Interview with Phil on Bloomberg…

InterOil Finds Up to 228 Million Barrels of Condensates in PNG
2009-11-04 11:32:56.389 GMT
By Rakteem Katakey and Dinakar Sethuraman

Nov. 4 (Bloomberg) — InterOil Corp., the Canadian explorer whose shares have more than tripled in value this year, may have discovered as much as 228 million barrels of a light oil to kick start a liquefied natural gas plant in Papua New Guinea. InterOil may set up a $400 million plant beside the Purari River that will remove the gas from the oil found in the 60 million to 228 million barrel deposit in the Elk/Antelope field, said Phil Mulacek, chief executive officer, of the Whitehorse, Yukon Territory-based explorer.

The resulting oil, known as condensate, will be processed at its refinery in the same area to produce fuels such as naphtha, gasoline and diesel, he said. “The discovery and potential of liquids in the area is big,” Mulacek said in an interview at the Oil & Gas Outlook Asia 2009 conference in Singapore today. Petrochemical companies want the fuel produced from the refinery and this means stronger cash flows which reduce risks of the LNG project, he said. InterOil is seeking funds and partners to build the 8 million metric ton-a-year LNG plant. The project would compete with a group led by Irving, Texas-based Exxon Mobil Corp. that would have an annual capacity of 6.3 million tons. The Exxon Mobil-led project today agreed to supply 2 million tons of the clean fuel to China Petroleum & Chemical Corp.

Evaluating Reserves

The Canadian company is evaluating the field and may get a final size of the condensate discovery in about two months, said Mulacek, a Texas Tech University-trained petroleum engineer. The area, which may contain as much as 11 trillion cubic feet of gas reserves, may produce condensate in the first half of 2011 while gas output may begin in 2014, he said. InterOil, which gained a foothold in the South Pacific nation in the 1990s by rebuilding an Alaskan refinery in Port Moresby, said talks are continuing with prospective partners to
replace Bank of America Corp.’s Merrill Lynch unit, which sold its 35 percent stake in the project in February to InterOil and Clarion Finanz AG, the other partner in the development.

InterOil plans to ship the condensate downriver by barge to the refinery. The supplies will relieve the company of the need to spend as much as $1 billion annually on buying crude oil and will show potential partners that InterOil can come up with its share of funding for the LNG project, Mulacek said last month. Without new backers, InterOil doesn’t have the financial capacity to build an LNG plant, Evan Calio, an analyst at Morgan Stanley, said in a Sept. 18 note to clients. The lack of a partner with the cash and technical expertise to construct the plant would diminish the value of InterOil’s PNG gas discoveries, Calio wrote. InterOil may face a cash squeeze within 12 months if one or more partners aren’t lined up soon, he said in the report. LNG is natural gas chilled to liquid form for transport by tankers to destinations not connected by pipeline.

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Now, use those numbers from the previous article on Sinopec buying LNG from the other PNG LNG project (Exxon/OilSearch) to see what we’re talking about. An 8 million metric ton plant could sell gas worth $438 per metric ton, or $3.5B per year. That brings the pay-back time to under two years. We would say that those LNG plants are quite profitable in this area of the world…