OilSearch bet overcoming price rout

[admin]

Oil Search bets on overcoming price rout in Papua New Guinea

By JAMES PATON on 6/10/2016

PORT MORESBY, Papua New Guinea (Bloomberg) -- Oil Search Ltd., the energy producer that agreed to acquire fellow Papua New Guinea explorer InterOil Corp. for $2.2 billion, is betting it can overcome a languishing LNG market to deliver another export project by beating rivals on costs.

The company expects its deal last month to buy up and divide InterOil’s assets with Paris-based Total SA will pave the way for cooperation between its partners at the Pacific nation’s two separate LNG ventures. A global supply glut has pushed prices down more than 60% in the past three years, deterring gas export projects elsewhere.

Oil Search, which has a major stake in both of the projects, is seeking gas reserves to underpin an increase in exports and is encouraging collaboration between the ventures led by Exxon Mobil Corp. and Total. Cooperation on infrastructure could lead to more than $5 billion in savings over 20 years, consulting firm RISC estimates.

“I don’t think you will see a revisit of the pricing we saw in 2013 and 2014 for a very long time,” Oil Search Managing Director Peter Botten said in a phone interview on Thursday. “I do believe you can still be very competitive, but you’ve got to be absolutely on the bottom end of the cost curve.”

Difficult LNG

Botten expects oil prices to slowly advance toward $60/bbl by the end of next year as supply and demand come back into balance. Brent, the global benchmark, traded at $51.60 on Friday.

“You can see in our view a slow progression toward a slightly higher oil price,” he said. “LNG is slightly more difficult and more challenging on the back of the capacity that has been built in recent years.”

The Total venture with Oil Search sees an opportunity to offer a stake in their project to the PNG LNG partners, including Exxon, or to LNG customers to further align the two projects, Botten said. The Totalproject could bring in another partner “as an incentive to secure a combined development,” according to a report last month from Deutsche Bank AG analysts in Melbourne.

“The door is wide open to those opportunities,” Botten said.

Shares of Oil Search declined 1.9% to A$6.87 as of 3:54 p.m. Sydney time, while Australia’s benchmark index fell 1%.

After buying 100% of InterOil, Oil Search will sell the majority of the acquired gas assets to Total for about $1.2 billion up front. If the deal is approved, Oil Search would hold a 29% stake in Total’s proposed Papua LNG project. That’s the same share it has in Exxon’s $19-billion PNG LNG development, which is considering expansion.

[Thylacine-2]

< Botten expects oil prices to slowly advance toward $60/bbl by the end of next year as supply and demand come back into balance. Brent, the global benchmark, traded at $51.60 on Friday.

“You can see in our view a slow progression toward a slightly higher oil price,” he said. “LNG is slightly more difficult and more challenging on the back of the capacity that has been built in recent years.”>

Supply and demand is already coming back into balance. Botten is being very conservative about oil prices.

[Palm]

Hard to be too bullish on oil for a good long while. Any increases in demand seem to be pretty tepid; for instance the recent uptick by China will likely be shortlived as their economic activity just came out not so great and their strategic oil reserves are now about full.

Just not a lot of drive out there on the horizon; we may see prices back down in low $40s before too long.

[Thylacine-2]

Palm, I'll bet you a virtual beer we see $60 before we see $40.

[Palm]

That sounds like fun. You're on!

[jft310]

China this spring has been filling their Strategic Reserve and its almost full its reported. A $60 oil price next year is fine .

[Gator]

$60 before $40. Is that WTI, Brent, or IOC?

For IOC to get to $60 you will need OSH to get back to it's all time high (9.62), and the AUD vs. the USD to get back to the 52 week high (.785).

For Dr. Hession to add any value for IOC shareholders and get the share price above were it was on his first day as CEO, you would need the above scenario plus 8.54 tcf in E/A certified by both of Total's and Oil Search's petroleum engineers.

I guess that's why the trifecta at Belmont paid so well this weekend.

[Palm]

Palm, I'll bet you a virtual beer we see $60 before we see $40.

Since WTI is now under $40 do I get my beer Thy?

[Putncalls]

No Palm. You lost that bet when all the non Saudi non-fracking projects become un-economic.

[oliver.gump]

$60 before $40. Is that WTI, Brent, or IOC?

For IOC to get to $60 you will need OSH to get back to it's all time high (9.62), and the AUD vs. the USD to get back to the 52 week high (.785).

For Dr. Hession to add any value for IOC shareholders and get the share price above were it was on his first day as CEO, you would need the above scenario plus 8.54 tcf in E/A certified by both of Total's and Oil Search's petroleum engineers.

I guess that's why the trifecta at Belmont paid so well this weekend.

Gator, In my opinion, the only thing teflon mike can do to add value to IOC would be to resign and take his troop of flying monkeys with him. He assumed the role of "Devils Advocate" in all of his deal negotiations. He never once advocated on behalf of the shareholders.