Antelope-7 Back on the Table. MS update

[Gator]

Evan Calio – Morgan Stanley

November 16, 2015 5:01 AM GMT

Management indicates resource payment could slip into 3Q16 from mid-2016. Ant-7 back on the table, balancing potential resource upside of 1-3Tcfe ($0.4-1.2Bn cash to IOC) vs. payment delay. Ant-4 at TD and Ant-6 a December spud.
The resource payment could slip into 3Q16 from mid-2016, as per management comments on the call. The schedule will depend on exact timing of the Ant-6 spud (targeted for December) and the pace of drilling (which we estimate could fall in the broad 60-90 day range). Best case is a December 1st spud with a ~60 day spud-to-TD (Ant-5 drilled in 63 days), followed by 120 days for the final appraisal, with certification and resource payment occurring as early as June 2016 (in line with prior “mid-2016” guidance). More conservatively, a mid-December spud and a 90 day spud-to-TD with a 180 day appraisal period could push back the payment into late 3Q16. Ant-4 sidetrack has reached TD and wireline logging is currently underway.
Potential Ant-7 to test reservoir’s western flank is now back on the table. Balances capturing potential $0.4-1.2Bn upside with further delaying the resource payment. Seismic reprocessing and positive results of Ant-5 support reservoir upside in the west. Hence, the IOC/TOT JV is again considering Ant-7 as a southwestern step-out beyond Ant-5. The contract only stipulated 3 appraisal wells and a decision to drill Ant-7 would be an additional well and need agreement of both parties. IOC quantified that Ant-7 can potentially de-risk an additional 1-3Tcfe of resource, which would translate into $0.4-1.2Bn higher resource payment from TOT. This would be incremental to the ~$1.7Bn payment we anticipate based on our 9.9Tcfe estimate. In the “blue sky” scenario, Ant-7 could de-risk sufficient resource to support a third train at Papua LNG, with superior brownfield economics raising the value of IOC’s 36.5% WI in the development. The partners must jointly approve Ant-7 and decide on cost allocation, as the well would fall outside

Full update attached as PDF

[jft310]

So if we drill 7 and its successful the estimate is 9.9 T's plus 1-3 T's or @ 11-13 T 's . Sure sounds like Henry Aldorf's 2009 number . The discount for lack of connectivity mostly goes away also , plus all that dolomite at Ant 4 whatever size that may be . Henry may in fact have been conservative . How large is Ant South etc etc . ???

[jft310]

Morgan sees no liquidity issues and a potential deal for TBR which should surprise no one who reads the research reports.


Antelope-7 Back on theTable
Management indicates resource payment could slip into 3Q16 from
mid-2016. Ant-7 back on thetable, balancing potential resource
upside of 1-3Tcfe($0.4-1.2Bn cash to IOC)vs. payment delay. Ant-4
atTD and Ant-6 a December spud.
The resource payment could slip into 3Q16 from mid-2016,as per
management comments on thecall.Theschedule will depend on exact timing
of the Ant-6 spud (targeted for December) and the pace of drilling (which we
estimatecould fall in the broad 60-90 day range). Best caseis a December 1st
spud with a ~60 day spud-to-TD (Ant-5 drilled in 63 days), followed by 120
days for thefinal appraisal, with certification and resource payment occurring
as early as June 2016 (in line with prior “mid-2016” guidance). More
conservatively,a mid-December spud and a 90 day spud-to-TD with a 180 day
appraisal period could push back the payment into late 3Q16. Ant-4 sidetrack
has reached TD and wirelinelogging is currently underway.
Potential Ant-7 to test reservoir’s western flank is now back on the
table. Balances capturing potential $0.4-1.2Bn upside with further
delaying the resource payment.Seismic reprocessing and positiveresults
of Ant-5 support reservoir upsidein the west. Hence, theIOC/TOTJV is again
considering Ant-7 as a southwestern step-out beyond Ant-5.Thecontract only
stipulated 3 appraisal wells and a decision to drill Ant-7 would bean additional
well and need agreement of both parties. IOC quantified that Ant-7 can
potentially de-risk an additional 1-3Tcfe of resource, which would translate
into $0.4-1.2Bn higher resource payment from TOT.This would be
incremental to the ~$1.7Bn payment weanticipate based on our 9.9Tcfe
estimate. In the“bluesky” scenario, Ant-7 could de-risk sufficient resourceto
supporta third train at Papua LNG, with superior brownfield economics raising
thevalue of IOC’s 36.5% WI in the development.The partners must jointly
approve Ant-7 and decide on costallocation,as the well would fall outsidethe
scope of the original TOTagreement.The details of this approval process and
timing are unclear.The well was first discussed at theJune AGM (seeIOC:
Behaving Like A "Giant").Subsequently, managementappeared to have
grown less fond of theidea,citing ability to call for a wildcard appraisal and
reluctanceto defer theresource payment (seeIOC: On the Road with the
CEO).
Capex reduced in 2016; we see low liquidity risk. IOC shared initial 2016
capex budget of $175-195MM, lower than our $200MM prior estimateand the
Street's $235MM. YoY decline driven by desireto preservecash and enabled
by absence of drilling obligations. Having handed over operatorship of ElkAntelopeto
TOT, IOC anticipates G&A to be materially reduced in 2016 to
Morgan Stanley does and seeks to do business with
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investors should beawarethat thefirm may havea conflict
of interest that could affect the objectivity of Morgan
Stanley Research. Investors should consider Morgan
Stanley Research as only a singlefactor in making their
investment decision.
For analyst certification and other important disclosures,
refer to the Disclosure Section, located at the end of this
report.
InterOil Corporation | November 16, 2015
MORGAN STANLEY RESEARCH
1
~50% of $25MM weestimatefor thecurrentyear.Weestimate operating cash
burn in 2016 at $190-220MM. IOC also has a ~$70MM convertible note
coming duethis month.Total cash outflow should becomfortably covered by
current liquidity of $126MM cash ($8MM restricted) and an undrawn credit
facility of $300MM. Balancesheet could befurther fortified with proceeds from
potential farmdowns of IOC’s threerecent discoveries:Triceratops (1Tcfe P50),
Bobcat (1.5Tcfe P50) and Raptor (5.5Tcfe P50)

[Martinistocks]

So again my questions, why would Total agree to A7? They can get the gas later and pay IOC at the second certification right?

And MS is right balance sheet could be further fortified with proceeds from farmdowns on Tri, Rapt, and Bob.

[2126]

Positive results from A7 could impact the decisions regarding the size of the trains at Papua LNG. Larger trains initially will provide a basic cost savings per mmtpa once operational..Thus basis of design and FID decisions could hinge on A7 results, if the JV decides to proceed with its drilling.

[jft310]

It's the old "Larger is better"" .

[Gator]

Larger is better. Later is worse.

[jft310]

Gator is 100 percent spot on . I surely hope Morgan has the timing of the payment down . If 7 ?..payment moves from 2nd quarter to 3rd quarter 2016 . Per Morgan today report . Interoil has rig 15 and 16 to help the effort . One does 6 the other 7 ???Hope we hear more soon .

[Gator]

Per MS report "could push back the payment into late 3Q16"

From page 16 of the IOC presentation "Fully focused on Elk-Antelope certification payment in 2016".

We would be very lucky if they proceed with A7 to see certification payment in 2016.

[Tusker]

Speed of implementation is correlated with the resource engagement.

What would you think of postponing Ant South Exploration well for a 30M carry on Ant#7 appraisal? P10 versus a 2C perhaps?

Sure would make the money talks a very short conversation.