Oil Search Says Expanding PNG LNG Easier Than New Total Project

[Gator]

Oil Search Says Expanding PNG LNG Easier Than New Total Project

2015-08-25 02:49:06.852 GMT

By James Paton

     (Bloomberg) -- It’s easier to commit to a 3rd production

unit at the Exxon-operated Papua New Guinea LNG project than

making decision on a new LNG project with Total and InterOil,

Oil Search Managing Director Peter Botten tells analysts

Tuesday.

  * Committing to Total-led Papua LNG project in 2017 would be

    “very challenging,” Botten says on conference call

  * NOTE: Oil Search holds 29% in PNG LNG; also in venture with

    Total to tap Elk/Antelope fields in Papua New Guinea to feed

    the country’s 2nd LNG plant

[Putncalls]

There is just one small problem with PNG LNG train 3. Not enough gas.

[jft310]

Puts when has Botten been IOC friendly ?. Please be specific if you name one time .

[Palm]

The problem is that Botten/OSH does not control that decision; Total does. Botten likes to try and act as if he has more say in things than he does and his priorities are not necessarily the same as Total/IOC. This has to be put in proper perspective. For OSH, trying to do both may well stretch their abilities, but that can't and won't affect Total's decision.

OSH made the choice to make the run at the Pac LNG companies' interests in PRL 15, and now he is facing the music a bit. When PRL 15 is certified next year OSH may have to pony up a bit of cash to Pac LNG's former owners. They may at the same time be needing to line up financing for both a PNG LNG train 3 financing, and the Papua LNG project. And on the heels of a drop in oil prices.

Botten tries to play strong man, but some of his plays of late have resulted in incompletions and interceptions.

From their release:

"Higher sales volumes were partly offset by sharply lower realised prices, of US$56.64 per barrel for oil and condensate compared to US$111.57 per barrel in the first half of 2014 and US$10.19 per mmBtu for LNG and gas compared to US$14.20 per mmBtu."

So, when they borrowed for the PNG LNG project, they certainly did not expect oil/LNG prices to be as low as they are. They are cash flowing nicely and showing wonderful profits since PNG LNG started producing, but it's not at the projected levels. And they have a $4.3 billion debt they are servicing with less revenues than expected. OSH pps has dropped to A $5.90 from the mid-$8s. Botten can say what he wants, but they aren't quite where they want to be either, and he likely fears the idea of trying to bite off both expansion and a new LNG project in these times. They might be the one peddling some or all of their PRL 15 interest.

[Gator]

Good point Palm. Maybe InterOil should offer OSH $400MM and an amount to be determined in 34 months. (Oh wait, that was InterOil that accepted that deal.)

[Palm]

Or maybe the Japanese or Indians (not Cleveland) can take OSH's share off of their hands. Then Botten might be able to sleep at night instead of whining about being able to commit to Papua LNG. He kind of puked all over himself with his comments.

[Relker]

Osh is standing in a split. They realize that the E/A resource might be 12 TCF instead of 7 TCF. This means a higher license payment and a higher equity investment in the JV for PRL15. This extra investment can be approx 2 B till 2021. In the same time XOM wants to develop the P'Nyang-field and build a 3rd train.This will cost another 1.5 B. With 4.3 B debt and lower gas prices Botten is smart enough to realize that he will run into trouble if he proceeds with both projects. So, he is preparing the public that he wants to step out the Total project.

[Palm]

May well be the case Relker. And he can spin it any way he wants just as long as he gets out of the way. Might be a good time for him to retire like he talked about last year. Better than getting canned for letting his ego get out of control. Maybe Exxon will bail him out.

[jft310]

Woodside might be a better bet . The Super Majors don't want large usually over 40 percent of a project . this spreads risk for them .the PNG govt also has anti takeover bill that requires their approval for a takeover . So I don't see Exxon buying Oil Search in the whole . Easy to see Botten selling his PRL-15 interest to another Super Major for a profit . After all this is cheapest new build in the world . Should be substantial interest . Removes the future Oil Search obligation to build a 2 train LNG plant . He can focus on finding more gas and expanding what he has if given the chance .
Makes Exxon happy if they can just find gas !!!The economics of an expansion are certainly better than a new build .

[Palm]

The idea of Exxon buying is for them to buy OSH's share of PRL 15, not the whole company.