InterOil’s operational blueprint challenged traditional energy development models right from the start. Historically, oil and gas majors expanded sequentially—fully building out one business segment before risking capital on the next.
InterOil, however, broke away from this mindset by simultaneously advancing its upstream extraction, midstream refining, and downstream retail networks.
“All of those divisions are coming together simultaneously, which is very unique,” Mulacek noted during the interview.
While acknowledging that managing three concurrent rollouts “could be a little daunting for some,” he emphasized that the synchronized approach provided the young company with a distinct market advantage.
This multi-tiered strategy was engineered to solve a major structural challenge in Papua New Guinea.
For over seven decades, the nation was heavily penalized by steep regional transportation arbitrage, relying entirely on expensive refined petroleum products shipped from Singapore.
By anchoring a domestic refining hub directly onshore, InterOil captured those transportation margins, retaining value within the domestic economy.
“Even though we have startup incentives with a tax-free period for five years, the country gets the gain after the five years,” Mulacek highlighted, adding that the development created a substantial follow-on effect for local secondary support industries.
The presence of a localized processing center also fundamentally transformed frontier exploration economics.
Previously, operators had to locate massive reserves of 75 to 100 million barrels just to justify the cost of an independent offshore crude export facility.
A regional refining hub drastically lowered that commercial threshold, allowing smaller local discoveries to be commercialized via simple gathering lines and regional river barging networks.
“In the past, people would have to build a $1 billion offshore export facility for crude… and drill what we call fairly large elephants,” Mulacek explained. “But with a local refinery, all of a sudden you can start trucking crude oil, or build small gathering lines, or barge product crude to a refining center as a hub. So the threshold drops and the economic benefit for the country is very large.”
To drive downstream efficiency, the enterprise forged critical commercial alliances with global energy giants like Royal Dutch Shell, BP, and ExxonMobil. These distribution networks ensured the refinery could meet 100% of the domestic fuel demand while exporting surplus refined product to neighboring markets.
As Mulacek fielded questions on these relationships, he stated, “We’re working with Royal Dutch Shell, BP and Exxon Mobil in rationalizing the downstream sector of the business… we’re active in all three major segments.”
These robust downstream partnerships were backed by an ambitious independent drilling strategy. The company broke regional exploration records by contracting multiple rigs to initiate a comprehensive 16-well campaign on structures measuring up to 40 kilometers long and 15 kilometers wide.
“We’ll be the first company to do a multi-well drilling program on the exploration side,” Mulacek noted. “There has never been more than two exploration wells drilled in any one year by any company.”
Beyond the core engineering and logistics milestones, InterOil focused heavily on community advancement, financing essential healthcare initiatives, emergency medical transit networks, and rural literacy programs across the province.
According to Mulacek, the substantial benefits to Papua New Guinea covered a broad spectrum, “from employment, technology transfer, tax base, economic development of spin-off and support industries, rationalization for consumer benefits, foreign exchange savings for the country, and a new driver for exploration and production.”
Operating in a remote frontier region still required overcoming immense logistical hurdles. While a standard well in West Texas could be completed in 15 to 30 days, the complex geology in PNG could take up to 180 days, making onshore well costs some of the highest in the world.
Through transport optimization, river barge staging, and infrastructure investments, the management team successfully reduced these immense drilling costs by 80%.
Striving for even greater efficiency, Mulacek concluded: “Is 80% drop enough? No, we will strive for a 90% reduction, but this will take time and infrastructure, and a positive commitment with government.”
View the original interview published by The Wall Street Transcript on December 15, 2023: “PHIL MULACEK – INTEROIL CORPORATION”.