Wag the 800# Gorilla

[Tree]

OK, at the risk of offending Rex and blowing the great deal with XOM, I have ask 'Am I the only one that thinks IOC is the tail tip that's wagging the 800# gorilla?"

XOM buys 4Ts for a new train, funds drilling in E/A and development infrastructure to the tune of $1.5 billion+ some in position to know report.  AND IOC has the option to choose to sell more gas to XOM for even more trains OR to develop Gulf LNG as planned with PRL15 and Tri gas if needed.  XOM and Gulf LNG developers will compete for the gas in PRL15 above the 4T sold to XOM.  There is almost enough gas for 2 additional trains per GLJ after the 4T sale to XOM.  WIll those trains be in Gulf or stacked in PNG LNG as they have 8 train ambitions?  This sure sounds like a great deal for IOC as they will be funded for full development of PRL15/Tri and will have competing options for commercialisation.  

..."Under the arrangement, InterOil and Pacific LNG would sell an unspecified interest in PRL15 that is “sufficient to supply gas to develop an additional LNG train” at ExxonMobil’s Konebada site. Staged payments would be made before and after production commences. ExxonMobil would carry InterOil and Pacific LNG on additional delineation wells in the Elk and Antelope fields. The deal would also give InterOil and Pacific LNG the option to either independently develop a second LNG project in the Gulf Province that may also use gas from PRL15 and potentially other discoveries, such as Triceratops, or pursue further development with ExxonMobil."

..."Under the arrangement, InterOil and Pacific LNG would sell an unspecified interest in PRL15 that is “sufficient to supply gas to develop an additional LNG train” at ExxonMobil’s Konebada site.

Staged payments would be made before and after production commences.

ExxonMobil would carry InterOil and Pacific LNG on additional delineation wells in the Elk and Antelope fields.

The deal would also give InterOil and Pacific LNG the option to either independently develop a second LNG project in the Gulf Province that may also use gas from PRL15 and potentially other discoveries, such as Triceratops, or pursue further development with ExxonMobil."

[admin]

Well, since Kavo hasn't made much noise, I'm assuming a Gulf LNG is still very much on the cards..

[Tree]

Well, since Kavo hasn't made much noise, I'm assuming a Gulf LNG is still very much on the cards..

"November 16, 2012

Port Moresby and Houston, TX — InterOil Corporation (NYSE: IOC) (POMSoX: IOC) (“InterOil” or the “Company&rdquo is pleased to have been notified by the Prime Minister Hon. Peter O’Neill that the National Executive Council (NEC) of Papua New Guinea has approved InterOil’s LNG development project in the Gulf Province. The decision clears the way to proceed with our plans for an LNG plant in the Gulf Province with initial output of a minimum of 3.8 million tonnes per annum."

Agree with you STP.  Plenty of gas still in PRL15 after selling 4T's to XOM to satisfy the NEC approval of amended PA for a start-up of >3.8Mtpa in Gulf.  Doesn't matter to me where we own 30% stakes in trains, either Konebada or Gulf is fine with me.

[Palm]

O'Neill seems to feel there is a good chance that XOM will buy 2 trains from IOC as long as the gas is there (not much doubt about the gas being there).

"The Prime Minister told a gathering on Friday evening the potential entry of ExxonMobil to those assets in Gulf could significantly lift production at the PNG LNG processing facility outside Port Moresby.“At the moment we are building two trains (or processing units) at the processing site for gas from the Hela and Southern Highlands provinces. The revenue from the export of LNG from these two trains would double the size of our economy (GDP).“If the talks are successful and ExxonMobil gains access to gas from Elk and Antelope, we will certainly add one, possibly two, more trains and our GDP would triple in size.“This means PNG will have a stable revenue flow from its gas resources for the next 50 years or so.”

If that is the case, that gives XOM 4 trains and they say they can handle 5 at that site. Now does it make much sense that if there is enough gas in PRL 15 that they wouldn't suck enough gas to do those 3 trains? I think so. Then they have one complete project. Many happy people. So then would they want to stop if there is enough gas for another project? Not likely. But if enough gas is proven up that a new project could be done much sooner, XOM likely has first option to be the partner.

XOM won't let this rich wet gas get away I don't believe.

[Stavros]

To think that IOC is able manhandle an Oil & Gas Super Major is not rational whatsoever. So yes, in response to your question Tree, I believe you are the only one who thinks IOC is the "tail tip wagging the 880# gorilla"

The deal with XOM must be fair to both parties; any attempt by IOC to manipulate the outcome and skew it to their benefit will be a gross mistake in judgement. It is the IB's responsibility to ensure this does not happen; I think they will make appropriate recommendations and Dr. Byker will have the sense to listen and follow them.

I believe that Mr. Kavo's recent public statement suggesting that all the gas be proceesed in the Gulf stems from his fear that all the gas may wind up at PNG LNG. Time will tell whether he is successful in getting an LNG plant built there.

[Petro2458]

If the government takes 22.5% gas in-kind then it will take ~7 TCF for 1 train.  600 mmcfd for 25 years..5.5 TCF for LNG the other 1.5 TCF to govt't.  This is why only 1 train is being discussed....Remeber that the best case estimate of resource is a 50% likelihood estimate..50% chance it's not as big.  The good news is the after tax net present value of the 5.5 TCF at a higher equity is double current market cap...and is robust under the low case or p90 estimate.

Another point is that it will take a few years of production to understand if more that 7 TCF can be recognized (more wells may help...may not)..production is King when it comes to reserves estimation and narrowing uncertainty.

I believe we get the 1 train deal... Then we drill other prospects... Because we need them to underpin more LNG trains.

Worth noting that the volume need for 1 train is dependent on the decline after plateau ends...

[ArtM72]

Petro -

There is no place for the government to use or put 2 mtpa +/- for years. I believe the reason why only 1 train is being discussed at this time is that only the XOM/IOC deal for the additional PNG LNG unit was leaked.

I believe that you are looking at an unlikely worst case scenario, holding off on a second 4 mtpa for several more years. Not only would the government somehow have to find a way take the NG in kind for your scenario to come to fruition, but Ttops and other local prospects would have to all go bust. Of course, anything is possible but I doubt there's a very high probability E/A won't ramp quickly to 8+ mtpa output.

If Gulf Province doesn't get an LNG plant fed by the second 4 Ts there could be some significant local political consequences. FWIW (nothing) my bet is that Total SA will be the operator of the Gulf plant that will, when announced, be sized at a nominal 4 mtpa.

[Tree]

To think that IOC is able manhandle an Oil & Gas Super Major is not rational whatsoever. So yes, in response to your question Tree, I believe you are the only one who thinks IOC is the "tail tip wagging the 880# gorilla" The deal with XOM must be fair to both parties; any attempt by IOC to manipulate the outcome and skew it to their benefit will be a gross mistake in judgement. It is the IB's responsibility to ensure this does not happen; I think they will make appropriate recommendations and Dr. Byker will have the sense to listen and follow them. I believe that Mr. Kavo's recent public statement suggesting that all the gas be proceesed in the Gulf stems from his fear that all the gas may wind up at PNG LNG. Time will tell whether he is successful in getting an LNG plant built there.

You either don't read or purposely miss the point Stavros.  The point is important - IOC appears to have cut the 'great deal' so many have claimed would never happen.

"To think that IOC is able manhandle an Oil & Gas Super Major is not rational whatsoever." - Not what I stated, not even close.   Even so, David's have been known to manhandle Goliaths.  Remember PZ? It's not rational whatsoever to state otherwise.  David legally owns and is willing to sell Goliath a piece of the gold Goliath needs.  Perhaps JKM and others were advised that IOC woul roll-over for them in negotiations in the spirit of 'fairness'.

"The deal with XOM must be fair to both parties; any attempt by IOC to manipulate the outcome and skew it to their benefit will be a gross mistake in judgement." -

Manipulate the outcome?  Do you mean negotiations?  IOC's goal should not be to make a multi-billion $ deal 'fair', their goal should be to cut the best deal for IOC shareholders.  Same with XOM.  Period.  If 'fair' was an IB goal, they should be fired.  I would love to hear you say 'take $120 Dr. Byker, that would be 'fair' to XOM!.  BTW, the deal has been cut.  IOC has a 'great deal' and sure looks to me that IOC is wagging the gorilla with forward terms and optionality and that SM paid the Asian utility price.

The deal reality here is a far cry from what the short liars and nervous Nellie longs have been predicting and there are several more deals ahead, right ahead.

[jft310]

Spot on Tree. Lets state the situation in clear terms. IOC has the NG and its their NG and Exxon needs that NG and the govt needs jobs for 9,000 persons at PNGLNG. In order for Exxon to get that NG they had to outbid Shell, Total etc. Result Exxon paid the rate of the closed PRE deal . That rate is more than a 50% reduction in their current rate with OIl Search. Everyone wins.

[Spartina]

Fwiw one my sources confirms its a very good deal for IOC.