Citi on OSH: PNG LNG on track

[Gator]

OSH aims to participate in Elk/Antelope LNG expansion, terms highly uncertain
— We previously estimated the incremental DCF from an Elk/Antelope expansion train
at ~A$0.92/shr for OSH (see note “PNG LNG expansion: a close look at three
emerging scenarios”), assuming OSH could farm-in for 29% equity at A$1/mcf. We also
highlighted a funding risk in this scenario which could dilute the DCF upside. We now
see an emerging scenario where OSH (& STO) are offered a lower equity % in
Elk/Antelope to make room for an InterOil equity stake, a clear objective of InterOil’s
newly appointed CEO, Mike Hessian. While this would lower the funding burden for
OSH, it would also lower the valuation upside from an Elk/Antelope expansion.

[Tree]

"make room for Interoil equity stake"

Thanks Gator.

[jft310]

IOC gets LNG participation this is not new, Hession didn't bring to the table this idea..IOC can pay for its equity LNG participation with additional NG. Citi has a very weak analyst that covers OSH.

[Palm]

Hession may not have brought it, but it's his horse to ride home and get it done.

[jft310]

Hession has a stallion and knows exactly what LNG participation means for IOC long term. Best guess 20% LNG participation on the IOC supplied trains. IOC's long suit is the amount of NG they own and the amount of condensates that can be used as in kind payments for LNG participation. OSH can't find more NG so far anyway.To expand Exxon needs IOC and its assets.

[Palm]

Agree, but that gas has been there and known for a long time. Polye emphasized last week that 3 years has been lost on EA and it will take someone like Hession to get the breakthough needed not only to work with XOM, but also get the LNG project legitimized and built.

[jft310]

Since IOC has more NG and condensates than OSH then when not if will IOC's market cap exceed OSH's of $10 Billion. ??Much sooner after a closed deal with Exxon. I am sure Exxon told OSH we are closing a deal with IOC these are the terms would you like in or not.

[ArtM72]

I think the OSH failures in their Gulf drilling has to have significantly sharpened the interest in IOC, not to mention the slow going in Highlands discoveries. Golden eggs evidently aren't to be found everywhere around that island. It seems that IOC has been the one company that has found two.

[Petrovale]

CSFB (23/07/2013) A fourth train could add another risked $1/sh to our valuation, slightly less than T3 given that additional infrastructure needs to be expanded (e.g,. pipeline, jetty, storage). Conversely, if drilling results prove better than expected at Elk/Antelope (Interoil was talking up a 7tcf+ resource), P'nyang gas may not be needed for a long time. A development plan is required by March 2015 to maintain the license. Of course, if trains 3 and 4 are jointly developed (for capex of +$15bn?), OSH would be required to provide its share of equity funding. That would be no bad thing given IRRs of mid-20% levels.

[ArtM72]

Could somebody interpret this phrase from the Citi statement: "assuming OSH could farm-in for 29% equity at A$1/mcf." Does that imply the writer's estimate of E/A gas value to be A$1/mcf?