The scent of oil, all a bit speculative, of course..
- We have a feeling that deals might have to wait until there is clarity over the oil and/or condensates situation (unless there are parties who cannot wait). Negotiating without an anywhere near realistic picture on the prospects for oil is just, well, all too complex, perhaps.
- Another crucial element is, InterOil can wait. They have enough cash, a sound balance sheet, a proven ability to tap the finance markets even in difficult circumstances or (as as last year, when they had to repay the Merrill Lynch loan) when under time pressure. Even their mid and downstream businesses could very well add to cash-flow this year, so they can hold out for a better deal if they feel their chances for oil are good.
- Oil trumps condensates, it’s potentially bigger and potentially easier to get out. Condensate stripping could be held in reserve, so to speak, only to be revived if there is no chance for commercial oil at Elk/Antelope, but we have a feeling that management quite fancies their chances on the oil
- We therefore think most of the immediate attention in the coming months will probably be on oil, to find the right spot to get it out. We know there is oil, we know that it is in porous rock, but the permeability so far has eluded InterOil.
- It looks like Antelope1 is will not be the well to get the oil flowing, but we still might be surprised, although the chances are diminishing.
- Other drilling sites, especially downdip hold better promise, as permeable rock will be deeper laid. Some of the old drilling sites like Elk2 (and Elk3, the horizontal drilling from Elk2) and Elk4 might also be revisited.
- So we think the private placement, instead of going to condensate stripping, would be better spend on at least one extra rig, to speed up that process.
- We have little doubt parties are interested to do a deal with the company though. It’s gas properties are just way too good for that. The super high flow rates and cheap environment make monetization here much cheaper than almost any competing project. It is something we have yet to see any argument against, let alone any even remotely credible ones.
- There is already 3.4Tcf of gas confirmed by third party and that’s not even including almost all the salient data from their record well, Antelope1. Monness, Crespi, Hardt & Co. have therefore argued the figure is likely to be 5Tcf, which will double after Antelope2. This too, might very well increase deal metrics.