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Investor with extensive analytical and portfolio management experience and a focus on discovering and exploiting differentiated ideas with significant dislocations and clear catalytic paths.
  • InterOil - Are NEC Approval And A Sell Down Of Elk/Antelope Imminent? 1 comment
    Aug 26, 2012 9:01 PM | about stocks: IOC

    Last week, The Korea Economic Daily reported that an official with the Korean Ministry of Knowledge Economy said "KOGAS has formed a consortium jointly with Mitsui and JAPEX to participate in Papua New Guinea's US$5.4-billion InterOil LNG project." (http://english.hankyung.com/news/apps/news.view?c1=04&nkey=201208222330311) Despite the conciseness of and market's apathy towards the article, there are several interesting nuggets of information that could have very meaningful implications:

    1) After an extended due diligence process, JKM wants a stake in InterOil's Gulf Project:

    In February, it was reported that KOGAS stitched together a consortium with Mitsui and Japan Petroleum Exploration to join InterOil's project as a strategic partner. (http://blogs.wsj.com/dealjournalaustralia/2012/02/07/kogas-japan-companies-eye-papua-new-guinea-lng/) As Wayne Andrews conveyed in a conversation transcribed in my previous Seeking Alpha piece (seekingalpha.com/article/815881-why-roya...), "We have provided unfettered data room access to qualified bidders with whom we have completed confidentiality agreements including a standstill provision. Many have accessed our data room and conducted thorough assessments. We are now working with a short list of parties capable of bringing an LNG processing facility to Papua New Guinea of a nature and in a manner which will be satisfactory to the PNG State."

    JKM, which comprises the biggest LNG importing company in the world, a $27 billion market cap Japanese conglomerate, and a formerly state-owned Japanese energy company with its primary objective being "to enhance Japan's self-sufficiency ratio", is blatantly one of the qualified bidders to which Mr. Andrews was referring. The reaffirmation of JKM's interest in InterOil's project after an extensive period of time has elapsed indicates that the conglomerate's due diligence confirms the resource contained in the Elk and Antelope fields is more than adequate to underpin an 8 mtpa liquefaction project.

    2) There are multiple bidders and the final selection process is underway:

    On InterOil's first quarter press release, Phil Mulacek stated, "We have received conforming and non-conforming bids for the LNG partnering and sell down of an interest in the Elk and Antelope fields that we believe would be accretive to shareholders." The last line of last week's article in the Korea Economic Daily, "The ministry official added, 'Currently the Papua New Guinean government is working on selecting development partners and detailed terms of the deal…'", provides a third party confirmation that there are in fact multiple interested development partners from which the PNG government and InterOil are choosing.

    The selection process is likely the final stage of InterOil's deal process, and it is almost certainly not a coincidence that this leak occurred subsequent to the PNG elections and the government's explicit support for the Project, which were in retrospect logical prerequisites for a multibillion dollar transaction to be consummated.

    Governor-General Sir Michael Ogio said the InterOil LNG project would be given priority support to ensure its delivery during the five year term of the new government in his opening address to Parliament last week, and the writing is on the wall. NEC approval of the Gulf LNG Project and final partner selection are clearly now imminent. Skeptics may continue their erroneous analogies between aquifers drilled at Puri and InterOil's massive reefal reservoir and they may continue to ignore that the non-reef micritric limestone matrix contains only a small fraction of the gas in place relative to the dolomitized reef in the Elk and Antelope fields, but last week's comments by the Korean government official make it evident that subsequent to an extensive due diligence process, major LNG operators believe that the Elk and Antelope reservoirs contain enough gas to underpin an 8 mtpa project, accretive bids were in fact submitted for a stake in InterOil's resource and selection and finalization could be days or weeks away.

    Disclosure: I am long IOC.

    Stocks: IOC
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  • David Calleo
    , contributor
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    Looks like what you have commented on may be closer than you think. Any-day now there should be some type of approval. Maybe even this week? Any thoughts on that approval?
    11 Oct 2012, 11:19 AM Reply Like
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