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InterOil from the boards December 13

December 14th, 2009 · 2 Comments

A few useful suggestions…

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  4. Value analysis
  5. Part II
  6. Another value analysis
  7. Little known fact
  8. Know the risks!
  9. A metric to keep in mind
  10. A one-stop shop for the truth on the shorts
  11. In less diplomatic words

Tags: IOC · The best from the boards

2 responses so far ↓

  • 1 kencooksam // Dec 14, 2009 at 11:42 pm

    nice job bro

  • 2 jackwchen // Dec 15, 2009 at 12:34 am

    I don’t know why I could not post in yahoo IOC message board. Could anyone please copy and paste the following to there? Thanks.

    Value of IOC
    1 bbl = 6 Mcf. 1 Mcf = 1 MMbtu. 1 ton of LNG = 48 MMbtu.

    1. After post-transaction, IOC has 30% and 25% interest in upstream and midstream, respectively; chart 30 on 2009.11.19 presentation.

    2. Revenue from LNG
    2.1 IOC’s statement on LNG. At http://www.interoil.com/lng.asp, “InterOil anticipates that the LNG plant will be designed to operate as a tolling facility, while the LNG will be jointly marketed by the upstream owners on behalf of the joint venture.” The joint venture is Liquid Niugini Gas Limited.

    2.2 My understanding the statement is: i) IOC and its upstream partners will produce NG from Elk/Antelope field and send NG to the proposed LNG plant for processing; ii) IOC and its upstream partners will pay the LNG plant for processing NG at the processing fee about $3.7/Mcf; and iii) IOC and its upstream partners will sell the LNG to the market. The integrated process includes the NG produced from field and sent to the LNG plant for processing until the LNG sold in the market. That is what IOC will be doing to be an integrated petroleum company.

    2.3. Each year, how much NG will be produced from the Elk/Antelope field?
    2.3.1 The proposed two-train LNG plant, each train capable of producing 4 million ton of LNG per year. 8 million ton/year x 48 MMbtu/ton x 1 Mcf/MMbtu = 384 million Mcf/year = 384 Bcf/year will be produced from the Elk/Antelope field.
    2.3.2 On chart 33 of 2009/11/19 presentation, LNG production is about 62 MMboe/year during 2016-2024; or on chart 30 of 2009/10/19 presentation, LNG production is 62 MMboe/year during 2016-2034. 62 MMboe/year = 62 MMbbl/year; 62 MMbbl/year x 6 Mcf/bbl = 372 Bcf/year, this is close to 384 Bcf/year mentioned above. 372 Bcf/year x 19 year (2016 to 2034) = 7.068 Tcf. Petrengr has already estimated 11 Tcf NG in the Elk/Antelope field.

    2.4 What is the net profit of LNG?
    2.4.1 Market price of selling LNG is $13.50/MMbtu, all-in cost of LNG production is $3.70/MMbtu, so LNG’s net profit is $9.80/mmbtu.
    2.4.2 The two-train LNG plant will produce 8 million ton of LNG per year.
    2.4.3 Each year, IOC as a 30% owner in the upstream will get net profit $9.8/MMbtu x 48 MMbtu/ton x 8 million ton x 0.3 = $1.129 billion.

    3. Rvenue from the LNG plant.
    3.1 By 2.3.1, 384 Bcf/year natural gas from wellhead will go to the LNG plant.
    3.2 The LNG plant will charge $3.7/Mcf fee for converting NG to LNG.
    3.3 IOC and its upstream partners wil pay the $3.7/Mcf x 384 Bcf = $1.40 billion processing fee to the LNG plant, a tolling facility. The LNG plant converting NG to LNG is the midstream-liquefaction. IOC as a 25% owner in the LNG plant will get the revenue $1.40 x 0.25% = $0.35 billion.
    3.4 What is the net profit?

    4. Revenue from condensate.
    4.1 On page 14 of Norman J. Hyne’ book, a wet gas reservoir can produce gas-oil ratio of 50,000 cf/bbl or higher. That is, the concentration of liquid condensate produced on the surface will be 20 bbl/MMcf or lower.

    4.2 Each year, how many barrels of condensate will be produced at the stripping plant?
    4.2.1 ON chart 24 of 2009/11/19 presentation, 400 MMcf/day NG yields 9,000 bbl/day condensate. That is 22.5 bbl/MMcf (concentration, in barrels of condensate per million cubic feet NG).
    4.2.2 By 4.2.1 and 2.3.1, liquid condensate production at the stripping plant will be 384 Bcf/year x 22.5 bbl/MMcf = 8.64 MMbbl/year (million barrels of condensate per year), that is 23,671 bbl/day (barrels of condensate per day). Note that the IOC has a refinery with the capability of 36,000 bpd.

    4.3 What is the net profit of condensate? If IOC has 25% (or 30%) interest after post-transaction, and condensate net profit is $50/bbl, then IOC will get the net profit 8.64 MMbbl x $50/bbl x 0.25 = $ 0.108 billion, each year.

    4.4 Will the condensate be jointly marketed by IOC and its upstream owners, similar to LNG?

    4.5 Since IOC has a refinery of 36,000 bpd capability, can IOC retain higher than 30% ownership in its upstream condensate?
    4.5.1 If IOC can retain 100% ownership in condensate while selling its upstream interest in gas in Elk/Antelope field, IOC will have net profit $0.432 billion each year.

    5. Revenue from oil.
    5.1 IOC statement on refinery. At http://www.interoil.com/refinery.asp, “Our refinery is currently the sole refiner of hydrocarbons located in Papua New Guinea and can process up to 36,000bpd. Under our 30 year agreement with the State which expires in 2035, the State has undertaken to ensure that domestic distributors purchase their refined petroleum product needs from the refinery, or any refinery which is constructed in Papua New Guinea, at an IPP. Our refinery’s production capacity is more than sufficient to meet all of the domestic demand for the refined products we produce in Papua New Guinea. Jet fuel, diesel and gasoline are the primary products that we produce for the domestic market.”

    5.2 Each year, how many barrels of oil will be produced from the Antelope field?
    5.2.1 ON chart 24 of 2009/11/19 presentation, there are 12 green columns(2013-2024), each column representing 20 MM bbl/year production of oil/liquid.
    5.2.2 By 5.2.1 and 4.2.2, oil produced from the field will be 20 MMbbl/year (oil + liquid condensate) – 8.64 MMbbl/year (liquid condensate) = 11.36 MMbbl/year (oil), that is 31,123 barrels of oil per day.

    5.3 What is the net profit of oil? If oil net profit is $50/bbl, and IOC has 25 (or 30%) interest after post-transaction, then IOC will have the net profit 11.36 MMbbl x $50/bbl x 0.25 = $0.142 billion.

    5.4 Since IOC has the refinery of 36,000 bpd capability, can IOC retain higher than 30% ownership in its upstream oil?
    5.4.1 If IOC can retain 100% ownership in oil while selling its upstream interest in gas in the Elk/Antelope field, IOC will have net profit $0.568 billion each year.

    5.5 If IOC cannot keep 100% ownership in oil that will go to the its refinery, what net profit will the refinery contribute when it processes the oil 11.36 MMbbl/year, that is 31,123 bbl/day?

    5.6 The refinery capability is 36,000 bpd. Can it handle the 31,123 barrels of oil per day as well as 23,671 barrels of condensate per day?

    6. Summary on net profit from LNG, condensate, and oil
    6.1 By 2.4.3, 4.3, and 5.3, IOC will have the net profit is $1.129 billion (LNG) + $0.108 billion (condensate) + $0.142 billion (oil) = $1.379 billion, each year.
    6.2 Net profit contribution weight: LNG 81.9%; condensate 7.8%; oil 10.3%. This means, the LNG business will contribute the majority of net profit to IOC. This might also explain why Nataxis set IOC target price $98/share, oil or no oil, on its 2009/12/01 report.
    6.3 If IOC has 25% ownership in condensate and oil, and condensate and oil production are 8.64 MMbbl/year and 11.36 MMbbl/year, respectively, should we shareholders be excited at condensate and/or oil contributing the net profit to IOC? If not, what can IOC do to have excitement among shareholders? To increase ownership percentage in condensate and oil? To increase the liquid hydrocarbon production?

    7. What is the earning per share, EPS?
    7.1 46 million fully diluted shares. So, EPS is $1.379 billion / (46 million share) = $30/share, each year, excluding contribution from LNG plant and refinery.
    7.2 If we use the PE of 10-20, then IOC will be priced at $300-600/share.