InterOil sells downstream businesses for US$525.6 million

[Optionray]

Somewhat shocking news. I know the downstream revenue is not major league, but it IS a revenue stream. Selling the family cow for magic beans comes to mind. Phil's rusting Alaskan refinery enters a new era as a Singapore Puma. Now, does that put the balance sheet over a billion? Let's see the market reaction.

To my mind we only made profit from the refinery if we correctly predicted or hedged currency movements. Refinery maybe useful to IOC when production starts a few years from now but I have a feeling none of us will care by then. Maybe "selling the old erratic family donkey for $525m" would work better?

I wonder what the tax implications are for the sale?  Will we net 85% if the proceeds as a long term capital gain?

[ArtM72]

A dream lost, and maybe part of a soul.

One wonders what part of the old IOC will next fall to another unsolicited offer. Hope PNG does well by Puma.

[Palm]

One thing of note. In the article is states the sale "includes adjustments for cash and working capital". I'm assuming the $525 million is then net of any working capital loans and cash attributable to the refinery but not sure. If so, that's great. If not, then any working capital loans/LOC have to be paid back out of the $525 million.

[Palm]

Also of note from the AGM presentation is the slide showing 2011-13 results for what they just sold. In 2013 they had a net $40 million loss after exchange losses. This loss wiped out the prior 2 years of net income. A likely part of the thought process is that the Kina strength will hurt the bottom line and be a drag on overall results.

[jft310]

Margins on LNG are way wider then a refinery. Better business for the next 30 years. Cash can be used to help pay our portion of the first LNG build for Interoil. Prevents what OSH did huge dilutive stock offerings. Even with those offerings OSH rose 350 percent from the Exxon deal to Open LNG plant. Hello.

[jft310]

The timing is terrific for a sale. The price of oil is artificially high because of Iraq problems and Interoil has lots of inventory of oil in those storage tanks now valued at a premium. Good timing!

[Palm]

Selling inventory of what's in the tanks net will not likely add much to the sale. The original cost transaction and any likely exchange loss probably yields little if anything margin-wise, and then any of the working capital loan associated with that inventory has to be paid back to lenders. Some of the value of the refinery may be tied to the Stanley project as their condensates are slated to be refined at the IOC refinery. As long as that's a binding contract it adds value to Puma. Wonder also if IOC committed to have any of their condensates at the refinery.

Would be interesting to know what happens to the 99-year lease that IOC has on that property. Does that stay in place and does Puma pay IOC any lease payments or does Puma assume the lease? Then we have the laydown area at the site which they have put a lot of time and money into developing. Does IOC keep all of that? I would guess so/hope so because any of the costs capitalized would have to be written off as an expense if they gave up all of the leasehold rights.

[jft310]

Selling inventory of what's in the tanks net will not likely add much to the sale. The original cost transaction and any likely exchange loss probably yields little if anything margin-wise, and then any of the working capital loan associated with that inventory has to be paid back to lenders. Some of the value of the refinery may be tied to the Stanley project as their condensates are slated to be refined at the IOC refinery. As long as that's a binding contract it adds value to Puma. Wonder also if IOC committed to have any of their condensates at the refinery. Would be interesting to know what happens to the 99-year lease that IOC has on that property. Does that stay in place and does Puma pay IOC any lease payments or does Puma assume the lease? Then we have the laydown area at the site which they have put a lot of time and money into developing. Does IOC keep all of that? I would guess so/hope so because any of the costs capitalized would have to be written off as an expense if they gave up all of the leasehold rights.

i would think the CFO would have a better handle then any of us and what did he say about the sale?

[Palm]

Selling inventory of what's in the tanks net will not likely add much to the sale. The original cost transaction and any likely exchange loss probably yields little if anything margin-wise, and then any of the working capital loan associated with that inventory has to be paid back to lenders. Some of the value of the refinery may be tied to the Stanley project as their condensates are slated to be refined at the IOC refinery. As long as that's a binding contract it adds value to Puma. Wonder also if IOC committed to have any of their condensates at the refinery. Would be interesting to know what happens to the 99-year lease that IOC has on that property. Does that stay in place and does Puma pay IOC any lease payments or does Puma assume the lease? Then we have the laydown area at the site which they have put a lot of time and money into developing. Does IOC keep all of that? I would guess so/hope so because any of the costs capitalized would have to be written off as an expense if they gave up all of the leasehold rights.

i would think the CFO would have a better handle then any of us and what did he say about the sale?

Actually the CFO said nada. This is what the COO said:

"For the past 10 years, the refinery and distribution businesses have contributed to InterOil's business model and Papua New Guinea's development," Mr. Ozturgut said.

"However, our upstream and LNG business has become core to the company's growth and, as a result of the success we have had in discovering and monetizing gas, the time is right to focus on this part of our business.

"The transaction immediately provides additional capital to fund our upstream and LNG business.

"We believe this is in the best interests of Papua New Guinea and our shareholders."

Mr. Ozturgut said Puma Energy ensured that Papua New Guinea would have a world-class downstream business operator.

"We believe Puma Energy is the right company to take over, invest in and grow the downstream and refining businesses for the long-term benefit of Papua New Guinea ," he said."

This says little if anything in addressing the points I made above.  It's generic blab that one makes in a PR which has little in detail about the transaction.  Don't see anything about the lease, or all that went into the the valuation.  The only thing he very remotely mentions is the future growth Puma sees, but that doesn't specifically mention Stanley or IOC's committment to the refinery in the future.

[Palm]

This is what MH has to say about the sale and the future of IOC:

"A New Chapter for InterOil

The decision to sell our refinery and distribution businesses to Puma Energy is a logical step in the growth of InterOil as a major regional energy company and one that maximises opportunities for Papua New Guinea. It enables us to further strengthen our financial position and to focus on high-value exploration and LNG development. This is our future; these are the opportunities to extract greatest value for our shareholders and the people of Papua New Guinea.

Puma Energy is a world-class downstream business operator, committed to growing its business in Papua New Guinea and retaining all staff at the refinery and downstream distribution businesses. We thank the staff for their dedication and loyalty and wish them the very best. We are sure they will embrace the huge opportunity that Puma Energy offers across its operations in more than 40 countries.

The rest of us at InterOil still have much to do in an exciting future as a large and growing employer in Papua New Guinea. Our exploration and appraisal program involves up to eight wells in the next 18 months and we are busy preparing for development of the LNG project at Elk-Antelope in the Gulf Province. Strategic focus and financial discipline have enabled us to create valuable new opportunities. Those same qualities will continue to guide us.

Dr. Michael Hession
Chief Executive Officer"