11-25-2013, 02:23 PM
Pngindustrynews Monday -- last sentence...a quick deal between InterOil and ExxonMobil because both sides want it and all they are haggling aboutis the price.
| The fast-emerging world of LNG in PNG | |||
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Monday, 25 November 2013 AUSTRALIA’S LNG industry is struggling with high costs and uncertain development timetables but, from whatSlugcatcher has observed over the past two weeks that does not appear to be the case in the country’s nearest northern neighbour, Papua New Guinea.
Two developments stand out as interesting changes in the way PNG is emerging as an LNG competitor. The first was a presentation on November 12 by InterOil’s chief executive Mike Hession, which coincided with a less than impressive third quarter results announcement.In dollar terms, InterOil’s loss of $US6.3 million for the three months to September 30 could be described as being in the small beer category. That is one reason why InterOil is such a poorly-followed company in Australia, where it was listed until 2005, and New York, which is now its home stock exchange.Hession, who joined in July after a stint leading the Woodside team that tried (and failed) to make sense of the onshore Browse LNG proposal, has triggered changes at InterOil, a company that has potential but lacks a definite plan on how it might monetise that potential.The second interesting development was a field trip organised by another PNG oil and gas player, Oil Search.Rated as one of the Australian-listed stocks most likely to succeed over the next 12-to-24 months Oil Search is a key player in the ExxonMobil led PNG/LNG project that is rushing towards production start-up by the middle of next year.Investment bankers who went for a stroll through the Highlands and back-blocks of PNG as guests of Oil Search liked what they saw, a project hitting most of its targets and likely to be a fat profit generator thanks to an internal rate of return estimated to be as high as 25%.With the abandoned onshore Browse project said to have a marginal IRR, and floating LNG off the Australian coast not significantly higher, the prospect of a 25% return rates PNG/LNG as potentially one of the world’s most profitable LNG projects.The question that is entertaining The Slug and a few other sideline observers, is whether InterOil will have a role to play in any future expansion of PNG/LNG, or whether it will attempt to fly solo.In theory, InterOil’s Elk and Antelope gasfields in the lowlands of PNG’s Gulf Province, hold sufficient reserves (about 4.6 trillion cubic feet) to justify a stand-alone LNG development.In practice, there is a missing ingredient called mass. InterOil is a tiddler trying to find a way into a business that talks in billions of dollars not millions.What might happen is that InterOil wins an invitation to join PNG/LNG as a supplier of gas to a third train at the ExxonMobil led project, satisfying both sides at the same time.Hession hinted at a deal brewing in his third quarter presentation without giving too much away.Slides accompanying his talk simply said: “Negotiations with a number of supermajors relating to the monetisation of Elk and Antelope resource [are] in the final stages of negotiation [with] an announcement expected by year end”.Those comments lit a fire under InterOil’s share price, which rocketed up by 35% in New York trading, from around $US68 to briefly touch $US92.Since that flurry of excitement the stock has eased to $US86.50, but the sharp rise was a reminder that InterOil has the gas in the ground and has a management team (and impatient shareholders) keen to see something happen with the gas.Two options are open. There is the expensive “build your own LNG project” that Hession tried to do at Browse, only to be frustrated by Australia’s ridiculous cost structure and a nervous shareholder base, or there is the “team-up with ExxonMobil option” to make Elk and Antelope the feedstock source for PNG/LNG train three.Reports from the Oil Search field trip made little mention of a deal with InterOil, saying management was focused on completing the development of the first two trains, and exploring for extra reserves that might be used in a third train.If those extra reserves are found then Oil Search and ExxonMobil might prefer to use their own gas because it would be simpler and cheaper.However, waiting in the wings is InterOil and its new boss who will be acting under instructions from his shareholders to stop planning a stand-alone LNG project and team up with an existing development so gas in the ground can be converted into money in the bank.The big questions from an oil and gas industry perspective is whether PNG will get a second LNG project, or the rapidly-emerging ExxonMobil project will go directly into construction of a third train while it has the construction teams mobilised.If The Slug was a betting man he would opt for a quick deal between InterOil and ExxonMobil because both sides want it and all they are haggling aboutis the price. |
