InterOil replies to Sydney Morning Herald article

In today’s Page 5 of the Sydney Morning Herald Business Day reporter Clancy Yeates report on Resources under the headline “Doubt cast on Canadians’ ambitious PNG plan” mistruths were rampant throughout the article. InterOil sees it quite strange why a Sydney newspaper with Oil Search shareholding would write about InterOil without contacting senior management of InterOil about the real facts. InterOil’s responses to each paragraph of the article is hereby highlighted in red.  – Susuve Laumaea.

AN OIL refiner hoping to exploit the region's gas boom, Canada's InterOil, faces a wave of scepticism over its plans to export liquefied natural gas from Papua New Guinea.

There is no wave of skepticism. The only skeptics are Oil Search investors that are losing money and have been misled by false information provided by Oil Search. The false information regarding the productivity and resource estimates resulting from our wells has turned out to be not true.

InterOil, which has its regional base in Cairns and RBS Australia as adviser, aims to build a second LNG plant in PNG alongside ExxonMobil's $US12.5 billion ($13.6 billion) venture with Oil Search.

The Exxon led PNG LNG project is now a $15 billion dollar project. InterOil does not intend to build alongside Exxon. InterOil tends to build on government owned land on which it has a 99 year lease alongside its 100% owned oil refinery, where it has a jetty system and harbor rights to the only deep water protected port on the coastline.

The company has lofty ambitions to build a similar sized plant to export 8 million tonnes of gas a year through two production units, or trains, for just $US6 billion. It aims to sell its first shipment as soon as 2014.

Not lofty at all, look at the Hunt Project in Peru, built for $5 billion.

However, some Australian industry insiders and analysts are doubtful whether InterOil has enough gas. The group has no certified reserves, but it has detected gas flow rates at the Elk/Antelope field that it says are the strongest recorded in PNG.

We have certified resources that can not be called proven reserves until we reach FID (final investment decision). Industry insiders and analysts understand this, it is the same for all companies.

In the highest-case scenario from an independent evaluator, InterOil hopes to find reserves of 4.73 trillion cubic feet (tcf), but analysts contacted by BusinessDay said this looked marginal for one train, let alone two.

Our most up to date resource estimate, which includes the results from Antelope-1 is 6.1Tcf of gas and 100 MMbbls of condensate (or 6.7 Tcfe) plenty enough for one train by any standard and well on the way for a two train project.

In comparison, Woodside's Pluto 2 project off Western Australia will require up to 5.1 tcf of gas for one train and 10.2 tcf for two.

The market is also edgy because the geology around InterOil's oil and gas assets is different from the area where Exxon and 34 per cent partner Oil Search are planning their LNG plant.

The market is not edgy at all!! InterOil shares have been one of the best performing stocks on the New York Stock Exchange in 2009. Morgan Stanley recently recommended the shares as a buy. Our reservoir is many fold better that the higher cost and lower productivity wells being drilled in the highlands.

''It's a new area and it does not have the production history of the Southern Highlands, where Oil Search is,'' said an analyst who asked not to be named.

Who is this analyst that hides behind anonymity? Just because a resource is new does not make it inferior. Simply comparing InterOil’s well productivity and the proximity to the proposed plant, would lead any competent industry insider or analyst to conclude InterOil has the superior project.

A website, InterNoOil.com has sprung up attacking the company's claims.

This website was created by a convicted felon who admits to being short InterOil shares. The website made these claims months ago and the market has seen through the ill intent of a stock manipulator.

An InterOil spokesman rejected the criticism and said the company was on track to deliver LNG, adding that scepticism appeared to have come from its competitors.

''We have no reason to believe that we won't have sufficient [gas] to underpin a minimum of one and possibly two trains,'' the spokesman said.

In March, InterOil opened its data room and retained RBS and BNP Paribas to sell a project stake of up to 25 per cent, but it has yet to sign up a big partner.

In March InterOil hired RBS and BNP Paribas, in June InterOil opened its data room. InterOil is planning to test the condensate levels at the base of the gas column and the potential for a commercial oil discovery following the oil recovery in the Antelope-1 well. InterOil will not sell any interest until it has completed the testing in the Antelope-2 well which has been designed to capture this most important valuation information. The Antelope-2 well has already confirmed the extension of the dolomitized reef 2.3 miles from Antelope-1 and encountered the limestone 345 feet higher than estimated further increasing the size of the discovery. The condensate and oil potential will be determined over the next few weeks.

The refiner, listed on the New York stock exchange, has seen its market value almost quadruple this year after discoveries in PNG.Despite local scepticism, US analysts have said booking reserves was not essential for making a final investment decision on an LNG project, as the rival Exxon project had booked only minimal reserves.