COMPANY PROFILE
2015
InterOil
www.interoil.com | + 675 7998 0300 / 301
Discovering PNG’s largest gas field Editorial: Harriet Pattison
Founded nearly two decades ago, it is safe to say that InterOil is a company in the midst of a successful and exciting transformation. Discovering Papua New Guinea’s largest gas field, Elk-Antelope in 2006, the company has partnered up with Total and Oil Search to develop a liquefied natural gas project based on an estimated resource of at least 7 trillion cubic feet (tcf). Total World Energy looks at one of the largest gas discoveries in Asia in the last 20 years… Founded in 1997 from the entrepreneurial spirit and determination of former chief executive Phil Mulacek, InterOil has experienced a momentous shift in the last year or so. After reshuffling its management team under a new chief executive and selling the
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refinery arm of its business to Puma Energy in June last year for US$526 million, the company is now firmly on the reputable map of Asian energy companies. Now led by former BP and Woodside Energy Senior Executive, Chief Executive Dr Michael Hession,
the history and no doubt future of InterOil is looking to be an interesting one. Total World Energy looks at the history of this company which is now working to develop Papua New Guinea’s second LNG project and is involved in the country’s largest
InterOil exploration and appraisal drilling program to date. InterOil was incorporated in Canada about 12 years ago and founded by engineer and entrepreneur Phil Mulacek who had an idea to take a refinery that Chevron was decommissioning in Alaska and set it up in Papua New Guinea, which had no refining capabilities at all. Production started in 2003 and InterOil had the sole refining and distribution rights to aviation fuel, diesel and petrol. InterOil then turned to exploration. The Eastern Papuan Basin was considered to be prospective but under-explored and InterOil picked up about 32,000 Km2 of licences. After a couple of unsuccessful wells, InterOil found Elk-Antelope, which has turned out to be the biggest gas field in Papua New Guinea. In early 2014, InterOil finalised a deal with Total to develop a liquefied natural gas project, with Total acquiring an interest in ElkAntelope for about US$400 million with additional milestone payments and bonus payments out to the first LNG cargo. The agreement with Total, signed in March last year, means InterOil will receive an estimated US$1.62 billion if the project has 7.1tcf (trillion cubic feet) with the potential for further payments if the field is bigger. InterOil is working through ElkAntelope LNG project planning with Total and Oil Search and has two appraisal wells underway and may drill another one later this year depending on whether the joint venture feels it needs to. The venture is working towards a final design concept and site for the LNG plant and facilities and will move into the design and front end engineering and then a final investment decision in late 2016-17, with first gas expected early in the next decade.
ELK-ANTELOPE With Elk-Antelope amongst the largest discoveries in Asia in the past two decades, InterOil believes it will exceed seven trillion cubic feet of gas based on estimates by independent certifiers. The current field appraisal work is designed to help the joint venture correctly design and engineer facilities before making a final investment decision. The project has six wells on the structure and up to three more under way or planned in the next six months. Reserves certifiers will then analyse all the data and come up with a range of the size of the field. Earlier last year, Oil Search bought out some minority interests in the field, paying US$900 million on the basis that there is 7tcf of gas available.
AN UPSTREAM BUSINESS Since its inception, InterOil has changed, especially within the last few years with the successful appointment of Hession. When he took over, the company was in both ends of the value chain but not production. It was in exploration, importing oil, refining it and distributing it but did not have its own production. This is unusual for oil and gas companies unless they are super majors like Shell or Exxon. When Puma Energy, a subsidiary of the Trafigura group, asked to buy InterOil’s refining and downstream business, InterOil said yes. “The refinery sale changed the business and we deliberately moved focus and strength to developing the LNG project and our engineering, geological and geophysical capacity,”
said a company spokesman. “We’ve got a pretty robust team of people who are very experienced with LNG projects around the world who have come from Shell, BP, Chevron, Woodside to work with us.” Operating in a challenging location like the highlands of Papua New Guinea can make work much more difficult. InterOil has streamlined its supply chain because of the remote location. With few roads, drilling rigs and even bulldozers have to be taken to site via helicopter. It has shut down its construction division that built roads and drill sites because it was not core business, and now engages contractors for this work. “We are purely focused on LNG development and monetising our exploration success. The next phase is production but that will come in time. So that’s essentially the model and now we’re what you would call an upstream business,” the spokesman said.
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COMPLEMENTARY BUSINESS Although parts of Papua New Guinea remained relatively unexplored until recently, the size of the Elk-Antelope Project and ExxonMobil’s $19 billion PNG LNG Project have attracted numerous companies to the region, making the exploration business an increasingly competitive industry in which to operate. More than a dozen oil and gas companies operate in PNG, from the larger ones like Total and ExxonMobil through to the smaller companies. From the LNG end, ExxonMobil last year started production from the PNG LNG project, an undertaking that is considered to be one of, if not the, least expensive LNG projects in the world. It came in under schedule and on budget. InterOil sees the ExxonMobil PNG LNG Project not so much as
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“The refinery sale changed the business and we deliberately moved focus and strength to developing the LNG project and our engineering, geological and geophysical capacity”
competition but as complementary because it has blazed the trail with customers, regulators and contractors. “While PNG LNG has paved the way and established PNG as a country that can deliver a mega project, we’re on their coattails and hopefully we’ll follow with the country’s second LNG project,” the spokesman said. The PNG LNG Project, which is 600km from Port Moresby, is based on several gas fields in the southern and western highlands which are very rugged and remote whereas InterOil has one field based on the hinterland of the highlands and near a big river, which helps with transporting people and equipment. The InterOil project is also 300km closer to Port Moresby, which means it does not need an extra 300km of pipeline. With 300 employees and more than 1500 contractors working in the
BGP PNG Exploration Limited is a locally registered subsidiar y in Papua New Guinea of BGP Inc., China National Petroleum Corporation. We ha ve been in this countr y for more than four years, completed several projects in Wester n and Gulf Provinces, gained a lot of local exper ience and know PNG ver y well. The Antelope project for InterOil was our most challenging. Usually it is not easy to dr ill a 27 meter depth hole in mudstone. However it was much more challenging to complete loading in this project. Finally, we finished all holes in a high quality production wa y with BGP powerful por table dr illing r igs. And three component data were acquired firstly in Papua New Guinea as well.
BGP PNG is keen to provide our ser vices with high quality, cos t effectiveness and HSE s tandard compliance to the Oil&Gas indus tr y and develop our selves together with the local communities .
Contact person | Mr.Chen Bingwen Mobile | 00675-73239172 Email | chenbingwen@bgp.com.cn Website | www.bgp.com.cn
field on development and exploration, InterOil is a big employer in the region. Most of its staff are Papua New Guineans, including the president of its PNG operations, Isikeli Taureka, who worked for many years with Chevron in the US, China, Asia and Australia. “We’ve got quite a few geological staff from Papua New Guinea and a lot of our finance and HR department are from PNG,” the spokesman said. “We’re determined to increase the capacity and capability of Papua New Guinea because they are capable and they are readily available but haven’t necessarily had the same opportunities as non-Papua New Guineans.”
PROVIDING OPPORTUNITIES Alongside InterOil’s Elk-Antelope Project, ExxonMobil’s PNG LNG project, currently in production, has brought about a very successful and welcome change for Papua New Guinea and for the industry. The country’s GDP will increase from 6% to 21% on the back of the Exxon project.
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“We are purely focused on LNG development and monetising our exploration success. The next phase is production but that will come in time. So that’s essentially the model and now we’re what you would call an upstream business”
“The onset of that project demonstrated to the world that the PNG government was stable enough and competent enough to bring on a major project, the fiscal regime works and is stable and competitive,” the spokesman said. The fact that the ExxonMobil project is producing and will do for 30 odd years opened up the prospect of markets for explorers who find more gas. “So, this has given the country a competitive edge and the fact that you can bring on a big project and contain your costs amongst the most competitive in the world makes it a fairly attractive place to be. Although PNG is remote and geographically difficult, it is very innovative and the people are innovative. There have been many engineering marvels; when you see some of the hills and valleys where they have built rigs, laid pipelines and built plants you think: ‘How the hell did they ever do that, but they have.’” Mega-projects like Elk-Antelope and PNG LNG are helping to provide a revenue stream for the government
InterOil
CEO Dr Michael Hession with Gulf Province villagers
which in turn lifts the living standards of the locals. The PNG government is a signatory to the extractive industries transparency initiative and is working with companies now to ensure payments are transparent. PNG also operates under English Law and has a vibrant middle class with many people who went overseas 30 years ago to work now returning. The PNG elite generally sent their children overseas to school, mainly to Australia. “In the past, these kids would take jobs with big companies and go off around the world, but now projects like PNG LNG and Elk-Antelope are providing opportunities for them to come back, to allow them to give something back to their country and live there once more,” the spokesman said. Not only is InterOil providing employment opportunities to the locals of Papua New Guinea but it is continuing to cement its position in the community. Instrumental to the infrastructure of the country,
InterOil provides basic services to the communities. Following some of the region’s worst flooding in 2014, InterOil delivered emergency food supplies, medicines and shelter for an estimated 3,000 people who were left homeless by the extreme weather conditions.
ALL THE RIGHT INGREDIENTS Due in part to the entrepreneurial vision of Phil Mulacek almost two decades ago, much of the company’s rising success is about having all the right ingredients at the right time. Its exploration and commercial success is due no doubt to the experience of people within InterOil who understand the rocks and can do good deals, and also to a bit of luck and the perseverance and belief of people who founded the company. “An entrepreneurial spirit spawned the company,” the spokesman said. “As for the future, the company
is well funded, we have world class assets and we’ve got an extremely competent team with vast international experience, so on those measures we’ve got all the ingredients to make it work. “We’ve got a great partner in Total who is used to working in remote parts of the world and is a good technical operator and we’ve got Oil Search who have been in PNG for nearly 100 years and are part of the country’s first LNG project. You don’t always get those ingredients coming together.” As with many large projects, challenges are inevitable, which InterOil, Total and Oil Search are currently resolving, particularly around percentage interests in ElkAntelope. “Of course we have our issues but we will get on with things and continue to draw on each other’s skills and strengths when we need to,” the spokesman concluded
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