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InterOil Corporation, through its subsidiaries, develops a vertically-integrated energy company in Papua New Guinea. InterOil conducts its operations through three segments: Exploration and Production, Refining and Marketing, and Wholesale and Retail Distribution. The Exploration and Production segment engages in the exploration and production of crude oil and natural gas. It owns four exploration licenses and two retention licenses in Papua New Guinea covering approximately eight million acres. The Refining and Marketing segment operations include the refining of crude oil and the marketing of refined products. The Wholesales and Retail Distribution segment engages in the bulk storage, transportation, distribution, wholesaling, and retailing of refined petroleum products in Papua New Guinea. It distributes diesel, jet fuel, gasoline, and fuel oil, as well as commercial and industrial lubricants, such as engine and hydraulic oils. InterOil was founded in 1990 and is based in Cairns, Australia.
The gas discovery in New Guinea is only the beginning for this company.
LNG is the future...
InterOil (IOC) is a Canadian integrated (exploration assets, refinery, near distribution monopoly) located in Papua New Guinea [PNG]. After having struck two earlier profusely flowing natural gas and liquids wells (flowing at 102 and 105MMcf/d respectively), they hit an absolute killer with Antelope1, which flowed at a whopping 382MMcf/d.
Summing up a few findings:
Let’s put that in perspective
Just three wells flow 600MMcf/d, more than enough to supply the daily needs of an LNG facility. This is roughly equivalent to the daily productivity of Southwestern Energy (SWN), enterprise value of 10.5 billion. It is larger than the daily production of Ultra Petroleum (UPL), enterprise value of roughly $6 billion. The record-breaking well by itself has larger daily production than the entire corporation of Range Resources, enterprise value $7.3 billion.
And all that with just three wells, with seismics indicating plenty of potential left for more. This leads to another important point, how InterOil’s location and quality of its resource provides it with a large cost advantage over most competitors for the most lucrative LNG market in the world, Asia Pacific.
PNG is located next to the world’s most lucrative LNG market, Asia Pacific. PNG is a very low cost location, and has a rather business friendly regulation, which put resources located here at a considerable advantage.
Australia has emerged as the next big LNG play for Asia Pacific, but its labour, tax, and regulation costs are a multiple of those in PNG, yet tens of billions of dollars are going into these Australian coal seam projects even in today’s low energy and credit constrained environment.
And where InterOil can supply a LNG facility from just three wells, coal seam gas projects need to drill, treat, and man literally thousands of wells.
InterOil’s planned LNG facility is estimated at just $5-7 billion, low for international standards. Even a rival comparable project on the same cheap PNG location, led by OilSearch and Exxon (XOM) is budgeted at $11-12 billion for a 6.3 million tonne per annum facility. (InterOil’s facility will have a capacity of 6-9M tonne).
The InterOil project is cheaper because the gas comes from a single resouce and, unlike OilSearch, important infrastructure is already in place. InterOil does not have to build a harbor, housing, power facilities, water facilities, deep water jetty system, InterOil already has land rights, and their pipeline is less than half the distance and is not in the mountainous terrain of the highlands (like Exxon / OilSearch’s).
What will happen next?
1) Determining the condensate ratio at depth and looking for oil
This will be done by side-tracking Antelope1 and proceed with three DST tests for the condensates, which increase with depths, and oil, within the next 30 days.
The first three DST tests will not deliver a ‘wow’ factor, their aim is to find out the gas / condensate ratio at different depths. This is a necessary task for getting a grip on designing the best way to produce these condensates.
A wow factor might come from the last DST test, specifically to test an interval where there might be oil. CSIRO, the famed Australian engineering bureau, has commented that the gas is likely to come from an oil system, so there is a reasonable chance there is oil somewhere in Antelope.
However, oil has a habit of migrating to unexpected places, so actually locating it might be problematic.
2) Reserve reports
These might not provide much ‘wow’ factor either, as these reports tend to concentrate on what can be proven now, not on how much more there might very well be (according to seismics), so they have a conservative bias and are unlikely to come close to the numbers going around on the boards (6-12Tcf) or InterOil (11Tcf).
Getting reserves on the books is significant, InterOil doesn’t have any now and exploration companies are mostly valued on their reserves. Also, any reasonable doubt about whether InterOil has enough gas to support an LNG facility will disappear.
3) Selling up to a 25% stake
After preliminary discussions with major oil companies, national oil companies and international natural gas utilities, Interoil and its advisors will determine the most suitable industry farm-in to acquire up to 25% interest in its LNG assets. InterOil has retained the services of BNP Paribas (BNPQY.PK) and ABN Ambro (ABN) as advisors.
There is no shortage in potential partners, two categories are most likely, Asian utilities and big oil companies. The latter are looking to add reserves in a world where more and more resources are nationalized, the former are trying to secure long-term energy supplies as a matter of national security.
Both parties have long-term horizons and deep pockets and the extraordinary economics of their Elk / Antelope discovery ensure that it’s one of the most competitive natural gas resources to develop. Getting the gas condensates out would improve the economics even more, as it provides early cash-flow, further derisking the project.
Raymond James in a recent research report used two valuation methods, a net asset valuation [NAV], and comparing it with similar deals.
For the NAV exercise, they used the following assumptions: 6.9Tcf of gas , 60% working interest, 50% risk factor, $0.75/Mcf multiple, very conservative in the light of “Asia’s premium priced (typically $10+/Mcf) LNG market and valuations in the depressed U.S. gas market (typically $1.50 to $2/Mcf) and 69MMBbls of condensates at $10 per barrel and risked the same way.
They arrive at a NAV of $55.52 per share, roughly 2.5 times current prices, with substantial upside to both the amount of gas, its valuation, and reducing the risk factor (with independent reserve reports).
Perhaps even more interesting was Raymond James comparing a possible InterOil deal with Nippon Oil buying AGL’s 3.6% stake in the PNG exploration interest and LNG facility planned by OilSearch and Exxon, for $800 million last December.
Arguing InterOil’s assets are comparable to those for sale in the above transaction, a 25% stake would fetch $5+ billion and put the enterprise value at a whopping $22 billion. All this suggests that, longer-term, this stock can only move in one way, and that is up.
With regards to:
Resources known (only for the Elk-wells, net pay of 127 feet. Antelope is not included here and has a net pay thickness 16 times more, 2068 feet !) ;
Friday 27 march 2008
|As at December 31, 2008||Low||Best||High|
Contingent Gas Resources (Tcf)
Contingent Condensate Resources (MMBbls)
Contingent Resources MMBOE
|*||55.67% Working Interest assumes all IPWI Investors and the State elect to fully participate after a Production Development License has been granted.|
gas: 1.9 tcf x $2,00 = $3.571.326.000
condensate: 33MMBbls x $10,00 = $330.000.000
total: $ 3.901.326.000
and for 36.5MM shares this should be a rough guess of $106.88 per share
Monday April 6, 2009
analyst: Pavel Molchanov
"...* An important point to underscore is that our risked NAV/share of $55.93 (detailed in our March 30 comment) - nearly twice the current share price - gives credit only for natural gas and condensate resource based on the year-end 2008 independent reserve report. The NAV does not give any credit for prospective oil resource, so any such resource represents pure option value - the proverbial "icing on the cake"...."
Monday September 14, 2009
InterOil Issues Statement Regarding Proposed LNG Project in Papua New Guinea
Company Pleased with Support Received from Prime Minister and Minister for Petroleum and EnergyInterOil LNG Project Expected to Generate Competitive Economic Returns and Create Thousands of New Jobs and Economic Benefits for Papua New GuineaIndependent Resource Evaluations from GLJ Petroleum Consultants Ltd. and Knowledge Reservoir Provided to Papua New Guinea Officials
Friday, 20 november 2009
antelope 2 well: potential confirmed.
This presentation tells it all:
GOVERNMENT OF PAPUA NEW GUINEA SIGNS
INTEROIL’S LNG PROJECT AGREEMENT
GOVERNMENT OF PAPUA NEW GUINEA TO TAKE 22.5%
Cairns, Australia and Houston, TX -- December 23, 2009
(POMSoX: IOC) today announced that the PNG National Government has signed the Company’s Project
Agreement for the construction of a liquefied natural gas (LNG) plant in Papua New Guinea.
Following approval of the Project Agreement by the National Executive Council on December 10,
the Minister for Petroleum Hon William Duma and acting Governor-General Dr Allan Marat signed the
Agreement securing PNG’s second LNG project. The signing was witnessed by the Prime Minister Sir
Michael Somare. The Agreement sets fiscal terms for a twenty year period, which include a 30%
company tax rate and certain exemptions applicable to large scale projects of this nature. It also provides
for a 20.5% ownership stake to be held by the Government of Papua New Guinea’s nominee, Petromin
PNG Holdings Limited. A further 2% ownership stake will be taken by landowners directly affected by
As previously announced, the proposed LNG project would be developed by InterOil and its joint
venture partners Pacific LNG Operations Ltd. and Petromin PNG Holdings Limited. The project targets a
$5 to $7 billion LNG facility, with multiple trains. Additionally, the Agreement provides for the
expansion of the plant up to 10.6 million tons per annum (mmtpa). While current plans call for first
production of LNG towards the end of 2014 or beginning of 2015, InterOil is progressing a proposed
liquids stripping plant, to be located in Gulf Province, in late 2011/early 2012, which would provide an
attractive revenue stream prior to the commissioning of the LNG plant.
Sir Michael Somare, Prime Minister of Papua New Guinea, stated, “The government of Papua
New Guinea, through its long standing partnership with InterOil, has secured an ownership stake across
the entire value chain from wellhead to LNG offtake in a world class energy development project that will
significantly contribute to national prosperity and fiscal security for many years to come. The national
equity interest, to be held by the state’s nominee Petromin PNG Holdings Limited, aligns the Country’s
economic interests with its partners and provides strategic assets for national security.”-- InterOil Corporation (NYSE: IOC)
ANTELOPE-2 REACHES TOTAL VERTICAL DEPTH,
PREPARATIONS FOR HORIZONTAL EXTENSION UNDER WAY
Cairns, Australia and Houston, TX -- February 01, 2010 -- InterOil Corporation (NYSE:
IOC) (POMSoX: IOC)
(TVD) at 8,087 feet (2,465 meters) with preparations now in place to drill a horizontal extension. The last
328 feet (100 meters) drilled is currently being logged and evaluated. Previously, the Company had
logged and performed drill stem tests (DST’s) #3 and #3-A to a maximum depth of 7,760 feet (2,365
meters), an increase of 131 feet (40 meters) since DST#2 was reported on January, 11 2010.
today announced that it has drilled the Antelope-2 well to total vertical depth
Key results derived from the Antelope-2 well to date include:
1) 1,729 feet (527 meters) hydrocarbon column height.
2) Hydrocarbons encountered 361 feet (110 meters) higher than pre-drill estimates.
3) Confirmed increasing condensate-to-gas ratio with depth.
4) Average porosity of 13%, a 48% increase over Antelope-1.
5) Net to gross of 70.7%, a 5.6% increase over Antelope-1.
6) Identified zone of interest for horizontal extension,
7) Average porosity in zone of interest increased 34% over the comparable zone in Antelope-1.
8) Extension of reef facies 2.3 miles from Antelope-1.
Preliminary log and test results to 8,087 feet (2,465 meters) confirm a continuous hydrocarbon
column of 1,739 feet (530 meters) down to a water contact estimated at 7,760 feet (2,365 meters). These
results indicate a zone of interest above 7,700 feet (2,347 meters), which will be the target of the planned
horizontal extension. The objectives of the horizontal are to: 1) test fluid content, 2) test flow capacity, 3)
test the lateral variability of reservoir, and; 4) evaluate the hydrocarbon content away from invasion of
any drilling fluids lost to the formation during drilling