Some Notes from IOC’s Conference Call

A rather good read, we would say..

They are already in the forum, thanks to Tree, but they deserve a place that’s more easy to locate (bold is ours)..



“On the LNG front, during the quarter we continued to have a number of approaches for more LNG offtake by LNG consumers and LNG partnering proposals through the investment banks. Most bidders are in the final stages of due diligence and we see the culmination of these bids during the second quarter of this year. As stated before, the opportunity was clear, the timing was right for InterOil to bring in a qualified LNG partner to join our project and to accelerate our overall LNG development.

The PNG constitutional confusion did slow the process down over the last few months, but we saw the paralysis free up and the government sectors are now focusing on the Gulf LNG project. The prime minister reconfirmed his FID goal for the Gulf LNG project and the PNG government has seen a number of interested parties over at the past 90 days, including the positive comments over the Korean and Japanese consortium……….

As earlier stated, InterOil is steadily completing LNG development in Core components to reduce contractor and LNG partner risks, whether real or perceived. Extensions past the March 31 timeline for both EWC and Mitsui are being processed currently. EWC has made significant progress on the LNG side with complete construction of the LNG coal boxes [read cold boxes SHU] this quarter, with expected delivery or ship-out date from the US the end of this month or early next quarter.

This process has dispelled any processing or completion matters on proven technology. And it might be noted that [Chart] was a manufacturer of the Equatorial New Guinea Marathon’s 4 million ton coal [read cold boxes, SHU] boxes for their LNG plant and is the targeted manufacturer for ConocoPhillips in Queensland, Australia……..

To remind shareholders, the commercial drivers of more LNG capacity will benefit us all. This includes booking resources to reserves earlier for all partners, earlier and larger cash flows, accelerated exploration activities, greater economies of scale with larger LNG capacity on the shared infrastructure.The partial sale of any interest in Elk and Antelope and their resources will greatly enhance our capacity to expand our operations.

Working with the investment banks has improved the position of the LNG project with potential LNG bidders. Independent of this, Collin will explain that the LNG project has a vast amount of debt capacity and the open working capacity at hand. In addition we have been approached by standard project financiers for the LNG project and the potential of having the sovereign wealth funds join us. This flexibility enhances our capacity to have a stronger LNG project while decreasing any perceived risk and demonstrates the fundamental value and interest to our shareholders.”

“$70 million has been spent on construction equipment, road construction, logistics, and site works associated with the upstream development side. This is currently being funded by InterOil. And $31 million has been spent on the condensate stripping front-end engineering and design, which is being funded by Mitsui.

The Company has capacity to increase its debt levels if required to a gearing level of 50%. This provides open debt of some $600 million, more than sufficient as we continue progress towards achieving our near-term strategic objective. We are continuing to focus on the strategic plan to bring an integrated development project that abides by our project agreement and satisfies the PNG government. We are also working closely with the government of PNG to keep them updated on all key developments in relation to the project, early work, strategic partnering process, and the PDL application that is currently being progressed towards finalization and filing.

We have matured assets in the sell-down process and we have matured gas sales processes, all marching towards final execution. We have a strong balance sheet with very low gearing and we have continuing strong operational cash flows. And we continue to maintain a healthy cash position with ready access to draw down on existing borrowing facilities or established new borrowing facilities. Our ability to execute our strategic plan on the planned timeline remains steadfast.”

“The Triceratops-2 well is an appraisal well into the Triceratops gas field, which is proving to be an exciting opportunity for InterOil. New potential field data suggests the western limits of this field are significantly outside our seismic coverage. This is depicted in a map on slide 22. In addition, the new data, when merged with our existing data, allows better removal of the regional gravity gradient and this has enhanced two gravity anomalies along strike to the east of the Triceratops field. This data suggests a trend or a structural trend that extends from Triceratops east through these anomalies, the Triceratops East anomaly and A and B anomalies, around to the Elk and Antelope fields. This is a very exciting eventuality.”

“Our EPC contract technical reviews and cost optimizations are complete. We have started negotiations with the EPC contractor. The geotechnical investigations are going on to find gravel deposits for access road construction and sources for aggregate for the concrete. We plan to start our engineering on infrastructure and support in the second quarter of 2012.

On the pipelines we have finalized the routing of the gathering system from the well sites to the condensate stripping plant. Negotiation of the pipeline material and the pipeline coating purchase orders are now complete and we are ready to place the purchase orders. The dry gas condensate pipeline and center line survey has been completed.
We have been doing soil borings and geotechnical investigation along the pipeline right-of-way, particularly the river crossings. That work is now 80% complete. The preparation of the pipeline installation bid package is progressing and we are starting the detailed design of all pipeline segments, and that is just started. As far as the LNG facilities, the feed packages for the topside facilities on the FLEX portion of the project are complete and the project is ready to progress to the next phase.”

Pavel Molchanov – Raymond James – Analyst
“In the last few months there have been various comments from FLEX LNG that have sent mixed messages about their commitment to the Gulf LNG project. Can you give us the latest on your relationship with FLEX?”

Phil Mulacek – InterOil Corporation – CEO
“We are a major shareholder.We just had a dinner actually with — Henry is here.We both had a dinner with their chairman and president two weeks ago and they are on track. What they are doing is, since they are floating LNG focused, they have got capacity to diversify their company. The confusion may have been that they are looking at LNG carriers as well to diversify their overall portfolio. And that we understood, we supported, and I think we commented on that in the market or on a couple calls.”

Pavel Molchanov – Raymond James – Analyst
“Okay. So no plans on their part to exit your existing business relationship?”

Phil Mulacek – InterOil Corporation – CEO

Collin regarding capex:
Collin Visaggio – InterOil Corporation – CFO
“It depends on how many tons you are talking about developing. Obviously this is a staged process. In terms of this sort of common infrastructure pipelines and those sorts of facilities, the 100% cost is between $1 billion and $1.5 billion thereabout. In terms of the LNG facilities, they are looking around, I don’t know, $450 million per 1 million tons of LNG. So that will give you a bit of an idea of the capital costs of the project.”

Sal regarding NEC:
Phil Mulacek – InterOil Corporation – CEO Clarifications
“Henry is here, you may want to — Henry just left a number of meetings with Prime Minister and most of the key government officials Thursday. Henry?”

Henry Aldorf – InterOil Corporation – President, Pacific LNG
“The government is very well set on getting the Gulf project going.They think it’s a very important thing for the development of Papua New Guinea. In fact, the Prime Minister today, I think it was today, was visiting Kerema and we — I haven’t seen what he stated there. But before he was there — I talked to him last week and he said this project has to go.
This is the poorest province in Papa New Guinea, has always the stepchild of everything, and this is the first time where they can really develop the area so the government is strongly behind it. To develop it we have some minor points we have two solve with them. I will not go into those details because they are confidential between us and the government, but I will say we are getting pretty close to an agreement.”

Phil Mulacek – InterOil Corporation – CEO
“Thank you. There is a couple of questions — people worried about the risks in the election. We have never seen that that is a deterrent. In fact, after the writs were issued, we got our NEC project agreement executed when we originally did the refinery. So just want to put that one to bed that it’s not a material on it. There was mainly the constitutional paralysis, as I mentioned, and that seems to have cleared itself in the last a little less than 30 days with renewed focus to get this project completed within the various government participants. They are also in the pre-election politic modes when all of that just adds to a little bit more timing, but it is key for the government, absolutely essential for the Gulf and regional members to get this project to FID, as well as the Prime Minister.”