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+--- Thread: Pavel PT $100 and Outperform (/showthread.php?tid=5434)
Pavel PT $100 and Outperform - ltinvest - 12-07-2013
Selldown to TOT Is Announced; Despite Question Marks, Deal Makes Sense
Recommendation.
The resource selldown to Total represents a key milestone in InterOil’s history,
and as investors know full well, it’s been a long time coming. This concludes the monetization
process with a credible partner - one of the five western supermajors. While Total hasn’t been
widely rumored as a partner for InterOil - in contrast to Exxon and Shell - from every objective
angle, it is an equally solid company. Thus, if nothing else, today’s news should put to rest any
lingering perceptions in the market that InterOil cannot be a trustworthy counterparty for a large
multinational energy company. Assessing the deal in its totality, we think it makes sense. This is
not to obscure the fact that the structure of the deal carries some uncertainty, but under the
circumstances, the transparency is as high as could be hoped. While we recognize that the market
wants greater clarity on deal economics - which is simply a matter of time - our NAV is
substantially unchanged (as shown below), and thus we reiterate our Outperform rating and we
remain buyers in today’s sentiment-driven weakness (down ~ 39% currently).
Here is what we like about the deal. First - to restate this point - it is readily apparent that
Total is a strong partner. Also, the upfront (1Q14) payment of $613 million is substantial
figure - around 20% of InterOil’s current market cap - and, to be crystal-clear, it is larger than
we had expected. As management clarified on today’s call, the upfront payment and all
future payments will be regarded as capital gains, and because Papua New Guinea has no
capital gains tax, these payments will be tax-free to InterOil. Also confirmed on the call is the
fact that the government has extended InterOil’s acreage licenses - a concern that we had
heard from investors in recent months.
♦On the flip side, there are some elements of uncertainty/ambiguity that will not be fully
resolved until 2015.
As is typical in these kinds of transactions - that is to say, large preproduction
resource quantities, especially in frontier markets - the total transaction value will
not be known until 2015 at the earliest. Over the next 12-18 months, there will be an
appraisal drilling and certification process - fully funded by Total. In essence, Total wants to
develop its own resource estimates - above and beyond the existing estimates provided by
InterOil’s reserve engineering firm, GLJ Petroleum Consultants - and the total deal value will
only be determined once the certification is complete.?
How does this change our NAV? Not much at all. As detailed on pages 58 and 59 of the Sale
and Purchase Agreement filed today with the SEC, the valuation multiples (above and beyond
the fixed payments) will vary with how much resource is certified. The “brackets”, adjusted
for the government back-in, are: $0.77/Mcfe for 3.5 to 5.4 Tcfe; $1.03/Mcfe for 5.4 to 6.5
Tcfe; and $1.29/Mcfe above 6.5 Tcfe. Based on GLJ’s 2P (mid-case) resource estimates at
year-end 2012, we estimate the aggregate resource value net to InterOil at $4.9 billion, which
is a bit higher than our prior “guesstimate” of $4.7 billion. (At this point, we are not ascribing
any value to the economics of the prospective LNG plant.)
Valuation.
Our updated NAV estimate of $102.87 per share comprises a sum of the parts
valuation, as detailed on page 2, and our target price of $100 (unchanged) is in line with the NAV.
The resource value embedded within our NAV reflects the key metrics of the Total selldown, with
the important caveat that it will not be firm until the resource is certified.
RE: Pavel PT $100 and Outperform - Palm - 12-07-2013
Thanks LT; hopefully we recover a bit and can wipe up the blood. Now we need MS and Westlake.
RE: Pavel PT $100 and Outperform - admin - 12-07-2013
[" Based on GLJ’s 2P (mid-case) resource estimates at year-end 2012, we estimate the aggregate resource value net to InterOil at $4.9 billion"]
Huh?! I'm no accountant, but from the press release earlier today, IOC receives $4.1B in case the GLJ 2P (mid-case) resource estimate holds PLUS it keeps 30% of it (leaving aside other prospects in PRL15 and other licenses).
That seems quite a bit more than Pavel's $4.9B (which is twice the market cap already)
I can understand Total, $4.1B is a lot of money, it's not surprising that they want re-certification after drilling some wells, but what are the odds of the number coming in substantially below that mid-case?
Like I said recently, we might need a little help from the drill bit to cement this a little firmer, but that help is underway..
RE: Pavel PT $100 and Outperform - Putncalls - 12-07-2013
bought my 10 dollar calls back for 25 cents and sold 20 puts today.
RE: Pavel PT $100 and Outperform - SamAdams - 12-07-2013
Please reread the Westlake report form March and their analysis of a 2 train LNG deal. He wasn't far off the mark and his price targets should still be valid. they should have discussed the LNG bit more this morning. It was clear the analysts were not "prepped" ahead of the call.
RE: Pavel PT $100 and Outperform - ltinvest - 12-07-2013
Yes Palm. I've been stunned a few times in the last couple of days. First, my Exxon source was dead wrong. Kudos to TA on his much better information. Second, the sell-off today is just absurd on so many levels. I'm still digesting the deal but any credible estimate has NAV way above where we are trading. I have high regard for Dr Hession but I believe they came up short in the clarity of the deal. That's not to say I don't like the structure. I think Hession has done a marvelous job of protecting the upside for IOC shareholders. Based on the hints he gave us, I think the final resource number for PRL 15 will be substantially higher than GLJ certification of today. However, the press releases Interoil issues continue to be sub standard and.....if it's my company....I'm looking to address and solve that problem. For goodness sakes, we have hedge funds writing articles about the discrepancy between the IOC and TOT releases and suggesting something sinister.
I notice Pavel does not ascribe any value to the 30% interest in the Gulf LNG plant. That's very substantial to understanding the overall value of this deal. Like everyone, I'm trying to understand the full value and potential of the deal. I hope MS and Westlake will provide further clarity and more logic and reason will prevail.
RE: Pavel PT $100 and Outperform - admin - 12-07-2013
'SamAdams' pid='33269' datel Wrote:Please reread the Westlake report form March and their analysis of a 2 train LNG deal. He wasn't far off the mark and his price targets should still be valid. they should have discussed the LNG bit more this morning. It was clear the analysts were not "prepped" ahead of the call.
Well, yes, but LNG train apart, I'm just wondering whether Pavel's sums add up for PRL15 based on GLJ's midpoint (9.9Tcfe):
- IOC gets a $4.1B payment
- That stake is 47.5% of PRL15
- Meaning PRL15 is valued at $8.63B
- IOC remains with 30% ($2.59B)
$4.1 + $2.59 = 6.69B, not $4.9B that Pavel calculates, and the difference is too big to be explained by a discount factor, since most of it is cash and recertification will take place within 2 years, if I understood that correctly.
RE: Pavel PT $100 and Outperform - ebster123 - 12-07-2013
I agree, MH worked out a solid and sound long term deal. However, and I know some here are friends with WA, WA has outperformed too many times. He needs to get the word out and make the PR work. He has not done this time and time again. He should go.
RE: Pavel PT $100 and Outperform - Putncalls - 12-07-2013
'admin' pid='33272' datel Wrote:
'SamAdams' pid='33269' datel Wrote:Please reread the Westlake report form March and their analysis of a 2 train LNG deal. He wasn't far off the mark and his price targets should still be valid. they should have discussed the LNG bit more this morning. It was clear the analysts were not "prepped" ahead of the call.Well, yes, but LNG train apart, I'm just wondering whether Pavel's sums add up for PRL15 based on GLJ's midpoint (9.9Tcfe):
- IOC gets a $4.1B payment
- That stake is 47.5% of PRL15
- Meaning PRL15 is valued at $8.63B
- IOC remains with 30% ($2.59B)
$4.1 + $2.59 = 6.69B, not $4.9B that Pavel calculates, and the difference is too big to be explained by a discount factor, since most of it is cash and recertification will take place within 2 years, if I understood that correctly.
IOC still has to pay the independent owner though.
RE: Pavel PT $100 and Outperform - CAC - 12-07-2013
'admin' pid='33272' datel Wrote:[quote='SamAdams' pid='33269' dateline='1386360112'] Please reread the Westlake report form March and their analysis of a 2 train LNG deal. He wasn't far off the mark and his price targets should still be valid. they should have discussed the LNG bit more this morning. It was clear the analysts were not "prepped" ahead of the call.
Well, yes, but LNG train apart, I'm just wondering whether Pavel's sums add up for PRL15 based on GLJ's midpoint (9.9Tcfe):
- IOC gets a $4.1B payment
- That stake is 47.5% of PRL15
- Meaning PRL15 is valued at $8.63B
- IOC remains with 30% ($2.59B)
$4.1 + $2.59 = 6.69B, not $4.9B that Pavel calculates, and the difference is too big to be explained by a discount factor, since most of it is cash and recertification will take place within 2 years, if I understood that correctly.
**********************
I believe the discrepancy is that Pavel is not adding back in the $2.59B. He indicated he is ascribing no value at this time for the new plant...which is what IOC will own 30% of eventually.