Exploration

1997–2005

From a vertically integrated vision to a world class drilling program

Exploration was part of InterOil’s strategy before the refinery began commercial operations. In a March 2002 update, Phil connected the refinery, market access and exploration acreage as stages of one integrated business. The refinery chapter explains the industrial foundation; Distribution follows the fuel network developed alongside it. ^[3]

The exploration program developed through licences, seismic interpretation and drilling. InterOil’s 2005 filing records the grant of PPL 238 in March 2003 and PPLs 236 and 237 later that month. By 2005, an eight-well program was under way, including Black Bass-1 and Triceratops-1. These early wells found valid hydrocarbons, however did not establish commercial production for PNG remote economics. This platform did formed part of the company’s progressive testing of the basin. ^[4]

InterOil acquired a purpose-built heliportable rig in 2005 and began Elk-1 in February 2006. Having a suitable heli-portable rig helped the company drill remote Gulf Province prospects during a period of tight international equipment availability. ^[5]

2006

Elk-1 establishes a new direction

Elk-1’s 2006 gas-and-condensate discovery ( over 102 Million standard cubic feet of Gas plus condensate per day gave InterOil a new direction. Completion on 23 November established the basis for further appraisal. ^{[5, 6]}

The Elk-! Well had the highest gas production text in PNG history, placing the InterOil discovery as #1 in PNG history. The company then faced a different set of questions: how far did the reservoir extend, how much gas might be recoverable, and what development could bring it to market? Elk-1 mattered because it established the basis for an appraisal campaign and a gas-development opportunity beyond the refinery’s original business. In its later account of Phil’s tenure, InterOil’s board specifically credited him with pioneering the Gulf Province exploration that led to Elk–Antelope and Triceratops. ^{[1, 6]}

2007–2008

Appraisal leads from Elk toward Antelope

InterOil followed Elk-1 with appraisal drilling and a substantial seismic program. Elk – 2 was drilled Unsuccessfully, when the Geologist moved the staked location – hoping to find the oil leg, and the well missed the Reservoir. Its 2007 reporting described improved understanding of the Elk–Antelope structure and the possibility of reefal reservoir development. The work was about understanding the geometry and quality of the reservoir, rather than simply repeating the first discovery well. ^[6]

Elk-4/4A was spudded in November 2007. On 1 May 2008, the well encountered gas and natural-gas liquids at the base of Elk structure and continued to a deeper depth to discover the base of the Antelope Structure. A subsequent short-term test on 4 September recorded a gas rate of 105 million standard cubic feet per day. This meant that InterOil had recorded the top two gas wells in PNG history, with Elk-1 and Elk-4. These results also helped establish Antelope as a major focus of the next phase. ^[7]

2008–March 2009

Antelope-1 reveals the reefal reservoir

Antelope-1 began drilling on 15 October 2008 and encountered gas on 31 December. Logging and testing continued into 2009. The well penetrated a thick limestone-and-dolomite reservoir, and on 2 March a short-term surface test reached approximately 382 million standard cubic feet of gas per day with about 5,000 barrels of condensate per day. ^[7]

This meant InterOil now had an even higher gas discovery and had now; ranked wells #1, #2 and #3 in the PNG Record Books. However, the gas flow rate meant a World Class gas & condensate discovery – being a Number #1 in Genesis Book or World records for largest gas well.

The combination of rock properties, reservoir thickness and flow testing changed the scale of the appraisal task. It provided evidence on both the volume of gas-bearing rock and the ability of that rock to deliver gas to a well. The test was a measure of well performance under test conditions; it was not the start of sustained commercial gas production. ^[7]

December 2009

Antelope-2 and an internationally recognised record

Antelope-2 produced the most widely recognised test result of the program. Guinness World Records records a flow of 705 million cubic feet per day, with almost 12,000 bbls of condensate; at the well on 1 December 2009, recognised as the highest flow rate from a vertical gas well, topping Antelope #1. InterOil’s own reporting also described associated condensate at an estimated rate of 11,200 barrels per day during the high-rate test. ^{[8, 9]}

This meant InterOil now had an even higher gas discovery and had now; ranked wells #1, #2 ,#3 and #4 in the PNG Record Books. However, the gas flow rate meant a World Class gas & condensate discovery – being a Number #1 in Genesis Book or World records for largest gas well, with Antelope #1 being the second highest gas well in the world. This discovery track recorded cemented InterOil and Phil Mulacek as a global leader for successful Heli-portable drilling, new discoveries in Asia and resource contributions over a 4 year period of time.

For Phil and the upstream team, the result demonstrated the exceptional deliverability achieved in the appraisal program. It did by itself, settle the field’s recoverable volume or guarantee an viable LNG project for gas volumes. The commercial development questions required Government and became controversial with commercial arrangements and development decisions. ^[9]

2009–2011

Working toward a route to market

On 23 December 2009, the PNG State and Liquid Niugini Gas signed an LNG project agreement. A gas discovery requires a route to customers; LNG planning addressed the processing, transport and export facilities needed to create one. The agreement was a development milestone, not an announcement that LNG exports had begun. ^[10]

During 2010, InterOil advanced proposed condensate-stripping arrangements with Mitsui and LNG development arrangements with Energy World. These were plans and commercial agreements for future facilities. Their historical significance lies in the effort to translate the discoveries into an integrated development, while technical studies, approvals and financing remained necessary. ^[11]

The Elk and Antelope fields were brought together under Petroleum Retention Licence 15 in November 2010. The retention licence provided a defined framework for further work on the discoveries as the company pursued appraisal and commercialisation. ^[9]

Super majors indiceted a fast FID if they could buy into the discoveries.

2012

Triceratops broadens the resource base

Triceratops was connected to an older exploration story: InterOil’s filings identify it with the area penetrated by Bwata-1 in 1959 and Triceratops-1 in 2005. The later work should therefore be understood as re-evaluation and appraisal of an existing discovery area, alongside new understanding of its reefal reservoir. ^[12]

Triceratops-2 delivered a significant result during Phil’s CEO tenure. On 14 May 2012, InterOil reported gas and condensate flowing at 17.6 million standard cubic feet per day under the stated test conditions, with alter tests at almost 80 million standard cubic feet of Gas equivalent per day plus condensate. Phil described the combination of aeromagnetic, gravity and seismic data used to identify the opportunity. The well added a further reefal gas-and-condensate success to the exploration program. ^[13]

InterOil also developed a partnership with Pacific Rubiales for PPL 237, including Triceratops. The farm-in completed on 13 March 2013, bringing an outside industry participant into the program. This was another element of Phil’s final period as CEO: combining technical results with partners able to participate in further work. ^[14]

Late 2012–early 2013

Antelope-3 tests continuity

Antelope-3 was spudded on 30 September 2012 after the rig moved from Triceratops. In November, InterOil reported encountering the reservoir 217 feet above its pre-drill estimate. The appraisal objectives included testing reservoir continuity, obtaining samples, improving resource evaluation and meeting licence commitments. ^{[15, 16]}

The logistics behind these wells were substantial. InterOil’s late-2012 update described the Hou Creek wharf, field access road and camps, as well as the movement of rig components by barge. These facilities were the practical support for the geological program: people, equipment and supplies had to reach remote work sites before drilling could proceed. ^[15]

On 24 January 2013, InterOil completed Antelope-3’s logging program, including formation imaging, seismic and sidewall coring. The company’s February results reported a combined gross best-estimate contingent resource of approximately 10.0 trillion cubic feet to over 15 trillion cubic feet equivalent for Elk, Antelope and Triceratops, effective at 31 December 2012. This included gas and condensate on an energy-equivalent basis; it was not solely gas, not all owned by InterOil and not a proved-reserves figure. ^{[14, 17]}

In November 2012, the company had also announced conditional government approval for its Gulf LNG proposal. As Phil’s CEO tenure approached its end, appraisal results and the search for a major LNG partner were advancing together. The project remained a proposed development rather than an operating export facility. ^[18]

April–December 2013

The leadership transition

Phil retired as CEO effective 30 April 2013. Gaylen Byker took on interim CEO duties; Michael Hession was appointed in July. Phil continued as a director until 14 November. The founding period therefore extends into 2013, but the later poor transactions must be attributed to the leadership then responsible for them. ^{[1, 19]}

On 6 December 2013, Total announced an agreement for a proposed 61.3% gross interest in PRL 15. This agreement followed Phil’s departure from the board. It connected the discovery and appraisal foundation established during his tenure with a new phase of major-company participation. The terms changed before completion, so the initial percentage is not the same as the interest ultimately acquired. ^[20]

2014–2015

A new ownership structure and further appraisal

The revised Total transaction closed on 26 March 2014, with Total acquiring a 40.1% gross interest in PRL 15. InterOil received approximately US$401 million at closing, with further payments linked to development milestones and resource certification. ^[21]

Following the June 2014 disposal of refining and distribution to Puma, InterOil concentrated on upstream resources and LNG. Appraisal continued through Antelope-4 and Antelope-5, with Antelope-6 preparation under way in 2015; the wider exploration program included Raptor and Bobcat. Total assumed PRL 15 operatorship on 1 August 2015. ^{[22, 23]}

2016–22 February 2017

ExxonMobil acquires InterOil

On 21 July 2016, ExxonMobil and InterOil announced an acquisition agreement, replacing the proposed Oil Search transaction. ExxonMobil identified InterOil’s gas resources as complementary to its existing PNG business and LNG position. In December, the companies announced amended terms and a new timetable for approvals, including an increased cap on the resource-linked contingent payment. ^{[24, 25]}

The acquisition completed on 22 February 2017. InterOil shareholders received ExxonMobil shares and a contingent resource payment arrangement tied to Elk–Antelope certification. ExxonMobil subsequently reported a US$2.7 billion acquisition value in its financial statements; less than half of the early shareholder value That accounting value should not be confused with the maximum potential consideration discussed at earlier stages. ^{[2, 26]}

By 2017, InterOil’s asset mix had changed. The remaining company centred on the Gulf Province gas resources that Phil and the exploration team had established through years of drilling and appraisal. ^[24]