InterOil teams up with Total for PNG tango
By Russell Searancke
13 December 2013 00:00 GMT
Canadian company InterOil has selected French energy giant Total as its partner for a potential new liquefied natural gas project in Papua New Guinea, but the ambiguity of the financial details saw its share price sink by 37%.
The selection of Total brings to a conclusion a prolonged process of negotiations that InterOil had with the French major, plus Shell, and the early frontrunner ExxonMobil.
LNG pundits were surprised that Total had won the contest given its two rivals were seen to have better credentials in Papua New Guinea — ExxonMobil with its existing LNG infrastructure, and Shell with well-established links with the government.
PNG-based sources said there was no clear signal of what advantages Total had offered over its two rivals. However, there was consensus that, politically, the choice of Total may have been a good compromise given some government factions wanted ExxonMobil and others Shell.
In addition, the potential for building a new LNG plant in the Western Province region, and the associated economic benefits, may have been preferable to the expansion of ExxonMobil’s LNG facility and a floating LNG scheme that Shell would likely have suggested, said sources.
InterOil declared that its deal was “transformational”, whereby Total would take up a 61.3% interest in Block PRL15 in exchange for a final transaction price of between $1.5 billion and $3.6 billion.
However, the price is dependent on the size of the resources in PRL15 and, once the reserves are understood in about 2015 following appraisal drilling, will come in a series of staged payments.
InterOil said it would receive a fixed payment of $613 million upon completion of the transaction, expected early next year, $112 million on a final investment decision for a new LNG plant and $100 million at first LNG cargo.
By contrast, Total said it would pay $470 million, based partly on the farm down of part of its equity. Beyond that, Total estimated a contingent payment to InterOil of about $590 million.
InterOil shareholders were not impressed, with the stock falling 37.38% to $55.50.
Both companies agreed that the immediate priority is the delineation of the Elk and Antelope discoveries and the continued exploration for more resources in the licence area.
Total indicated that, depending on the results of drilling, there could be a final investment decision by 2016 for a field development and the construction of a new onshore LNG plant.
The company also negotiated with InterOil an option to take an interest in exploration permits PPL 236, PPL 237 and PPL 238 in the same area.
“Following Total’s entry into exploration in Papua New Guinea in 2012, this new acquisition of an interest in significant discovered resources is an exciting opportunity for Total to develop a new gas production and liquefaction hub in the Asia-Pacific region, where gas demand is very dynamic”, said Yves-Louis Darricarrere, president of upstream at the French company.
“Total will leverage its technology and experience in major LNG projects to reinforce its long-term production post-2020.”
