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Something to think about - petrengr1 - 02-28-2014
The SPA with Total was set up to sell Total 61.2903% and IOC to retain 38.7097%. This is Gross before the Government comes in for their 22.5%. All of the revenue numbers were based on these percentages. This adds up to 100% so it was assumed that IOC own 100% after buying back the IPI partner’s interest. With these numbers IOC would have had 30% net and Total would have had 47.5% net after the Government came in for their 22.5%.
So with these revenue numbers IOC would have had plenty of money to pay for their 30% interest in the pipelines, CSP, LNG plant and wharf etc.
Since IOC did not buy back the IPI interest they do not have that interest to include in the sell down to Total and Oil Search has now come in for 22.835% gross interest leaving IOC holding only 75.6114% with an IPI interest of 1.5536% still outstanding.
So now we have a smaller percentage to sell to Total which will result in less revenue to IOC. If IOC still wants to have a 30% interest they can probably get that through the negotiations with Total and Oil Search but IOC may have to ask themselves if they will now have enough money to pay their share of the pipelines, CSP, LNG Plant etc. They may have to opt for selling down a larger percentage and retaining a smaller percentage in order for the numbers to work out for them.
If we assume IOC will buy back the outstanding 1.5536% IPI interest they will then own 77.165% gross. If they retain 38.7097% gross (30% net) then they will only have 38.4553% to sell down instead of 61.2903%. I believe this means they will only receive 62.7% of the revenue previously expected. The question is will this be enough to pay for 30% of the capital cost. If the facilities cost $12 billion they will need to come up with $4 billion.
Have good evening. I am logging off. Bedtime here.
RE: Something to think about - kommonsents - 02-28-2014
Interesting, Pet.
Since IOC will own 75%~ and OSH 25%~ wouldn't they then be in a position to make a deal with Exxon for trains 3, 4, & 5, maybe more, including in the Gulf?
RE: Something to think about - ArtM72 - 02-28-2014
FWIW I don't believe the OSH deal has much impact on IOC's ability to fund the capital contribution. To the extent IOC's share of E/A has been or will be reduced by the OSH acquisition from the original plan their payout from Total will increase and obligation to pay in to the LNG plant will decrease. (Thanks to Getit for catching my previous faulty logic and spurring this edit)
One can accurately argue any fixed drilling cost obligations outside PRL15 would result in a proportionately heavier burden on IOC finances should IOC have a smaller share of the up front payment coming from Total. The question there becomes are the drilling costs, shared by IPI/OSH outside of PRL15, going to be so large as to materially threaten IOC's balance sheet? I doubt it. They should be dwarfed by the LNG plant obligation.
And then IOC can always farm out an interest in their exploration program :-x
RE: Something to think about - UncleT - 02-28-2014
Pet, based on your numbers of IOC retaining a 30% net interest. Instead of receiving $613 million at completion IOC would receive $384 million (selling 38.4553% instead of 61.2903%). Keep in mind they have to pay off the $250 million bridge loan at completion, leaving a net $134 million at the completion of the deal.
RE: Something to think about - jft310 - 03-01-2014
'UncleT' pid='38321' dateline='<a href="tel:1393595 Wrote:Pet, based on your numbers of IOC retaining a 30% net interest. Instead of receiving $613 million at completion IOC would receive $384 million (selling 38.4553% instead of 61.2903%). Keep in mind they have to pay off the $250 million bridge loan at completion, leaving a net $134 million at the completion of the deal.
the loan type had changed from a bridge loan to a drilling fund loan . Not sure call IR and ask. No payback at
Total closing
RE: Something to think about - ArtM72 - 03-01-2014
Does anybody know just how much of that loan they have actually drawn? As I recall it was good for all 2014 with early repayment contingent upon a selldown deal closing. But to my point, I doubt much of the 250 million has been used to date as drilling efforts are just ramping up.
RE: Something to think about - Palm - 03-01-2014
I really doubt all or even a substantial portion of the $250 million has been drwan. They will be giving that info when 4Q earnings get released. There was talk that the loan was being reworked as JFT mentions, but that will all come out soon.
RE: Something to think about - Getitrt2 - 03-01-2014
Everyone seems to be forgetting something very important. Assuming Pet and everyone are correct in calculating proportionately less of the up-front payment and resource payments to be received by IOC, which is logical, the net cash IOC would end up with now would probably not be very different than the original plan. That is because under the original agreement/plan IOC was going to have to use a similarly large proportion of the proceeds to buy out the minority interests itself. Now that OSH is buying out the minority interests directly, IOC will not have to do that, keeping all the proceeds for its own use. I really do not see this as a big concern, and don't think IOC does either. Furthermore, it could be that IOC and Total will decide to shift some more to the front end, if needed. I am confident both parties very much want this deal to work.
I think the most important issue is IOC still retaining a similar material portion of ownership, which I am also very confident about. That should produce the best long-term result for IOC and shareholders, and the better pps as time passes, even this year, I think. Also keep in mind that most of the project capital expenditures will be funded with debt financing, probably to the tune of about 70%, and the more ownership IOC has, the more it can finance, and the more cash flow and profits it will have from production. By the way, 30% of $12 billion is $3.6 billion, not $4 billion.
I think IOC will have sufficient funding this year, and be cash rich after resource payments. That is in spite of Art having his logic backwards, in that the larger portion IOC retains (and the less Total buys), the smaller the payments from Total. Art should also keep in mind that Total is carrying the drilling costs in PRL 15.
I cannot believe anyone is still talking about making a deal with Exxon on anything related to PRL 15! Total won, it is virtually certain IOC will close the deal with Total, and the Total deal is the best deal for IOC, with little chance Exxon would offer something good enough to change that, even if IOC were open to it now. On the other hand, they may very well sell some gas to Exxon in the future from sources outside PRL 15, as Hession specifically indicated as a possibility in the PNG Report article.
I agree with Art and Palm about most of the $250 million credit line probably still being available.
RE: Something to think about - Thylacine-2 - 03-01-2014
Thanks, Getitrt. Hopefully everything will settle down, the deal with Total will close, and all will proceed smoothly. But Oil Search entering the game would appear to introduce an element of uncertainty. Oil Search does appear to be the favored child in PNG and they are making noises to the effect that they will exert a lot of influence on the development of the resource. In the end, the future for PRL 15 may depend on what the PNG government wants to do, not on what is the best deal for IOC.
RE: Something to think about - Getitrt2 - 03-01-2014
Thylacine, I agree the government will continue to play a major role in all this, but I don't think they will try to force commercial decisions on the parties in play now. They do have a vested interest in OSH through the stock ownership, but they really have that through their 22.5% options in all the projects. I think they would want to see the most overall development as possible through multiple strong parties, and would strongly suspect that their ideal scenario now would be to have Total proceed to build a separate two train LNG project based on PRL 15, with a little gas diverted to domestic use, and with possible future expansion, while Exxon finds ways to expand PNG LNG with other IOC and/or OSH gas. I think OSH has made a very smart move here, including taking advantage of the government's desire to maintain some ownership after losing the IPIC shares, that will enhance their growth and profitability for many years to come. I'm sure they will exercise as much influence in their interest as they can, but I think how much they can exert over project manager Total and upstream operator IOC with 17.7% is very limited. Exxon could probably disrupt the direction if willing to quickly come in with enough money and strategic benefit, but apparently are not; and I doubt the government would favor that anyway. Therefore, I think IOC will move as quickly as possible to close and assuming likely cooperation from Total will be able to get its best deal now one way or the other, given what has transpired with OSH and the changes from that.
I sure would like to see the drilling start asap, and I think they are doing that.