Lowest Cost Producer = CAPEX + gas cost - condensate sales

[Tree]

Word is IOC is securing bids with guaranteed cost and delivery of LNG plant.

SM's know what it means to be the lowest cost producer of LNG what that means to bottom line.

LNG projects are first sold to OTrs then financed/built with ROI of 12-15% built in.  Condensates included, Gulf LNG with a 12% ROI FOB breaks even ~$.70/MCF LNG sale.

PNG LNG 12% FOB break even is ~about $10/MCF, after cost-blowout.  Same ~$10/MCF for Woodside's Pluto start-up which has dramatic impact on bottom line.  Gorgon is at least ~$12.5/MCF.

2 yrs ago LNG spot prices were $10.3 MCF.  Todays record highs of +$21/MCF.

2 yrs ago LT LNG price was $13.6 MCF.  Safe to conclude todays LT LNG prices are higher.

(and that's with a $90 bbl oil price)

IOC is selling a big-azz resource and stake in up, mid and downstream.  Mitsui valued CSP and LNG stake at about $2.3/MCF, when LNG prices were substantially lower and before T-2.

Ya think $/M logically went up from Mitsui valuation or not??

Toot Toot Toot

[maui4marko]

tree, you're such a pumper.  According to your numbers, I'll need to upgrade the Maui pad from Wailea to Makena.

It would appear The Waiting is over and deal time is now.

Newer, bigger Chart cold boxes are being planned for the new Makena pad as we speak.

[jft310]

IOC has wet NG!!Think Qatar type costs which also has wet NG.

Many persons computing valuations ignore the condensates. WHY?? Can't have dry NG without condensate production.

Talk of 24,000 barrels a day in condensate production. PRE valued that at $30 per barrel.Thats $720,000 a day in revenue at just $30 a barrel.

If the production were only 250 days a year that generates $180 million per year to IOC at $30 .

IOC's condensates are almost pure gasoline and would sell at retail at $5 less than crude. The PRE price is a wholesale  price.

What happens with condensates and IOC's refinery??. IOC currently buys feedstock for its refinery. IOC sells 24,000 barrels a day of refined

products.

What type deal is being structured for the condensates??

[Spartina]

yes JFT and let us not forget the ratio of the condensates at the bottom of Tri.

[Tree]

IOC's cost to produce 1/Mcf of LNG and load it on a carrier UNDER a BUCK ($.83/Mcf)!

MacQ Research - 2011:

They note dry gas is key for low project cost, IOC's dry gas cost is negative -.84/Mcf after condensates are harvested.

IOC's condensate production is worth at least $1.54/Mcf. per MacQ.  Got that everybody??

Moving toward the front of the LNG development queue.  The capital costs of Interoil‟s LNG development rank the lowest of all currently proposed or under-construction projects on both an absolute and per-unit basis. The lower cost structure makes the project price competitive and we expect it will allow early market penetration. Break-even gas price Our development model shows that InterOil would require a natural gas price of US$(0.84)/mmcf for the initial 2 mtpa project to return a 15% IRR. The negative price is due to the revenue generated by stripping liquids. Liquid Niugini Gas has estimated that excluding this subsidy, the project would still only require a US$0.70/mmcf FOB natural gas price to generate a 12% IRR. Gulf LNG gas price Gulf LNG Natural Gas price of US $.12/mmcf, with condensate subsidy, for a 12% IRR.  PNG LNG $7+/mmcf Liquids revenue enhancement. The proposed condensate stripping facility also allows for the extraction of high value condensate. We estimate that the stripping of liquids significantly enhances economics of this project. Given the already low cost structure, the liquids return actually makes the break-even gas price negative. CSP operating cost. We expect operating costs for the CSP will approximate US$14/bbl. In order to generate a 12% IRR, we expect the CSP will charge the upstream operators US$32.50/bbl. Should Mitsui elect not to swap their interest in the CSP project for a 2.5% interest in the Elk and Antelope Field, we understand that this charge could rise above US$50/bbl.

Let's IOC's $ LNG/M cost.  All figures per M:

CAPEX  + OPEX   + DRY GAS COST   =  $/M produced LNG

$1.24      +    $.43    +      ( -$.84)                  =   $.83/Mcf

$.83/Mcf is close enough to the 3 yr. old charts showing Gulf LNG break-even FOB of $.7/Mcf (which was based solely on 2 Mtpa EWC start-up)

Moving toward the front of the LNG development queue. 

The capital costs of Interoil‟s LNG development rank the lowest of all currently proposed or under-construction projects on both an absolute and per-unit basis. The lower cost structure makes the project price competitive and we expect it will allow early market penetration.

Break-even gas price

Our development model shows that InterOil would require a natural gas price of

US$(0.84)/mmcf for the initial 2 mtpa project to return a 15% IRR. The negative price is due

to the revenue generated by stripping liquids. Liquid Niugini Gas has estimated that

excluding this subsidy, the project would still only require a US$0.70/mmcf FOB natural gas

price to generate a 12% IRR.

Gulf LNG gas price

Gulf LNG Natural Gas price of US $.12/mmcf, with condensate subsidy, for a 12% IRR.  PNG LNG $7+/mmcf

Liquids revenue enhancement.

The proposed condensate stripping facility also allows for the extraction of high value condensate. We estimate that the stripping of liquids significantly enhances economics of this project. Given the already low cost structure, the liquids return actually makes the break-even gas price negative.

CSP operating cost.

We expect operating costs for the CSP will approximate US$14/bbl. In order to generate a 12% IRR, we expect the CSP will charge the upstream operators US$32.50/bbl. Should Mitsui elect not to swap their interest in the CSP project for a 2.5% interest in the Elk and Antelope Field, we understand that this charge could rise above US$50/bbl.

[jft310]

Tree- Does this explain why IOC has strong interest from Chevron and Total with Exxon needing IOC's costs to lower its own high cost project.Great to be IOC and selling a % of their project now or what? Oh where are prices of LNG in the spot market??? Above $21 all time high. Waiting has been the smart thing.to do. To those buying IOC long calls and betting with large options bets if you lost money who told you to buy long calls??? Not IOC the company. When asked the company stated buy common and wait. When asked I tell persons to give the stock to the grandkids. May be Chevron,Total ,Shell or Exxon stock but who cares. Let the kids sell some at their tax rate for college.

Put more on ice and wait.

[Tree]

Well JFT,
Since Gulf LNG CAPEX + OPEX is $1.67/Mcf and stripping revenues are uber-conservatively $1.54/Mcf kinda looks to me like Gulf LNG facilities are basically free from Condensate sales to IOC's own refinery. Didn't a greedy CEO say that puts an extra billion on IOC's bottom line annually??

[TxPm]

Tree, thank you for reporting that report, it's been a while since I read it. One of the best parts about that repot is that it was written by our investment bank representing us to all the Asian buyers. I can only imagine our IB's going back to the bidders and saying "remember this model are you sure that's your highest bid"

[Tree]

Well JFT, Since Gulf LNG CAPEX + OPEX is $1.67/Mcf and stripping revenues are uber-conservatively $1.54/Mcf kinda looks to me like Gulf LNG facilities are basically free from Condensate sales to IOC's own refinery. Didn't a greedy CEO say that puts an extra billion on IOC's bottom line annually??

Looks like dry-gas shale fed LNG projects don't get 'free' LNG plants subsidised by condensates sales.

**********

Origin Energy's Australia Pacific LNG project in $2bn blowout

• BY:MATT CHAMBERS
• From:The Australian
• February 21, 2013 10:26AM

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ORIGIN Energy's Australia Pacific LNG project at Gladstone is the latest Australian mega-project to experience a cost blowout, with estimated development spending jumping almost $2 billion.

Origin, which today also said it was slashing 850 jobs this financial year to cut costs, said a review had increased capital cost estimates of the giant project to $24.7bn, up from $23bn announced when a second stage was approved last June.