'ebster123' pid='74653' datel Wrote:

'Lexinvest' pid='74652' dateline='<a href="tel:1469195 Wrote:

SupaSage2003 I appreciate your probability analysis. The math is beyond me. However I speculate those probabilities are Not just for the Present Value of the size of the natural gas at certification post-Antelope 7, but also include other factors as well.

I voted my few shares NO. I have read that others are voting NO as well. I voted NO and expect to continue to vote NO – until I feel that I have achieved about the Best Deal I can expect out of Interoil (which is likely much less than what I think its Fair Value is).

It looks like the Market is saying -- that probability is very Small. Any idea what the probability that enough Shareholder’s vote NO to stop the Sell Out?

TOT and XOM have every reason to keep the price down and I do not trust the market.

There is a reason why the wool has been pulled over the eyes of IOC shareholders and management has placed a gag order on themselves.  My shares, although now partially diminished, will all be voted NO to the Exxon deal as well.

Nice piece of work.  Thanks.  I have one question and a comment:  How do you get the "implied probability" of any A7 outcome?

Comment:  You may wish to consider the time value of money.  Esssentially, you have to put up $49 now.  I'm not sure when we get the $45 in Exxon stock, but definitely months.  The resource payment could be a long time coming - you have to drill A7, then certify. Certainly could be a year from today, or longer.  Drilling and coring there is not easy.  What if they lose the well, need to sidetrack, get stuck, etc.?   Alternately, you can sell the stock today, get $49 and invest in something else.  An opportunity cost, if you will.

Still, good analysis and presentation.

'Northoil' pid='74658' datel Wrote:

Nice piece of work.  Thanks.  I have one question and a comment:  How do you get the "implied probability" of any A7 outcome?

Comment:  You may wish to consider the time value of money.  Esssentially, you have to put up $49 now.  I'm not sure when we get the $45 in Exxon stock, but definitely months.  The resource payment could be a long time coming - you have to drill A7, then certify. Certainly could be a year from today, or longer.  Drilling and coring there is not easy.  What if they lose the well, need to sidetrack, get stuck, etc.?   Alternately, you can sell the stock today, get $49 and invest in something else.  An opportunity cost, if you will.

Still, good analysis and presentation.

Thanks!  First, let me say that my calculations don't account for the time value of money.  Theoretically, one should make an adjustment, but we are talking only 1 year of time value and interest rates are low, so I decided to keep the analysis simple and ignore that aspect.

That said, the implied probability is calculated by dividing the "Implied Option Value (aka CVP payment)" by the "Additional Payment" for any particular resource scenario.  For example, let's use the 7.2 Tcfe scenario.  If we knew with 100% certainty that the certification could result in 7.2 Tcfe of resource (no more and no less), the market should theoretically value the Option Value (or CVP) at $7.07 per share.  And IOC should be trading at $52.07 per share today...

But IOC is not trading at $52.07 per share today.  It's only trading at $49.20.  So that means that the market is only ascribing $4.20 of value to the Option Value (= $49.20 - $45 base payment).  And because $4.20 is less than $7.07 (the 100% certain scenario above), we know that the market is pricing in a probability that is less than 100%.  To figure out the exact probability, we divide $4.20 by $7.07 and get 59%.  Hope that helps!

Very good analysis! You are adding a nice perspective to SHU. thanks.

'2126' pid='74665' datel Wrote:

Very good analysis! You are adding a nice perspective to SHU. thanks.

Thanks for the kind words!  Would you mind helping me bolster my "reputation" by clicking the button at the bottom of my post?  Hope you are recovering well from your accident!

Thanks!  First, let me say that my calculations don't account for the time value of money.  Theoretically, one should make an adjustment, but we are talking only 1 year of time value and interest rates are low, so I decided to keep the analysis simple and ignore that aspect.

That said, the implied probability is calculated by dividing the "Implied Option Value (aka CVP payment)" by the "Additional Payment" for any particular resource scenario.  For example, let's use the 7.2 Tcfe scenario.  If we knew with 100% certainty that the certification could result in 7.2 Tcfe of resource (no more and no less), the market should theoretically value the Option Value (or CVP) at $7.07 per share.  And IOC should be trading at $52.07 per share today...

But IOC is not trading at $52.07 per share today.  It's only trading at $49.20.  So that means that the market is only ascribing $4.20 of value to the Option Value (= $49.20 - $45 base payment).  And because $4.20 is less than $7.07 (the 100% certain scenario above), we know that the market is pricing in a probability that is less than 100%.  To figure out the exact probability, we divide $4.20 by $7.07 and get 59%.  Hope that helps!

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Sage - thanks for the reply. Rates for time-value can be many things - bank interest rates, cost of capital, alternate investments and others.  Considering risk, I would, for myself, use 15%.  But that's me.  Many blue chip companies-Exxon, Proctor& Gamble. IBM, etc, have returned about 12-18%/year for the past 20 years (dividends re-invested).  I'm in the stock now, so as an alternate place for that money, I wouldn't use current interest rates.  However, as you point out, it's only a year or so, presuming A7 isn't lost, blows out or even gets drilled timely (no board room fights). Still, there's some significance between $7.07 and $6.14(7.07/1.15)

As to probabillities, the $4.20 is the market's discounted(present value), risked sum of ALL outcomes.  In your example, if $4.20 is the result of a 59% probability of 1T, why does the market give no value to the other  41% better outcomes - 2T, 3T, 4T?

In fact, I don't think it's possible to assign probabilities, a priori, just from the stock price premium.  However, I like the concept.  It's a good way to think about holding or buying the stock for the CVR.  Even if your probabilities are wrong, they're not bad as a POSSIBLE distribution.  Exxon, I'm sure, have already got it cold in terms of possible outcomes.   Of course, they have their own maps, they've reprocessed the seismic with superior technology, they've re-interpreted the whole thing.

We, on the other hand, have zip.  Still, there are some minor clues - Botten's remarks and the 10.2T cap, indicating results in A7 could give a good uplift in resources.  Or they could be smoke.

A key issue is WHEN we get the Exxon stock.  My assumption is when the deal closes, we get Exxon stock and a non-tradeable CVR, then wait for the CVR to mature.  I don't mind holding a $4 CVR if I like my chances, but if I'm required to hold $49 for a long time, my return changes a lot.   Does anyone have any insight?