Cheapest LNG project in the world

[jft310]

Stavros wouldn't that be a hoot to come full circle .

[Palm]

And that's entirely possible. When IOC proposed it back then the gov said it wanted another traditional plant and then they were open to FLNG and modular. They even had approved FLNG and had an MOU with a FLNG-building company. The protected bay of Gulf Province was said to be perfect for it. Bring it on.

[sageo]

Palm - Appreciate your "feed-back" on my questions about Triceratops and prl 39 yesterday . More possibilities to consider. Thanks .

[jft310]

Palm - when was a deal for properties outside PRL 15 first mentioned !?
Was it not Dec 2013 when Hession mentioned Total was interested in a farm agreement ?? That 6 month period expired as Interoil wanted more wells drilled which have now been drilled with today discoveries at TBR further lots more seismic data has been acquired . All this driving up any deal type price . Big difference exploration and a discovery .
We know Total has an interest since Dec 2013 . Hession did not say negotiations over TBR had just started but the clock was started in reality earlier . When was the clock started ?? Unknown but adding 6 months to Hession's
comments isn't fair per his choice of words . Is Total now ready ??The Basis of Design should to save money have expansion built in . Would Total spend $100's of millions to build in expansion like Exxon did . Most likely so would that require a signed deal? When did the deal talk begin for TBR clearly that's unknown today . Was not June 2015 that should be obvious .

[Palm]

Different issues:
1. Total "was granted" exclusive rights to negotiate farm-ins. If the term was 6 months, those rights would have lapsed in early June 2014. Wahoo, Raptor and Bobcat were spud in early 2014, but none of them had any results before the rights lapsed and in fact quite a few problems time-wise and drilling-wise. Hession stated that he expected the wells to take 60-90 days (or something like that), but they all took much longer. If he was hoping to use that drilling to demand a higher price from Total, it obviously didn't work. In fact Hession didn't just want more wells drilled, they were forced to get the bit drilling in those locations (possibly before they were really ready) because they were in danger of losing licenses had they not gotten them going. Hession mentioned that more than once.

2. On the six months, it was in the MS Conversation on or near June 18th that Hession stated, "So, I would use a marker of let's say six months" for deals as it had taken four to six months to do the Total deal. He then said, "So, if I was to do a deal in six months, it would be a good deal. And if I can't do a deal, I'll hold onto it." Calio then said, "Right. I know that you don't control the other side of the negotiation.
But I guess the important point was that post discovery, you wouldn't subsequently appraise the well. You would move right to a negotiation
position and then a subsequent potentially appraise the resource."

Hession's response: "I would do both. And I'll be quite clear, I'm currently doing both at that moment with Raptor, Bobcat and Triceratops." He then says, "So, my preference has been all along do a deal once we've made the discovery. Now, if we can construct something like the Total deal where you've got flexibility and payment schedules, which reflects flexibility in the molecule outcome, then we'll do a deal."

Triceratops, Bobcat and Raptor have all been declared discoveries and Hession says that based on that he "currently" was/has a) moved right into a negotiation position and b) subsequently appraising the resource, based on Calio's comment/question.

Not sure how else you can interpret Hession's own words other than to say back in June he was in negotiations with Total and/or Exxon and/or ???, and using his "marker" of 6 months for a deal as good as he got with Total should be mid-December at the latest.

Don't think I'm putting words in his mouth that didn't already come out of his mouth or being unfair. Will he get a deal done by YE on the terms he wants? Maybe, maybe not. I'm just not going to count on it. If the "goods" are there, a deal will come (possibly even if Tri-3 hits bigger than Hession estimated), but the only real chance is with Tri as the others won't be drilled and complete until after YE most likely. I really do hope we get the over-delivery with a deal, but like I say, I'm not counting on it based on past performance.

Not worth getting bunched up about it, as I'd gladly love to be wrong. It should be considered good news, not bad that he likely is in negotiations with Total and/or Exxon.

[Stavros]

"It should be considered good news, not bad that he likely is in negotiations with Total and/or Exxon."

It seems possible (maybe probable) that others are in talks with Hession.

+ Repsol - they need more resources than what's in Western Province.
+ GAIL or ONGC - Indian companies have been interested for quite some time
+ One of many possible Japanese, including INPEX
+ PTT
+ OSH
+ Woodside

They can all afford the relatively small upfront cash outlays and pay up the bulk of the CA$H in a few years after certification, when oil, gas and LNG prices are higher.

[jft310]

Then we have the Prime Minister stating they wanted a third Super Major on the island . My opinion hard to imagine letting this tie in gas to Antelope go to another . Might take a deal in Total's face from another suitor of TBR to get them to move . Do we care ???

[Palm]

Actually we should care. Hession says there are 2 buyers on the island and we should hope that TBR ends up ideally as expansion for one of the 2 plants because that's a much quicker road to monetization. Going the route of a 3rd LNG plant will take longer, especially with a 3rd party, outside of a possible FLNG, but that might even take longer than being used for expansion.

The questions with any of it are when and at what price, and those are big questions.

[Getitrt2]

Sageo, with all that is going on in PNG currently it's obviously the place to be. We have PNG LNG up and running, PRL 15 closing in on Certification in early 2016, drilling going on at Wahoo, drilling and planned drilling in TBR, P'nyang getting ready to be drilled in early 2016 (and Santos recently added to that license), Repsol getting involved in the west and Kina drawing interest from both OSH and Total in the license area adjacent to EA due to it being "of interest with Papua LNG" having been announced. What will pop first as far as PNG LNG expansion is tough to guess. But what we want to happen at lightning speed these SMs do much more methodically. These projects produce for 20-30 years and they know they must develop them at lowest cost and feed demand as it's perceived. With Santos having been admitted to P'nyang recently, it's safest to assume train 3 will come from there. We can scream about mountains and cost, but overall it's seen by that partnership as the best way to fill the pipeline they've all paid for. Exxon is calling the shots there and they don't make many mistakes. But then what? PNG LNG supposedly is good for 4 or 5 trains and it seems their license areas are having problems providing much of anything. Assuming P'nyang fills that subsea pipeline, how will building out/expansion of Papua LNG coincide with further expansion of PNG LNG? No way to know now. Hession said in the MS piece that there are 2 in PNG now; Total and Exxon and they both need more gas. Wahoo seems the best possible answer for PNG LNG but there will be just one well there for a good while. If it hits can Hession get a deal with PNG LNG partnership that makes him happy? Seems tough to me knowing Exxon's ways. Wahoo now would be perfect for Papua LNG expansion also. Could see some creative partnerships happen Wahoo-way. Then we have TBR, again it needs a good bit of appraisal development to get max price. The tie-back feature makes it most suitable for Papua LNG, but how soon does Total think it's needed/available. Hession mentions Tri as being fairly small but others think it could be a super-giant. Only one way to know. Several more wells. I think a bit of this will plod along at industry pace and not IOC-shareholder lightning speed. Would love to be surprised but SMs didn't get where they are and stay by making decisions like small resource companies do. They don't have to gamble. They wait to keep risks lower in a high risk industry. As usual we have to wait and play their game and conserve cash wherever possible to keep from getting desperate. That's my take. Use or flush. HAGD Sageo

Well said, and I agree strongly with basically ALL this, especially the parts about P'nyang and Wahoo, which matches what I have been saying for a long time.

[Getitrt2]

Then we have the Prime Minister stating they wanted a third Super Major on the island . My opinion hard to imagine letting this tie in gas to Antelope go to another . Might take a deal in Total's face from another suitor of TBR to get them to move . Do we care ???

We definitely care, and IOC should just do whatever makes the most sense and creates the most present value for IOC and its shareholders, regardless of whether it's with Total, PNG LNG, or other new parties.

When IOC did the deal with Total, they described Total as the kind of long-term "strategic partner" they were looking for, and granted Total an agreement for exclusive negotiations on possible farm-ins elsewhere as Total apparently wanted, but Hession had no intention to agree on any farm-in deals without first increasing property values with drilling and more seismic, etc.  Furthermore, it may be that Exxon or some new party would be more ready to deal on something such as Wahoo or Triceratops sooner than Total.  Given how good E/A is now looking, plus the additional potential in PRL 15 for Antelope South, Raptor, Mule Deer, and White Tail, there is no telling how much expansion PRL 15 itself could support for Papua LNG.  Total has already "paid" (incurred the acquisition cost) for its share of whatever gas is in PRL 15, and the more Papua LNG is supported from there, the more profitable for Total.  Total may want to get much more drilling and appraisal done there and more quantification of what it ALREADY OWNS before committing to a purchase deal on gas from elsewhere, or perhaps with more information decides to try to buy out IOC entirely.  It is much more certain that Exxon and/or other parties that want into PNG are going to need much more gas to expand or build a project in PNG, and they may be ready to deal sooner than Total.  It looks to me like IOC is going to have plenty of gas in the EPB for all of them.  DRILL, BABY, DRILL!  DEAL, BABY, DEAL (when it's time, with whomever)!  ROCK AND ROLL!