I am a Super-Major. Let me see if I can understand why I should buy an interest in the Elk/Antelope Field instead of buying IOC.
IOC has a market cap of about 48 million shares x $61 or let’s just call it $3 billion. Most companies can be bought for a premium 50-75%. If I paid a 100% premium it would cost me $6 billion. If I paid 200% premium it would cost me $9 Billion. Let’s say Elk/Antelope Field contains 9 TCF and IOC own 58% or 5.22 TCF. At $6 billion I would be paying $1.15/MCF for the gas and at $9 Billion I would be paying $1.73/MCF. If I could buy the company for $9 Billion I would own 58% of Elk/Antelope (PRL15) or 5.22 TCF plus Triceratops and all of the 40+ prospects in PPL 236, PPL 237 and PPL 238 plus the refinery and marketing.
IOC would like to sell me a 35% interest in Elk/Antelope. If I buy 35% of 9 TCF I will own 3.15 TCF at Elk/Antelope plus anything else I can find in PRL 15. In the bidding process I am probably going to have to pay as much as $2/MCF (or more) for this gas or about $6.3 Billion for the 3.15 TCF.
Would I be better off to pay $6.3 Billion for 3.15 TCF or $6 Billion for 5.22 TCF, Triceratops, all of the license areas including 40+ prospects and the refinery and marketing?
After having all of my financial experts think this over I have decided it would be better to offer IOC a 100% premium for the whole company. This may start a bidding war but it looks like I can afford to raise my bid at least to a 200% premium and still come out better off than buying an interest in Elk/Antelope only (PRL15) since I know for sure there is quite a bit of gas at Triceratops and a very good chance of finding more in the other 40+ prospects.
I hope this works out well for me!
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This has always been my argument as well. Now I suppose it could be possible that the bids are too low (like only $1 per mcf) to get IOC's interest in a buyout in that range...or that bidding on E/A could be preferred by a SM because it only requires "deferred payments" (or other terms) that make it less costly than an actual buyout (i.e. not apples to apples)...but if neither of those are true, then I see no comomon sense reason the SM wouldn't offer at least the same cash equivalent for the whole company...plus some. There would obviously be additional value in the other licenses and would also be the added attraction of being able to completely run the show (rather than being partners with IOC) going forward. Unless the PNG govermenet would some how oppose a SM buyout, I have to think those offers would have been made already. I understand the long term potential is great but I would still hate to think managment would turn down (or has turned down) a $200 offer because they are holding out for $400.
I recall IOC mentioning several times that they had "conforming and nonconforming" bids, and in inference can be made that the some of the "nonconforming" bids could have been buyout offers. Has anyone actually asked (forinstance during a conference call) the specific question of whether the investment banks have been tasked with exploring options beyond just monetizing E/A?