it away at $2-$3 to the PNG govt so that they could turn around and sell it for $7? Thats a silly idea. They leave $5 on the table. I suppose if PNG Govt says its the only way to move forward on Gulf LNG, well thats that, and you go along. But I agree that the idea of getting a $5 haircut on a Govt to Xom sale is highly unusual and would leave a bad taste in many shareholders mouths.

And if Shell is Petromins partner, i think it highly unlikely that Petromin as State nominee on the 22.5% turns around and sells it XOM. That wouldn't happen Im afraid.

[ArtM72]

My guess is immaterial but I believe the primary purpose of the 27.5% is 1) to assure PNG access to the gas for local use; and, presuming other 22.5% fields will be coming in the future 2) sell the gas at substantial markup to XOM (or IOC through a tolling arrangement) and/or 3) help guarantee feestock is available for Petromin's floater.

Time will only tell if this arrangement is extortion or another goodwill gesture by IOC to the host country notwithstanding the difficulties they have caused to date.

[Putncalls]

I wouldn't call this extortion. I would call it sensible business. The law gives the PNG the ability to buy another 27.5% of the NG discovery at "commercial prices". 2-3$/MCF seems to be the in ground price these days. It doesn't make sense for the PNG GVT to buy more NG than they can use for many years. BUT! If they can use that option to create a cash cow they should. IOC can't deliver to XOM after the GVT exersizes it's option but they will still get their SD price in a win-win situation.

[Putncalls]

I think the point assoc is trying to make is that if PNG wants gas for their own internal consumption (fertilizer palnts , electricity ect), take it out of the 22.5%, and if XOM is willing to pay $7, why on earth would IOC give it away at $2-$3 to the PNG govt so that they could turn around and sell it for $7? Thats a silly idea. They leave $5 on the table. I suppose if PNG Govt says its the only way to move forward on Gulf LNG, well thats that, and you go along. But I agree that the idea of getting a $5 haircut on a Govt to Xom sale is highly unusual and would leave a bad taste in many shareholders mouths. And if Shell is Petromins partner, i think it highly unlikely that Petromin as State nominee on the 22.5% turns around and sells it XOM. That wouldn't happen Im afraid.

5$ haircut? Their is the time value of money. I guess we will see the timline on the in-groung purcahse price. If 2.50$/MCf is the price that is 6 billion $. at 775 million from XOM  peer year that is a 7.7 year pay back at  0%.

[admin]

I'll take the $2-3 any day