PNG: InterOil Signs HoA with Pacific Rubiales for Stake in Triceratops and PPL237

InterOil Corporation said that it has signed a binding Heads of Agreement with Pacific Rubiales Energy (PRE) whereby PRE can earn a 10.0% net (12.9% gross) participating interest in the PPL237 Petroleum Prospecting License onshore Papua New Guinea, including the Triceratops structure located within that license.

The transaction contemplates staged initial cash payments totaling US$116 million, an additional carry of a portion of the costs of an agreed exploration work program, and a final resource payment. PRE’s gross participating interest is subject to the Government of Papua New Guinea’s back-in rights provided for in relevant PNG legislation.

This transaction is not associated with the planned sale of an interest in the Elk and Antelope fields and related LNG equity partnering process targeted for the second quarter of 2012.

In accordance with the HOA, the farm-in is subject to the accomplishment of certain milestones over a one year period (generally, execution of definitive documents and acceptance of registration of the assignment documents by the Government of Papua New Guinea) and other standard industry conditions.  Key commercial terms to acquire a 10.0% net participating interest in the PPL237 license, including the Triceratops structure, include the following:

• an initial cash payment of US$20 million;
• additional cash payments aggregating US$70 million for the Triceratops structure and US$26 million for the balance of PPL237; and
• a carry, of an additional 25% of the expenditures associated with a 250 km 2D seismic program, the drilling, testing and completion of the Triceratops-2 well appraisal well currently underway and six additional appraisal wells planned on the Triceratops Structure, and the drilling, testing and completion of four new appraisal wells planned for other locations within PPL237.
• PRE is entitled to be repaid the 25% carry from cash flows from production and from reimbursement by the Government of Papua New Guinea in the event it decides in due course to exercise its back-in rights under relevant PNG legislation.
• Based on current cost assumptions and assuming the full work program is completed, the initial cash payments and work program consideration are estimated to represent a combined total value of US$345 million, plus a final resource payment as outlined below.

The final resource payment is intended to be determined after completion of the planned Triceratops-8 appraisal well, and calculated on volumes based on the total amount of Certified Resources within the Triceratops structure comprised of gas classified as 1P or 1C, at US$3.85/mmbtu, and 2P or 2C at US$2.85/mmbtu, and condensate or oil classified as 1P or 1C, at US$36/boe and 2P or 2C at US$30/boe; less adjustments related to the initial cash payments and the carried costs.  The final resource payment will be paid out over time, similar to a royalty payment structure, with InterOil and other upstream interest holders receiving 70% of all cash flows from PRE’s participating interest in commercial sales proceeds until the entire final resource payment is paid in full.

The transaction will be subject to satisfaction of closing conditions by June 15, 2013.  Otherwise, PRE will be reimbursed out of future upstream production proceeds.

“InterOil and its partners are pleased to enter into this mutually beneficial transaction with Pacific Rubiales, a company with a market capitalization of US$ 9 billion and a track record of successful exploration and production development demonstrated by current production of over 250,000 barrels of oil per day,” stated Mr. Phil Mulacek, Chief Executive Officer of InterOil.  “We look forward to continuing our relationship with PRE and to accelerating appraisal and development of the Triceratops gas and condensate field in Papua New Guinea.”

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LNG World News Staff, May 1, 2012