"$5 - $7 Mcf"

[Tree]

Remember Phil said that in CC Aug 2011.

Tree Yazoo Post:
$5-$7 Mcf' 19-Sep-11 09:27 pm
Phil said this 5 weeks ago. He must have been close to a finalized deal if he would put his neck out like this in August. Maybe this $5-$7deal is bottom-lined now. Maybe there are 1 or 2 additional off-takes to Noble's that have been agreed to. Maybe the $5-$7 deal is a dry gas O/T with XOM in exchange for sub-sea pipeline to napanapa, for a few years until the Highlands and our napanapa LNG plant get developed. That would help both IOC/XOM. Maybe Calio asked enough of the right people to figure out this is coming to fruition-and quick.

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Exact Quote from Aug 2011 CC:

'Jason - Macquarie
Just to start out, Phil, I appreciate your comments about the valuation. I just wanted to make sure I understood your comment correctly. When you said a partial sale of equity that could be in the $5 to $7 an Mcf range, is that a direct comparison, then, to the roughly $0.35 an M that is being built into the equity right now? Am I interpreting that correctly?'

Phil - InterOil Corporation - CEO
'Yes, sir. So you have to figure it out. So all I'm saying is, we had the same absurdity once before in our history. And I've never
seen such an extreme as we have today.'

**********

Palm's response:
Re: '$5-$7 Mcf' 19-Sep-11 10:25 pm
That quote has been nicely tucked away and misinterpreted by many. People thinking that was an in-ground price I think are greatly mistaken. All along it has made the most sense that it is a conditioned gas price with someone needing it badly, thus the big smile from Phil. No guarantees, as always, but a distinct possibility al along.


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Phil said 'figure it out'. Here goes.

How does this work for ya?

We know:
1) XOM's gas is $7.5+ and IOC's is $.70 dried and delivered to LNG plant.
2) XOM craves PNG LNG expansion, needs more gas to do so.
3) PNG needs more revenue quicker.
4) Asia needs more LNG quicker.
5) IOC (shareholders) need more cash-flow/earnings quicker.

What if -

1) IOC struck a $4-$5/Mcf deal with XOM for 2 - 3yrs. starting in 2014. Allowing XOM time to aggregate more gas by 2016/17. (explains a subsea T at Gulf Province)
2) This allows CSP 30 mos. for build and start-up to fill sub-sea pipeline to backstop PNG LNG and possibly fuel expansion. CSP and PNG LNG start-up in 2014/early 2015.
3) This allows options for SD partners: either large stick built completion 2 yrs. after CSP OR EWC start with CSP and PNG LNG and 2 additional yrs. for stick built expansion. Gulf LNG construction parallel with CSP. Me like that.
4) This provides earlier, 2-3 yrs., huge revenues for PNG Treasury and IOC via condensate and XOM dry gas sales and possibly earlier Gulf LNG revenues with EWC.
5) Allows IOC to prove up more resource too which could lead to immediate Gulf LNG expansion in parallel with actual construction as cash-flow could almost pay as we build and an option for XOM to extend their 2-3 yr. dry gas deal.

There is no downside to this type of deal and it would add value to SD partners upfront as they would share in XOM sales revenues. I'd think JKM would love early EWC production while Mitsui builds an 8 mtpa LNG plant in the Gulf. I would.
That is why this is my final, final answer!

[Palm]

Agree that you have a velly good theory. The taproot is feeding again!

[ValueSleuth]

Tree,

I like it.

The only question I have is whether XOM could expand its plant fast enough to need the additional gas from IOC in the 2014 time frame?

This question has always loomed large in the stick-built plant issue -- whether with XOM or IOC. It would seem that it would be impossible for a stick-built operation to be built or expanded so quickly.

That's why Henry Aldorf's IOC plans to use EWC and FLEX make so much sense to all parties. PNG not wanting to purse that route appears quite stupid. There's still hope, however, that some rationality will accrue post-electioneering and post-Duma.

VS

[Petrovale]

I will value IOC by the speed at which it moves from catalyst #1) XOM deal @ E/A to #2) JKM deal @ TT. But the real catalysts are the OTs, and the manner in which IOC may want to actively "screw" the shorts through a financial restructuring, e.g., a stock repurchase, a dividend and / or stock split with listing on an Asian exchange. Still waiting for an integral business plan to be announced.

[Tree]

Tree,

I like it.

The only question I have is whether XOM could expand its plant fast enough to need the additional gas from IOC in the 2014 time frame?

This question has always loomed large in the stick-built plant issue -- whether with XOM or IOC. It would seem that it would be impossible for a stick-built operation to be built or expanded so quickly.

That's why Henry Aldorf's IOC plans to use EWC and FLEX make so much sense to all parties. PNG not wanting to purse that route appears quite stupid. There's still hope, however, that some rationality will accrue post-electioneering and post-Duma.

VS

With XOM, all things are possible. Besides, IOC gas is cheaper than their own and they still need gas for PNG LNG basic. I can't imagine that 'T' is for feeding Gulf LNG.

[ArtM72]

As has been mentioned before, many of the components of these "stick built" plants are in fact modular, and if you have current designs and specifications and shop drawings and suppliers and prices the time required to pick up another 50% of capacity is nominal. Probably less than the time it would take Mitsui to build its CSP.

BTW, I really like the thinking in this thread. XOM remains my bet as a principle player in the selldown for all the reasons above. Whether they build IOC's LNG plant is irrelevent.

[jft310]

Independent sources say Exxon is part of these deals. VS the timeline is different then you have written. Assume this is done in Sept/Oct 2012 deals which are binding and Mitsui starts on the CSP construction then . Add 30 months for the construction time and one arrives at first NG at Mar/April 2015.If Exxon starts their expansion at the same time yes they can add more trains by April 2015 and pay for the pipeline from their spur to the IOC/Mitsui CSP. Phil's comment about $5-7 was an offtake deal I think. The IOC pipeline is price talk $100 million range and I think the current talk of $4 per mcf dry NG to Exxon includes the pipeline costs which lowers IOC's price per mcf received from the $5-7 range to $4 per mcf.But IOC gets a pipeline to the Exxon sub sea pipe which runs right by the new stick built IOC/LNG plant and after the Exxon contract expires then IOC can use the same pipeline for their LNG plant. I think Mitsui can build an 8 mbtu modular/stick build name plate in 5 or so years in Gulf Province start to finish. This is a snaphot in time and guess what may change.