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Interoil Corp Earnings Q3 2014 Earnings Call Teleconference IOC
2014-11-14 13:58:09.693 GMT
Event Date: 11/14/2014
Company Name: Interoil Corp
Event Description:Q3 2014 Earnings Call
Source: Interoil Corp
For more event information and transcripts,
Q3 2014 Earnings Call
MANAGEMENT DISCUSSION SECTION
Operator:
Ladies and gentlemen, thank you for standing by, and welcome to the InterOil
Third Quarter Earnings Conference Call. At this time, all participants are in
a listen-only mode. Later, we will conduct a question-and-answer session, and
instructions will be given at that time. [Operator Instructions] As a
reminder, today's conference is being recorded.
I would now like to turn the conference over to our first speaker, Senior
Vice President of Investor Relations, Mr. Michael Lynn. Please go ahead, sir.
Michael Lynn:
Thank you, and hello, everyone. Yes, this is Mike Lynn. SVP of Investor
Relations at InterOil Corporation. Before we start, I want to briefly remind
everyone that some of the statements made on this conference call constitute
forward-looking statements within the meaning of the U.S. securities laws,
including such statements as those regarding expectations of future results,
general financial performance, future business prospects and strategies.
These statements are based on management's current expectations and are
subject to a number of risks and uncertainties, which could cause actual
results to differ materially from those described in the forward-looking
statements.
Investors are cautioned not to place undue reliance on these statements.
Additional information about factors that could cause our results to differ
materially from those in the forward-looking statements can be found in the
company's filings with the U.S. Securities and Exchange Commission and SEDAR.
Our speakers on the call today are the Chief Executive, Dr. Michael Hession;
Senior Vice President of Exploration, Laurie Brown; and Chief Financial
Officer, Don Spector. We have a presentation to accompany our comments today.
The presentation can be accessed on our website at www.interoil.com. You can
find the link on the Home Page. At this time, I'd like to turn the call over
to Dr. Hession.
Michael Hession:
Thanks, Michael, and hello, everyone. Thank you all for dialing in to our
third quarter call today. It's been a solid and productive quarter for
InterOil. Now, let me start by saying our strategy is simple. We find gas,
develop and monetize gas, and find more gas. Then we repeat this process
again and again. It's all about adding value and that's what we've done this
quarter. Execution of this simple, repeatable strategy positions us well to
deliver more value to shareholders in 2015 and beyond.
So, let's begin on slide 4 with a quick overview of the InterOil story. We
have first-class assets. We are well funded. We have a first-grade team, and
we are focused and disciplined in the pursuit of value, all of which are key
ingredients for success. On top of that, Papua New Guinea has an abundant gas
resource and sits in the belly of the world's biggest gas market.
And InterOil has a commanding acreage position in one of the world's most
exciting emerging exploration provinces. With those attributes in mind,
today's presentation focuses on the development of the Elk-Antelope LNG
project and our exploration campaign. Our [ph] measure (03:51) today is that
we are closing our Q3 in a solid financial and operational position and we
are well placed to execute our strategy and deliver value. In doing so, our
focus is on running our business well in a disciplined fashion and delivering
value.
So, let's now turn to Elk-Antelope. If we go to slide 6, you will see we
continue to operate Elk-Antelope and we are well under way to developing the
resource. Elk-Antelope is the largest undeveloped gas field in PNG and one of
the largest gas discoveries in Asia in the past 20 years. We believe this
field will supply a multi-train LNG project.
More importantly, Elk-Antelope is one field, with easy river access,
manageable terrain, and closer to Port Moresby than any other developed gas
field in Papua New Guinea. These key features support the economics that
Elk-Antelope could be one of the lowest cost and most profitable LNG project
in the Asia Pacific region. We will come back to that later.
The final phase of appraisal of Elk-Antelope began with the spudding of
Antelope-4 in September this year. Antelope-5 is expected to spud this
quarter. And very importantly, there are now 500 people working on the
development of Elk-Antelope, concept select [indiscernible] (05:33) are well
advanced.
In addition, onshore and offshore survey work is planned to commence before
the end of this year. We are all very positive about Elk-Antelope, and we
have a strong joint venture partner to move this project forward.
Now, if we go to slide 7. On slide 7, we can see that Papua New Guinea's
first LNG project, PNG LNG, has been a great achievement. It is credit to the
Exxon joint venture and is widely recognized as one of the lowest cost
greenfield LNG project in the world.
The partners for this project have aggregated several fields and built
facilities in some of the most rugged terrain on earth. It has been truly
magnificent for the LNG industry and for Papua New Guinea.
Now this project has helped de-risk a project like Elk-Antelope. A project
that consists of only one field in relatively gentle countries and serviced
by a major river. And as I've said before, we are [indiscernible] (06:52). In
addition, PNG has attractive physical terms and a competitive labor market.
They have a stable government and strong leadership of that government.
All of these factors could provide huge cost benefits to our project and
build on the PNG LNG foundation that has made Papua New Guinea among the most
competitive LNG producers in the world.
We turn to slide 8. On slide 8, the value proposition of a new Papua New
Guinea LNG project is clear, especially when measured against other LNG
projects in Australasia. This analysis shows the natural advantage of
Elk-Antelope. It could make a two-train development of very attractive LNG
project.
In essence, we have to develop only one field and as I said before, we are on
the belly of the world's largest gas market.
So putting this into context, this project is forecast to be low-cost build
and with a low breakeven price. Therefore, it could be one of the highest, if
not the highest value-returning LNG project in this Asia-Pacific region. Our
opportunity and the opportunity for Papua New Guinea is to make the most of
these metrics in developing Elk-Antelope efficiently and effectively. This is
clearly a good position from which to start, particularly when we stack up
against our major LNG competitors.
Now, let's have a look at our appraisal wells, and we go to slide 9. We have
Antelope-4 which, as you know, was spudded in September and is on the
southern flank of the Elk-Antelope field. Appraisal wells better define
volumes and help us to better understand the geology and structure. That will
also help with [indiscernible] (09:09) scope, size and plan the LNG project.
And very importantly, it is a critical step for InterOil because it
determines our certification payment under our deal with Total.
From a cash perspective, Total caries 75% of InterOil's cost on this well,
which means that we will contribute just under $5 million on the first $50
million of gross cost. Appraisal of Antelope-4 is progressing and we're on
track for certification in the second half of next year. We will you with the
material used as soon as we have any.
We can go to slide 10. Slide 10 is about Antelope-5. The other appraisal well
in PRL 15. This will test the field's [ph] western plank (10:13), and again
will tell us about the field's size, [ph] broad (10:17) property and
structure. You could see from this slide that the preliminary rig structure
is ready. We anticipate drilling Antelope-5 when the full rig has mobilized
[indiscernible] (10:22). Now, these appraisal wells, in addition to new
seismic that we have acquired over the southern portion of Elk-Antelope, will
allow us to update our resource modeling in preparation for field
development.
I would like now to turn toTriceratops. On slide 11, you'll notice that
Triceratops-3 is a step-out from the discovery and appraisal wells in PRL 39.
We expect this [ph] progressive appraisal (10:53) well in 2015, with
[indiscernible] (11:04) determining whether our additional volumes beyond the
sub-area identified by Triceratops-1 and Triceratops-2.
If so, Triceratops provides another opportunity for development as either a
stand-alone project or as a tieback to Elk-Antelope. I think it's important
to understand it's good to have optionality.
So, if you can turn to slide 12 and here I'd like to talk about performance
improvement. Before I hand over to Laurie Brown, I will take you through
slide 12 and let you understand the key focus area.
Let me start by giving you a sense of how the company is running because as I
keep mentioning, we have a great team along with great assets and strong
financing. InterOil has changed from a company that was looking for the best
talent to a company where now the best talent is looking to InterOil. This is
a very important change, and it reflects the team's hard work and the
transformation over the past year.
From my first day as CEO, we've worked to create a first-rate team to match
our first-class asset and to build InterOil into a company that the best
people want to work for. This mindset of constant improvement flow through
everything we do every day. We strive to make every aspect of our work more
efficient and more effective.
We are improving all parts of our operation by using world-class contractors,
strengthening our supply chain and improving our procurement procedures. So,
this work is all about optimizing our performance, and we expect to see a
continued market improvement next year.
So, with that, I will now hand over to Laurie to update us on exploration,
and he'll be followed by Don Spector, our CFO, who will go through our
finances. Laurie?
Laurie Brown:
Thank you, Michael, and hello, everyone. To frame my talk today, I'll run
through three aspects. First is our exploration position. Second is an update
on our exploration wells Bobcat, Raptor and Wahoo. And third is the rollout
of our exploration strategy which we have started.
So let's turn to slide 14. This is zoom out of the Eastern Papuan Basin, and
this puts our entire acreage position into context. After 11 years of
exploration, we now have a commanding position over the basin, 16,000 square
kilometers or 4 million acres that includes six licenses. We have two
petroleum retention leases, PRL39, which housed the 2005 Triceratops
discovery in the extreme northwest, and PRL15, which is in the heart of our
acreage and includes the Elk-Antelope LNG developments, as well as the
exciting Antelope Deep exploration target.
Outside of those PRLs, which constitute less than 10% of our total area, we
offer a full PPLs, or Petroleum Prospecting Licenses, and hold material
equity in each of those of not less than 65%. Putting that into context and
depending on where you are, our acreage is about 22 times the size of
Singapore, 13 times the size of New York State or twice that of [ph] Greater
London (14:52).
The point of this is that we have a very large acreage position dominating
the onshore high-graded portion of the Eastern Papuan Basin, most of which is
being barely explored. To allow us to explore and do it thoroughly, we've
secured [ph] tenure (15:08) over our exploration acreage for the next six
years with an option to extend that for a further five. That's up to 11 years
in total.
The company's strategy is simple. As Michael said, it's about finding gas,
developing and monetizing gas, and finding more gas. And it's this latter
[ph] cause (15:30) in which I now wish to concentrate.
So, turning to page 15. Our exploration and exploitation activity has two
core drivers. One is centered on delivering additional near-field tie back
potential to the Elk-Antelope project. And the second is focused on
delivering possible stand-alone development projects outside of that area.
On the first theme, Triceratops, Bobcat, Raptor and Antelope-Deep annotated
on the slide, all fall within the range where tie back to Elk-Antelope could
materially build scale for that project. For illustrative purposes, a
45-kilometer tie back radius around Elk-Antelope is shown on the slide.
Clearly, the incremental value associated with tying back nearby discoveries,
groomed into an ongoing project is much more attractive than that for a
stand-alone project.
And this is the principal reason behind this approach. To that end,
successful results in the next year or so from Triceratops appraisal and the
Bobcat, Raptor and Antelope-Deep exploration wells are significant to
InterOil's LNG project. The key, as Michael as mentioned is optionality.
Triceratops-3 is in the drilling sequence [indiscernible] (16:55) appraisal
in 2015. It's a stack up well beyond the current [indiscernible] (17:05)
within the field, which to date has been independently evaluated by GLJ.
Therefore, it has the potential to materially upgrade the current resource
assessment for that field.
Antelope-Deep within PRL15 is a large scale, high impact, low risk
exploration target that's strongly supported by the Elk-Antelope joint
venture. It continues the trend from Triceratops through Bobcat, Elk and
Antelope on which InterOil has successfully drilled three discoveries.
Subject to joint venture approval, Antelope-Deep will be part of the drilling
sequence for 2015. And may I remind you, InterOil will be carried by Total
for 75% of the first $60 million (sic) [$50 million] (17:48) gross of that
well. I'll give you an update on Bobcat and Raptor separately later.
Let's now turn to the second theme of delivering potential stand-alone
developments. Wahoo, lying equidistant between Elk-Antelope and Port Moresby
is a standout candidate, but I'll talk more about that later.
Both of these drivers, near-field tieback and stand-alone developments
provide the basis for InterOil's long-term strategy of generating and
monetizing additional PRLs. And that is to find gas, monetize gas, find gas
again, and repeat. That is creating what we term a PRL factory.
This provides the mechanism to help underpin and fund delivery of continuous
long-term exploration and appraisal drilling, which may I remind you, is the
single largest value-add phase in the entire E&P cycle.
I'd now like to take you through a brief update of our exploration
operations, starting with Raptor on slide 16. We have taken some considerable
effort for us to reach reservoir in this, the deepest test to-date on the
Kapau limestone. It's also the first test of the most southern of three
mechanized trends around Elk-Antelope.
The well was initially located on a strongly dipping, elongated thrust
[indiscernible] (19:25) to the north of which existed surface seepage of oil.
And this was influential in our decision to choose Raptor. Further
endorsement of liquids in a system in a regional context came from a
particular well, Puri-1, drilled 8.5 kilometers northwest of Raptor in 1959.
Puri-1 flowed 1,610 barrels of oil a day albeit for short period. The point
of this, however, is that the combination of local seepage supported by
nearby Puri-1 well that was drilled more than 50 years ago supported the
presence of liquid hydrocarbons in this part of the Eastern Papuan Basin.
Therefore, we were always aware of the potential for liquids in drilling
Raptor.
Without getting ahead of ourselves, the possible presence of substantial
liquids offers game-changing potential and could accelerate monetization
relative to gas. Raptor-1 flared gas and condensate during the initial open
hole test. This was conducted over a 330-meter total interval and turning
about 200 meters of Kapau limestone. Consequently, today, we have notified
the Department of Petroleum and Energy of the Raptor-1 discovery. With the
indications and the information that we now have, we are now planning to
appraise the accumulation to additional seismic, followed by appraisal
drilling and comprehensive long-term testing. We will move the Raptor-1
drilling rig to the Antelope-5 appraisal site while we finalize those
appraisal funds and the intention of returning to Raptor in 2015.
Next, we turn to Bobcat in PPL476 on slide 17. Bobcat lies on trend with our
Triceratops, Elk and Antelope discoveries, which, on the basis of simple
mineralogy is a good address. As we announced on October 21, we've got
through the ore body and we're getting ready to drill to the Kapau limestone.
Well, to-date, we have drilled to a final total depth of 3,208 meters which
includes some 320 meters of Kapau limestone and we are logging the well
currently to determine the presence of hydrocarbons.
Now, let's turn to Wahoo-1 on slide 18. As you will recall, we suspended
Wahoo-1 in July following significant safety concerns over the high pressures
in the well as well as gas influx. We continue a detailed review so we may
return as certainly and as quickly as possible to reach reservoir target. All
options are on the table including appropriate well engineering to handle
these high pressures. We're reviewing the complete well design including mud
weights and mud types.
We intend to resume drilling in 2015, noting that we still have a rig on site
ready to go. Timing is driven principally by safety and practically by the
procurement of long-term - long lead items such as suitable wellhead for the
job and where it sits in the drilling sequence. Having definitively
established the presence of the ore body and proximity to the thermogenic
[ph] picture (23:02), we believe that the fairway which has delivered [ph]
and suppressed (23:06) in the north appears to extend all the way from
Triceratops in the northwest, down to the acreage to Wahoo in the southeast.
Although Wahoo is a considerable distance from Elk-Antelope, note that it is
close to the coast in the existing pipelines. Again, optionality is a key.
And finally, turning to slide 19. On our previous quarterly, I emphasized the
importance of gravity surveying and seismic acquisition in the Eastern Papuan
Basin as significant pre-drill exploration risk reduction tools. With that in
mind, we're pleased to be starting the largest seismic exploration campaign
ever undertaken in this basin.
Along with the 465-kilometer Murua 2D seismic campaign, which we have
started, we intend to blanket our acreage with high-resolution Airborne
Gravity Gradiometry, thus covering the 40 potential targets we have
identified. This will ensure we will be well placed to mature all of our
targets in our inventory.
Our objective of this extensive data collection surveying is to deliver a
fully-risked and ranked high-graded prospect inventory across the entire
acreage within the next 18 months. And I look forward to keeping you all
updated with our developments.
With that, I hand you over to Don.
Donald Spector:
Okay. Thank you, Laurie, and welcome to everyone listening to today's
presentation. If we start with our financials on slide 21, the company made a
net loss after tax for the quarter of $16.9 million. The loss was due to the
expensing of costs associated with seismic activities, our financing
facility, and other corporate commitments and overheads.
For the nine months ended 30th September, the company returned the net profit
after tax of $353.9 million, which includes the profit on the sale of the
interest in PRL15 to Total, and the profit on the sale of the refinery and
downstream operations to Puma Energy.
And turning to slide 22, let's take a look at our current liquidity position.
We started the third quarter with funding capacity of $885 million,
consisting of $585 million of cash and the Credit Suisse-led facility of $300
million which was fully undrawn. And expenditure during the quarter consisted
of $41.7 million for the share buyback; $56 million for our share of the
drilling cost of Raptor, Bobcat and Wahoo; and $33 million of other costs
associated with seismic activities, the purchase of inventory, Antelope-4 and
Antelope-5 costs, and our corporate-related expenditure.
Now, on slide 23, we have set out our share of the year-to-date spend for the
three exploration wells. At the start of the third quarter, the accumulated
spend across the three wells was $95 million. During the third quarter, our
share of costs for the three wells was $56 million, leaving accumulative
year-to-date spend of $151 million. Now, to be clear, that is $63 million for
Raptor, $34 million for Wahoo, and $54 million for Bobcat.
If I can return to slide 22, at the end of the third quarter, the company had
$754 million of funding capacity, consisting of $454 million of cash and
receivables and the Credit Suisse-led facility of $300 million remaining
fully undrawn. As we look forward, with Raptor and Bobcat nearing completion,
we are now moving into a phase where our drilling costs and, in particular,
all the Antelope wells in PRL15 will be substantially carried by Total. For
the appraisal wells, the company will pay only $4.6 million of the first $50
million per well. But we pay our equity share above the $50 million. For the
PRL15 exploration well, the company will pay only $5.6 million of the first
$60 million spent. Again, above the $60 million, we'll pay our equity share.
The company is also expecting to receive the first certification payment from
Total during the second half of 2015. [ph] It's worth (28:15) quickly,
revisiting the Total deal and in particular, the payment we expect to receive
next year. The deal [indiscernible] (28:23) was set out on slide 24.
Now, the number to focus on here is in the blue bar. On a base volume of 7.1
Tcfe, the payment from Total next year will be $594 million. For every Tcfe
above that, an additional $400 million will be received. So, if the volume is
9 Tcfe, the payment will be $1.35 billion. If the volume reaches the GLJ high
case of 11.8 Tcfe, the payment gets up to nearly $2.5 billion. And the
appraisal wells on Antelope will ultimately determine what this number will
be.
Now, we also need to remember that we have the potential for a second
certification payment, which we can call at any time between the first
certification event and the production of 25% of Antelope field. If the
volume goes up during this period, the company will receive an extra $400
million for every Tcfe that volume increases.
To close my part of the presentation, we could summarize where we are finally
today. One, the company has $754 million of funding capacity at its disposal.
Two, we have now entered a period where the majority of our drilling cost for
the Antelope wells are being carried by Total. And three, we expect to
receive the first certification payment from Total during the second half of
2015. Our balance sheet is in pretty good shape as we work our way through
the current drilling program.
So, on that note, I'll hand you back to Michael.
Michael Hession:
Thank you, Don. With that, I'll turn over to the operator to take your
questions.
Q&A
Operator:
Of course. [Operator Instructions] And our first question today comes from
the line of Evan Calio with Morgan Stanley. Please go ahead.
<Q - Evan Calio>: Good morning or good evening, guys. Congratulations on 1
Raptor. I mean, that's the first discovery under new leadership, and I
appreciate your comments. My first question relates to what information you
can share with us to help investors ascertain reservoir quality whether it's
log results, flow rates, area under closure potentially from seismic and/or
potential resource or even composition of that resource albeit at an earlier
stage.
<A>: Well, Evan, that's an excellent question. And it's where you finished.
It's early days. It really is early days with respect to Raptor. We are
pleased that we have tested and we flared gas and condensate. But to be
clear, the testing is continuing, and we've yet to establish a stabilized
flow rate. And we are at a point now where we're happy to notify the [ph] DP
(31:51) in Papua New Guinea of the discovery. And we're happy to start
planning the appraisal process to fully appraise this Raptor accumulation.
That's probably all we can say at the moment. But let's complete that thing,
and we'll put a plan together to appraise this discovery. But as I've said
before, it's good news, but it's very early days.
<Q - Evan Calio>: Maybe just help us understand that this loader strategy
regarding exploration and appraisal, I mean how do we - how should we expect
to get this closure? For instance as it relates to the Total payment, and the
Antelope appraisal wells. What are we going to get when you get results for
each well? And I mean, I raised in the context that many - most SMID or large
cap peers would give pre-drill P50. You have a lot of that information to
help assess, help investors assess the potential of at least on the
exploration side. I mean, what should we expect going forward or how are we
thinking the information that would help dimension this discovery and/or
assess appraisal on wells as they come in?
<A>: Well, first of all, Evan, if we have something material to disclose, we
will disclose it. Now, in terms of looking for P50 potential sizes of
exploration prospects, that's not something that we're in a position to do
for a number of reasons. Well, first of all, we're in Papua New Guinea. And
it's onshore seismic and it can be very difficult to actually lock down the
potential size of [ph] prospect Seadrill (33:33). And it will take quite a
bit of an interpretation in seismic, in fact, first of all choosing the
seismic, interpretation of seismic and the drilling of appraisal wells before
you can understand what you've got. So what we've generally done is we've
told people it's multi-Tcf prospect, and that's realistically as much as we
can do in this space.
<Q - Evan Calio>: Okay. All right. I should put in context Pacific Rubiales,
for instance, last night at their conference publicly opined that they had
trapped, there was a 10-Tcf discovery now. I appreciate that there's one
penetration and limited amount of data. It's just kind of within that
context, it's hard to kind of quantify how potential that could be and I
mean, even Exxon in their conference call.
And the third quarter was - it appeared more open into sourcing third party
cash out of, third party activities, of which we could limit that group
pretty tightly for sourcing and [ph] training (34:44) in PNG. So, I guess a
little bit of ramble. But I mean, any - what is your thoughts to your
partner's statements?
<A>: Well, I think you've said it. It's one penetration on a limited data
set. What we're going to have to do is we're going to have to go back, shoot
for the seismic and drill more appraisal wells.
You can't say that you've got 10 Tcf on the basis of one well. We are not
prepared to say that. So, I'll go back to my opening statement. We see these
prospects. We're drilling this potentially multi Tcf. And what we want to do
is, as we go through, we'll work through, and when we have something material
or we have some real understanding of the size of what we've got, we will
disclose it to the market at the appropriate time.
<Q - Evan Calio>: I mean - and do you think that would, at least, for Raptor,
is that then subject to the completion of the appraisal process before you
anticipate having an ability to mention that to the market? Is that what we
should expect?
<A>: Well, I think as Laurie said, we intend to go back next year. So,
there's a bit of planning to do first. We've got to look at all the data
we've got. We're gathering data virtually now. We need to plan and inquire,
and interpret more seismic. From that, we'll select appraisal locations and
then we'll drill that appraisal campaign. And I fully imagine that we'll be
going through a comprehensive long-term testing program.
Once we got through that, then we'll really start to understand what the size
of this prospect - actually, what the size of this discovery is. But I'll
take you back to when we're pleased to have brought in hydrocarbon surface,
but there's more work to do.
<Q - Evan Calio>: Okay. Well, it's all really good news, guys, so I
appreciate the update.
<A>: Thank you very much, Evan.
Operator:
And we do have a question from the line of Neil Beveridge with Bernstein.
Please go ahead.
<Q - Neil Beveridge>: ...gentlemen, for the presentation, just two quick
questions. First of all, you mentioned the Puri-1 Well, which is close to the
Raptor Discovery, which flowed for a relatively short duration. Is there any
read across from the performance of that well to what we could expect to see
from Raptor?
The second question is around Bobcat. Obviously, you're logging at the
moment. Just curious if you've seen any gas returns with the drilling to-date
that would suggest that we're likely to see hydrocarbons in that well also.
Thank you.
<A - Laurie Brown>: I'll answer that [indiscernible] (37:36)...
<A>: Yeah. I think Laurie, he wouldn't mind answering that.
<A - Laurie Brown>: Puri-1 and its relevance to Raptor is totally different
positions, totally different targets are quite independent in that regard. I
wouldn't read anything into the performance of a 1959 well drilled fairly
shallow compared to one that's drilled deep somewhat offset with different
pressure systems, so no relevance, I would say.
The main thing is both have liquids present. That was the whole point of that
is that there's a kitchen in the area, which is supplying not just gas, but
liquids.
As to your Bobcat question, we are looking at the moment, and I'm going to
reserve any judgments until I see the results of those logs.
<Q - Neil Beveridge>: Thanks very much, Laurie. And just one quick follow on,
if I may, just on Wahoo, you mentioned that you plan to re-drill this
prospect in 2015. At this stage, will you be able to use the existing well
bore, and will this well have to be drilled from surface again?
<A>: Our options are on the table, Neil, using that existing well bore with
that existing rig is one of those options.
<Q - Neil Beveridge>: Okay. Thank you.
<A>: Thanks, Neil.
Operator:
And we do have a question from the line of Ed Westlake with Credit Suisse.
Please go ahead.
<Q - Edward Westlake>: Yes, a whole host of questions, but firstly just
congratulations on Raptor discovery. Just on Antelope, what do you think is
it four or five which is going to be the main determinant of the resource
uncertainty. I believe in the past, you've said that it was the Western test
that might be the step out. I just want some color there to confirm if that's
the case.
<A>: Ed, an excellent question. With these appraisal wells, I mean, it seems
I tell you that four tend to be more significant. You always guarantee that
five will end up being more significant.
<Q - Edward Westlake>: Right.
<A>: So, we're drilling them both for very good reasons. We see them both as
high-impact appraisal wells on the positive side. And I think we better - to
quote Laurie, just reserve judgment on what they bring in when they bring it
in.
<Q - Edward Westlake>: Right. And then on the comments about [indiscernible]
(40:05) and oil flows and have to take completely different reservoir,
different setting, it raises some concerns about things like retrogrades,
condensates in the sense of, yes, you get some liquids but they obviously
drop out perhaps over time. Are there any concerns about that in the Raptor
discovery or, again, too early to say?
<A>: I mean, I think what we - and Laurie has talked about this, we're
pleased that there are liquids in the region. There's obviously a source and
a kitchen at Laurie's desk pumping out liquids. What we need to understand is
how these liquids are going to Raptor and to what degree they're going to
Raptor. And there are all sorts of geochemical tests. So it really is early
days. We don't - we're not even sure at the moment what the condensate ratios
will be, et cetera, et cetera. So early days.
<Q - Edward Westlake>: Okay. But still helpful. And then a picture on, I
guess, financials. You've talked in the past about trying to improve the
drilling efficiency and obviously lowering the cost per well. Appreciate that
it's difficult terrain and rocks. But maybe some comments about your thoughts
on what percentage of efficiency you think you could achieve over the next
few years?
<A>: What we've done and if I take you back to where we were a year ago, we
started drilling three wells with what we all recognize were not necessarily
ideal rigs. There were legacy rigs, legacy teams. This is a company that was
used to drilling one well a year and then recently took it to three wells
simultaneously in a question of months.
So, there were inefficiencies. What are we going to do? It's really standard
oil and gas stuff. We'll go out and we'll get more efficient rigs. We're
actually bringing in new people, more people. We'll also be bringing in and
applying newer technologies. And most importantly, we'll be learning about
the performance of these wells. If you think about it, we'll look at more
systems. We'll look at our supply chain. We'll look at our leasing strategy.
We'll look at a whole rack of issues, which you can now apply, because we're
in a cost substantial sequence drilling campaign going forward.
<Q - Edward Westlake>: And so you, I guess, report back down the road in
terms of the level of efficiency as you fill these wells over time.
<A>: Yeah. Yeah. It's a better way to say. We've got some ideas, but I'd like
to understand properly how these wells have gone and then work through the
new rigs, the new strategy and new people, and we'll come out and tell you in
due course about what we think we can achieve. But, obviously, we think we
can do this cheaper, and we can do at least a lot faster.
<Q - Edward Westlake>: Thank you.
Operator:
And we do have a question from the line of Pavel Molchanov from Raymond
James. Please go ahead.
<Q - Pavel Molchanov>: All right. Thanks for taking the question, guys.
Congrats on the declaration of discovery. Obviously, since the time you
signed the deal with Total almost a year ago, Brent is down about 25% and the
price of LNG in Asia is down about 25%. Have you had any discussions with
your partners about kind of the new environment for liquefaction economics?
And can you say unequivocally whether Total is still as committed as they
were before to the project?
<A>: Well, first of all, thanks for the question, Pavel. Yes is the answer.
Total are actually committed to this project. I think one of the things is
you got to use the lowest cost projects are the ones that goes first. Lowest
cost projects are the ones that are most robust. Now, fortunately, we have a
low-cost project anyway you look at it in terms of LNG, whether you compare
it to Asia or you compare it globally. So, this project ranks very well
globally as you saw from the slide we put up earlier. They have also rank
well in the Total inventory of possible projects. So, we're absolutely
confident this is top of the registered projects they want to get after.
<Q - Pavel Molchanov>: Okay. Let me turn to PRE. Obviously, the market is
quite interested in what the resource payment will be from Total next year.
But can you all clarify are you on schedule to receive a resource payment
from your PRE partners as well? And if so, when?
<A>: No.
<A>: We'll deal with that. (45:07)
<A>: Yes. No, they're certainly not aware of that. The resource payment is
clearly going to come from Total in the second half of this year. So...
<A>: 2015?
<A>: Yes. In 2015. So...
<Q - Pavel Molchanov>: Right. I guess I'm thinking in relation to
Triceratops. Is PRE going to pay you anything for their share of Triceratops?
<A>: We've not closed a deal. The Total deal is the one we're focused on in
terms of resource payments and in terms of quantum and actuality. So, we're
not in a situation where we expect any significant payments from PRE with
respect to Triceratops.
<Q - Pavel Molchanov>: Okay. All right. I appreciate the clarity on that.
Thanks, guys.
Operator:
And we do have a question from the line of Chris McDougall with Westlake
Securities. Please go ahead.
<Q - William McDougall>: Hello, gentlemen, and congratulations on the
discovery and also on cleaning up the refining and downstream business for
the drop in oil. It's nice to have to not worry about the mark-to-market cost
there.
So, with the focus on the appraisal coming up in the next year, I want to
understand the range on the low side of the GCA estimates and what the
management's thoughts are there around where you're thinking as far as what
we could see there. So just as a narrow question, the GCA P50 at 7.1, what is
their low case?
<A>: It's Chris. It means [indiscernible] (46:52).
<A>: It's Chris, [indiscernible] (46:53). Hey, Chris. Chris, our auditors are
GLJ and the GLJ ranges are available.
<Q - William McDougall>: Okay.
<A>: And our GLJ range is low side 7.5 and the mid-estimate is 9.9 and the
high is 11.8. I actually don't think it's appropriate to talk about capital
decline because they are not our lord at this.
<Q - William McDougall>: Okay. And so, you have not disclosed those. All
right. That's fine.
So, then back on PRL15, Antelope Deep has been discussed and I know in the
early days, there was some chance that there is a connection between Antelope
Deep and the main Antelope reservoir. Has there been any kind of additional
thoughts on the possibility of that connection or are we just going to have
to drill the well to see?
<A>: Look, let me start and then I'll hand over to Laurie. Antelope Deep
remains a very, very exciting prospect for us and it's multi-Tcf as Laurie
described it before. But to give you a little bit more color about Antelope
Deep, let me pass over to Laurie.
<A - Laurie Brown>: Hi, there.
<Q - William McDougall>: Hi. Laurie.
<A - Laurie Brown>: In the recent months, we've required a lot of seismic
over a certain part of Antelope and extending over into Antelope Deep. So,
that's given as a great deal more of a look into how Antelope Deep works and
whether it does in fact flow into or not into Elk-Antelope. I am fairly sure
that Antelope Deep is quite a separate target and not likely to connect to
Elk-Antelope, which is good. You don't want it connecting to Elk-Antelope
because it will spill up and that will be the end of Antelope Deep.
<Q - William McDougall>: Okay. Perfect.
<A>: And basically it remains an exciting multi-Tcf prospect until we drill
it. And then we hope it's going to be a very exciting multi-Tcf discovery.
And excuse me for jumping in that, Laurie. Thank you.
<Q - William McDougall>: Okay. Great. And then on the Raptor discovery, so
can you give us any color in total how long you've been plowing that test and
if there's any kind of volume estimates on kind of cumulative volume of gas
out of the testing?
<A>: Well, Chris, it's generally best practice to stop talking about tests
when you are testing. So what we prefer to do is let this testing program run
its natural course. And then, and say, if we got material information, we
will disclose it appropriately.
<Q - Chris McDougall>: All right, gentlemen. Well, thanks a lot for the color
and congrats on the discovery.
<A>: Okay. Thank you very much, Chris.
Operator:
And for closing remarks, I turn the conference back over to the CEO, Michael
Hession. Please go ahead, sir
Michael Hession:
Thank you very much. So let me close by thanking you for your attendance and
for your questions. We've come a long way in relatively short time. The last
nine months have been very busy and very productive. And let me remind you,
we have first-class assets, first-class team, and we're well-funded. And as
always, we remain absolutely focused on the pursuit of value.
This next year is going to be really exciting, and we remain just as
determined to deliver for our shareholders and for the people of Papua New
Guinea. So, I really am looking forward to the next 12 months.
And with that, I think we'll end the call. Thank you very much for joining
the call this evening.
Operator:
And ladies and gentlemen, that does conclude your conference for today. Thank
you for your participation and for using the AT&T Executive Teleconference
Service. You may now disconnect.
This transcript may not be 100 percent accurate and may contain misspellings
and other inaccuracies. This transcript is provided "as is", without express or
implied warranties of any kind.
