As InterOil proceeds towards closure of its PRL15 sell-down, the evidence of escalated competition among at least 3 supermajors for the company’s resources has become quite conspicuous, mitigating any risk that the price of a transaction will disappoint or more importantly, that the gas won’t be commercialized. It’s difficult to fathom that the supermajors need InterOil’s assets, but that’s exactly the revelation that Shell, Exxon, and Total have had in recent months.
LNG is a commodity that requires significant infrastructure to produce, and with Qatar’s North Field’s reserve depletion concerns having stalled liquefaction capacity growth in the country, delivered costs of LNG from marginal supply are rising. Though the increasing cost of marginal supply will protect strong LNG pricing as this article articulates, http://arabnews.com/news/448383, the supermajors are scrambling to secure low cost, liquids rich gas to lock in a guaranteed spread to conservative LNG pricing slopes. There are virtually no unexploited basins or reservoirs in the world with a low enough cost structure to capitalize on this spread, but InterOil’s Gulf acreage and Elk/Antelope are in this unique category.
As page 28 of this recent report by Oxford on gas in East Africa (http://www.oxfordenergy.org/wpcms/wp-content/uploads/2013/03/NG-74.pdf) conveys, even Rovuma’s greenfield LNG projects have estimated delivered costs of >$10/MMBtu with no accompanying liquids production. InterOil’s estimated delivered costs are approximately half those of the US, Australia and East Africa, as it benefits from significantly lower F&D costs and lower freight costs. InterOil is the global low cost marginal LNG producer – it is also fortunate to have significant liquids byproduct production and an existing LNG project in the region with readily available construction labor. The majors can’t afford to miss this opportunity, and with a plethora of recent reports confirming at least 3 supermajors’ interest in PRL 15, there is no doubt that the outcome of this bidding process will be very positive. Also, I expect that once the partnership is announced, a bidding war for the entire company will likely ensue.
The following article in last night’s WSJ titled “Papua New Guinea Draws Interest in Energy Projects” (http://online.wsj.com/article/SB10001424127887324059704578470644089554214.html) confirms that PNG is on the map of the supermajors, and I anticipate that investing in PNG’s resources will be one of the most notable global themes in the coming year. There is no greater beneficiary than InterOil.