Thinking About the IPI Buy In

[sfiaes]

On a gross basis, before TOT or the Gov't get involved, E/A is split 75.6% IOC 24.4% IPI.

It makes sense for IOC to take possession of the IPI share in exchange for a document that states the IPI investors will receive 24.4% of the preceeds, received by IOC, from the sale of E/A gas. To be paid in cash or stock at the time of receipt. If this is the case, the higher the stock price the better.

This would show up as a contingent liability on IOC's balance sheet.

IOC may have alternatively or additionally offered a one time lump sum payment in stock. This would require a discounted amount but may be enticing to some IPI investors who do not want to wait for their money, or who have concerns over certification. Others may want to take stock now at this current disounted price.

Just some thoughts.

[Palm]

I believe that IOC management has proposed a value of $X which they feel fairly compensates the IPI investors. Neither management nor the IPI investors wants pps to take a fully dilutional hit as management and most, and probably all, IPI investors also own common shares. So there are likely several offers/options for the IPI investors. I believe that's why the strategic partner can be "up to" 19.3%. So best for all could be for the IPI investors to sell their interests to that strategic partner for the $X value and any difference to be made up by IOC, but with far less cash or shares than a full dilution. Tree and I have been working on this scenario to try and put more into it, but have not had a chance to get back together since this morning. May work, may not, but on first blush it seems to have merit.

Part of what supports this is the wording in Total's PR that mentions Total and IOC having this right. They may be working together to peddle these IPI interests.

[sfiaes]

The 30% stake retained by IOC assumes they purchased the entire IPI stake.

So you are suggesting they will control less than this at the end of the day?

[ArtM72]

One confounding element of the IPI agreement is there rights/obligations to drill prospects in other areas and share in the proceeds. If you read the IPI agreement there is no way for IOC to buy them...or sell them...out cleanly if they chose to hold their interests. The "penalty" payment potential for IOC as I recall makes Total's E/A payment look like chump change.

As I see it this situation is pretty much a classic "Mexican Standoff". Everybody needs to drop their guns and decide to get along. Hession pretty clearly indicated that would be done. If IPI interests get greedy the clear losers will be both IOC and IPI.

[Tree]

IPI are basically a strategic partner with IOC and now TOT. Their interest will be purchased as they cannot/should not remain as continued funders of development and an LNG project. They have been negotiated with by IOC and their collective interest could be re-sold as the 19.3% interest which TOT plans to peddle to a strategic partner for development. Some are of opinion that the base line deal between IOC/TOT for IPI stake is shrewd and some IPI partners feel they can market that block to a qualified strategic at a higher price, thus, they keep the spread. Not likely in my mind and only sounds problematic. Hession said the IPI buy-out was 'neutral' and by marketing their stake as the strategic stake makes sense and funds that liability.

[Palm]

And IOC still ends up net a 30% owner.

[jft310]

IPI are basically a strategic partner with IOC and now TOT. Their interest will be purchased as they cannot/should not remain as continued funders of development and an LNG project. They have been negotiated with by IOC and their collective interest could be re-sold as the 19.3% interest which TOT plans to peddle to a strategic partner for development. Some are of opinion that the base line deal between IOC/TOT for IPI stake is shrewd and some IPI partners feel they can market that block to a qualified strategic at a higher price, thus, they keep the spread. Not likely in my mind and only sounds problematic. Hession said the IPI buy-out was 'neutral' and by marketing their stake as the strategic stake makes sense and funds that liability.

The company has always called the IPI transaction as neutral. that reason is because
They get more assets for the conversion.
Maybe this example will help . Assume as an example we have 19 percent IPI interest with issuance of example 19 percent more shares we get 19 percent more interest in the
Elk/Antelope fields . That's worth one heck of a lot more than the fixed buy out price
Of the IPI.One could market those shares to say Exxon for a sweet profit

[sfiaes]

According to IOC:

Gross

IOC 75.6%
IPI 24.4%

Gross after deal (assumes IOC buys IPI)

IOC 38.7%
TOT 61.3


Net after Gov

IOC 30%
TOT 47.5
PNG 22.5


Given this new conjecture, please show us the new percentages.

Thanks.

[trans]

Accept what you're being told, its on the mark....imo

[Palm]

Or not. One statement in the Total to consider:

"Total and InterOil Corporation retain the flexibility to farm-down an aggregate of up to a 19.3% interest (before any election by the government to exercise its option to join the project with a 22.5% interest) to a strategic partner."

In other words, though the SPA says what it does, between now and when the gov officially exercises it's opt-in, Total and IOC may bring in an aggregate of "up to" 19.3% strategic partner.

I believe this gives flexibility in how the IPI group is dealt with. Remember that people here argued when the concept of a strategic partner was first brought up early this week until this clause was brought up and then OSH poked it's head up. Until the gov opt-in a few things are in limbo.