There was much noise a month or so ago around the status of InterOil's plans to build a modular plant with EWC of Australia and a floating LNG plant with Flex of Norway and Samsung of South Korea after the Minister of Energy of Papua New Guinea (PNG) argued that the plans were in breach of an earlier agreement (signed in December 2009). Scary headlines appeared that the project was canceled and the shares took a beating.
In a number of articles we already argued that this was very unlikely. Not only was it in nobody's interest (least of all the PNG politicians themselves) but also in complete contradiction with earlier public comments by the same politicians. And now we learn from a joint presentation by InterOil and Flex that the project will go ahead as planned.
Look for instance at slide 8 of the presentation:
InterOil (NYSE:IOC) Gulf LNG Project – Current Activity
Start-up configuration of:
- Condensate stripping plants
- 3 MTPA land-based, modular LNG plant
- 2 MTPA fixed floating LNG plant
- Gas and liquids pipeline to LNG plant and Jetty on the coast
- Ramp up LNG to 8 MTPA
Well, that's simply what they were going to do anyway, but if you're still not sure, you can always turn the page an read slide 9:
Two LNG Project Agreements approved by the PNG Government
InterOil led Gulf LNG Project
- 5 MTPA start-up capacity
- Expansion to 10.8 MTPA
Exxon (NYSE:XOM) led PNG LNG Project
- 6.6 MTPA
- Expansion to ~ 10 MTPA
On slide 11 it mentions "Government resource project protection" and you can read the details of the projects in the following slides.
Slide 17 explains the bidding process, assisted by three investment banks and we can read the purpose of it:
- Accelerate the LNG capacity to 7.6 MTPA or more
- Obtain an internationally recognized LNG operating partner
In previous articles, we argued that the whole public political row had the aim simply to get a 'world-class' operator on board and get a bigger project from the start. Needless to say, we don't see much reason to change our opinion..
But it gets better. Slide 18 argues that the project with its present modular design could lead to "a capacity of 20 to 30 MTPA" and "PNG passed the turning point for LNG; and is now on the path to being a Major Supplier of clean energy - as a portfolio including FLNG with Korea."
It's also nice to see that the proposed condensate stripping plant with Mitsui of Japan is making good progress (slide 11 argues that the CSP EPC bids are in and Mitsui is to optimize financing).
Needless to say we feel our position has been vindicated to a considerable degree. Not only is the present project still on track, the addition of an established partner buying into the project (perhaps with minor alterations, but the only ones that are suggested here is a larger start-up capacity) should provide considerable extra benefits for shareholders.
More than ever, we think the shares are attractively valued with upcoming final investment decisions, buy-in of a large partner, spudding of a new resource (Triceratops) which is known to have gas and could be as prolific as Antelope, and the possibility (or likelihood) of more off-take deals.
Disclosure: I am long IOC.