THE DEAL II

[ltinvest]

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.

[admin]

Excellent stuff, Itinvest. Thanks. I'm especially curious about point 6, to be honest. It would be nice to have some stake in an LNG plant already and I know others, like Ass0ciatedPress were a little worried that we might not be a part of the third train, or that we would have no stake in a plant for quite some time, selling gas in the ground, rather than LNG.

[jft310]

If this is the deal and it well maybe. Bring it on. If this is right then my IPI contact heard part of it wrong.
Using these number IOC at PRL 15 alone is worth $11 Billion and current market cap for all of IOC is $4 Billion ish.
With Triceratops and 236/238 ahead of us. Let's close this deal.

[Palm]

And thus sets up IOC as a buyout candidate by Total and/or others. Exxon secures their 3rd train first and Total is then best suited to buy IOC to do the Gulf LNG project. Just a hunch

[jft310]

If this is right then in a buyout IOC would be worth at least $215 a share based on GLJ estimates. Add in refinery of $13 a share. Drill Triceratops and 236/238 and other properties.

[qekc0303]

I think you discount #9 too much. Agree floating is a tough sell/ask, but half yearly EWC report 2/28/2013 stated "On 2 February 2011 we entered into a conditional binding funding and construction agreement with Liquid Niugini Gas Limited, S.P.I. (208) Limited and LNGL Train 1 Limited and a shareholders’ agreement with Liquid Niugini Gas Limited and LNGL Train 1 Limited for the development of an LNG liquefaction, storage and export facility in Gulf Province, Papua New Guinea. The proposal includes the construction of a 3 MTPA LNG liquefaction facility, using our modular LNG trains, and a 150 MW gas-fuelled combined cycle power plant. This agreement has been extended by mutual consent until 30 June 2013."

It works in with point 3 of the IOC/XOM ann.; is consistent with Chandler buying IOC and not exiting EWC; consistent with Kavo's spruiking (they need reliable power more than anything); EWC presence in PNG for the last month while IOC "do the deal"; leak from Govt. that EW will operate Moitaka and upgrade it to gas fired with domestically sourced gas; and most of all, will enable IOC to honor their offtake agreements (including Philippines with EWC and new power station at Pagbilao)

[Palm]

Great points qekc.

[SamAdams]

Thanks ltinvest and this is excellent stuff.  I just want to be ver clear, you are saying IOC will end up with $5bln +/- in various forms for thier share of the 33% to 50% of PRL15 XOM  is buying? I am assuming a pro rata sale by the license owners.   This bridges the gap between focusing on $ per mcf and total $ recieved.   Rough cut obviously.  An upside to resource estimates after recertification is icing on the PRL cake.

[Movieguy]

Thank you for all that summarizing, ltinvest. Can someone please tell me how the CSP gets processed? A new plant? The IOC refinery? The Exxon LNG plant? Thanks.

[jft310]

One needs add to IOC's side the drilling money that Exxon is fronting. It was said for the 3 prospects in PRL 15 and more wells at E/A that a $1 Billion was set aside. IOC pays zero. One needs to account for that money.