Hemi's Interoil Research Note - AGM 2013

[efi426hemi]

My friends,

I attended the AGM this year and took a number of notes, however I just arrived home today, am running on 1 hour of sleep and just finished a half day at the office, so I don’t have time to get all my notes together and posted.  It is probably going to take until the weekend to get everything finished, however I thought I would post leeetle portions as I complete them.  Use or flush.

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Sales and Purchase Agreement (SPA)

The single most important message that came from the AGM was the detail about the SPA.  Understanding the high level milestones of this process is, imho, extremely important.  To summarize:

• Negotiations of the terms of the sell down agreement are complete.  Both IOC and XOM know exactly how this deal is broken down.

• The next step in completing the SPA is to convert the details from the term sheet into a legally binding document.  This is extremely tedious as the final documentation will be over 1000 pages and every word has to be scrutinized.  For example if XOM wrote Elk/Antelope instead of PRL 15 it could have millions of dollars of impact.  IOC is in this phase right now and their legal team is working with the lawyers from XOM and the IB’s.  XOM has apparently sees this as a high priority item and all teams are working hard to complete these documents.

• I believe I heard that IOC will have one final board approval once the SPA contract is done, fortunately the board can now vote via phone or teleconference.  The executive I was speaking with wasn’t sure if XOM would require board approval after completion of the document.

• The government then gives its blessing and Wayne kindly reminded everyone that O’Neill has already publicly endorsed the deal in front of parliament.

• The question was asked about O’Neill announcing the 30-60 timeline.  Wayne reminded everyone that IOC or XOM never said anything about 30-60 days and that O’Neill said we should hear more in 30-60 days, not that it would be complete in 30-60 days.  However, this does not exclude it from being completed in this timeframe.  I would suggest that investors toss out this timeline and just relax knowing it will be completed.

• Once the SPA is complete – then there will be an announcement to the public.

• FWIW, I am EXTREMELY confident that this process is in full gear and will be completed.  I was involved with a conversation identifying the tedious effort being exerted with the wording and the back and forth involved to get the SPA complete.  It was frying pan to the head apparent that the IOC and XOM machine are operating at peak efficiency.

Keep it on Ice,

Hemi

[efi426hemi]

The LNG Plant

One of the interesting clarifications, for me at least, coming from the AGM was that the SPA agreement does not include where and what technology is used to liquify the NG.  Determining the plant location and type is essentially left up to XOM.  Now with that being said – Wayne stated that while he doesn’t know what XOM will do (LOL, yeah right), it didn’t make any sense to him for XOM to not use the gas at a third train in Port Morseby.

So once the SPA is complete – then XOM will presumably begin negotiations with its partners to determine the terms of using IOC gas at PNG LNG train three.  FWIW, I believe that IOC is asking for ownership of a considerable portion of the third train.  If this hypothesis has any truth to it, then this will be part of the discussions that XOM has with OSH, Santos, etc.  To be repetitively clear, this negotiation will occur once the SPA agreement is completed.

Speaking of XOM, IOC is now in bed with a control freak.  It was made clear to me that the press release in May, regarding exclusive negotiations with XOM, was almost entirely written by XOM.  Multiple times I was told that IOC now needs to seek clarification from Exxon if they want to issue anything public related to the sell down.  Additionally XOM has told IOC that if anything is leaked about this deal, they will initiate aggressive legal action and they will also drag out the SPA indefinitely.  So for those people who were getting frustrated with Wayne saying “we will release those details when the process is done”, you now know why.

So with IOC presumably sending gas to the PNG LNG plant it would make sense to rinse and repeat this process for every additional 4.6 Tcf of gas the company finds.   I asked the question if the Gulf site was no longer on the company radar and was told this is a bad assumption and that IOC does indeed have future plans for the Gulf.

More to come later, Keep it on Ice!

Hemi

[efi426hemi]

Reserved

[efi426hemi]

Reserved

[efi426hemi]

Reserved

[efi426hemi]

Reserved

[ebster123]

Hemi, thanks for all of your efforts, your time and your clarity, T

[Palm]

Thanks Hemi. Crystal clear. Once again you have gone above and beyond the call. I would guess XOM is calling all shots at this point including what is said when. Standard PTO endure. Big boy rules.

[Palm]

Reserved

[maui4marko]

Reserved