Interesting

[Optionray]

By Brian Spegele 

     BEIJING-- InterOil Corp., the independent oil-and-gas company working with France's Total SA to explore one of Asia's largest undeveloped gas fields, isn't ruling out a possible takeover if the price is right, a senior InterOil executive said. 

     "You never say never," said Isikeli Taureka, InterOil's executive vice president in an interview on the sidelines of a natural-gas conference in Beijing. "If anybody comes along and offers a price and it's the right price, then you've got to take it back to the shareholders to make that decision." 

     His comments came as an upheaval in global gas markets threatens to spawn a new industry consolidation. 

     Mr. Taureka said the company is currently focused on completing an appraisal of resources at Papua New Guinea's onshore Elk-Antelope gas field. A spokeswoman for InterOil said there was no deal currently in the pipeline. 

     Industry analysts have said InterOil's resource base in Papua New Guinea could make it a potentially attractive target for deals-hungry energy companies eager to capitalize on a drop in oil-and-gas prices that has left many firms reeling. For example, Credit Suisse has described InterOil as an "obvious choice" as a target for Australia's Woodside Petroleum Ltd. InterOil has a market capitalization of around $2.46 billion. 

     "When you add it all up, a lot of people are quite envious, particularly in Elk-Antelope alone. That is probably the largest discovery in Southeast Asia for the last 20 years," said Mr. Taureka. 

     InterOil is part of a joint venture with Total and Papua New Guinea's Oil Search Ltd. to develop the reserves, and to eventually ship them to gas-hungry Asian markets in the form of liquefied natural gas. Mr. Taureka said a final-investment decision on a proposed LNG export facility would come around 2017, and that discussions to contract Asian gas buyers--particularly in China--would get under way soon. Total would service the operator. 

     Papua New Guinea's significant natural-gas reserves are particularly attractive for global energy companies, given the nation's relatively proximity to Asian gas markets such as China and Japan, and strong backing from the country's government. Exxon Mobil Corp. began operating an LNG project in the country last year. InterOil, citing analyst estimates, says its project is one of the cheapest among its peers. 

     Oversupplies in global gas markets have forced companies to begin shelving planned LNG terminals. In Asia, LNG spot prices have fallen drastically: Data provider Platts said this week spot LNG prices for northeast Asia delivery in May had fallen 52.6% year-over-year to $7.38 per million British thermal units. 

     Today, the industry faces additional uncertainty after Royal Dutch Shell PLC's bid to purchase the U.K.'s BG Group, in a deal valued at about $70 billion. 

     The bid by Shell and BG to build a new LNG giant to serve emerging energy-hungry economies in Asia and beyond could spur additional industry consolidation as smaller players look to keep up, industry executives and analysts say. While Mr. Taureka said LNG development in Papua New Guinea would remain competitive given its proximity to Asian markets, he said the Shell-BG deal presented new circumstances for the industry to adjust to. 

     "Obviously [it means] a new set of dynamics for all the LNG players," he said of the deal. "They present a pretty powerful equation in the market." 

     Write to Brian Spegele at brian.spegele@wsj.com 

Possibilities that occur to me

1) There has already been some offer that is relatively low and IOC is trying to encourage another offer from someone else.

2) There may be some issues with Total and IOC is having to scramble ahead of Total backing out to prevent a total collapse.

3) There may be some larger shareholders that are encouraging the board to put us out there for auction or face some kind of retribution.

Something appears to be up.  With so much silence in the past, and with such a recent change in management sentiment (17t's, up for bid, etc), I can't help but think something is definitely up.

[Spartina]

No date yet for the 1stQ cc 2015 I trust. Anybody remember when the 1st Q cc of 2014 was? Should be in about 3 weeks.

[davidhmtk]

No date yet for the 1stQ cc 2015 I trust. Anybody remember when the 1st Q cc of 2014 was? Should be in about 3 weeks.

Last yr May 14th

I agree, something is up. Can't rule out any of Optionrays 4. Perhaps a OSH contact would have some insight. Anyone have a name I should talk to?

[Palm]

My guess is that as usual industry happenings cause analysts to speculate. This then causes half-understanding reporters to ask and ask and ask when companies are at conferences so they have a story to print.

Shell launches takeover of BG Group and the speculation began. Who's next? Will Exxon launch a bid for BP because they are vulnerable? Which other companies might be bought out? Interoil? Let's ask and see what they say. Pound them with questions because someone is saying that a buyout COULD happen. So they get an answer which you'd expect. "Sure. If someone makes an offer we would listen, but it better be a blockbuster because we are sitting on 27Ts and the Board won't entertain low-ball bids".

Management has said in the past that from time to time they get inquiries; this is a little different because the drop in oil prices has created a perfect storm for those involved in oil or affected by it's drop.

So far the only real valuable asset is within PRL 15 and both Total and OSH will have preemptive rights just as there has been discussion about whether Shell might lose some of the assets they want should China or others exercise their preemptive rights, and with too much of that BG's value to Shell might get less. As other have said, Total (and probably OSH) are seen as having PRL 15 locked up as far as the real value of IOC. IF they prove up a Wahoo or even PRL 39 further, things might get more interesting. So many times in the past IOC was going to get bought out, but nothing ever materialized. IMHO it's the same until they get close to or to FID and have had time to drill Wahoo, etc.

[jft310]

Here's a fact Super Majors don't want to own 60 percent of projects . Therefore Total most likely would have an interest in other Interoil lease areas than PRL 15 . OSH if it bought Interoil's share in PRL 15 would own more than Total .Usually the Super Major if only one wants the largest slice of the pie or the largest vote in matters .
Therefore a buyer for PRL15 most likely if sold be Repsol, Woodside, Shell type . Add in your favorite .
Interoil could sell just a piece of their ownership in PRL 15 and have significant cash to drill ahead more prospects and reduced costs to build the plant with its left over PRL 15 share.
Just a thought .

[my2cows]

[quote='jft310 'Interoil could sell just a piece of their ownership in PRL 15 and have significant cash to drill ahead more prospects and reduced costs to build the plant with its left over PRL 15 share. Just a thought . [/quote]

Agreed... and as a side benefit we'll get to see true value, not the market value.

[Palm]

We get true value from Total at certification and should hold 100% until $$$ in the bank. No one will buy IOC's PRL 15 interest for more than what Total will be paying at certification.

IMHO a complete buyout offer for what the BOD would entertain is a good ways off after other prospects have been drilled and at least partially delineated.

[jft310]

Oil Search and Exxon sold off pieces several times each time the price rose per mcf as risk was reduced . Or is there more project certainty with a Total paid in and signed on or it with out ? Therefore later sell down slices receive a higher premium per PNG history .
I do agree to sell it all now makes zero sense with these 17 T's hanging out with 35 more prospects to drill . I expect further drilling to confirm more assets and further sell downs to occur . The PRL machine Dr Hession speaks of .

[Northoil]

Total is French.  China is a bottomless market for French goods.  French national interests would be served if Total (which still has a small government ownership) tilts toward China.

Also, don't overlook China as a potential buyer for IOC.  China has been buying up global resources with surplus dollars for over 20 years as a national strategy.  Copper in Chile, mines in Australia, rare earths in Uganda - the list is endless.  They are deep in third world oil/gas provinces.  Purchasing IOC would buy up gas reserves, extend China's inluence in the region and give them access to upstream LNG technology.  CNOOC could be a candidate.  They would be a perfect partner for Total.  No worries about weak-sister partners (IOC), financing or end markets.  Not saying it will happen, just raising the point.

[/quote]

[CAC]

Oil Search and Exxon sold off pieces several times each time the price rose per mcf as risk was reduced . Or is there more project certainty with a Total paid in and signed on or it with out ? Therefore later sell down slices receive a higher premium per PNG history . I do agree to sell it all now makes zero sense with these 17 T's hanging out with 35 more prospects to drill . I expect further drilling to confirm more assets and further sell downs to occur . The PRL machine Dr Hession speaks of .

*******

I understand why potential bidders may want to wait, but I understand less why IOC management (or IOC shareholders) would.  My concern with this type of approach (take the money and just drill more) is that I would like to see an "exit strategy" at some point for shareholders.  Getting the E/A money from Total will presumably help pps some...but it won't be a dollar for dollar pass-through to shareholders like a buyout would be.  What if IOC gets 2B from TOT but then depletes it for operations for the next 5 years?  Drilling costs a lot and the money could go quickly.  It sounds great to "assume" that the next prospect will end up like E/A...but it might not.  Then, from a shareholder's perspective, we've wasted lots of what could have been "buyout money" on 5 years of expensive operations.  That would be money that shareholders can't get back.  It is not implausible to think that E/A might actually be unique (I've heard it called the largest find in decades so we know it is "rare" in that regard) and that there won't be a "string of pearls" with several more "E/A's".  If so, our opportunity for the highest shareholder value will be behind us.  And even if Wahoo or Tri hits and 7 years from now we get another lump sum from a second sell-down, would the same mindset lead us to "not cash out" again, and drill more?  Do we just keep spending the money on "hits" that could go directly to shareholders...until we "don't hit".  I would just like to see an end-game.