Following oil and natural gas explorer�InterOil’s (IOC) disclosure earlier today that it firmed up details with Japan’s Mitsui & Co. Ltd. for development of an oil dig in Papua New Guinea, Raymond James analyst Pavel Molchanov this afternoon writes that the announcement, “certainly confirms the viability of the condensate project and, more broadly, provides a public �seal of approval� for the InterOil story from a blue chip company.”
InterOil still must settle what’s called the “final investment decision” with Mitsui, , and he expects that to come by year’s end. Once a “FID,” as it’s known, is in place, first production wouldn’t come for another two years, but InterOil can move its “contingent” gas condensate reserves into “proven” reserves status long before then, which would be a good thing for the company, writes Molchanov.
With this deal signed, the focus now turns to the following factors, writes Molchanov:
We would not be surprised to see the long-awaited first [Liquified Natural Gas] LNG partnership announcement over the next few months, though, of course, it will be crucial to see what the specific terms are: (1) whether it is a definitive or contingent agreement; (2) what multiple is being placed on the resources; and (3) whether or not InterOil will receive cash upfront as part of the monetization transaction.
Molchanov maintains a “Market Perform” rating on the stock, given the opportunities are, in his mind, balanced against the costs of developing reserves over a five-year period.
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