Press Release- Comments and Questions

[petrengr1]

I am late to the party but let me ramble along here and then you smart folks can correct my misunderstandings and answer my questions.

We have been waiting for the announcement of the sell down of PRL 15 (Elk/Antelope). We have been waiting to find out who they are negotiating with for the sell down.

I tried to get more information and was told the BOD has not authorized the release of any information other than what is in the PR. So what is in the PR?

1. We are in “exclusive” negotiations with Exxon.

My interpretation: Exxon is the winning bidder and is the only bidder remaining in the negotiations.

2. These negotiations include the selling of a portion of PRL 15 (Elk/Antelope) to Exxon. So this IS the announcement we have been waiting for. This IS the sell down process.

Separate from the PR,  Prime Minister O’Neill says Exxon is the Government’s preferred partner.

The Government wanted a Super Major as Operator.  Does this mean, subject to the successful conclusion of the negotiations,  Exxon will be the Operator of PRL 15?  Will they take over and operate IOC rigs or bring in their own?

At this point we don’t need a Plant Operator since we do not have a plant.

An unknown that remains is who will build the Condensate Stripping Plant which will be needed for either sending the gas to the  Exxon Plant or to any future IOC LNG Plant.

[Tree]

I am late to the party but let me ramble along here and then you smart folks can correct my misunderstandings and answer my questions.

We have been waiting for the announcement of the sell down of PRL 15 (Elk/Antelope). We have been waiting to find out who they are negotiating with for the sell down.

I tried to get more information and was told the BOD has not authorized the release of any information other than what is in the PR. So what is in the PR?

1. We are in “exclusive” negotiations with Exxon.

My interpretation: Exxon is the winning bidder and is the only bidder remaining in the negotiations.

2. These negotiations include the selling of a portion of PRL 15 (Elk/Antelope) to Exxon. So this IS the announcement we have been waiting for. This IS the sell down process.

Separate from the PR,  Prime Minister O’Neill says Exxon is the Government’s preferred partner.

The Government wanted a Super Major as Operator.  Does this mean, subject to the successful conclusion of the negotiations,  Exxon will be the Operator of PRL 15?  Will they take over and operate IOC rigs or bring in their own?

At this point we don’t need a Plant Operator since we do not have a plant.

An unknown that remains is who will build the Condensate Stripping Plant which will be needed for either sending the gas to the  Exxon Plant or to any future IOC LNG Plant.

Hey Pet, my take is a bit different. I do not think this is the deal we have been waiting for, this is only the PNG LNG feedstock deal we thought made sense for IOC/XOM to strike.  IOC/XOM are in 'exclusive' negotiations for development of PRL15 as to ensure gas feed supply to PNG LNG.  The 'optionality' phrase implies that XOM/IOC may strike further agreements to develop new LNG opportunities but I don't think that agreement has been settled yet.

XOM is only the winning bidder in PRL 15 development, not Gulf LNG,  to ensure feedstock to PNG LNG.  XOM takes first gas and IOC has right to use the rest on seperate plant with separate partners.  It appears XOM will pay for the PRL development as partial consideration to their SD stake. This deal provides early cash-flow, upstream development and further ppl exploration cash from the staged payments.

The CA's are reportedly intact and, if so, means further SDs and Gulf LNG operatorship deals are yet to be finalized and announced.

This is far from 'the deal' it is only the first deal.  It provides us cash, development and protection by XOM against take-over attempts.  O'Neill preferring XOM over Shell as Operator is likely referred to the Gulf LNG project and XOM could be bidding to join that plant as well.  Sounds like it.  That is where JKM/Pertamina are bidding still also.

The timing and text of this PR announcement could well have been directed by XOM as comments from both IOC/XOM are very similar.  The best is yet to come is how I think this plays out.

InterOil And Pacific LNG Group Enter Into Exclusive Negotiations With ExxonMobil On Development Of The Elk And Antelope Resource PORT MORESBY, Papua New Guinea and HOUSTON, May 24, 2013 /PRNewswire/ -- InterOil Corporation (NYSE:IOC) (POMSoX:IOC) and its joint venture partner, Pacific LNG Group, have entered into exclusive negotiations with ExxonMobil Papua New Guinea Ltd., a subsidiary of ExxonMobil (NYSE:XOM), on the development of Petroleum Retention License 15 (PRL 15), which comprises the Elk and Antelope fields in the Gulf Province of Papua New Guinea.  The transaction has been discussed with the Government of PNG and any future agreement will be subject to their final approval. Items under consideration include: InterOil and Pacific LNG selling ExxonMobil Papua New Guinea Ltd. an interest in PRL 15 that is sufficient to supply gas to develop an additional LNG train at ExxonMobil Papua New Guinea Ltd.'s Konebada site.  There will be staged payments before and after production commences.  Upstream interest and expansion gas supply. InterOil and Pacific LNG will be funded to drill additional delineation wells in the Elk and Antelope fields, which will be followed by recertification of the resource. InterOil and Pacific LNG will have the optionality to either independently develop a second LNG project in the Gulf Province that may also use gas from PRL 15 and potentially other discoveries, such as Triceratops, or pursue further development with ExxonMobil Papua New Guinea Ltd.

InterOil And Pacific LNG Group Enter Into Exclusive Negotiations With ExxonMobil On Development Of The Elk And Antelope Resource

PORT MORESBY, Papua New Guinea and HOUSTON, May 24, 2013 /PRNewswire/ -- InterOil Corporation (NYSE:IOC) (POMSoX:IOC) and its joint venture partner, Pacific LNG Group, have entered into exclusive negotiations with ExxonMobil Papua New Guinea Ltd., a subsidiary of ExxonMobil (NYSE:XOM), on the development of Petroleum Retention License 15 (PRL 15), which comprises the Elk and Antelope fields in the Gulf Province of Papua New Guinea.  The transaction has been discussed with the Government of PNG and any future agreement will be subject to their final approval.

Items under consideration include:

• InterOil and Pacific LNG selling ExxonMobil Papua New Guinea Ltd. an interest in PRL 15 that is sufficient to supply gas to develop an additional LNG train at ExxonMobil Papua New Guinea Ltd.'s Konebada site.  There will be staged payments before and after production commences.  Upstream interest and expansion gas supply.
• InterOil and Pacific LNG will be funded to drill additional delineation wells in the Elk and Antelope fields, which will be followed by recertification of the resource.
• InterOil and Pacific LNG will have the optionality to either independently develop a second LNG project in the Gulf Province that may also use gas from PRL 15 and potentially other discoveries, such as Triceratops, or pursue further development with ExxonMobil Papua New Guinea Ltd.

[petrengr1]

Tree- OK. Thanks for your help.

[Tree]

Tree- OK. Thanks for your help.

CSP may well be Mitsui still and that may be part of an LNG project or XOM/IOC will need to build one if there is no Gulf LNG.  I find it amazing that XOM appears to be working with IOC on IOC's terms as Mitsui, EWC, Flex and SHI had.  I've heard that we could be in the realm of a $buck an M for ~$2.5 billion staged cash plus over $1.5 billion in drilling, pipeine and development work to deliver the gas to the gulf and IOC keeps ~30% stake in PRL15 still.  If true this is a whopper first deal and sets the table for rapid development, additional SDs and multiple PPL drilling.  This will be fun.

[petrengr1]

Tree- If you are correct about this just being about selling gas to Exxon how do you explain the part of the PR that says "selling ExxonMobil Papua New Guinea Ltd. an interest in PRL 15"? That makes it sound like what they have been saying about the sell down of PRL 15. Sounds like they will actually own a part of PRL 15. If they are buying enough of PRL 15 to load a train that could be as much as 50% or 27 1/2% if they are including the Gov't 22.5%. If they are just buying the gas from the PRL 15 owners this looks like very poor wording in the PR. What do you think? Or if it means they (Exxon) will be involved further as part of the sell down process how can they say that without violating the CA?

Appreciate your thoughts.

[Tree]

Tree- If you are correct about this just being about selling gas to Exxon how do you explain the part of the PR that says "selling ExxonMobil Papua New Guinea Ltd. an interest in PRL 15"? That makes it sound like what they have been saying about the sell down of PRL 15. Sounds like they will actually own a part of PRL 15. If they are buying enough of PRL 15 to load a train that could be as much as 50% or 27 1/2% if they are including the Gov't 22.5%. If they are just buying the gas from the PRL 15 owners this looks like very poor wording in the PR. What do you think? Or if it means they (Exxon) will be involved further as part of the sell down process how can they say that without violating the CA? Appreciate your thoughts.

Yes Pet, I didn't make it very clear with my statement above:

It appears XOM will pay for the PRL development as partial consideration to their SD stake

My view is XOM is negotiating 'exclusively' for both a SD stake in the PRL 15 and the essentially a feed stock OT.  That gives XOM upstream ownership in PRL15, likely operatorship or input.  IOC may end with ~30% PRL ownership.  XOM needs 4 Ts at least and that would put their PRL 15 stake ~50%+- depending on how much more they find within the PRL.  I'm quite sure that further SDs of PRL 15 and 237 and the soon to be declared T-2 PRL will  be what feeds the Gulf LNG plant.  Partners in that not yet in 'exclusive' negotiations.

My 2 cents is the XOM/IOC deal 'is done' and much much further advanced than the PR.

It appears XOM will pay for the PRL development as partial consideration to their SD stake

[cybersssss]

Very odd trading today. This seems like nothing but great news with earlier cash flow and monetization of the resource.

My question is why is it necessary for further delineation wells for recertification of the resource? Why would they have to do this?

[petrengr1]

OK, so you think the sell down of PRL 15 is over and that Exxon will probably be the new Operator of the PRL. That was about what I thought except I was not sure about the Operatorship.

I agree that this has nothing to do with a "possible" Gulf LNG Plant. If Exxon is involved it that it may be negotiated later but I doubt that they have any interest in another LNG Plant since they have their own.

[Tree]

OK, so you think the sell down of PRL 15 is over and that Exxon will probably be the new Operator of the PRL. That was about what I thought except I was not sure about the Operatorship. I agree that this has nothing to do with a "possible" Gulf LNG Plant. If Exxon is involved it that it may be negotiated later but I doubt that they have any interest in another LNG Plant since they have their own.

Yes I agree, XOM does not need another plant.  XOM now has what they want and that is additional trains.  I think they will be happy to max out their sub sea pipeline and then seek future feed for trains from PRL 236.  XOM/IOC/PACLNG/Gov't and new SD partner will own pro rata, the PRL, the CSP and pipelines to Gulf and XOM will own gas beyond the shore.  Seems like a perfect time to have an EWC situation comitted to Gulf LNG and work on a royalty as XOM and partners will have dry gas feed to the proposed site.  Only need a production facility and jetty and boats are loaded.

PRL 15 has 8 + Ts and if XOM buys 4 Ts PRL 15 is left with a bit over 4 Ts.  Delineation wells and Tri will be needed for a FID on Gulf LNG.

[Petro2458]

Why do you believe Exxon doesn't need or want another plant? I do not agree...they would if 'further delineation drilling' wasn't required.

Several ways to look at this deal.

1. Only enough gas exists for a single train. I believe that (irrespective of certified estimates) had they stated more wells are needed as producers to feed LNG instead of more wells will be funded by XOM to "delineate" the field that would have been not brought the resource estimates into question.

2. Train 2 if decided to be Gulf LNG will be more expensive than another Train with XOM....with XOM as an equity owner of PRL 15, there isn't a size able equity left to sell down to another "operator".

3. This deal potentially marginalizes the rest of the gas....lets say XOM estimated 6 TCF total (although we have no idea what they would have come up with....but rest assured they did their own resource estimate)....1 train will take 4 TCF....the other 2 becomes stranded unless more discoveries are made or more drilling at elk/antelope proves up more volume.

4. Upside is there is plenty of gas for 2 trains and IOC wants to only sell 1 train of gas to XOM to enable IOC to become cash rich and to have more control over future development options: having flexibility to develop gulf LNG as they see fit especially if triceratops is as large as we think.

5. If XOM becomes interest owner in PRL 15 as this deal suggests... IOC would retain operatorship??...what's really left to sell down to another operator? I think this deal puts the sell down process on hold pending the XOM deal and further drilling of Elk/Antelope.

6. Is IOC still seen as inadequate to operate?


7. If the worst case scenario: triceratops doesn't pan out and further E/A drilling isn't sufficient for another Train,,,then value of IOC will be the value of this first and potentially only deal with XOM...or $1.50/mcf for 4 TCF? $6B. Hope this is close to being done...

8. Best case is Triceratops is. 8 more T's and E/A has 6 or 8 more and Gulf LNG is a reality.

9. Oil search value is 10B...but I do not know the details. (I.e what portion of this value relates to PNG reserves). But simply put if we only have same 1P as OSH (which is half of IOC)... Then current market cap is a steal....but I have absolutely no way to value IOC until this deal is formalized.

Lots of questions.....I underestimated the complexity of today's news release and feel that the market hammered the stock because of some of what I raised above.

Comments/other thoughts appreciated.