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InterOil and OilSearch, some really interesting calculations

November 5th, 2008 · 4 Comments

There is another article on the AGL sale of its stake in the Exxon/OilSearch LNG project and fields, with very interesting valuation implications for InterOil.

See below for the article, we get the following facts:

  1. JP Morgan analyst thought the AGL stake in the gasfields was worth A$521M and it’s 3.6% stake in the LNG project was worth A$454M, that’s A$975M total. That’s 53.4% for the gas properties and 46.6% for the stake in the LNG project
  2. In fact, the actual sale was almost 15% higher than that, at A$1.1B, or, US$800M
  3. Let’s concentrate on AGL’s stake in those gas fields from OilSearch, we give the fields, the percentages, and the figures of the end of 2007 reserve status per field (figures from OilSearch latest annual report page 30):
  • 11.9% in Kubutu 30 MBOE P1 reserves = 4.93 MBOE stake
  • 5.2% in Moran 35.35 MBOE P1 reserves = 3.14 MBOE stake
  • 11.9% in Mananda 1.1 MBOE P1 reserves = 0.21 MBOE stake
  • 66.7% in Gobe Main 2 MBOE P1 reserves = 1.33 MBOE stake
  • 27.3% in SE Gobe 4.68 MBOE P1 reserves = 1.81 MBOE stake
  • Total P1 stake of 8.14 MBOE
  • In P2 reserves (proven and probable), the total stake of AGL adds up to 11.65 MBOE

We turn to resources (In OilSearch speak, those are reserves expected to be classified as P2 reserves once commercialization agreements have been finalized).

  • 11.9% Kubutu/Mananda (303.3 MBOE) = 36.05 MBOE
  • 5.2% Moran (72.52 MBOE) = 3.77 MBOE
  • 66.7% Gobe Main (37 MBOE) = 24.679 MBOE
  • 27.3% SE Gobe (33.3 MBOE) = 9.09 MBOE

That’s 73.6 MBOE, for which they paid $425M, that’s $5.7745 per BOE or $0.9624 per Mcf for P2

So, in conclusion, OilSearch received $0.96 per Mcf for P2 reserves. These are cool figures, higher than the valuation figure analyst Wayne Andrews uses for Elk/Antelope, which is only 75 cents per Mcf. Note that other recent deals also go way beyond that Wayne valuation:

So it can be argued, based on three recent deals in the regio, that Wayne’s valuation of $0.75 per Mcf is rather conservative. The only way that there is not a huge upside for InterOil shares is if his other estimate, that of the resource size, is off. He uses just 3Tcf as the resource estimation.

Now, it’s too early to tell, but all things (two profusely flowing wells, the seismics indicating the size of Antelope, the logs and cores confirming the geological model) indicate that 3Tcf shouldn’t bee too much of a hurdle to pass.

Noteworthy is further that a 3.6% stake in the refinery sold for 46.6% of $800M is $372M. A refinery which has yet to be build (in fact, no final investment decision is expected until late next year).  That’s also cool, because InterOil holds a third in another one of these. If they get financing in place, that could be worth billions overnight.

Here is that article with the stakes:

AGL announces sales agreement for PNG assets
Thursday, 30 October 2008 Blair Price

  • AGL Energy has executed sales agreements for its Papua New Guinea oil and gas assets, including its 3.6% stake of the $US11 billion PNG LNG project, to an undisclosed party today for a total of $A1.1 billion after closing out oil hedges.
  • AGL Energy has executed sales agreements for its Papua New Guinea oil and gas assets, including its 3.6% stake of the $US11 billion PNG LNG project, to an undisclosed party today for a total of $A1.1 billion after closing out oil hedges.
  • The sale and purchase agreement for AGL’s portfolio was $US800 million, and no capital gains tax is payable on the transaction in PNG or Australia.
  • AGL is keeping the purchaser confidential at this stage but said it was an international oil and gas company.
  • There are no conditions on the sales and purchase agreement other than government approvals, however, the deal is subject to the pre-emptive rights process where other PNG LNG joint venture parties can make a matching bid.
  • Should there be no other matching or excessive bids then the transaction will go through.
  • AGL expects the pre-emption process to take 30-45 days to complete.
  • “This is an excellent outcome for AGL, particularly in light of current global market conditions,” AGL managing director Michael Fraser said.
  • “Importantly, the PNG sale is a milestone for us as it finalises the non-core asset sale program we commenced late last year and again demonstrates the company’s ability to deliver on its strategy.”
  • Fraser added the transaction along with this week’s earlier Queensland Gas Company investment gave the company considerable balance sheet strength.
  • AGL expects to update the market on the PNG asset sales after the completion of the pre-emption process, around mid-December.
  • The AGL portfolio includes an 11.9% interest in the Kutubu oil field, 5.2% in Moran Unit and 11.9% in SE Mananda in Petroleum Development Licence 2.
  • The Australian power company’s assets in PDL 4 include 66.7% of Gobe Main and 27.3% of SE Gobe Unit.
  • AGL Energy announced its decision to exit PNG LNG earlier in the year to focus on its core electricity generation business in Australia.
  • Back in June, Dow Jones Newswires reported that JPMorgan analysts estimated AGL’s PNG assets were worth $A975 million, with its oil and gas fields fetching $521 million and the 3.6% PNG LNG stake going for $454 million.
  • The ExxonMobil-led PNG LNG joint venture aims to build a two-train 6.3 million tonne per annum liquefaction plant near Port Moresby, with gas sourced from various Oil Search gas and oil fields in PNG.
  • The PNG LNG project ownership currently consists of ExxonMobil at 41.6%, Oil Search 34.1%, Santos 17.7%, AGL Energy 3.6% and Nippon Oil 1.8% while land owner interests hold the remaining 1.2%.
  • These interests are subject to change once the PNG government steps on board the project (around 19.4%) and the gas interests have been fully calculated.
  • The final investment decision for the project is scheduled for late 2009.

Tags: IOC

4 responses so far ↓

  • 1 Jim Tate // Nov 5, 2008 at 12:44 am

    I added in the sale of the LNG potential plant and per MCF you get @ $4 per MCF. There would be no LNG plant without the assets they seemed tied together..

  • 2 Janine // Nov 5, 2008 at 1:05 am

    Whisper says ” 5 tcf proven/ potential 12-15tcf “

  • 3 InterOil: A lot more to come.. — // Mar 31, 2009 at 4:35 pm

    […] owns half it’s planned LNG facility, from the deal above we know that Nippon paid almost half of that $800 just for a 3.6% stake in a similar lNG facility (also just in the […]

  • 4 Did InterOil virtually “give away” a 2.5% stake of Elk/Antelope? — // Oct 22, 2010 at 1:53 am

    […] 3.6% stake in OilSearch gas properties plus a 3.6% stake in the yet to be build LNG plant. The division is about 46-54% for the LNG versus the gas Back in June, Dow Jones Newswires reported that JPMorgan analysts estimated AGL’s PNG assets were […]