Canadian firm stops LNG projects

[Putncalls]

2.2 years? A7 delay? 3 years? Hessian and boys screwed up!!! Total's money should be in IOC's bank.

[Putncalls]

Putz: You said "No one knows if Papua get's funded, delayed or shelved." I guess what you meant to say was "The PPS is trading as if many people are concerned that Papua LNG may be delayed or shelved, but I'm not worried."

That's correct. I might be a little bit worried about the time frame though. I wish I had insight into LNG demand at 10 bucks versus 20 bucks?

[Kaliboo]

Putz: You said "No one knows if Papua get's funded, delayed or shelved." I guess what you meant to say was "The PPS is trading as if many people are concerned that Papua LNG may be delayed or shelved, but I'm not worried."

That's correct. I might be a little bit worried about the time frame though. I wish I had insight into LNG demand at 10 bucks versus 20 bucks?

Can't say I've thoroughly followed this but I think the "sentiment meter" on this board is that Total will move to drill A7, more for delay reasons than for technical data needs.  However, on projects of this scale, more data is always useful.

Some things that likely are in their thinking should include the following.  Anyone want to build/take away from the list - have at it.  But at least in my limited knowledge, I see lots of potential reasons to drill well 7 and delay, than to trigger the recert process.

1.  Balance sheet concerns to survive a protracted downturn and sustain the dividend. Cash is king, so hold onto it until the picture improves or at least gets clearer.

2.  PNG is a bird in the hand.  Deferral of the required payment above helps the balance sheet for a few more months which is helpful to get a better forecast of where the market is heading.  E.g., how fast will US shale developments rebound?  The well 7 cost is covered by income gained by deferring the CAPEX for the recert.

3.  Supposedly according to EIA and others, oil prices should be rising by late 2016 and forward.  Verifying this via the delay will give more confidence for an FID and may help secure better LNG pricing and financing.

4.  If prices are in fact going to be rising later this year, then the window of opportunity to buy attractive fire sale, distressed assets around the world may start to close as others with cash move in to seize the opportunities. Many companies are trying to sell assets to raise cash, so it may not be this good of a buyers market for a while.  These opportunities may be better than or comparable to PNG on a profitability scale.  So holding onto the cash a while longer would be smart to allow decisions on these opportunities and determine how they fit into the CAPEX landscape as well as other related concerns.

5.  Possibly other deal making with IOC may include modifying the terms on the E/A sales purchase agreement.  E.g., to something that gives IOC a steady stream of smaller annual payments over many years to come and/or Total picking up a higher  percentage of the CAPEX on joint projects going forward, including E/A.  Of course all of this must consider the PNG gov't and OSH stakeholders.  Shareholders and the market might like the idea of these terms of steady, significant income stream bridging the gap between now and first LNG shipment.

6.  Not on this list, in my opinion, is any consideration of divesting the deal with IOC.

Others?

Kaliboo

[jft310]

Kaliboo
Take a minute and read the Total CC notes posted on the pages the year end report,
Total stated , they are working on financing , selling LNG now , they see a 90 percent traditional LNG contracts , based off oil prices . So if oil prices rise from here as most people think then the buyer pays more and the seller earns more profit .
At these prices today the project makes money days Oil Search and Intetoil .
See the IOC slides for profit today if we had fuel to sell today .
So it's all about long term thinking .
Oil Search see their end call is quite bullish also , see their CC notes on these pages .
Will we drill Ant 7 sure appears so yes .
If we're prove out 1-3 T 's as Hession hopes we get an extra $300 million plus . Yes we can use that money to stretch us into 1st gas.
Please read the Total and Oil Search calls and share you thought again . If you have trouble I can bump them up for you .

[Kaliboo]

Kaliboo Take a minute and read the Total CC notes posted on the pages the year end report, Total stated , they are working on financing , selling LNG now , they see a 90 percent traditional LNG contracts , based off oil prices . So if oil prices rise from here as most people think then the buyer pays more and the seller earns more profit . At these prices today the project makes money days Oil Search and Intetoil . See the IOC slides for profit today if we had fuel to sell today . So it's all about long term thinking . Oil Search see their end call is quite bullish also , see their CC notes on these pages . Will we drill Ant 7 sure appears so yes . If we're prove out 1-3 T 's as Hession hopes we get an extra $300 million plus . Yes we can use that money to stretch us into 1st gas. Please read the Total and Oil Search calls and share you thought again . If you have trouble I can bump them up for you .

Thanks for the kind education.  I'll take a look.

Kaliboo

[Kaliboo]

Did a little more homework.  Further looking is unnecessary.  Companies' decisions are all driven by their outlooks and whether their past decisions are delivering as forecasted.  When either of these two start looking worse than their acceptable range of risked scenarios, then plans have to change to adjust to the new realities.  So things stated in prior CCs about plans and outlooks may change.

This SA article gives some insight along those lines. http://seekingalpha.com/article/3903506-total-s-business-model-viable

The article refers to Total's 2015 results and outlook presentation.  Of particular interest to me are slides 19, 20 and 24.  The first two show projects and the last one cash flow.  Prices have to rise significantly this year and beyond to fulfill their plan.  Also 9 projects that started up in 2015 need to keep ramping up into 2016.   Additionally 5 more need to startup in 2016.  See slide 19.  That is a huge amount of startup activity that will dramatically change the cash flow.  In my opinion the range of uncertainty in startup volumes x product price for 2016 is large. I know nothing about those projects except Kashagan.  Total's WI x the nameplate gross deliverability show that it will become by far the largest cash generator of 2016 startups. However, that project is severely sour and very dangerous, a total technical and financial nightmare with billions of cost overruns and a decade or more of delay.  Both pipelines failed at startup in 2014 after only a few hours of flow due to bad metallurgy according to news online.  Reportedly both lines cannot be repaired but must be replaced.  It's possible more failures may occur elsewhere in the system adding more cost and delay when the next attempt at startup occurs, supposedly in 2016.  So a question is how much have they risked the volumes and is it enough?  This is just one example to say that the picture on cash flow could vary dramatically.  So back to my original speculation, I think Tot has large incentives to slow expenditures on less mature projects such as EA until these 14 start ups and prices progress more to give more confidence on cash flow.  So I think Tot is in a very cautious period.  The main confidence builder will be succeeding in timing and flow rates and volumes on 14 new projects.  Product price movment is important but secondary to this element. When Brent  is in the 30's and you need an average of 60 in 2017 and beyond, that's a big difference.  But if collectively the 14 new projects deliver as hoped or better then forward plans for projects like EA should proceed as proposed.

As some are saying, it will be what it will be, when it happens.  Not possible to make good guesses due to too many significant variables having high ranges of uncertainty.

[Kaliboo]

[/quote]

This article concisely summarizes the Kashagan debacle.  Sounds like the restart of the field could delay to 2017. http://thediplomat.com/2015/12/kashagan-...ite-whale/

[jft310]

We are invested in Interoil and thus comments about Total's plans for Interoil and actually what they are doing with their partnership are more important than other projects that a Super Major may be developing .
The new reality is all these Super Major's have to many high cost projects and need more very low cost projects to off set what's already on their books . They need to drive down average costs . How many projects can make money at these prices ??Not many . Exxon success on PNG can be replicated . Botten's statement the 2 projects can work together is very telling and this is the year 2016 where those synergies can be realized he stated . Something is brewing in a positive way .