Total rumoured for InterOil bid
Wednesday, 6 May 2015
FRANCE’S Total could be about to make a play for dominance in the Asian LNG sector by making a bid for Papua New Guinea-focused InterOil.
Antelope-5.
While Total isn’t commenting publicly on market speculation, having Europe’s third biggest oiler making a move on the Canadian midcap makes a lot of sense in the current market.
Total would not only secure 80% of PNG’s giant onshore Elk-Antelope gas-condensate fields, but significant exploration acreage that could lead to an even larger LNG project than is being considered for near Port Moresby.
Elk-Antelope could be as large as nine trillion cubic feet of gas, and InterOil’s internal assessment of its exploration portfolio indicates potential for about 8Tcf of gas equivalent in our Bobcat, Raptor and Triceratops discoveries as a gross, unrisked, contingent resource and about 9Tcf of gas equivalent at Wahoo and Antelope South/Antelope Deep.
Total is also in InterOil’s exploration program.
Shell’s recent $90 billion move by Shell on BG Group was driven by its long-term belief on Asian gas demand, and given Shell just published its worst production performance in 17 years it needs a win.
Shell’s move has yet to spark a new round of industry consolidation, but most market watchers believe that it is only a matter of time.
Elk-Antelope is almost development ready, and PNG has proven it can deliver a successful LNG project on time and budget despite significant geographical hurdles, while Total has shown a lot of interest in PNG in recently years, teaming up with Oil Search and drilling the first offshore wells in decades in addition to its move on Elk-Antelope.
ExxonMobil’s $19 billion PNG LNG project started up just over one year ago, and has exceeded expectations, and should produce nine trillion cubic feet of gas over 30 years, and it and its partners, primarily Oil Search, and looking at a third and fourth train.
Oil Search also owns a 23% stake in Elk-Antelope.
Total has another option beyond InterOil. It could take over Talisman Energy’s PNG unit.
For several years Talisman has been focused on a gas aggregation strategy with strategic partners Santos and Mitsubishi Corporation targeting 2-4tcf of gas in the Western Province.
In 2015, Talisman plans to continue supporting its gas aggregation strategy through further exploration drilling and the acquisition of additional seismic, however it is about to become part of Spain’s Repsol following a $15 billion takeover.
Talisman’s gas could be an ideal, simple option for an expanding Total, which paid a modest up-front purchase of a stake in Elk-Antelope with more due on reserves, but it will also soon be generating significant cash from its share of the Ichthys oil and gas project in Australia.
As with most majors Total has recently cut back spending and jobs in relation to the oil price drop, but it is also benefitting from the price drop in its refining business, so its bottom line looks healthy.
Lower oil prices reduce its input costs and generate higher profits on fuels such as diesel or gasoline.
At Europe's largest refiner Total, adjusted net operating income from refining and chemicals more than tripled from the first quarter last year to $US1.1 billion, almost matching contributions from upstream of $US1.36 billion, down 56%.
Total's overall profit was down 22% at $US2.6 billion, with strong refining performances meaning the company exceeded expectations.
The situation won’t last. New capacity is coming online in the Middle East, the US intends to increase exports and the price of oil will recover, but until that happens assets are relatively cheap.
Total and Shell are reportedly bringing their refining and trading operations closer together, seeking alternative ways to drive profits. They are boosting their trading teams, and Total restructuring its refining businesses to expand its product line, by converting its unprofitable La Mede plant in southern France to a biodiesel plant and upgrading its Donges refinery on the Atlantic coast to capture growing demand for low-sulphur marine gasoil.
It could be an ideal time for Total to pounce in PNG.
InterOil, which is listed in Singapore, is currently successfully testing the Antelope-5 well, and is about to drill Antelope-6 to assess the flank of its Elk-Antelope Complex.
FID for the Elk-Antelope LNG project is planned for 2017 and would open the door to what could some of the world’s lowest cost LNG and significant liquids production, right on Asia’s doorstep.
InterOil has been open to a takeover in the past.