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| Financial woes peril Napa Napa refinery | |
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By BRIAN GOMEZ in Sydney THE future of the Napa Napa oil refinery and other InterOil operations are in jeopardy as a result of ongoing losses, including a net loss of US$28.9 million (K84 million) last year, and onerous debt service requirements. The company faces a tenuous future even though its partner in the liquefied natural gas venture, Merrill Lynch, has agreed to replace a US$130 million (K377 million) two-year bridging loan facility due in May with long-term secured loans and warrants. But the overhang of this debt burden, contributing to overall contractual obligations of US$306.7 million (K889 million) over the next five years, may be too much to bear, the company told the American and Toronto Stock Exchanges in 2007 financial reports filed last Friday. Although InterOil last week continued to work towards finalising the term sheet and refinance of the Merrill Lynch loan, it said: “We cannot assure that our business will generate cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our maturing indebtedness. “As a result, we may need to refinance all or a portion of this debt, or to secure new financing before maturity. “This, to some extent, is subject to general economic, financial, legislative and regulatory factors and other factors that are beyond our control. We cannot be sure that we will be able to obtain the refinancing or new financing on reasonable terms or at all.” The US Export-Import credit bank, OPIC, has also agreed to defer principal payments due in January and February this year to 2015. The company’s financial report pointed to the following key uncertainties: 1) Future pricing of petroleum products from Napa Napa, and an inability to get domestic distributors to make purchases in line with Government promises, “may reduce our profit and cause us to cease operating the refinery. 2) There were concerns over availability of suitably priced crude oil once InterOil’s current agreement with BP expires on June 14 next year; 3) Illiquidity in US credit markets could hamper efforts to raise capital to fund operations and project development. InterOil said that of the contractual obligations in the next five years US$141.2 million (K409 million), inclusive of the bridging finance, was due this year and an additional US$111.9 million (K324 million) by the end of next year. The latter mainly involved an indirect interest of US$96 million (K278 million), where the holders have a right to convert to a joint venture interest or shares in InterOil. In addition, InterOil has a commitment with its partners to drill an exploration well in petroleum prospecting picence Area 237 by the end of March next year. The PNG Government agreed last Nov 30 to examine the price of petrol and other products from Napa Napa and the fairness of the current import parity system. InterOil said failure to obtain a more favourable pricing formula “may reduce our profit and cause us to cease operating the refinery”. It said the refinery sold an average of 12,000 b/d in the second half of last year compared with its 32,500 b/d nameplate capacity partly because it could not export gasoline and middle distillates to Australia. Despite promises from the government that fuel distributors in PNG would be required to use products from Napa Napa, the InterOil refinery only provided about two thirds of the country’s needs. It said ExxonMobil was the company’s main competitor on the domestic scene with Mobil controlling about 25% of the PNG retail market and that it had a capacity to increase its market share “more rapidly than we can”. Although InterOil said planning was continuing on the basis that LNG exports would commence in 2012, it acknowledged that its Elk-2 well, 4.7km north of the Elk-1 discovery well, had no commercial oil or gas flows during eight drill stem tests. The well has been suspended pending a decision on a side track, tentatively called Elk-3. The critical Elk-4 well is presently being drilled 1.5km north of Elk-1 and plans have been made to drill Antelope-1, about 4km to the south of Elk-1 on a separate fault separated structure. InterOil successfully raised US$23.5 million (K68 million) last November for appraisal and drilling of the Elk and Antelope structures and for general corporate purposes. The report also noted that if InterOil wanted to maintain its share of the proposed LNG project it would have to raise additional equity of about US$400 million (K11.2 billion). |
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