The Implications: Time to go all in!

[Resourcearb]

The implications of today’s announcement are far greater than the market has contemplated.  InterOil has secured a recurring channel through which to monetize its resources, and it may incur virtually no capex in order to do so.  Billions of dollars of cash will be available to repurchase shares, pay dividends and increase exploration, and cash flow generation will occur much sooner through PNG LNG’s third train than it would have through the first train of the Gulf Project.  This is a dream scenario.

The lack of detail in today’s press release implies that O’Neill leaked the deal to Parliament prematurely, and hence it was a forced disclosure.  Unlike the Mitsui and PRE reversals, today’s will be transient as FID is imminent and InterOil will soon have most of its resources booked as reserves.  InterOil is the best resource play in the market.

[Palm]

Agree Arb. Very good things ahead. This is the difficult part of managing the deals and proper PRs. The gov does what it does. Pps will gradually climb back through the 90s as details come to light.

[tarulestheday]

"InterOil and Pacific LNG will be funded to drill additional delineation wells in the Elk and Antelope fields, which will be followed by recertification of the resource."

This tells me that FID is NOT imminent at all. I hope I am wrong.

[Petro2458]

Definitely odd that they linked drilling more wells with resource certification but I believe they meant:

1. Part of the deal will include XOM carrying IOC on future development wells
2. As wells are drilled the data will be incorporated into the resource estimate process.

I believe that this deal, once completed, will immediately add proved reserves to the books (which physically will not take place until year end...as that is normally how it's done..so reserves will be in year end 2013 filing).

[admin]

Tarules, I can't imagine there are many out there who think there isn't enough gas in E/A to keep a third Exxon train occupied for 20 years (so say GLJ, GC), so a fast FID is certainly possible, unless they have bigger plans, but even then they could Fid the third train quite fast and wait for possible additions until Exxon is satisfied with the new appraisal.

[Petro2458]

FID is very likely to be commensurate with this deal as XOM can initiate 3rd train construction much quicker than a new process.

[jft310]

I would expect more details to emerge as early as next week.

[Tree]

IOC has certified gas to run 8Mtpa from E/A, even GC's 'quick review' of 6.6T's supports 8Mtpa.
What is cooking IMO is possible 2 train expansion and Gulf LNG simultaneously and appears XOM gets first dibs. That's fine.
XOM appears to be carrying a $billion drill program, paying for about a billion in pipeline work we need and is still going to bestow a chit load of cash on IOC. IOC management is tickled with the deal and as usual the mkt. is manipulated and longs are spooked. Nothing new except we have the biggest/best partner now and the pps will come around. Oh, and there are other SD's a coming I'd guess.

[Resourcearb]

FID is very likely to be commensurate with this deal as XOM can initiate 3rd train construction much quicker than a new process.

Petro, you are of course exactly right.  FID will occur immediately, as ~4tcf of gas should be required for a 3rd train at PNG LNG.  With another well or two, either FID for the Gulf LNG Project will occur, or more likely, a second tranche of resources will be sold to XOM for a 4th train.  Reserves booking is imminent.  The market will soon grasp this with a detailed announcement, and the stock will be significantly revalued.

[admin]

Pretty good thread, this
Thanks guys.

There's this old McQuarrie report arguing that if you include the liquids (and exclude the plant building and operation, I guess), development cost for E/A are negative, what 70c/mcf or so.

This provides a negotiating room between -70c and the marginal gas cost of OilSearch.

That might come in handy for those that have yet to grasp what's happening.