INTEROIL and Total are close to finalising a multi-billion dollar agreement which will see the French giant assist in the development of the lucrative Elk-Antelope gas fields in Papua New Guinea.
After much speculation on who would partner up with InterOil in PNG to monetise one of the largest hydrocarbon discoveries in Asia in the past 20 years, IntrerOil announced in December it selected Total in what it described as a “company-making transaction.”
The deal, worth up to US$3.6 billion, will involve InterOil offloading a 61.3 per cent in its Elk and Antelope gas fields, with InterOil to maintain a 30% interest. The proposed transaction which could completed as soon as the first quarter of 2014, governs the sale and purchase of the Petroleum Retention Licence 15, proposed LNG project and exploration farm-in rights.
The parties have also agreed to explore other business opportunities both in PNG and elsewhere in the Asia Pacific region.
Total will need to make an upfront payment of US$613 million to secure the majority stake in the gas fields, with further payments required to correspond with certain milestones, including a final investment decision for a new LNG plant.
The transaction price, which is estimated at between US$1.5-$3.6 billion, will depend on appraisal and certification of Elk-Antelope, with the maximum payment dependent on certification that the discovery holds at least 9 million cubic feet of hydrocarbon gas.
Total has committed to carry the cost of drilling for the appraisal well program which is slated to be completed in 2015. Total will also lead construction of and operate the proposed integrated LNG project.
The agreement followed an extensive international competitive bidding and evaluation process for development of InterOil’s PNG interests. Shell and ExxonMobil were reported in the media as being the other two parties competing for the chance to develop the Elk and Antelope, which have a contingent resource of between 6.83 trillion cubic feet of gas and 10.85tcf.
Speaking on the deal in December, InterOil chief executive Michael Hession said it was satisfying that one of the world’s largest international gas companies shared its faith in developing Elk-Anterlope.
“Total is a world-class operator and will bring experience and expertise to a development that will diversify Papua New Guinea’s hydrocarbon sector,” he said.
“This is a great day for InterOil’s investors, Papua New Guinea, and the people who work for us,”
Dr Hession also committed to reserving some of the gas for domestic supply, hoping the partners would work with the government to develop proposals for setting aside gas “for generation of affordable electricity throughout PNG.”
The deal will not only enable InterOil to commercialise Elk-Antelope, but will also boost its financial position. Along with applying the funds to develop its share of the gas fields, InterOil will use the funds from the transaction to retire debt as well as for exploring and appraising new projects.
Total, which said an investment decision for the fields could be undertaken in 2016, labelled the move to partner up with InterOil as exciting.
“This new acquisition of an interest in significant discovered resources is an exciting opportunity for Total to develop a new gas production and liquefaction hub in the Asia-Pacific region, where gas demand is very dynamic”, Total upstream president Yves-Louis Darricarrère said.
The transaction, which is subject to approval of the PNG government, enables the JV to farm-down up to a 19.3% interest to strategic partner before an election by the government to join the project with a 22.5% interest.
With conditions of the transaction expected to be satisfied in Q1, InterOil has decided to scale-up its PNG operations by relocating core functions from its office in Cairns, Australia, to support the expanding operations in PNG. The 100-person Cairns office will close by the end of 2017.
The relocation is designed to put the resources where they are needed most.
“PNG is our base, and where all our activities are,” Dr Hession said.
“It makes sense to focus our workforce there.”
Concurrently, InterOil has begun a new round of drilling as part of its exploration activities across almost four million acres in PNG, with plans to drill eight wells in the next 12-18 months.