IOC Value

[jft310]

HI, I would like to add a comment. I notice there are several questions about what if this or that more positive event happens. I say there is no need to do such calculations. Does it matter if the estimate is 200 or 300 or 400 per share? Is 200+ not enough to justify a position given the current price in the mid-60s? I say just be appreciative and focus on understanding what has already been shared. Thanks again Petro2458. Best, Sam

Greed Sam. Been waiting 7 years. Have a rather nice profit. Bought every major dip. But these are alpha producers for asset managers.

[Petro2458]

All - I've updated to reflect 58.6% working interest and 57.4% Revenue Interest (which reflects the 2% royalty burden).  I also added a high case and IOC's expected case with is about .9 TCF higher than GLJ expected case.

Happy to share the excel model - with caveat that there are quite a few details that I do not know..but i do not believe these issues to be material. For example: 1.  IOC estimates 82 Billion in revenues by year end 2032 per their latest pack...I estimate $92B using their resource estimate;  2.  They estimate a total $50B in tax per the sept 29 presentation (or $29B payable by IOC.....I estimate $23B) and 3.  IOC showed a total of $8B in royalty payments (using 2% Royalty as they have shown..I can't match this...there estimate looks wrong to me...as it would take an extremely high gross revenue figure to get this...but its more likely i'm just not clear on how to treat it in the model.

Best,

Petro2458.

		GLJ Estimates as of 12/31/2011			IOC View
Gross Resources		P90	P50	P10	P50		Comments
	Gas initially in-place (GIIP, TCF)	10.2	11.5	13.0	12.0
	Recovery Factor (%)	63.4%	74.4%	80.5%	79.5%		High recover factor likely to require more wells/capital than shown
	Recoverable Gas (TCF)	6.5	8.6	10.4	9.5		IOC used 9.54 TCF in their "expected case" in September 29, 2012 investor pack. i.e  IOC believes the expected case is 0.9 TCF higher than GLJ
	Condensate Yield (BBL/MMCFG)	16.3	15.0	14.5	13.5		IOC declines this over time…i.e condensate yield is higher earlier in field life
	Recoverable Condensate (MMBBLS)	105.3	128.9	151.4	128.9
	Recoverable Gas Equivalent (TCFE)	7.1	9.4	11.3	10.3
	IOC Working Interest	58.60%	58.60%	58.60%	58.60%		Working interest assuming all partners exercise working interest rights (i.e. PNG 22.5%, etc..)
	IOC Net Revenue Interest	57.43%	57.43%	57.43%	57.43%		Net of IOC's pro-rata share after 2% royalty and development levies.
Net Resources
	Recoverable Gas (TCF)	3.7	4.9	6.0	5.5
	Recoverable Condensate (MMBBLS)	60.5	74.0	86.9	74.0
	Recoverable Gas Equivalent (TCFE)	4.1	5.4	6.5	5.9
	Recoverable Oil Equivalent (MMBOE)	680	896	1,086	987
Capital, Opex, and Commodity Price Assumptions
	Phase 1 Dev't Capital ($ MM)	$5,076	$5,076	$5,076	$5,076		Q4 2016 Startup
	Phase 2 Dev't Capital ($ MM)	$-	$3,828	$3,828	$3,828		2019 Startup (Depends on Phase 1 performance..i.e. wells indicate mid case recovery)
	Phase 3 Dev't Capital ($ MM)	$-	$-	$3,740	$-		2021 Startup (Depends on Phase 2 performance..i.e. wells indicate high case recovery)
	Total Project Capital $ MM)	$5,076	$8,904	$12,644	$8,904
	Total Project Capital ($/BOE)	$4.29	$5.71	$6.68	$5.18
	Annual Operating Expense ($ MM/year)	$117.1	$155.8	$195.7	$155.8
	LNG Pricing ($/MMBTU)	14.35					IOC pack suggests this is tied to $100/BO Brent; Is this the way the offtake agreements will be structured??
	Condensate Pricing ($/BBL)	95.00					$5/discount to brent assumed
	IOC Net Capital ($ MM)	$2,974	$5,218	$7,409	$5,218
	Pre-Tax Economics
	Net Present Value ($ Billion) @ 10% Disc. Rate	$11.2	$18.6	$23.2	$19.3		10% Discount most commonly used my majors and independent E&P companies (8,10, 12% are common ranges)
	Net Present Value ($ Billion) @ 15% Disc. Rate	$6.4	$10.7	$13.4	$11.0		Some companies use NPV15 to reflect their own high cost of capital
	NPV 10 / Gross MCF Equivalent ($/MCFE)	$1.58	$1.98	$2.05	$1.88
	Shares Outstanding (million shares)	48.0	48.0	48.0	48.0
	Price-per-share ($/Share)	$234	$387	$484	$403
	After Tax Economics						30% Tax rate to PNG;  Assumes 30% tax on gross revenues after opex/capex paid.
	Net Present Value ($ Billion) @ 10% Disc. Rate	$7.7	$12.9	$16.1	$13.4
	Net Present Value ($ Billion) @ 15% Disc. Rate	$4.2	$7.3	$9.3	$7.5
	NPV 10 / Gross MCF Equivalent ($/MCFE)	$1.09	$1.37	$1.42	$1.30
	Price-per-share ($/Share)	$161	$268	$336	$279

[Palm]

Very nice work Petro2458; thanks for the effort. I'm sure we'll give it a look and come back with any questions. Better than back-of-envelope any day eh?

[jft310]

Petro- You are valuable add to SHU..!!!!

[Palm]

Again, this is for EA only; similar to what we hear whales see as value.

[Getitrt2]

Isn't the 30% tax on profits, rather than gross revenues?

[Petro2458]

Getit-good question...I'm really unsure. I suspect and assumed it was after revenue less capital and opex...and probably only applied after the cumulative cash flow turns positive...so no tax applied in years where revenue is negative. But the difference is minor as the total revenue stream dwarfs the investment/expenses. Using this method was the closest validation to the 'government take' slide that IOC published late September.

[Getitrt2]

I didn't pick up on the "opex" deduction, which I assume is operating expenses; that would approximate profits with the "capex" deduction as well.

[ArtM72]

You can adjust the value of the resource in recognition of the risk, but discounting future value should be based on interest paid and/or opportunity costs. If there is somewhere I can make a reliable 15% on my money please share. I can get 6% on money invested in Excelon today and that is a pretty solid corporation and has been so for many decades. Discount at 10% if you will. That is plenty generous.

[Petro2458]

If PRE is willing to pay $116 million in cash upfront for 10% of Triceratops, what do you suppose one would pay for 30% of Elk/Antelope?  I believe 100% is worth $8 billion on low case resource or $161/share.  Sounds like monetization is going to be coincident with an updated resource assessment of E,A, and Triceratops!  This is going to be extremely fun.

		GLJ Estimates as of 12/31/2011			IOC View
Gross Resources		P90	P50	P10	P50		Comments
	Gas initially in-place (GIIP, TCF)	10.2	11.5	13.0	12.0
	Recovery Factor (%)	63.4%	74.4%	80.5%	79.5%		High recover factor likely to require more wells/capital than shown
	Recoverable Gas (TCF)	6.5	8.6	10.4	9.5		IOC used 9.54 TCF in their "expected case" in September 29, 2012 investor pack. i.e  IOC believes the expected case is 0.9 TCF higher than GLJ
	Condensate Yield (BBL/MMCFG)	16.3	15.0	14.5	13.5		IOC declines this over time…i.e condensate yield is higher earlier in field life
	Recoverable Condensate (MMBBLS)	105.3	128.9	151.4	128.9
	Recoverable Gas Equivalent (TCFE)	7.1	9.4	11.3	10.3
	IOC Working Interest	58.60%	58.60%	58.60%	58.60%		Working interest assuming all partners exercise working interest rights (i.e. PNG 22.5%, etc..)
	IOC Net Revenue Interest	57.43%	57.43%	57.43%	57.43%		Net of IOC's pro-rata share after 2% royalty and development levies.
Net Resources
	Recoverable Gas (TCF)	3.7	4.9	6.0	5.5
	Recoverable Condensate (MMBBLS)	60.5	74.0	86.9	74.0
	Recoverable Gas Equivalent (TCFE)	4.1	5.4	6.5	5.9
	Recoverable Oil Equivalent (MMBOE)	680	896	1,086	987
Capital, Opex, and Commodity Price Assumptions
	Phase 1 Dev't Capital ($ MM)	$5,076	$5,076	$5,076	$5,076		Q4 2016 Startup
	Phase 2 Dev't Capital ($ MM)	$-	$3,828	$3,828	$3,828		2019 Startup (Depends on Phase 1 performance..i.e. wells indicate mid case recovery)
	Phase 3 Dev't Capital ($ MM)	$-	$-	$3,740	$-		2021 Startup (Depends on Phase 2 performance..i.e. wells indicate high case recovery)
	Total Project Capital $ MM)	$5,076	$8,904	$12,644	$8,904
	Total Project Capital ($/BOE)	$4.29	$5.71	$6.68	$5.18
	Annual Operating Expense ($ MM/year)	$117.1	$155.8	$195.7	$155.8
	LNG Pricing ($/MMBTU)	14.35					IOC pack suggests this is tied to $100/BO Brent; Is this the way the offtake agreements will be structured??
	Condensate Pricing ($/BBL)	95.00					$5/discount to brent assumed
	IOC Net Capital ($ MM)	$2,974	$5,218	$7,409	$5,218
	Pre-Tax Economics
	Net Present Value ($ Billion) @ 10% Disc. Rate	$11.2	$18.6	$23.2	$19.3		10% Discount most commonly used my majors and independent E&P companies (8,10, 12% are common ranges)
	Net Present Value ($ Billion) @ 15% Disc. Rate	$6.4	$10.7	$13.4	$11.0		Some companies use NPV15 to reflect their own high cost of capital
	NPV 10 / Gross MCF Equivalent ($/MCFE)	$1.58	$1.98	$2.05	$1.88
	Shares Outstanding (million shares)	48.0	48.0	48.0	48.0
	Price-per-share ($/Share)	$234	$387	$484	$403
	After Tax Economics						30% Tax rate to PNG;  Assumes 30% tax on gross revenues after opex/capex paid.
	Net Present Value ($ Billion) @ 10% Disc. Rate	$7.7	$12.9	$16.1	$13.4
	Net Present Value ($ Billion) @ 15% Disc. Rate	$4.2	$7.3	$9.3	$7.5
	NPV 10 / Gross MCF Equivalent ($/MCFE)	$1.09	$1.37	$1.42	$1.30
	Price-per-share ($/Share)	$161	$268	$336	$279