THE DEAL

[ltinvest]

I'm not sure why there continues to be misunderstanding or misinterpretation of a pretty straight forward deal.  Heres the details:

1) Exxon is the winning bidder.  In the natural evolution of negotiations, Interoil selected Exxon as the winning bidder.  They have a signed terms sheet.  Management did not want to issue a press release until the final terms were complete.  However, counsel advised management the signing of the exclusive negotiations document between the two companies was a material event and necessitated a press release.  The release was drafted by both Exxon and Interoil.

2)  Interoil requested the recertification of Elk/Antelope.  The concept is simple.  Exxon is buying 4-4.5T right now.  4.5T is approximately 50% of the GLJ certification currently.  Interoil believes the resource is larger.  Once the recertification is complete, the % ownership of E/A will be determined.  If there is 12T, IOC doesnt want to Exxon to have 50% interest but rather 33% (4T/12T for simple math).  Importantly, IOC will be able to choose what they want to do with the remaining gas in a seperate deal......whether thats a Gulf LNG or selling more gas to Exxon.  I'm told Exxon will be motivated to buy more gas from IOC and will be very competitive with any other alternatives.

3) There will be approximately 1.5 billion in infrastructure costs for the pipeline, gathering system and CSP (Exxon and IOC will be partners in the CSP).  The costs will be split based on the % the recertification determines (i.e if Exxon is buying 4T of 12T or 33%...they will pay $500 million and IOC will pay $1 billion).  Exxon will carry IOC on these infrastructure costs.

4) Payments to Interoil will be staged.  The carry for infrastructure, recertification, and an upfront $ payment........ plus additional $ at other stages.

5) Expect the deal to be in the 4 billion to 5 Billion range. (4T-4.5T x $1.00-$1.20)

6) The pipeline, gathering system, and CSP should be operational in 24 months.

7) The cost overruns Exxon experienced at PNG LNG motivated them to add trains sooner rather than later and improve the economics of the project.

8) Interoil will have flexibility to pursue other deals but expect the Exxon/Interoil partnership to grow over time.

9)The PNG govt will get more $ faster......they are very supportive.

10) The final details will likely be completed easily within the 60 day period.  Expect a new CEO this summer.

It's a great deal for IOC and shareholders.  Very exciting!

[Spartina]

Like a bell from a church tower on a still winter morning. Crisp and clear and simple. Well done itinvest.

[jft310]

Price stated above may be the cash price. Needs to be adjusted for the Exxon paid in dollars .
Exxon will pay for the additional drilling. May be $1 Billion add to cash price
Exxon will pay for part of the pipeline add in 80% of the cost to the cash price
Exxon will pay for the CSP add that to the cash price.
Adjusting for all the Exxon freebies the deal is in the $3 range.
This is third hand information which can not be verified but fits with the stated Press Release .
The deal is complex and will be explained in detail by the investment bankers in detail.

[admin]

Why do I have the feeling that you might be on to something here, Itinvest..

[Tree]

Birth of a Pumper. Aren't you tired of management yet???

[Palm]

Well stated LT, we posted somewhat related posts; mashing them together presents some pretty strong arguments for why this Exxon deal is very real and very much worth waiting for.

[Petro2458]

Great posts. I believe every word of it. It's technically very credible.

Reserves bookings are key....this will seriously hurt the shorts if IOC can FID and book reserves...even if its only for a single train it will be huge for the stock.

Resourcearb's article on 4/30 was fantastic...very well written and a spot on prediction of what was to come.

[johnwgrant]

I love the logic Itinvest. So, who's selling it down to below $80/share !?!?

2 1/2 years ago they did a capital raise at $75/share. Now, for essentially a $5 premium, you can buy into a selldown deal with IOC/XOM - plus they have Triceratops to boot. This is sure strange / puzzling !?!?

[ArtM72]

Price stated above may be the cash price.

I have to think you're right on this JFT.  To me, if IOC gets $4 billion, has already spent a half billion and has to come up with another $1 billion suddenly you are back looking at $0.75/mcf, a rediculous number even if it does facilitate $1/mcf of condensate revenue and the ability to book the remaining reserves.

Time only will tell.  Just hope they aren't serving bait fish for lunch down in Houston.

[ltinvest]

I can add that this information is rock solid. This is not an attempt to speculate on my part. I long ago gave up trying to predict short term price movements in IOC, but after 5 years, I've never felt better about my investment in Interoil for the next 5 weeks, 5 months and 5 years.