Significant players keen to join InterOil’s venture

And why not?

From Bloomberg
Interoil Says ‘Significant Players’ Keen to Join PNG Venture

By James Paton
Oct. 6 (Bloomberg) — InterOil Corp. has been approached by “significant players” in the liquefied natural gas industry to join its Papua New Guinea venture, and it aims to sign on a partner and make an investment decision by the end of the year.
Just about every major that’s involved in LNG in the world has contacted us,” Chief Executive Officer Phil Mulacek said in a telephone interview from Singapore. Papua New Guinea wants InterOil to team up with an internationally recognized LNG developer to help accelerate the project and increase its initial output capacity, he said yesterday.
The stock has slumped 30 percent in New York trading since media reports in Papua New Guinea last month said the government criticized InterOil for deviating from a 2009 agreement. The decline may even make the company based in Canada’s Yukon Territory a potential takeover target, according to Pavel Molchanov, an analyst with Raymond James & Associates.
“InterOil has something very valuable, which is the resource,” Molchanov said by telephone today from Charlotte, North Carolina. “The biggest challenge for major oil and gas companies is access to resource. There are few places left which are unexplored. PNG is a frontier territory.”
The company is developing the project with Pacific LNG Ltd. under a venture known as Liquid Niugini Gas Ltd. and estimated two years ago it may cost as much as $7 billion. A sale of a stake in the development is more likely than an acquisition of InterOil, Molchanov said.
InterOil has petroleum licenses covering about 3.9 million acres, an oil refinery and distribution facilities in Papua New Guinea, according to the company’s website.
Morgan Stanley
InterOil is promoting a “small-scale, fragmented” project to be developed by companies that aren’t recognized as LNG operators, The National newspaper reported on Sept. 27, citing Petroleum Minister William Duma.
The company said last month it hired Morgan Stanley, UBS AG and Macquarie Group Ltd. to evaluate partnership proposals. Surging LNG prices in Asia and forecasts that demand will exceed supply amid delays at Australian ventures are driving interest in the Papua New Guinea project, Mulacek said.
We’re willing to sell a significant enough stake to attract the right kind of partner,” Wayne Andrews , InterOil’s vice president of capital markets, said in a separate telephone interview yesterday from St. Petersburg, Florida. The company said last week it is seeking an “operating” partner.
Shell, Exxon
The project would be the second LNG venture in Papua New Guinea. Exxon Mobil Corp. is building a $15 billion project with partners including Oil Search Ltd. Royal Dutch Shell Plc signed an agreement with Papua New Guinea-owned Petromin PNG Holdings Ltd. in August to pursue “upstream opportunities” in the country, which may include LNG.
“Exxon is in PNG,” Andrews said. “Shell wants to be in PNG, and we’re getting proposals coming in from other internationally recognized LNG operators. We thought the time is right to get investment banks to help evaluate proposals.”
Andrews and Mulacek declined to comment on whether InterOil is in talks with Shell. Europe’s largest oil company declined to comment on whether it is considering joining the venture.
“We believe that PNG is a good fit for Shell’s upstream business and we look forward to contributing to the growth of this country,” Shell said in an e-mail today. “The Shell- Petromin strategic alliance is the first step.”
Exploration Stakes
InterOil is also offering stakes in the Elk and Antelope gas fields and exploration blocks in Papua New Guinea, the company said in a Sept. 30 statement.

Papua New Guinea expects InterOil and its partners to build a plant capable of producing between 7.6 million and 10.6 million metric tons of LNG a year, Andrews said. The company previously was targeting initial output at 5 million tons a year, including 2 million tons from a floating LNG vessel, he said.

Production may start in late 2014 or early 2015, according to Andrews. Mulacek and Andrews declined to say how much of the venture and the gas fields InterOil plans to sell.

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A few observations:

  • [“The biggest challenge for major oil and gas companies is access to resource. There are few places left which are unexplored. PNG is a frontier territory.”] Yes, we’ve been saying this for years. It’s pretty obvious.
  • It is seeking an operating partner, combined with the mentioned start-up dates, we still don’t think the present plans in the Gulf will be altered too much (they might be expanded and have a different operator)
  • As it happens, the article starts with “it aims to sign on a partner and make an investment decision by the end of the year”
  • We hope they’ll maintain most of their exploration stakes, as after this deal materializes, they will have sufficient money to drill and there are 56 structures with 14 possible reefs out there with the first one, Triceratops, ready to be drilled before year end. We know it contains gas (per 1959 well), seismics has shown a large reef. Interesting combination…

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