OSH Q4 Report 1/28/14

[Palm]

This is all just pump talk by OSH obviously. They have mentioned this "ongoing discussion" several times now and surely have had time to conclude any talks and take action if anything is truly going on. They need to get their pps up to A $8.55 pronto for the exchange bond deal to be net $0 for PNG, so they talk about this possibility and the fact that XOM is now saying that LNG production is expected to be higher than initially expected. Until it happens it's obviously not worth talking about.

[jdeo1969]

Just a reminder of the language pertaining to this topic.

"The Elk and Antelope gas fields, two of the biggest finds in the Asia-Pacific region in recent years, were discovered in the license in 2006 and 2009 respectively.

Total and InterOil Corporation retain the flexibility to farm-down an aggregate of up to a 19.3% interest (before any election by the government to exercise its option to join the project with a 22.5% interest) to a strategic partner."

IF OSH were to become a strategic partner, can someone shed some light on how this would benefit Interoil in the near term? I understand it would mean more cash, less cost for the plant, etc. Is this essentially a sharing of the risk by both Total and IOC? Is there another boon to our company that I am missing?

Good luck Longs

[Palm]

Considering OSH to fit the definition of "strategic partner" is a stretch IMO. Might they be a minoroty partner? Maybe. But hardly "strategic". No real value added near-term or long-term. They are not particularly good at finding oil/gas and IOC has outpaced them with seismic work as well as discovery. They have local ties, but so does IOC. XOM saved their "Hides" (pun intended) with PNG LNG. JAPEX or other equivalent fits the "strategic" label, but not OSH.

OSH needs some additional coat-tails to try and latch onto for PR purposes to hit their A $8.55 target and make PNG whole. For IOC since the "strategic" would buy likely later down the road and would be buying part of Total's share would not help cash-wise near-term. What a true "strategic" adds is access to markets, financing, technology, know-how etc. That's not OSH.

[Tree]

"Is there another boon to our company that I am missing? Good luck Longs"

How about gas feed for PNG LNG expansion?  I'd say that's a boon to IOC.

In their Q4 presentation OSH mentions E/A PRL 15 gas in their

'Highlights' and 'Gas Growth' discussions.  Feeding PNG LNG expansion train is the goal, assuming recertification #s allowing that.

[jdeo1969]

Thank you both for the clarification. So OSH, IF involved, would not fit the strategic partner mold, but it would be purchasing gas from PRL 15 for use in the PNG/LNG pant.

"By George, I think I've got it."

Thanks again.

Good luck longs

[Palm]

Sigh. But PNG LNG expansion was only mentioned here:

"During the quarter, the PRL 3 joint venture continued to advance technical, environmental and social baseline field studies on the P’nyang gas field in PRL 3 (Oil Search – 38.51%), focused on the potential development of P’nyang as a resource for PNG LNG Project expansion. The final line of the 2D seismic programme over P’nyang was completed and a full re-evaluation of all the seismic data commenced. Preparations for the submission of a development licence application for the field will continue through 2014 based on studies completed in 2013."

So their "charge" from XOM for expansion is outside EA.  They will likely first pursue all possibilities within their license areas; they go runnng to EA for PNG LNG expansion and the government may say, "What about your license commitments to your own license areas?"  IOC doesn't need their seismic or drilling "expertise", because IOC has that under control.  OSH doesn't have cash to pump into IOC's deal and they don't have resources to offer.  XOM will keep them tied down and committed to PNG LNG.  We don't need them.  Bring in JAPEX or someone like that; now that makes sense. If XOM wants/needs gas for PNG LNG because OSH can't supply it, why would XOM think it's a good idea for OSH to join PRL 15 so they get access to the gas. At that point XOM would become a minority owner in PRL 15 and get access to the gas.

[ltinvest]

I agree with both Palm and Tree and it relates back to jdeo's question. The only strategic fit OSH would have for IOC would be to purchase gas for the PNG LNG plant. Obviously similar benefits as if IOC had partnered with XOM. However, take a look at Hessions Woodside projects. The strategic partners are the Japanese. Look for the same here as well as off take agreements and LNG plant financing through the Japanese.

[Palm]

Agree Lt except on the OSH piece giving XOM access to gas for PNG LNG. If XOM wants the gas, they will join in as a minority partner or just buy gas from Total/IOC/PNG/?; OSH is not a necessary cog in that wheel. To me OSH coming in adds little UNLESS it's an admission by them of weakness in finding gas for PNG LNG expansion AND they agree for Total and IOC to obtain ownership in PNG LNG (at least the expansion). Otherwise they are more of a weak link than anything else. XOM would spit them out of a non-PNG LNG deal in a heartbeat.

[ltinvest]

Very good points Palm. Quite Frankly, I was surprised to see in Trees post they disclosed negotiations were ongoing. The Japanese seem to be an excellent strategic fit and that's Hessions track record. He has the relationships.

[Palm]

OSH to me is on the outside looking in. For them to still be talking about this but yet still saying PNG LNG expansion depends on P'nyang, is more than a bit hollow. If they were talking about Tri as a possibility of working with Total/IOC, that could make some sense, since they are doing joint-seismic work. But all they say are "discussions" are taking place, not "negotiations". Doesn't sound very deep. OSH needs some hype and they got a little from thier release today; but they are still only at A $8.26 with the clock ticking toward March. Their only real potential right now (near term) are the wells they are drilling outside of PNG. And they received that opportunity from IPIC/Abu Dhabi, a relationship that's very important to OSH.