Pandora's Box open?

[Thylacine-2]

This was posted on Yahoo recently.

If true, pandora's box has been opened, including consideration of EWC/FLEX LNG program.

VS

Hey VS,

I believe a friend of mine, who attended the AGM, recently asked a member of the executive if it was possible for EWC/FLEX to be back in the picture with the improved situation with the government.  The answer was no, they are too far down the path with the selldown.  I won't discount some form of modular/floater at Triceratops, but unlikely if they build a traditional plant on the coast as it would be much easier to tie into that existing infrastructure.

What is your rationale/source for thinking EWC/FLEX is possibly being reconsidered?

Health and Happiness,

hemi

With respect to EWC/FLEX I was thinking of Triceratops.  If I were IOC, I'd be attempting to get some kind of a commitment from the government to consider EWC/FLEX in the future, and get as much of a commitment as they can now.

The rationale is, as it always has been, that EWC/FLEX is economically compelling for all parties.

Given the costs associated with stick-built plants, even the reduced marginal cost per LNG ton of additions to stick-built plants, I suspect that the EWC/FLEX arrangements are still cheaper.

The question is whether PNG is willing to concede anything to InterOil at this point.

VS

With the work towards FIDs that's already done, a project with EWC/FLEX would probably also be quicker to production.

Amen!

That's one of many points in favor, but the politics seems to be trumping economic rationality.

VS

Looking at it from the point of view of benefits to PNG, is it possible that a stick built plant would promote more economic activity...jobs..subcontracting..etc, than EWC and particularly FLEX?

[admin]

Yes, that is quite probable and there might also be tax implications involved Thylacine.

[Palm]

Thylacine, the great unknown with this are the LNG projects in Australia. If too many of them get the green light labor will get very tight as Australia pays more and certainly has better working conditions. To compete with that png would have to offer significantly higher wages to attract required skilled labor. This is a huge factor that people who want to rail on Henry for brining EWC and Flex to the table fail to remember. History is a great teacher (right STP?). Back in 2009 as far as Asia goes and labor for LNG plants, the projections were that it would be very difficult to find the labor to build IOC's stick-built plant. Exxon got first approval and Australia was projected to quickly build several plants on top of an already tight labor market. So the solution was modular and FLNG so that they could be built elsewhere and assembled in PNG where local labor could be better utilized. That was brilliant of Henry everyone agreed. People have forgotten that and now just want to bash him for coming up with non-stick plants. Even PNG officials were on board for much the same reason.

Now things are a little different, but how different? A little tough to say, but PNG is not the most desirable place due to the extreme conditions out in the bush. The good thing is that Exxon's project is probably to the point that a lot of synergy exists to be able to utilize many of these workers on IOC's plant. That's a huge reason I think XOM may have the advantage as the operator; easier transition of workers AND subs who have already been working there.

Big questions that may be answered next week.