IOC wants HIGH Certification Number while TOT wants it to be LOW

[Stavros]

All the talk by JFT and others is that proving up a higher E/A resource Certification is time and money well spent because TOTAL must then pay through their French "nez" for all the additional T's they Certify.

Yes, IOC wants very much to do whatever it takes to have the high GLJ Case (12 tcfe) as the Certification outcome.

BUT TOTAL wants very much to see the low GLJ Case (7 tcfe) as the Certification outcome (or lower). OSH is on TOTAL's side when it comes to the Certification outcome.

The final number will be the average of the too Experts' findings.

Two my opinion, TOTAL will throw massive amounts of ice water on the data and then select the Expert they believe to be the MOST CONSERVATIVE from among the firms allowed to participate. As UBS says, TOTAL is fearful of a high Certification outcome because every addition cf erodes their project economics. They'd much rather pay for low Certification now and pay the additional $$$ several years after the LNG plant has been running (or not pay at all if they acquire IOC first).

IOC and TOTAL can select from the following companies considered as Experts, and listed in Schedule 4 Part 6 of the SPA:

1 Gaffney, Cline & Associates - Familiar with E/A having done a quick evaluation for the IPI partners when they sold to OSH

2 Ryder Scott - No expereince in PNG; a lot of work offshore Australia including Ichthys

3 Beicip - No experience in PNG; mostly a software company; hard to see why they are acceptable other than being French. Can TOTAL "sway" their thinking "behind the scenes" in Paris when no one is listening???

4 Netherland Sewell & Associates, Inc. - Familiar with Papua New Guinea having worked for Esso Highlands and OSH

5 Miller and Lents, Ltd - No experience in PNG; seem to have little experience in Asia or Australia (some with Woodside)

Do any of our Petroleum Engineers have a feel for who IOC and TOTAL will select, knowing that IOC wants a high outcome while TOTAL wants a low outcome???

THANKS

[jft310]

GCA in the most conservative in the industry . GCA stated in their report with 2 more drilled wells they would be close to GLJ.
Henry Aldorf as CEO of Marathon hired Netherland Sewell to evaluate Elk/Antelope . They came back with a pre drill report of 15 T's . The report was read to me by a certain analyst.
If Stavros is correct Total wants a low number which makes sense hire the low baller .
If Interoil hires Netherland Sewell they get a robust number .
My opinion we have at least 10 T's connected plus A/S . PET is at 10 T's with his work . More Antelope wells to be drilled . The numbers should go up from here.
Yes it matters what number one talks about connected or not .
Stavros I assume you mean 12 T's connected ?..one needs to define the question sir !!
And more important we have multiple questions to answer with more drilling .
What's East , what's the Ant 4 sidetrack worth? Will we drill 7 and will it push us further West ??? Or It's to early to talk best guess of the final number . One can only guess today .
But we can estimate what we know today . PET says 10 T's connected . That's a nice number ,
Hession talked about the numbers all being moved mid case has become the low case etc.
in aggregate we should be 13-14 T area connected and unconnected before more wells results .

[Li'loilady]

(Just for the record, there is a GCA resource report floating around published Jan. 2012.  They know us.)   :-)

[ArtM72]

When did Aldorf hire Sewell?

[jft310]

Art 2005

[Stavros]

Lil:

(Just for the record, there is a GCA resource report floating around published Jan. 2012. They know us.) :-)

Yes you're correct; that's what I listed in Number 1

JFT:

Stavros I assume you mean 12 T's connected ?..one needs to define the question sir !!\

My question is "Who might TOTAL select out of the five choices in an attempt to provide a Certification that is as low as possible while still being credible."

I'm not really qualified to say how much is in E/A, not including Antelope South or other zones that run into PRL 15. If pressed to give my opinion, I'd say 12 tcfe in E/A ALONE, WITHOUT ANYTHING ELSE. ie, GLJ's old High Case. My guess is that IOC will select Netherland Sewell and TOTAL will use their neighbor Beicip.

I'm a Chemical Engineer who knows how to plan, design and build a large plant such as LNG. Therefore I know which EPC Contractors are the best ones and which are the firms who make mistakes and try to cut corners.

PNG LNG was constructed by a consortium of Chiyoda/JGC who also used the APIC Liquefaction technology. Chiyoda and JGC are located near each other in Yokohama and have partnered on numerous successful LNG projects in the past. In PNG LNG they used Daewoo as a subcontractor as well. The plant was completed on-time, started up without any problems and is operating at higher-than-design capacity.

A JV of Technip, JGC and KBR built the Balhaf LNG plant for TOTAL starting up in October 2009, several years before PNG LNG. It's a bit smaller than PNG LNG and also uses APIC technology. The cost of the plant was "advertised" as being quite low, but was probably somewhat higher in cost when the final price was tabulated. I doubt the plant can run at above capacity. In addition, there have been safety incidents in the plant that caused minor damage.

CBI, who built the PNG LNG Gas Conditioning Plant and the two large LNG Tanks, is also a very qualified LNG EPC Contractor that will be considered by TOTAL/IOC/OSH.

In my career I once did a detailed study to see what it costs to build a large complex using ExxonMobil specifications, Shell specifications and standard EPC Contractor specifications. With EPC Contractor as the "Base Cost" a plant using Shell specs costs over 10% more and a plant using XOM specs costs nearly 30%. Both Shell and XOM are convinced that their specs are worth the extra costs required to use them. These differences are still very real but are never considered when Analysts compare costs of various plants. I'm not aware of what TOTAL's specifications include and how much additional cost they add to a project.

[Palm]

I agree Total would like to have the Certification amount be conservative, but per the SPA instructions it will be a bit difficult to force a lowball estimate. Also if any of the listed firms for Certification, Wild Card, Discovery Bonus, etc. have not done reservoir estimation work in PNG, they will not be eligible to Certify and another from the list must be nominated. The clause on this clearly states that if one has not done work in PNG OR is unwilling to provide service within tbe specified time OR does not agree to the appointment within the specified 20 days, the Buyer/Seller must pick another from the list for the job.

Also there can be no ex parte communications so as to influence (I know we can cough on this a couple of times). IMO even a conservative estimate doesn't hurt that much. Total for sure wants at least enough for the required startup of 2 trains and the larger the trains the better for efficiencies. Their exposure to the higher tier is fairly limited as the Certification payment is likely their bigger concern. If they are going to balk, we will see it with a choice by the JV to NOT drill Ant 7 IMHO. Ant 6 is already chosen and not expected to do much to move the needle per Hession's interview with Calio.

We also may not want too high of Certification as it would more likely prompt a buyout attempt, which mgmt has formed a strategy for. Total knows the bigger payoff is with future trains and may see a higher Cert pmt as a cost of getting in to this huge reefal basin.

[Putncalls]

If 3.5 Ts is required for a train and a train is about 7.5 billion then the gas is about 30% of the cost. More gas more trains. When your the lowest cost supplier you get to have more trains.

[ArtM72]

Art 2005

Thx.  Somebody else has figured out the geology..