THE DEAL II

[Getitrt2]

I am with Art in large part and some others here. I think "The Deal" lt puts forth is very interesting and reflects a lot of what's going on, but falls far short of being complete in multiple respects, and understates the "price" and benefits IOC will get.

[CesiumFormate]

Interesting thing about announcing FID is that per accounting standards IOC will book their share of the resources as RESERVES ON THE BALANCE SHEET.  However, they will priced based on IOC's cost of drilling which we all know is very low.  That will probably be the next short argument.  "Yeah the have a great deal but but but look how over valued the company is based on the value of their reserves on the balance sheet."

I do not believe it is correct that the assets are valued at cost.  Please see the referenced article  http://www.turnaround.org/Publications/A...ectID=9783  .

It states that

"With a current reserve report, a valuation expert can plug in pricing assumptions over the life of the property and calculate the future net revenue. Future commodity prices are important variables in determining fair market value but are uncertain at best."  Also, Comparable Sales and Capitalization models may be used.

Additional Reference http://www.investopedia.com/ask/answers/...-sheet.asp

"Oil companies can value their reserves by finding their net present value less extraction costs (also known in the industry as "lifting costs"). Depending on the method of accounting for exploration, full cost versus successful efforts, certain costs of finding reserves are capitalized."

I would guess that Interoil's accountants have already put a model together that will value their reserves.

CF

[ltinvest]

[quote='ltinvest' pid='23919' dateline='1370542437']

First, let me say thanks to so many who weighed and added excellent questions and comments! I thought I'd start a new thread and address or clarify some of what was discussed yesterday.

1. Maybe this needs no clarification, but in order to make sure we are all on the same page as much as possible (or at least you know where I'm coming from) let me clarify the transaction. This is not selling gas to Exxon. This is selling an ownership interest in PRL 15 to Exxon. The long anticipated "sell down." Again, this may be clear to many but this is a different transaction than many of us contemplated (no Gulf LNG at this time). Importantly, there are no capital gains on this asset sale.

2. Exxon and Interoil are now partners. Pretty obvious I realize but the importance of that statement cannot be emphasized enough. Exxon is our partner in PRL 15.

3. Don't confuse cash price...all in price...or any other price. Interoil will receive $5B +/- from Exxon for their purchase of 4.6T. (staged payments with some upfront) Ownership % will be determined after the delineation wells and recertification takes place. Exxon will likely end up owning somewhere between 33% and 50% of PRL 15 (4.6T/ Total Recertified Resource). THAT IS THE DEAL.

4. From the $5B +/- Interoil receives, they will contribute $1B +/- to the pipeline, gathering system, and CSP construction costs (same % as their ownership stake)

5. Interoil and Exxon will be partners in the CSP. I have done this part an injustice. With the liquids selling for close to $100 a barrel currently, this will be quite meaningful to Interoil.

6. Exxon will be building 1 additional train at PNG LNG at this point. The ownership structure of that train is being/will be negotiated. Obviously, Exxon has existing partners. It is possible Interoil will trade some of the $5B +/- for an ownership stake in the 3rd train. Emphasis on "possible."

7. The partnership and infrastructure will allow Interoil to convert resources into reserves at PRL 15 and likely Triceratops as well.

8. The price Exxon is paying was not the highest price offered. This is about today AND tomorrow. The partnership with blue chip Exxon and the infrastructure unlocks huge value for Interoil and makes everything down the road far more valuable.

9. Modular and Floating are not here today but their acceptance is growing and can't be ruled out at a later date.

10. Kavo is fully supportive as massive infrastructure & CSP will be added to the Gulf Province. Gas flowing through the pipeline will kick in landowner 2% royalty far sooner than Gulf LNG. And he knows this is just the beginning.

11. As the infrastructure is being built, a return to drilling can commence as new discoveries can be easily monetized and are economically viable.

I hope this clarifies a few points. There are many moving parts and this is just a summary of a few.

I would simply point you to #6. This may very well be the most complicated issue as it involves multiple parties.

[jft310]

ltinvest-
Please read this report below and show us where on your list you account for this $1Billion expense by Exxon on the behalf of IOC/PACLNG. Or one needs to adjust the price for this item. So what else do we need to adjust the price paid for??? More than this its safe to say.Best to wait for the analyst write ups...

Video many times tells a little different story from print. This story from EMTV includes video of O'Neill in parliament delivering the news that XOM will partner with IOC and PAC LNG in PRL 15. Watch the enthusiasm with which O'Neill makes his statements at the beginning and end of the video. He clearly likes this plan.

EXXON MOBIL CHOSEN TO DEVELOP ELK AND ANTELOPE IN GULF
on Monday, 27 May 2013. Posted in News
InterOil and its joint venture partner, Pacific LNG Group has entered into exclusive negotiations with Exxon Mobil on the development of Elk and Antelope gas fields in Gulf Province.
This completes InterOil’s LNG Partnering process to develop the Elk and Antelope reserves in the Petroleum Retention License area or PRL15.
It’s good news for the petroleum industry, InterOil has chosen Exxon Mobil to develop Elk and Antelope reserves in the Gulf province.
Prime Minister Peter ONeill announced the successful bid by Exxon Mobil to partner with InterOil in parliament last Friday.
InterOil and Pacific LNG Selling Exxon Mobil PNG and interest in PRL 15 that is sufficient to supply gas to develop an additional LNG at Exxon Mobil’s Konebada site. There will be staged payments before and after production commences.
******Both InterOil and Pacific LNG will be funded to drill additional wells in the Elk and Antelope fields followed by recertification of the resource.****(Actually the wells will be drilled at E/A and at the 3 prospects in PRL15.Its stated. Expected cost $1 Billion)
The joint venture partners will have the option to either independently develop a second LNG project in Gulf province that may also use gas from PRL 15 and other discoveries like Triceratops, or pursue further development with Exxon Mobil. It’s also in line with the government’s decision for an internationally recognised partner to develop the resource and is also in line with the 2009 Project Agreement.
InterOil’s operations in Gulf province dates back to 1997 when the world –class natural gas and condensate resources at Elk/Antelope and Triceratops were discovered. Apart from these, the Kutubu Oil Project in Southern Highlands Province was first discovered in 1986 and commercial production commenced in June 1992. Gas production in Hides started in 1991 to meet electricity demand in the Porgera Gold Mine, followed Gobe & Moran projects in 1998.
These projects have contributed millions of kina to the economic growth of PNG. It’s anticipated the Elk and Antelope project will triple the country’s economy.
http://www.emtv.com.pg/home/latest-news/...gory_id=20

[jft310]

And Raymond James states Exxon will pay for the drilling or price per mcf MUST be adjusted. Or what else does the list miss??
Analysts: Pavel Molchanov & Alex Morris,

(Exploration and Production)

No Deal Yet, but Exclusive Talks Underway for Resource Selldown With XOM

Exxon and InterOil, in the same sentence. After a year and half of intense market

speculation about which multinational company it would sign a deal with, InterOil has

formally revealed that it is in exclusive negotiations with Exxon about a resource selldown.

This is consistent with management’s previous comments about receiving final bids from

major energy companies. The talks with Exxon are ongoing, so today’s news is not a final

deal announcement, but insofar as this news provides a blue chip “stamp of approval” –

from the world’s largest private-sector oil and gas company, no less – we think it’s a clear

incremental positive. In this context, it’s worth noting the 30% short interest in the stock –

and if you need any reminder on what that implies, take a look at the recent stock price

chart for Tesla.

Here is what we know. InterOil plans to sell Exxon an interest in PRL 15 (the block which

includes the Elk/Antelope field) to supply gas for an additional train at the PNG LNG

project. This LNG facility will initially have capacity of 6.9 million tons per annum (mtpa),

comprised of two trains, and it is currently being built by a consortium led by Exxon and Oil

Search. Payments will be staged, and Exxon will fund additional delineation wells on the

acreage – a deal structure that is customary for these kinds of transactions. InterOil

maintains the option to develop its own LNG project, using the portion of its gas resource

which will be retained at Elk/Antelope as well as other fields such as Triceratops.

Here is what we do not know (yet). Today’s announcement was limited to identifying

Exxon. Here are the four major questions that have yet to be answered.

1. How much of the resource will be monetized?

As a general premise, in these kinds of transactions, the

“big brother” (Exxon in this case) tends to want to purchase more of the resource, and the

smaller partner tends to want to keep more for its own use.

2. What is the timeline for a final deal?

Just as management has (wisely) stayed away from self-imposing any

arbitrary deadlines in recent months, today’s press release did not specify any timetable.

3. Most importantly, what will be the multiple ($ per Mcf) in the resource

selldown?

For context, IOC shares are currently trading at approximately $0.85/Mcf on a

1P basis, which compares to a five-year South Pacific transaction average of around

$1.20/Mcf. (This is not our prediction of how much InterOil will receive for its gas – it’s just

a historical observation.)



4. Will InterOil move forward with development of its own LNG project using its retained gas?

Papua New Guinea’s government would presumably be

supportive of such a project, in order to avoid the creation of a de facto LNG monopoly in

the country, but until the Exxon transaction is finalized, InterOil will not be in a position to

spell out its long-term strategy.

The road ahead. The most important near-term catalyst will be a final deal announcement,

including whatever details of the economic terms will be released publicly. (The

government will, of course, have to approve the final deal.) After that is concluded,

Elk/Antelope appraisal drilling will ramp up****** (with Exxon covering the costs)*********, after which an

updated resource estimate will be made. Concurrently, InterOil is in the process of hiring

its new CEO, though the company has made clear that a selldown deal is not dependent on

having a permanent CEO in place.

[ltinvest]

"ltinvest-
Please read this report below and show us where on your list you account for this $1Billion expense by Exxon on the behalf of IOC/PACLNG. Or one needs to adjust the price for this item. So what else do we need to adjust the price paid for??? More than this its safe to say.Best to wait for the analyst write ups..."

JFT, I find your posts puzzling. Your replys suggest I am making up this list or I am some short attempting to mislead or misrepresent the facts. I simply pass on what I believe to be information helpful to IOC investors. As I've made clear, I have no first hand knowledge of negotiations. If you have reliable information that confirms Exxon will contribute $1B to Interoil's future drilling.....great. I have not personally heard such information and, therefore, it would not be appropriate for me to pass on such information. I read everything Pavel writes as well as the other analysts and will continue to do so.


"******Both InterOil and Pacific LNG will be funded to drill additional wells in the Elk and Antelope fields followed by recertification of the resource.****(Actually the wells will be drilled at E/A and at the 3 prospects in PRL15.Its stated. Expected cost $1 Billion)"


If there is truth to this, I think thats wonderful. $1B pays for a lot of wells. Are the parenthesis your addition or do you have credible information confirming this figure?

As for point #6......I pointed out a week ago that ownership in Train #3 was up for negotiation. It comes as no surprise this might be a point of contention since it involves parties beyond Exxon & Interoil.

[Tree]

8. The price Exxon is paying was not the highest price offered

 lt, I checked on the above claim in #8, and it is not true.  

It will be clear to the market that today's pps does not reflect the Mcf valuation of the XOM deal.

8. The price Exxon is paying was not the highest price offered

[jft310]

Of course , to think anyone has the details of this deal with certainty says someone is getting used to spread nonsense . There are shorts who use longs to spread non truths . Sorry to say.

[ltinvest]

7. Exxon will be building 1 additional train at PNG LNG at this point. The ownership structure of that train is being/will be negotiated. Obviously, Exxon has existing partners. It is possible Interoil will trade some of the $5B +/- for an ownership stake in the 3rd train. Emphasis on "possible."

Going back to my June 6th post, I believe this deal point has been a large part of the ongoing negotiations.