Hemi's Interoil Research Note - Winner Announced When??!!!

[efi426hemi]

One of the key questions for those invested in options is when will IOC announce the winning bidder?  Outside of the executive, I don't think anyone can give an exact answer, but I believe I can provide a very close guesstimate.  Before we get into dates, lets understand what is involved with the bidding process.  Fortunately, I have been involved with numerous bids with the Alberta government, albeit from an IT perspective.  At its fundamentals though, the bidding process between IT and E&P is the same.  So lets look at the basics of a bid from an IT perspective.

1. Phase 1: The procuring entity (IOC) issues a RFP (Request for Proposals) document
   
   1. This RFP contains the requirements around the bid.  These requirements may include:
      
      1. Is it for a Service/Asset/Both?
      2. What are the details of the service requirements, how does the bidder meet the requirements?
      3. What are the specifics about the asset, what access to data room is allowed, etc?
      4. Format for bid proposals/Confidentiality agreements/blocking of share acquisition/etc
   2. The RFP is then made public
      
      1. In IOC's situation the Investment Banks likely distributed the RFP to potential vendors.
2. Phase 2: The bidders then have an opportunity to review the contracts and ask questions/clarification or negotiate with the procuring entity (IOC).
   
   1. I would expect that this would include intense back and forth with the end result being:
      
      1. the lawyers from the bidders side documenting the details
      2. the lawyers from the procuring entity reviewing/approving the documentation
   2. With multibillion dollar sales, this would obviously take many months.
   3. This would be done for every bidder.
   4. Government input would obviously be necessary in this phase
3. Phase 3: At this point it is the responsibility of bidder to submit their final bid (most likely 1000's of pages) to the procuring entity (IOC).
   
   1. Obviously this would be impossible to review in a weekend so the bid documentation would be organized in a main section (majority of documentation) with Schedule addendums
      
      1. The schedule addendums (A,B,C, etc) would be very short and would contain things like bid price, how much payment upfront, start dates, etc.
      2. Important: Using this format, one could finalize the massive details prior to final bids being due and then just review the Schedule documents to pick the winner.
   2. A key point to this submitted bid, is that it would be signed by bidding party to make it legal.

So, lets apply this to the IOC selldown:

• Bidders would have worked out and documented the massive legal details regarding their bids and these documents would contain 98% of the final bid.
  
  • These bid documents would have been reviewed and approved by IOC legal, executive, and BoD prior to end of January.
  • They haven't been twiddling their thumbs for the past 16 months
• The bidders would then have the opportunity to issue their final/best bid probably through the use of Schedule addendums.

Come, get to the point Hemi.....now why is all of the above important?  It is because that IOC is NOT legally obligated to announce a winning bidder until pen is put to paper.  So all the legal documentation must be completed and signed before we hear an announcement.  Assuming all of the above I have said is accurate it means 2 important things:

• IOC will not have to spend long identifying the best bidder
• IOC will be able to put pen to paper very quickly

So combine the above point with bids being due by Thursday Feb 28th and the IOC BoD meeting over the March 2/3 weekend to review, I believe this means that we will have an announcement by March 10th.  This of course is all my best guess, so use or flush.  Looking forward to others thoughts regarding my above hypothesis.

H&H,

Hemi