Q CONFERENCE CALL REMARKS REMARKS FROM DR. MICHAEL HESSION

Transcription

1 Q CONFERENCE CALL REMARKS REMARKS FROM DR. MICHAEL HESSION Hello, and thank you for joining the call today as we explain our first quarter results. I am Michael Hession, Chief Executive Officer of InterOil, and I am joined by Don Spector, our Chief Financial Officer. Firstly, I would like to remind you of our business strategy so you can see our Q1 results in that context. Secondly, Don will explain our financial results in detail. Thirdly, I will provide you an update on our current drilling and exploration portfolio. Finally, at the end of the session, we will be happy to take your questions. If you turn to Slide 3, where our strategy is laid out in three pillars, you will see a clear snapshot of our progress this quarter. We continue to stabilise the business; we continue to monetise our gas resources; and we continue to secure our growth options. Let me take you to the first pillar stability of the business. We are tracking well. We now have a first-class senior executive team. The seven-members of our leadership group have more than 150 years of oil and gas experience with a dozen or so global oil and gas majors. That experience is particularly in LNG. We continue to streamline our offices and increase efficiency. The transition of staff from our Cairns office to Papua New Guinea is on track for completion later this year. We continue to focus on cost containment and we are improving our IT and HR systems so we are set for our next growth phase. Our exploration and appraisal program has begun and is fully funded. And, importantly, we are financially sound. We have cash in the bank, and our refinancing program is under way. Don will talk about that in more detail. 1

2 On the second pillar of our strategy monetising our resources we have completed the Total deal. We have strong PRL 15 partners in Total and Oil Search. We are getting on with business. Total has appointed a country manager for Papua New Guinea Philippe Blanchard and he is already immersing himself in his new role, meeting people and visiting the field. Next, we intend to prove up the Elk-Antelope resource. As part of this, we have finalised rig contracts for the Antelope 4 and 5 wells and we expect to complete both wells in the second half of this year. After evaluating these well results, the joint venture will decide whether to drill a third appraisal well, at Antelope 6. I would remind you that InterOil has a carry for these appraisal wells. We are also moving ahead with planning for the LNG development. Next week, it is intended that teams from InterOil and Oil Search will join Total in Paris for technical discussions on the LNG project. I am sure you all know that Elk-Antelope is the largest undeveloped gas field in Papua New Guinea. It is relatively close to the coast, when compared to developed gas fields further west, and it is closer to major infrastructure than any other gas development in PNG. Geography alone could translate into lower overall costs for any development of Elk-Antelope, and higher value for our shareholders. Let me turn to PRL 39, which contains the Triceratops discovery. The joint venture has agreed the appraisal strategy and general location for the Triceratops-3 appraisal well and is finalising exact coordinates for the well at this moment. We expect to complete Triceratops-3 in early On the third pillar of our strategy securing growth as most of you will be aware, we have launched a major exploration program. With the grant of four new petroleum prospecting licences in March, InterOil has secured tenure over our exploration acreage for at least the next six years, with potential for up to 11 years. We are currently drilling three wells Wahoo, Raptor, and Bobcat. We are wasting no time and have already commenced a significant seismic acquisition program in our new licences. 2

3 The crew will be working continuously throughout 2014 and Our strategy will be to balance our work program between opportunities near Antelope and exploration targets to the south-east and west in our highly prospective frontier areas. To aid this, we are in the final stages of contracting for an extensive high resolution airborne gravity gradiometry survey across the new licences. With this work program of airborne gravity, seismic, and drilling, we are focussed on building and maturing our exploration inventory and our resource base. With our near 4 million acres we have virtually the entire onshore Eastern Papuan Basin under licence. To date in this large area, we have about 40 leads to choose from in our exploration portfolio. We will look to expand this as we continue to explore the basin in the years ahead. I will return to our drilling in some detail in a few minutes, so let me finish my introduction here. Before handing to Don, I would just like to say that you should expect more of the same from us in the next quarter. There will be more progress on ensuring stability in the business, monetizing our resources, and securing new growth options. Now, let me hand over to Don to comment about our financial results REMARKS FROM DON SPECTOR Thankyou Michael, and welcome to everyone listening to today s presentation. The first quarter of 2014 saw the achievement of a significant milestone in the history of our Company with the closing of the deal with Total and the receipt of the $401m completion payment. This has strengthened our balance sheet and together with the carry Total is providing on the PRL 15 Wells, has provided the funds we require to undertake the extensive drilling program we have ahead of us. Our existing Operations also continued to perform very well throughout the quarter. If we turn to slide 4 and take a look at some of the key metrics for the Quarter. At a high level we achieved Sales volumes of 1.9mm barrels, Throughput at the refinery of 26,717 bbls a day, Revenues of $311m, and most importantly With the Completion of the deal with Total, 3

4 We were holding $421m in unrestricted cash at the end of the quarter and with the inclusion of the profit on sale, our Net Profit after tax was $319m. Turning to slide 5 In our Upstream Business, we booked a profit on sale of the shares in the company sold to Total of $338m It is worth spending a little bit of time explaining how this gain was calculated. And for those of you that have a copy of the Accounts, a detailed explanation is set out in Note 6. We have agreed with our Auditors that the estimated proceeds to be used for the purpose of this calculation will be the $401m received from Total at the end of March, plus the estimated Resource Payment to be received at Certification next year. A volume of 7.1tcfe is to be used for this purpose. This is the volume contained in the Gaffney Cline report which was used to under pin the purchase price paid by Oil Search when they acquired the Minority Interests in PRL15 earlier this year. This leaves us with an estimated discounted value of sales proceeds of $953m from which we deduct our past expenditure in PRL 15 of $613m resulting in a net profit after tax of $340m. $338m of this profit was booked in our Upstream and $2m was included in our Consolidation Adjustments. Future proceeds to be received at FID, the first LNG Cargo and at the timing of the Wild Card Certification event, will all be booked in our accounts when those amounts are received. So this number could grow quite significantly in the future. Moving to slide 6 The Refinery had another strong Quarter with production of 26,717 bbls a day compared to 27,525 bbls a day in the corresponding quarter in Revenue was lower than in the first quarter in 2013, but this was more than offset by a reduction in the cost of sales due to the timing of our exports. Our result at the Refinery was also impacted by the continued fall in the Kina Onto slide 7 The Downstream Operations continued to perform well with a slight increase in revenue compared to the corresponding quarter in 2013 The Downstream returned a net profit after tax of $6m which was slightly above the first quarter profit in If we move to the Balance Sheet items on slide 8 Our Gearing decreased to 22% by the end of the first quarter as we received the $401m completion payment from Total. Both our Quick and Current ratios also moved well inside our target levels with the receipt of these proceeds In relation to Liquidity, 4

5 At the end of the first quarter, we had $421m of unrestricted cash plus $100m undrawn within the Credit Suisse led facility. We also had $197m available in our Working Capital facilities to fund the Operating business. With completion of the Total deal now behind us, we have started discussions with Credit Suisse on the $250m facility. Our intention is to refinance this facility and push it out until the end of This will take us well beyond the Certification payment expected in mid 2015 and through to the end of the current 8 well program we have highlighted in our presentation today. Just to be totally clear here, with the receipt of the $401m completion payment, the carry that Total is providing on the PRL 15 wells and the intended refinancing of the $250m facility, we expect to be fully funded throughout the eight well program we currently have ahead of us. In closing my section of the presentation, it is very pleasing to be able to talk to you about the fact that our Balance Sheet is now looking very solid. We have completed the Total deal, received the $401m, commenced our extensive drilling program, and achieved solid performance from our Operating assets. If we go back to our 3 Horizons, and in particular our objective to Stabilise the Business, from a financial perspective, we have gone a long way down the track to being able to say we have achieved this. On that note, I will hand you back to Michael. FURTHER REMARKS FROM DR. MICHAEL HESSION Thank you, Don If you turn to Slide 9, I will provide an overview of our exploration and appraisal program. Firstly, it is one of the biggest exploration and appraisal programs ever in Papua New Guinea and is fully funded out to I am sure you heard me say exploration and appraisal. But let s just break up those terms because they are very different. Exploration is the search for hydrocarbons and is very uncertain. Appraisal is the delineation of discovered hydrocarbons, and has much lower uncertainty. In our current program we have both a series of exploration wells and a series of appraisal wells. A critical element of our strategy is the continuous discovery of resource through exploration drilling followed by the proving up of any discovery through appraisal two distinct phases of activity. 5

6 The first step in exploration is to secure acreage. As I mentioned earlier, we have a large footprint of about 4 million acres which we hold for a six-year term with the option to extend for a further five years. The next step is to build our inventory and define those multi-tcf prospects we need to drill. Now, of course, we would like every exploration well to come in but as we push into new and more frontier areas in our licences, that is statistically improbable. The typical strike rate for global exploration is about one success for every 10 wells. In the Gulf Region -- which is under-explored -- we have a strong success rate, having found gas with three of the seven wells we have drilled. But the overall quality of our portfolio will be clear only in the long run. It does not depend on the result of the next one or two exploration wells. Two weeks ago, I visited our operations in the field and I can tell you it is an impressive effort in difficult terrain. At present, we have three rigs running, and two seismic operations, and we are employing about 1000 people, most of them Papua New Guinean citizens. On Slide 10, we show various structural trends with potential leads and prospects. I would like to give you some colour about the potential depth of our portfolio. The red circle encompasses the potential targets that could be tied back to Antelope if they ultimately prove successful. For perspective, the red circle has a radius of 30km, compared to the more than 365km our exploration licences extend from west to east. As you can see, there are multiple targets in this one area which represents only 10% of our exploration acreage. You will see that there are effectively three structural trends, each represented by a white line on the slide. We have had considerable success in the northerly trend, with discoveries at Triceratops, Elk, and Antelope. We intend to test additional prospects on this trend, including Bobcat and Antelope Deep. There are other prospects in other trends that could also tie back to Elk-Antelope. We are exploring the most southerly trend, with Raptor. Eventually, we will move to the central trend where we have Mule-Deer, and White Tail. 6

7 Slide 11 shows the indicative timetable for the eight exploration and appraisal wells that we plan to drill in The exploration wells are in blue and the appraisal wells are in red. The notations beside Antelope 4, 5 and 6 show where InterOil has a carry from Total. We also have a carry from Total on an exploration well in PRL 15, a decision on which will be made in the coming months. This timetable is only indicative because drilling will be subject to rig availability and the geological conditions we will encounter while we drill. As you can see, we have a busy and exciting program underway. Slide 12 provides an overview of our exploration program. If you will allow me to delve into the geology for a moment, an interesting feature of this region is the Orubadi shale. It is highly ductile or sticky which makes it an excellent seal for hydrocarbon accumulations throughout the basin. Those same qualities also make it a challenge to drill. We continue drilling operations at all three wells Wahoo, Raptor, and Bobcat. and we are proceeding with the appropriate level of caution as we drill through the Orubadi shale. Progress is good at Wahoo and Raptor though Bobcat drilling conditions are proving to be difficult, and we are now on our second side track in that well. At this stage we have nothing more to report but will, of course, disclose results as soon as we have them. The next three slides will give you an idea of the remote and difficult terrain we are drilling in. They also give a little background information on Wahoo, Raptor, and Bobcat. I don t intend to go through these in any detail, but I am happy to return to them in the question and answer session if you like. On Slide 16, we have an overview of Antelope appraisal drilling. The slide shows a photograph of the site preparations for Antelope 4. We expect to spud both of these two wells in the second half of The Joint Venture will decide if we need to drill Antelope 6, based on the results of Antelope 4 and 5. 7

8 Remember that InterOil has a carry on the drill costs on Antelope 4 and 5, as well as 6 if it goes ahead. On Slide 17, you can see we have acquired extensive seismic over Triceratops and we expect to have Triceratops 3 underway by late In 2013, a total of 107km of seismic was acquired over Triceratops in PRL39 and PPL338. With the grant of Petroleum Retention Licence 39, the way is now clear for the further appraisal of the Triceratops gas field. I will conclude with Slide 18, which focuses on seismic. Earlier I outlined that we will continue to build our prospect inventory. Central to that are our seismic programs, which are progressing well. We have two seismic surveys in progress across PRL 15, PPL 475, and PPL 476. They will acquire about 130km of 2D data. This will complement the 250km of 2D data we have already acquired in three other recent surveys. The Zebra program in the southeast of the map is the first seismic program to commence as part of the work program for our new exploration licence term. The data quality is excellent and we now have good coverage over the Antelope field. And other drill targets are emerging. This data will be used, of course, to further refine our leads and prospects for our future drilling campaigns. In summary, it has been a pleasing quarter. We have accomplished what we set out to do. Our strategy is on track. We remain focused on adding value, particularly through the drill bit, which is something we do well. We have a busy, exciting program ahead, and the financial capacity to deliver it. 8