InterOil shares soar as feedstock deal gets closer

[Justin94360]

InterOil shares soar as feedstock deal gets closer

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By RUSSELL SEARANCKE, Wellington

 15 November 2013 05:11 GMT

The share price of Canadian junior InterOil skyrocketed nearly 20% following its confirmation that a deal is imminent with a supermajor over feedstock gas for a liquefied natural gas project in Papua New Guinea.

Shares were trading at more than US$80 on the New York Stock Exchange after chief executive Michael Hession revealed in an earnings call the company has received “offers from a number of mega-majors, and that leads me to believe that we can do this deal by the end of the year”.

InterOil has for more than five months been negotiating, initially on an exclusive basis, with ExxonMobil and then latterly with Shell and Total on the terms of a major gas sales agreement from its Elk-Antelope field.

InterOil has not confirmed the identities of either Shell or Total — instead their participation in the InterOil talks has been disclosed by sources in Papua New Guinea and Singapore.

ExxonMobil and InterOil had previously agreed on major terms for ExxonMobil to purchase 4.6 trillion cubic feet of Elk-Antelope gas as feedstock for an additional train at the Exxon-Mobil-led PNG LNG project.

However the Canadian company subsequently shifted the goalposts in an effort to secure a larger reward for itself.

Sources said a frontrunner has not emerged, and that it was possible for more than one of the supermajors to consummate a deal.

Hession was ebullient in the earnings call, not only about the progress towards a “transformational” deal, but also about a one-year US$250 million secured syndicated capital expenditure facility to fund a major new exploration and drilling programme.

The participating lenders, led by led by Credit Suisse, are Commonwealth Bank of Australia, ANZ, UBS, Macquarie, BSP, BNP Paribas and Westpac.

Hession said the loan was evidence of the banks’ confidence that InterOil can close the elk- Antelope deal.

Hession, who has been InterOil’s chief executive for just four months, also revealed some of the rewards he expected to achieve from the deal, starting with an up-front large cash payment.

“Very simply, we’re going to get delivered to us a price for the gas,” he said.

“We’re going to get delivered to us a series of payments for the gas.

We’re going to get delivered through a certain equity that we’re going to keep, because that’s going to tell you that we are very interested in keeping a significant equity in this place because we see ourselves as a major LNG player going forward.

“And there’s a number of other criteria that I can’t share with you, but I’ll tell you that it is a very straightforward, simple deal,” Hession added. his appointment was part of an effort to rejuvenate management.

Hession most recently headed up Woodside’s Browse LNG project and had a high-profile role on the Pluto LNG project.

Another big management change was the appointment of ex-Chevron executive Keli Taureka as executive vice president of corporate development and government relations.

Government relations are crucial to the elk-Antelope deal. The PNG government must approve any agreement and, despite the obvious benefits of new LNG developments,there are understood to be government factions that prefer ExxonMobil while others prefer Shell. Hession said: “We’re working together (with the government) on making sure there’s going to be no hiccups under way to delivering from PNG. So I don’t see any issues in this space…but we spend a lot of time making sure there’s no issues in this space.”

The Elk-Antelope fields sit in Block PRL 15 and are understood to contain best case contingent resources of 9.45 trillion cubic feet of wet gas.

[Stavros]

9.45 trillion cubic feet of wet gas

83.7 million barrels of Condensate net to IOC!!!

Worth ~$8 Billion at today's condensate price.
Since oil and condensate prices are expected to rise at the same rate or faster than inflation, the NPV of the Condensate is also $ 8 Billion give or take.

How is this being factored into the NAV by the likes of Pavel Molchanov et al?
It seems to me that this huge asset is being ignored when the sell down price is being bandied about.

[Palm]

And that's just EA y'all. Tri is said to be as or more rich of a find; very wet per Tuskers visual acuity. I think Dr Mike said something like, any super major would kill to have this lineup of prospects all within a relatively small area. Not only will the net costs with the condensates be much cheaper than anything now in development, but IOC has a lot of groundwork already done.

Still wonder what slide 19 with "EWC LNG facility" at Bluff means.

[Tree]

Nice write-up by Searancke.  Full of facts.  

Unfortunately missing, is the sub-title found in the e-paper version of this article. Kinda says it all.

"Canadian player has had offers from 'a number of mega-majors' for Papua New Guinea gas sales agreement"

...."has been disclosed by sources in Papua New Guinea and Singapore."

I hope Russell's Singapore source is better than mine.....

[jft310]

9.45 trillion cubic feet of wet gas 83.7 million barrels of Condensate net to IOC!!! Worth ~$8 Billion at today's condensate price. Since oil and condensate prices are expected to rise at the same rate or faster than inflation, the NPV of the Condensate is also $ 8 Billion give or take. How is this being factored into the NAV by the likes of Pavel Molchanov et al? It seems to me that this huge asset is being ignored when the sell down price is being bandied about.

There is no deal in place nor a means to monetize the assets yet. Or those condensates are worth a lot more when the facility to monetize that asset is announced , built and functioning. Today they are in ground with a very low value. When the deals are announced , contracts signed to monetize those assets the analyst price targets will soar. Thats not the case today. Pavel is correct today.

[ArtM72]

There is no deal in place nor a means to monetize the assets yet. Or those condensates are worth a lot more when the facility to monetize that asset is announced , built and functioning. Today they are in ground with a very low value. When the deals are announced , contracts signed to monetize those assets the analyst price targets will soar. Thats not the case today. Pavel is correct today.

I used to reject the kind of thinking that discounts present values at 15-20%/year AND a risk coefficient significantly less than 1.0 AND no recognition that energy costs are more likely to increase at a rate greater than inflation than not.  Maybe not so much anymore, especially when that IRR is likely to show up in my account with IOC's virtually assured participation in an LNG facility with any deal.  And then there's the condensates.