IOC re-opens bidder door

[Tree]

Open sesame

InterOil re-opens door to potential gas partners

PUBLISHED: 20 AUG 2013 09:58:00 | UPDATED: 20 AUG 2013 10:15:42

ANGELA MACDONALD-SMITH

InterOil has re-opened the door to other potential partners that may want to invest to develop the US-listed company’s gasfields in Papua New Guinea after the expiry of exclusive negotiations to sell its gas to Exxon Mobil.

InterOil, under new chief executive Michael Hession, said overnight (Australian time) that InterOil was still negotiating with the US energy giant on gas from the Elk and Antelope fields but that exclusive arrangements had lapsed.

It said it would “continue to work with Exxon Mobil Papua New Guinea with the aim of accelerating the monetisation of its gas resources on terms that will benefit all stakeholders including Papua New Guinea”.

ExxonMobil has been negotiating for the potential purchase of gas from Elk and Antelope to use in an expansion of its $US19 billion PNG liquefied natural gas project, which is under construction and due to start commercial production next year.

InterOil had previously held a process inviting potential partners into a data room to study its resources and sources said interested parties included Total, Shell, Woodside Petroleum and Oil Search as well as ExxonMobil.

That process ended in May with the announcement of the exclusivity arrangements with Exxon, but the latest development appears to have paved the way again for other potential partners to reconsider an investment.

Meanwhile, InterOil said it secured a one-year $US75 million loan facility from Westpac - PNG and Bank South Pacific to be used to fund exploration and drilling, as flagged Monday in Street Talk.

Some $US37.5 million of the funding is immediately available, with the rest available once an agreement is finalised to develop the Elk and Antelope gas fields.

[ebster123]

If they (we at east heard Total did) last time likely if they return to the table after being asked by IOC they will offer LESS than before. If it was not good enough last time I don't know what has changed except now maybe we need one of them. Might not be such a good thing.

[jft310]

If they (we at east heard Total did) last time likely if they return to the table after being asked by IOC they will offer LESS than before. If it was not good enough last time I don't know what has changed except now maybe we need one of them. Might not be such a good thing.

The problem is how much LNG participation and how much for a buy in. There is no question about will there be LNG participation of not its how much and what's it cost.

The agreed to term sheet includes LNG revenue for IOC, in order for IOC to get its desired amount the door has been opened for more competition and we can drill without you attitude , should speed up the process. And advance talks on a second LNG plant.

[ltinvest]

Actually, the fact of the matter is at least one bidder approached Interoil after Dr. Hession joined the company.

[jft310]

Actually, the fact of the matter is at least one bidder approached Interoil after Dr. Hession joined the company.

That's been reported on yahoo. Another bid

To me this means Hession addition to IOC is having a profound effect and bidders are more anxious to work with IOC now and to raise the prices they are willing to pay because of the reduced risk to them of having a CEO with Hessions background and track record.

This sends a message to Exxon if you want more than 1 train.best to do the first rain right and you are not guaranteed the first train unless we get the right amount of LNG participation at the right price. Hession is speaking with strength. He knows what IOC has .

[ltinvest]

Lets be clear here. Interoil wants to close the deal with Exxon. For all the reasons previously stated, it makes a lot of sense for Interoil to partner with the worlds largest energy company.

1) Adding a 3rd train is the highest return option XOM is contemplating.
2) If XOM wants to add a 3rd train, gas from E/A is their only realistic option at this point. I believe OSH gas is at least 2 years away before they even know if they have gas let alone a sufficient quantity. XOM waiting for P'nyang is a huge risk for them.
3)Whether it's through participation or royalty, all parties benefit from a PNG LNG 3rd train.

Dr. Hession has participated in numerous deals over his 25 years. He knows the region well and has relationships with many of the big players. At least one previous bidder reapproached Interoil after Dr. Hession joined as CEO. Due to the exclusivity limitations, there were no negotiations. I have no knowledge if a previous bid changed. However, IOC is free to engage them at this point. Obviously, Hession was not part of the previous bidding process or negotiations. Even if Interoil opens discussions with one or more previous bidders, they are far from starting over. Extensive due diligence and discussions occured this spring. Exxon knows IOC has other options and is concerned about the low IOC pps as well.

Interoil does have a sense of urgency to close a deal. At least one large institutional shareholder has strongly expressed their desire to see a deal closed soon directly to Dr. Hession. If a couple issues can be dealt with, it will be Exxon.

[admin]

Thanks for that, Itinvest. I think that sums it up.

[Getitrt2]

I think lt nailed it. I heard IOC had received one or more unsolicited approaches before they allowed exclusivity to lapse. In the three LNG deals Dr. Hession had participated in in the 18 months prior to taking over IOC, none were done with exclusivity. They still expect to do the deal with XOM, and things seem to be moving faster now (wonder why?!). At the same time now, however, they can talk with other suitors, whether it be about all of PRL 15, or part of it toward a Gulf LNG, or some other resource, or even as a bigger "strategic partner", as expressed by Dr. Hession as a goal in the conference call. AND, they are now getting back to drilling, as the PNG government wants. I also hear Dr. Hession is working closely with the government, and that is going well, with their interests very much in alignment.

[SeKreet]

XOM does not walk away from this huge gas-buying opportunity. Gas (and oil ofcourse) is XOM's core-business!
I am convinced it is negotiation-tactics from the bigboy (XOM) to try to scare the little boy (IOC) into selling it cheaper.... they'd better think twice to persue this posture!

[Palm]

XOM does not walk away from this huge gas-buying opportunity. Gas (and oil ofcourse) is XOM's core-business!
I am convinced it is negotiation-tactics from the bigboy (XOM) to try to scare the little boy (IOC) into selling it cheaper.... they'd better think twice to persue this posture!

To boot XOM recently stated that PNG is their primary focus and hub for their Asian development.  So how important does ALL PNG gas/liquids become to a company that just made that statement?  If one looks at what all XOM is doing in PNG right now you will see that they are working at securing gas finds all down the "string of pearls".  Look at the NGE presentation that Tree pointed to this AM.  Recently XOM/OSH purchased PPL 277 from NGE and that PPL lies right in line with Tri/PRL15/Wahoo.

Did XOM approach IOC with the idea of going into exclusive negotiations? I believe that was the case

Did XOM do that with the thought they could lock up IOC and bleed things out to the point IOC cried "uncle"? One of the oldest negotiating tricks in the book

Would Hession have agreed to exclusive negotiations had he been at the helm at the time exclusive negotiation was proposed? I would guess not, based on his record as pointed out by Getit and others

Exxon wants the gas; in fact needs it or their statement of the importance of PNG as a whole in their strategic planning becomes mute shortly after they said it.  Hession and his colleagues and the IOC team know what's there and so does XOM and so do others.

I disagree that because the exclusive period has ended the next offer(s) will be inferior.

I also disagree that NOW is the time for IOC to put itself up for sale.  That would be an act of desperation.  As we have said, and as analysts of OSH have said about them.  The best time for a sale is just prior to production when pending cashflows can help pay for any buyout.