Highlights ∑ Appraisal drilling and extended well testing on Antelope is yielding encouraging results and continues to support our two-train thesis. Drilling delays, however, are starting to significantly extend the appraisal program. - Antelope 5 has encountered the best reservoir thickness, quality and fracture density of all wells drilled on the Elk-Antelope. The reservoir quality is better than expected with 680 meter gross gas column and the initial clean-up flow rate constrained to a maximum rate of about 74mmscf/d. - Pressure testing indicates no pressure compartmentalization and high reservoir quality across Antelope which will reduce the complexity of any development and lead to high recovery factors. Pressure data is consistent with a resource which would support 2 trains - Antelope-4 side track is now underway after drilling delays. Initial results from the well provided indications of a high-quality reservoir with a gross gas column of more than 300 meters. - Antelope-6 site preparation is nearing completion. The well which targets the east of the reservoir will provide enhanced structural control and further definition of reservoir extent and quality. - An additional well Antelope-7 could be drilled as part of the appraisal program following better than expected results from the extended well text ∑ Reserves certification (which is the key catalyst for the stock) has been delayed from end 2015 to mid-2016 as a result of slower than expect drilling. IOC has re-affirmed that Antelope will support a two LNG development based on current data - 7TCF are required for a two train LNG development of 6.9mtpa and we hope for certified reserves above this at year end. - Oil Search has booked 5.3TCF of 2C resources although we suspect this is a conservative estimate. - We believe that Antelope is likely to have between 6-9TCF of 2C resource which combined with satellites (such as Triceratops) will support a two train LNG development. ∑ Concept select has been completed and Antelope will enter FEED in mid-2016, with an estimated Final Investment Decision at the end of 2018
- The Central Processing Plant will be in the Gulf Province, with a 340km pipeline (75km onshore and 256km offshore) which will connect the site to the LNG facility - Caution Bay near Port Moresby has been selected as the site for liquefaction. This should lead to some synergies with the PNG LNG project - Total has now assumed operatorship of PRL15 as the project transitions from appraisal to front end engineering and development ∑ Further exploration and appraisal drilling is likely to prove up more resources, although reservoir quality remains the key risk - InterOil is targeting 13.5TCF of gas resources (net un-risked 963MMboe) in their exploration and appraisal program. - Triceratops-3 appraisal well (targeting 1TCF) appears to have been intersected gas bearing carbonates. Commerciality will depend on flow rates which we expect to be announced after testing. - Although exploration wells have yielded discoveries, the lack of flow data makes us cautious on their commerciality. Nevertheless, we do expect further upside beyond Antelope given the scale of the basin. - InterOil will drill an appraisal well in Raptor towards the end of 2015. An exploration well at Antelope South in PRL 15 is also planned to be drilled later in 2016. ∑ With US$541M in total liquidity and Total certification payment expected in mid-2016, InterOil's balance sheet is strong enough to support exploration, appraisal and LNG FEED activities. - At the end of 2Q2015, InterOil had US$241MM in cash and US$300MM in undrawn credit facilities. We expect the capex requirement to decrease this year given that 75% of appraisal costs on Antelope will be carried by Total. - InterOil will receive a certification payment from Total depending on the outcome of the reserves determination. At 7TCF the payment would be US$590MM while at 9TCF the payment would increase to US$1,356MM. In addition, InterOil would receive an additional US$517MM on successful FID.
Investment Conclusion Mid-year results continue to provide encouragement on Antelope. Dynamic data continues to look positive and supportive of a 2 train development, although we will need to wait for completion of Antelope-4 ST and Antelope 6 before we get anymore incremental data which will help reduce the uncertainty range in volumes. Reserves certification has been pushed back to mid-2016 due to drilling delays and extensions to the appraisal programme including a possible new appraisal well Antelope-7. While this will delay the project and will try the patience of some investors, ultimately getting the right reserves answer is the most critical task. Elsewhere Triceratops has encountered gas, which could add to Antelope volumes depending on reservoir quality and the ability to flow gas. We remain positive on InterOil, with a price target of US$70/shar