Anatomy of a Gulf LNG Bidding War

[Tree]

EnnerOle has stated all parties they are negotiating with are acceptable to PNG and that they will deliver proposal within 2009 PA framework.  NEC cannot approve a project until all is in order.

What I would do to maximize bids.

1) Require FEED work for proposed scheme is complete to submit bid.

2) I would assign 1 rep from IOC to deal with 1 IB.

3) Collin, Phil and?, maybe Byker.

4) Each rep with IB, selects that IBs best bid

5) 3 IBs = 3 winning Bids.

6) CAs preclude sharing of details with other IBs or each IOC rep from divulging details with each other.

7) Present these 3 bids to IOC BOD and grade them 1-3 in order of BOD preference.

8) Present these 3 to NEC, get conditional approval for all 3 and have NEC rank in preference.

9) Return to each of the 3 with a conditional Gov't approval, binding if they are the winning bidder.

10) Allow 2 weeks for each bidder's best bid, then 1 last BOD meeting and select the winner.

Sure bidding war as winner get's a project, FID by Y/E and booked reserves in 2012.

We haven't NEC action yet, I say we are at #7.

[jft310]

Certainly the way to get the most from the bids. Pit one against the other.

[ValueSleuth]

This all sounds very useful and likely something that IOC management could use.

I'd suggest calling WA.

VS

[jft310]

Wayne is on PNG at the meetings.

[ValueSleuth]

Wayne is on PNG at the meetings.

I guess the suggestion might be a little late if the meetings have already started.

VS

[Stavros]

FWIW Regarding Number 1 on the list:

I thing y'all should keep in mind that the purpose of undertaking a FEED Package is to develop a +/- 10% accurate cost estimate for use in deciding whether to go ahead with a project (ie make a "Final Investment Decision" or FID). This takes an enormous amount of engineering, followed by firm price quotations from all major equipment vendors and bulk commodity suppliers. Then a detailed execution plan has to be created to ensure that the project schedule can be maintained.

To execute a FEED Package for a major LNG plant such as this, located in an area unknown to any of the bidders (ie they've never built anything there before) requires a company to:

+ Select the technology for the LNG Plant. JKM, I believe, will use Air Products if they are selected

+ Execute the so-called Basic Engineering with the Licensor. They'd have to pay about $3Million for the engineering + a portion of the License Fee. This takes 5 months.

+ Bundle the Basic Engineering together with a very large amount of information related to the rest of the infrastructure

+ Hire an EPC Company to do the FEED Package - this is usually done on a competitive bidding basis. This phase would take another 6 months

To do all of the above requires at least a total of $30 Million

As such, in my humble opinion, there's no way that any of the Bidders have done a FEED Package, or are even in the middle of doing a FEED Package.

No one will spend this kind of money unless they are reimbursed if they lose (not possible in my view) or have been selected as the winner.

Now to the point about having FEED and FID by June 2013 ... which is the current requirement in the Project Agreement of December 2009:

Again in my opinion, this deadline would have to be extended by the NEC for anyone to become a Partner in E/ A and the Gulf LNG Project. Of all the Bidders, only ExxonMobil would be able to execute FEED between now and June. ExxonMobil could duplicate the PNG LNG design in Gulf and reach FID by June.

Having said all the above, it is aligned with Kogas Top Management folks who stated several times recently that they want to be involved in the Gulf LNG Project, and that if they were, the first LNG deliveries would be in early 2017.

[ValueSleuth]

Why are you screwing up the fantasy, Stravros?

VS

[Tree]

Thanks for the observations Stavros.  It's fair enough about FEED, let's call #1  'FEED' and 'Mini - FEED' as that term has been coined by management. FEED is a daunting task, expensive too.  Bidders should still be required to complete a certain level of FEED to even submit a bid.  Since some bids could be FEED ready, it makes best sense to require FEED of all bidders.  IBs have been working with them for a year now afterall.   We need to remember that bidders are from starting with a blank slate for FEED work with Gulf LNG. IOC's pre-investment in road building, surveying, land and easement securement, geological survey, pier design, CSP design, dredging plan, power plant/support facilities in the Gulf, Port management agreements with Hubline,  licenses, gas analysis, 3 off-takers.  I would imagine IOC's completed FEED with EWC/Flex/Mitsui could be of help in generation of FEED by a SM.

So, in a short-list of 6 bidders, we could have easily had

1)  XOM ( FEED complete)

2)  EWC/FLEX (FEED complete with a pre-packaged FID awaiting since  Dec.  2011)

3) JKM who has been circling Gulf LNG for 5-6 yrs. (FEED/Mini-FEED complete)

4) CVX - Aussie Projects underway allow enough info for 'Mini-FEED'

5) RDS - Aussie Projects underway allow enough info for 'Mini-FEED'

6) ENI - LNG project experience

Since some bidders are ready and willing it's not a stretch to require others to spend the millions required also in FEED work so all bids are comparable.  I can't imagine IOC/PNG choosing a SM and then allowing them a yr. to work on FEED from scratch when viable options are ready to go.  That won't happen.

[jft310]

Tree its stipulated to bid one must be FID ready by ex date. It's what the PNG govt wants to get things going. The fact that Stavros states only Exxon can be ready earlier makes them the dark horse favorite but JKM has to be in this in some way. What Stavros says is consistent with what we know to be true. Exxon and JKM are in the final mix somehow.

[Tree]

Tree its stipulated to bid one must be FID ready by ex date. It's what the PNG govt wants to get things going. The fact that Stavros states only Exxon can be ready earlier makes them the dark horse favorite but JKM has to be in this in some way. What Stavros says is consistent with what we know to be true. Exxon and JKM are in the final mix somehow.

Those are assumptions we cannot make.  If true, no others beyond XOM would bid as they were doomed to timeline failure.  We'd only have Gulf LNG as proposed and XOM as options, and there are more bidding than that.  No way will XOM build another PNG LNG in the Gulf.  They would add trains 4-8 to PNG LNG as that makes most sense for them.