RJ has recently been more bullish…
Raymond James Equity ResearchInterOil Corp. – Outperform 2;
Companies Mentioned – IOC
IOC: Petromin Signs Agreement to Scope Out Floating LNG Project
Analyst(s): Pavel Molchanov

• Some positive news today on the LNG front: Petromin, the national oil company of PNG and a 22.5% owner of the Elk/Antelope field, has signed a floating LNG development agreement with two international companies. Under the agreement, a feasibility study will be conducted to assess the option of building a floating liquefaction terminal in the Gulf of Papua (i.e., in close proximity to InterOil’s acreage). Alongside Petromin, the parties to the agreement are Hoegh LNG (a Norwegian transportation and services provider for the LNG industry) and Daewoo Shipbuilding (a Korean shipbuilder with prior experience in LNG tankers).
• While the final investment decision for the floating LNG option has not yet been made, here is the basic plan for the project, as laid out by the three partners. The vessel and the processing systems are to be constructed at a Daewoo shipyard in Korea. The processing facility is expected to have capacity of up to 3.0 million tons of LNG per year. If the decision to proceed is made by year-end 2010, first cargo is anticipated for mid- to late 2014 (though, as we’ve pointed out in the past, large energy infrastructure projects such as this tend to take longer than expected).
• To clarify, InterOil itself is not a party to this development agreement. However, the company has certainly pointed out in the past that floating LNG is a potential add-on to the proposed onshore project at Napa Napa. In other words, it would provide another potential export outlet for the Elk/Antelope gas. Thus, we would underscore that floating LNG should not be seen as a replacement for the onshore project but rather a supplement. The scale of the floating terminal would be inherently smaller as compared to the onshore project, but the upside is that it would start up somewhat earlier (~2014 vs. ~2015/16).
• As detailed in our upgrade comment on June 22, our Outperform rating reflects our positive stance on InterOil’s long-term cash flow potential and likelihood of near-term catalysts, including our view that one or more strategic LNG partnerships and a final investment decision on the condensate project with Mitsui will be announced by year-end 2010. This is balanced by the substantial operational, cost, and timing risks as the upstream assets, condensate project, and LNG plant are developed over the next five-plus years.