InterOil Finds Gas at PNG Well, Studies LNG Project

Nov. 13 (Bloomberg) -- InterOil Corp., a Canadian oil and gas explorer operating in Papua New Guinea, found natural gas and condensates at the Elk-1 well in the Pacific nation that may be developed for a $3.3 billion liquefied natural gas project.
The discovery may hold ``several trillion cubic feet'' of gas and, along with other potential finds, may form the basis for an LNG project proposed by InterOil, Merrill Lynch & Co.'s commodities unit and Clarion Finanz AG, Papua New Guinea Prime Minister Michael Somare said in an e-mailed statement.
InterOil agreed in May to form a venture with Merrill Lynch Commodities (Europe) Ltd. and a Clarion Finanz unit to study developing a natural gas liquids plant and an onshore LNG project. Oil Search Ltd. and BG Group Plc are among other companies weighing LNG projects in the Pacific nation. Elk-1 lies nearer the coast than Oil Search's gas fields.
``This looks like an interesting discovery, although it is very early on in the process for proving up a potentially significant gas resource,'' said Andrew McManus, Sydney-based managing consultant on Australasian gas and power at Wood Mackenzie Consultants Ltd. ``More drilling is required to understand this field's potential.''
More Wells
InterOil plans to drill more wells on the Elk field and at nearby prospects.
``Both the government and the company are hopeful that the two to three additional wells that InterOil intends to drill on the Elk and adjoining structures will be a large step forward in confirming the commercial value of the gas field, and that this will accelerate the LNG future in Papua New Guinea,'' Somare said in the statement dated Nov. 12. The project may cost about 10 billion kina ($3.3 billion), he said.
LNG may be shipped to customers in North Asia and the west coast of the U.S., Somare said.
InterOil has held talks with some major LNG companies and investors in the past few days in Papua New Guinea, who have all shown ``intense'' interest in the project, Anesti Dermedgoglou, a spokesman for InterOil in Australia, said in an e-mail.
The project would compete for customers with several proposed LNG ventures in Australia as well as Oil Search's planned venture. Chevron Corp., Woodside Petroleum Ltd. and BHP Billiton are among companies proposing LNG projects off the Western Australian coast.
`Big Appetite'
``There's no doubt that all the studies are showing big appetite for LNG and growing appetite over the years, and there's going to be room for a lot of new projects to service that,'' said Paul Balfe, a Brisbane-based executive director of ACIL Tasman Pty, an economic consulting firm. ``There are also a lot of other projects out there. There are a few hurdles still to overcome,'' he said.
Merrill Lynch, the world's largest securities firm, has previously invested in LNG ventures. Its commodities unit in March secured rights to process LNG at an import terminal being built by Sempra Energy in Louisiana.
Gas from Elk-1 flowed at 21.7 million cubic feet a day in a test, Phil Mulacek, chief executive officer of InterOil, said in the statement. Pressure data from the well indicates a much higher potential flow rate, said Bernard Pawih, a government administrator for the PNG Oil and Gas Act.
``We remain confident that the Elk discovery will underpin an accelerated development of LNG in Papua New Guinea,'' Mulacek said.
InterOil believes a layer of oil lies below the gas, which will be targeted in later wells, he said.
``If the Elk field were to have significant associated condensates and/or an oil leg, then this could help with the economic viability of this field,'' Wood Mackenzie's McManus said.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net .