Images on fax from rexstar.com will not post.
Transcribed Bullet points from report.
WM has it mostly correct.
"OK, OK Phil......your's is bigger. We just need to prove it to ourselves"
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* Exxon has started negotiations with InterOil over the E/A fields
* Proposed deal involves enough gas for 1 train expamsion of PNG LNG and a 4 well appraisal campaign of E/A to recertify the resource
* Resource size is reported from 7Tcf to 11Tcf
* Consideration in any deal would be phase, tied to appraisal, development and production milestones which would mitigate the commercial and technical risks of the transactio
* PNG LNG has most attractive economics in the region.
* Expansion further improves it's comercial prospects.
* Proposed deal would expand PNG LNG to 4 trains
* Exxon's position in PNG with PNG LNG gives it greater scope to strike a commercial deal for E/A ahead of it's competitors as it can offer a clear and timely route to development of E/A gas
* This deal reinforces Exxon's leading position in PNG and limits entry opportunities for other international companies
* Concluding a transaction will allow IOC to realise upfront value from the fields without capital and project risk of a standalone 2nd LNG development.
* For PNG Gov't the deal paves way to a second major wave of investment in it's gas industry and boost it's slowing economy
* The final terms of the deal will hinge on the results of additional XOM funded appraisal and recertification
* The reefal carbonate reservoirs have tested at extremelyhigh rates in short-term tests, however significant uncertainty remains over both the reserves and long-term deliverability.
* The recertification will be used to determine the unitisation in PRL15.
* FEED studies for PNG LNG expansion trains were expected to begin in late 2013, though the source of expansion feedgas is still to be determined. The potential inclusion of E/A gas to the project may change the scope of these provisions.
* The lowest cost and simplest option for expansion trains is Hides field, part of PNG LNG project......BUT, (Hides) needs further appraisal to confirm reserves upside.
* An alternative is the remote and higher-cost P'nyang field, which is NOT part of the PNG LNG project and needs a gas sales or unitisation agreement between partners
* An IOC/XOM tie up would introduce a third supply option for train#3, or allow an accelerated timetable for train#4
* Economics of scale could be achieved by buiding trains #3 and #4 concurrently, while E/A deal would delay the need for further high cost exploration to find gas for those trains.
* Exploration wells in the highlands of PNG are amongst the most expensive onshore wells in the world at upwatds of $100 million.
* XOM has a number of options to bring E/A gas into PNG LNG, these include:
1) Revised unitisation agreement with XOM increasing it's interest in the project
2) Existing unitisation extended to cover E/A, with the partners reimbursing XOM
3) Tolling agreement, where XOM pays a fee to liquefy E/A gas through PNG LNG
* These options would allow all partners to benefit from expanding the existing project. However, the level of reward available may depend on each partner's ability to commit to the sizeable investment required to expand the project.
* PNG LNG expansion appears to be XOM highest LNG priority. Perhaps more than Gorgon expansion, Scarborough FLNG, NA shale plays, far eastern Russia and East Africa
* XOM can effectively lock it's main competitors out of PNG for the foreseeable future
* There are few other material entry opportunities in the short to medium term, except for exploratio or acquisitions
* Agreement allows IOC:
1) to monetise E/A gas prior to PRL15 expiry in 2015
2) sidestep capital and construction risk
3) IOC will retain the rights to the gas over and above XOM's requirement (4.6T), with the option of developing it's gas in it's own LNG facility or entering into further agreements with XOM.
* An agreement gives PNG Gov't improved odds of timely development of E/A
* Each train assumed at 4Mtpa, life 20 yrs. No build up or tail off.
* Trains 3 & 4 assumed to start production on January 1 2020
