Michael - I think there are 2 things going on. First is the contract with Total and how much IOC gets paid for what GCA and others agree they’ve proven up. Second is what actually is there and how the plant is to be sized.
The way it was explained, IOC would get paid after 3 appraisal wells paid for (carried) by Total. That’s after A6. And after certification. But they’ve not published the contract, and there may be language to allow an extension of the appraisal process. If the contract allows, and if IOC believes they can increase the payment which is due by further appraisal they may be able “sole risk” more drilling. Probably not, though.
Even after the payment is made, I have no doubt more appraisals will be drilled; it’s just that Total won’t carry 100%. Each partner will pay according to its respective share. Fortunately, LNG plants are scalable. You can start off with two trains and add trains if and when more reserves are proved up. It’s roughly 2-2.5 T’s/train. So the project can move forward while more drilling is done. And don’t forget about planned future wildcatting. Their record is pretty good in adding reserves.
Hession is too experienced a hand to speculate. It’s probably illegal anyway.
Michael/dlsunfun – It’s impossible to say what the end result will be. I’m not trying to predict anything. However, a separate reservoir system is generally more negative than positive. One big tank is usually better than one smaller tank and a second tank of unknown volume.
BUT, higher IS better. If the tanks are in fluid contact, then it’s really one tank and it’s all good – the volumes of gas (above the gas/water contact, which will be the same at both locations) are much better than predicted, everything else being equal, even though the maps were off. If the tanks are NOT in contact, then the gas/water contacts will be different and “all bets are off”.
A word on maps. Maps are necessary to try to figure out where everything is, how much you’ve got and to guide drilling. As we’ve just seen, maps can be wrong. Therefore, when certifying reserves, outfits like Gaffney-Cline use the maps, but only to a certain extent right around the wells. They don’t leave a lot to speculation. I think Arun, which was a monolithic, unfaulted, reefal limestone “tank”, had 15-16 appraisal wells to prove its reserves before committing to an LNG plant. What I’m getting at is that the reserves picture depends much more on what they found at A5 – how thick was the limestone, how much of that was porous/permeable, how much was “tight”, did they see water? – rather than the elevation per se. And the well will have to be tested to “prove” what they’ve interpreted from the well logs. Then they turn all that over to the consultants. So we’re a long way from knowing anything. Still, I go with “higher is better”.
Getitrt2: You keep trying to make your case “thickness … can be reflected in the depth …” Absolutely not. Thickness of a formation, even though it varies, sometimes widely, from location to location, has nothing to do with the depth at which you find it. No one likes to be wrong, but enough, already.
I agree IOC knows tons more than all of us, but Morgan Stanley knows squat. They have IOC’s press release, the same as we do. That’s it. They don’t have logs or tests or new maps (which IOC surely has by this time) and IOC isn’t about to enlighten us. Morgan Stanley are making the same simple assumption you and others make: higher is better and therefore we have more gas. It certainly can be true, but it doesn’t have to be.
Being off 750 feet is an understandable, but major error. The instant they hit the limestone, IOC and your “foremost expert” Dave Holland (who has been IOC’s exploration manager and probably hasn’t made a map in years) knew their maps were wrong. What the new maps will show is anybody’s guess.
For Getitrt2: Geology 101- rocks occur in layers, like a large layer cake. It doesn’t matter if the cake is at sea level or Pikes Peak, the layers are the same. Elevation has nothing to do with thickness.
Geophysics 101 – Nearby wells are “logged”, and the rock layers are “tied” to events on the seismic data and the events, or “picks”, are followed around the seismic grid to any new location you wish. Now you can make a “prognosis” on what you expect to find when you drill at the new location. Being off 750 feet in your prognosis is not serious on a wildcat, where you don’t know the detailed geology, but is a major bust on an appraisal.
To any geophysicist, that kind of error means somewhere between the known wells and the new well, you got off in following the picks around. In PNG, the geology creates a geophysicist’s nightmare. It is so complex – like dropping a 20-layer wedding cake from 50 feet. The layers are broken up, or “faulted”. Now you have to reconstruct the layers – good luck!
For Mspieks: Hydrocarbons occur in hydraulic systems; that is, the fluids are in contact and are in the same pressure regime. In one system, you’ll have the same gas/oil/water contact everywhere.
PNG is a geologic dog’s breakfast. Complex geology gives you complex geophysics. So it’s easy to miss even major faults on what is actually pitiful seismic data. If the faults totally separate the reservoir layer from itself, then the hydraulic systems are not in contact and become individual fluid tanks. Think of mesas dotted across the Arizona deserts. They are separate and not in contact hydraulically. So the gas/water contact you find in one spot won’t apply in a different system.
Mspieks - Don't confuse elevation with reservoir thickness. The reservoir rock in this case is a fractured reefal limestone. Its thickness is what it is. If the thickness is, say, 1000 feet (like Arun, the thickest one I know of), and it occurs 4000 feet above the gas/water contact, assuming it's all connected, then the reservoir is full, all 1000 feet of it. What you said is true only if the reservoir rock ITSELF is 4000 feet thick. There's no rule of thumb and reefs can be quite thick but I don't believe IOC has ever stated how thick the reefal limestone is, or what percentage of it is sufficiently porous/permeable to be capable of storing and releasing gas.
Frankly, coming in as high as they did clearly means they have a major bust in their mapping, which probably means there's a major fault they've missed. Not so surprising as PNG seismic is simply awful. But still, now there's an excellent chance we have a separate reservoir system, which means all bets are off regarding contacts.
The only people who really "know" about the quality of drilling results are Interoil and partners. Even then, much depends on testing and further drilling.
Arbitration outcome isn't such a big deal. It might have depressed the stock right at first, but now it's understood it's just over the right of first refusal, which means matching Total's offer. That's little net effect. Also, IOC's lawyers would have crossed that bridge long before they made the deal (It's a common problem in industry - Can Oil Search "match" Total's LNG expertise?). I expect Total to win, but who knows?
Anyway, if the market "always knows ahead of time", what happened when the stock dropped from $90 to $50 the day the Total deal was announced?
All we're looking at is a highly volatile, heavily traded, heavily optioned stock.
The only connection Interoil has with oil is its name. Its production of anything is years away. Therefore current oil prices should, rationally, have no effect. However, in the meantime, speculators, shortsellers, traders, etc have created a high degree of volatility on the upside and downside. To a trader, oil companies are all the same; ergo, oil prices decline, sell Inter-OIL with a volatility accelerator. Same thing on the upside. Nobody knows "something".