OSH deal with XOM on PNG LNG

[bam]

Sorry if this has been covered before, but could someone refresh me (or point me to a thread) on what the actual deal is between OSH and XOM? All of OSH literature refers to them as 29% owners of the PNG LNG project. Does that really mean 29% owners of Trains 1&2 or does it mean Trains 1&2 plus all additional trains. If we assume for a minute that OSH has no gas and no cash to contribute (i know that's not true, but let's keep it simple) could they theoretically get no interest in the expansion of the project assuming XOM can find the feed gas elsewhere? I'm trying to figure out just how much equity is up for grabs here for us if we are contributing 100% of the gas to train 3, and hopefully some gas to train 4.  I'm also trying to figure this out in order to determine how to think about OSH valuation against IOC valuation. Is OSH equity pricing in  29% stake in only two LNG trains, or is it pricing in 29% stake in an expected four LNG trains. Any info is appreciated. Thanks in advance.

[admin]

From memory, it's just train 1&2 but I'm not 100% sure. I'm fairly sure it was posted here before.

[sydbod]

OSH has a 29% stake in the whole PNG LNG project. From start to finish ..... everything.
BUT, and it is a BIG BUT ........ OSH also has to provide 29% of all cost to develop it from start to finish.

There is no reason why one or more of the partners would/could not sell some part of their share/s to another party.

Any gas external to the partners are treated as externally purchased gas.

There is no reason why IOC could not sell its gas to the PNG LNG partners and then with that money, purchase some % component from one or more of the partners in the PNG LNG partnership.

[Palm]

I believe you are correct STP. PNG LNG was approved for the first 2 trains of output. Any expansion (per Duma) must be approved by the government, meaning enough gas must be proved up and all partners would have to agree to be in, and pony up for their share of costs. I'm guessing that current partners have a sort of right-of-first-refusal on an expansion, but likely there is also an agreement that upon expansion partners must be willing to give up a % to a new approved partner, especially where that partner is bringing the source due to lack of available source from existing partners. As Operator XOM must be sure there is source, and OSH was the exploration partner charged with sorcing gas for trains 1 and 2. The question is what we have now. It appears XOM and PNG want to expand PNG LNG as quickly as possible and the "best" source may well be IOC's. XOM and PNG hold a lot of decision-making power in this IMHO.

[sydbod]

From memory, it's just train 1&2 but I'm not 100% sure. I'm fairly sure it was posted here before.

That can not be the case since other trains would use common facilities (roads/wharfs/storage tanks/power generating equipment/etc) that was paid for within the price for the construction of the first 2 trains.

[sydbod]

I believe you are correct STP. PNG LNG was approved for the first 2 trains of output. Any expansion (per Duma) must be approved by the government, meaning enough gas must be proved up and all partners would have to agree to be in, and pony up for their share of costs. I'm guessing that current partners have a sort of right-of-first-refusal on an expansion, but likely there is also an agreement that upon expansion partners must be willing to give up a % to a new approved partner, especially where that partner is bringing the source due to lack of available source from existing partners. As Operator XOM must be sure there is source, and OSH was the exploration partner charged with sorcing gas for trains 1 and 2. The question is what we have now. It appears XOM and PNG want to expand PNG LNG as quickly as possible and the "best" source may well be IOC's. XOM and PNG hold a lot of decision-making power in this IMHO.

We have to remember that whatever is good for PNG LNG is also good for the individual partners. (OSH, Santos,etc have no reason to object)

The more trains that are constructed and put to use, the cheaper the commen infrastructure for the trains becomes, as the cost of that part gets shared over more trains.

[admin]

While technically you're right, I'm not convinced of the relevance, sydbod. These infrastructure and common facilities costs are largely fixed and sunk, hence they shouldn't be relevant in any future decisions (insofar as they are sunk, needless to say) unless they retroactively apply some formula for sharing these costs

[Palm]

Exactly, but to say "That cannot be" to STP's statement that the 29% applies to trains 1 & 2 contradicts what Peter Botten said earlier today (BTW you must not sleep much; it's 3 AM in Australia isn't it?). Peter Botten:
""The discussions are focused on InterOil and (joint-venture partner) Pacific LNG selling Exxon Mobil sufficient gas to develop an additional LNG train at the PNG LNG project site," Oil Search managing director Peter Botten said yesterday in the company's second-quarter production and revenue report. Oil Search has a 29 per cent interest in PNG LNG's first two trains, which are now 90 per cent complete, but has no interest in the InterOil fields." He goes on to say:

"We are watching the progress of these negotiations with interest. Should this gas be brought into the PNG LNG project, it is likely Oil Search will have an opportunity to participate in this expansion," Mr Botten said. "Likely" does not mean for sure, or for sure at 29%.

"Oil Search is also trying to confirm gas for expansion of PNG LNG, most notably at the P'nyang field. The company said engineering scoping work on potential development of the field continued during the quarter."

[sydbod]

Palm/admin, It makes no sense for a company to let other companies to profit from using the first companies infrastructure for nothing.
If say OSH has 29% ownership of the loading wharf, would they not expect some form of compensation/adjustment if OSHs share of LNG became less than 29% of the export because IOC gas was now being processed.
It is a question of ownership rather than a question of whether the money has already been sunk into the project.

(yes I am a night owl and seldom go to bed before 2am at least)

[sydbod]

........ Oil Search has a 29 per cent interest in PNG LNG's first two trains, which are now 90 per cent complete, but has no interest in the InterOil fields. ........

Let us look at the original OSH source and not some half hearted rehash in a news article.

During the quarter, ExxonMobil entered into exclusive negotiations with InterOil and Pacific
LNG Group, regarding the development of PRL 15 in the PNG Gulf Province, which contains the
Elk and Antelope gas fields. The discussions are focused on InterOil and Pacific LNG selling
ExxonMobil sufficient gas to develop an additional LNG train at the PNG LNG Project site. We
are watching the progress of these negotiations with interest, as should this gas be brought
into the PNG LNG Project, it is likely that Oil Search will have an opportunity to participate in
this expansion.”

How does We are watching the progress of these negotiations with interest  become but has no interest in the InterOil fields?

The relevent part is "as should this gas be brought into the PNG LNG Project, it is likely that Oil Search will have an opportunity to participate in this expansion"

Either the gas will be sold to PNG LNG, or the PNG LNG partners will buy into the XOM share of the IOC gas is how I currently understand it.

Let us wait and see how it all falls out in time.