InterOil Corporation has announced it is teaming up with France’s Total S.A. to develop Papua New Guinea’s second LNG gas project at the Elk and Antelope fields in Gulf Province. How will the new project fit into PNG’s existing LNG landscape?

The Antelope 3 gas field. Credit: InterOil

In a statement last week, InterOil said Total would pay up to US$3.6 billion (K9.01 billion) for a 61.3% stake in the fields.

The final price will depend on the extent of the reserves, which will be known after the drilling of three wells.

InterOil’s share price fell 30% after the initial announcement of the deal last Friday, forcing the company to issue a clarification. InterOil said Total’s payments include US$613 million (K1.55 billion) on transaction completion, which is expected in early 2014; US$112 million (K283 million) on a final investment decision for a new LNG plant; and US$100 million (K253 million) at first LNG cargo from the proposed LNG facility.

Total S. A. – a new multinational for PNG

This French-based conglomerate is a global oil and gas company, also involved in chemicals and new energies. Its deal with InterOil represents its first entry into the PNG petroleum development industry.

In April 2012, Total Marketing & Services created a new affiliate in Port Moresby. Total Marketing & Services had been marketing lubricants in the country via a distributor arrangement for several years.

Key facts

• Fifth-largest publicly-traded integrated international oil and gas company in the world
• Second largest market capitalisation company in Europe, valued at €92.3 billion (K321 billion) at December 31, 2012
• More than 97,000 employees at December 31, 2012
• Operations in more than 130 countries
• Oil and gas exploration and production operations in more than 50 countries
• 2012 sales: €200 billion (K695 billion)
• 28.5% French shareholders and 29.6% shareholders from North America

If the PNG Government and landowners exercise their rights to take a 22.5% interest in the project, Total will end up with 47% and InterOil 30%.

While some analysts interpreted the sudden drop in InterOil’s share price as a reflecting confusion over conflicting statements between InterOil and Total about the deal, others have taken a long-term view.

‘I think the share price fell away because they (InterOil) will lose some value in terms of the revenue generated,’ said David Lennox, Senior Analyst at Fat Prophets in Sydney.

Oil Search to come in?

Oil Search Limited, one of the key players involved with PNG’s existing LNG project, the ExxonMobil-led PNG LNG project, is also looking at joining the venture. Oil Search Limited’s Managing Director, Peter Botten told the Australian Stock Exchange on Monday it was in ‘ongoing’ discussions over the purchase of equity in the licence area covering the Elk and Antelope fields.

‘It would be better to make a third or fourth train, rather than build a plant independently elsewhere. Most of the players don’t want to see a piecemeal development.’

‘However, the nature of Oil Search’s potential participation in any transaction is uncertain and there is no guarantee that any agreement will be reached,’ said Botten in a statement.

David Lennox believes Oil Search is interested in the deal as a supplement to the huge amount of activity it already has in the PNG Gulf region with the PNG LNG project.

Fat Prophets’ David Lennox

Using existing LNG infrastructure

‘They would be looking at potential gas reserves for a third train [for the PNG LNG project] that they would build rather than have InterOil develop a separate train outside of what’s already happening,’ he told BusinessAdvantage PNG.

‘To me, it would make more sense that the processing be kept fairly central. So, it would be better to make a third or fourth train, rather than build a plant independently elsewhere. Most of the players don’t want to see a piecemeal development.’

Analysts at the investment bank UBS have speculated Oil Search may asset swap with Total, since the two companies are already involved in PNG and are also working together in Kurdistan.

‘There is potential for an equity swap—more Taza equity [in Kurdistan] to Total in exchange for Elk/Antelope equity to Oil Search,’ according to the UBS analysis in a note to clients.

Petromin Holdings chairman Sir Brown Bai has welcomed the deal. Petromin is the state nominee for the Elk/Antelope project, although Prime Minister O’Neill flagged earlier this year that the organisation may be re-named Kumul Petroleum under a major reorganisation of State-held assets.