Tuesday, May 15, 2012

InterOil says PNG government has no right to cancel agreement


Shares fall up to 18%

InterOil Corp said Papua New Guinea's energy department planned to cancel approval for its $6 billion liquefied natural gas complex but it was confident the project could be saved.
The department asked the company last year to revise plans for the Gulf LNG project, which is slated to go on line in 2014, saying that InterOil had deviated from the original agreement.
The government had originally approved a plan for production of 7.6 to 10.6 million tonnes per annum (mtpa). InterOil's website now says production would eventually ramp up to 8 mtpa.
InterOil said the government had no right to end the agreement and that it had the support of Prime Minister Peter O'Neill, who faces an election June.
"PNG continues to have political flux as we get closer to the main election date," InterOil CEO Phil Mulacek said on a call with analysts.
InterOil - an oil producer, refiner and petroleum retailer - has almost all of its operations in Papua New Guinea.
The company said it has been in talks with the government since learning through an unofficial source that the Department of Petroleum and Energy planned to cancel the agreement, which was signed in 2009. A notice would activate a six-month consultation period during which InterOil would have to address concerns.
"This appears to be an escalation of the recent problems InterOil has encountered with the department's minister, William Duma," Raymond James analysts wrote in a note.
Duma has said the developers are promoting a fragmented project and that none of the companies currently involved has the experience necessary to operate a world class operation.
There has been no formal notice from the government, Mulacek said.
InterOil chief financial officer Collin Visaggio said the company believed all the requirements of the 2009 LNG project agreement would be met. "That's what we are discussing with the government and the various bureaucracy," he said on the call.
Government officials could not be reached for comment.
InterOil shares fell as much as 18% to $47.36 on Monday, their lowest in almost two months.
The company, which has been seeking an operating and equity partner to develop the project, said it would start talks with "significant industry participants" this quarter.
InterOil is developing the project with energy investor Pacific LNG in a joint venture called Liquid Niugini Gas Ltd.
Exxon Mobil Corp is already building a $15.7 billion gas export project in Papua New Guinea.
InterOil also said on Monday its first-quarter net profit rose to $9.4 million, or 19 cents per share, from $700,000, or 1 cent per share, a year earlier. Revenue rose 18 percent to $338.2 million.
The company's shares were down 9% at $52.56 in early afternoon trading on the New York Stock Exchange.

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