"Reality" is different for everyone but how do we get to some commonality. Some feel management has completely screwed up by being too optimistic and giving unreal timelines. Others feel they are doing what they have to to survive and are dealing with a 3rd world country with still issues to overcome before they get anywhere near predictable. Another issue is whether the company itself wants to survive and fulfill its goal of becomeing an integrated energy company, or go the Cove route and position themeselves to be bought out. These things and others will affect your investment objectives and timing expectations.
My reality is:
1. When I started investing in IOC back in mid-2009 I was looking for a company that had a bit of higher risk and reward. I'd gotten back into the market just after it bottomed and had "played it safe" by using certain ETFs and other funds to hopefully ride the market back up. By Sept I saw that these had worked and I now was willing to take some risk with a piece of my portfolio. Energy was becoming a huge issue with many possibilities and I heard about a company that had objectives of becoming an integrated energy company and be at the front of the LNG move. I wanted both, so took the stab after doing a bit of DD which a friend had provided. IF a buyout happened along the way, so be it, but my goal with IOC is LT seeing it meet those objectives, and as long as that is still THEIR objective and they are making progress toward those ends, I'm hanging with it. I understand that the real payoff with IOC will be similar to what we've seen with OSH. The going is a bit rough because it's PNG, but the closer things get to production cash flows, the more valuable IOC will get. OSH is NOW being touted as a buyout candidate because first LNG production is just around the bend. Up to now it's been considered too speculative as a buyout given all of the constant "winds" in the world and in this industry, let alone PNG.
2. IOC isn't by far the only company or country to announce big plans that haven't happened yet. For instance the DME plant that was announced by O'Neill has been going to happen since 2007. Back then a couple of large companies; Mitsubishi and a consortium of others like JAPEX made a presentation announcing that they had formed Japan DME Ltd and that they were going to build a DME plant in PNG and it would be up and running in 2010-11. What happened fellas??! Why isn't this plant already producing? Lots of instances like this.
3. PNG is a 3rd world country just now with a leader that appears to be steering them down the right path. Development has been slow and full of problems. Too much to review. Many companies have floundered around trying to get things going. But only projects where companies had "ins" or where there was a national interest have been able to get going. PNG LNG is a national interest project; one where it was so important that PNG put their interest in OSH up as collateral and because of that and the timetable for the related bonds to be redeemed is roughly the same as when first production is to occur; and when OSH will be most valuable.
4. IOC management still (IMHO) has its original goals in mind; to survive the SD process and become an integrated energy company. The whole IB sell-down process has been run that way. If they really wanted the company to be bought out, it would have happened by now. The new shareholder rights plan was structured for survival and part of their announced deal parameters is for them to have the right to develop an LNG project separate from XOM. They don't want to just sell gas. They have said and done over the years what they have felt is necessary to reach their goals. No doubt rosy and optimistic, but done to survive like any early-stage company trying to make it long term.
5. The best shot IOC has had at achieving those LT goals is defying the odds of proving up a huge resource, partnering with someone that allows them to survive and become an integrated energy company and having their project be at the top of PNG's priority list and/or be considered of national interest. So who better to have as a partner than XOM who has already proven to PNG that they can get the job done and deliver? No one. And what better time than when the world is valuing LNG very highly and to be in a country that must have your project to keep the economy going and help fill its coffers. Hardly a better time and place.
6. When will IOC be most valuable? Now or down the road and the closer to production the better? For me it's the latter and now is likely an OK time, but a buyout would be just that; OK. The resource is there, but certainly not fully developed. More drilling after an agreement is struck will better define it and make it more valuable. This same resource has been there for eons; IOC has had rights to it for many years; but the more it's proven up and the closer we get to production, the more "certain" value there will be. Even once PNG LNG starts shipping product IOC will become more de-risked and more valuable.
I agree with STP; $250 today is pretty unlikely. It gets more likely once the deal is struck, cash is in IOC's account and drilling results start coming in again and it gets well beyond $250 as we move toward production. I'm hanging on for the LT as long as the story stays intact. And IF a buyout happens, I hope it's further down the road.
That's my "reality". But maybe it's just me.
My reality is:
1. When I started investing in IOC back in mid-2009 I was looking for a company that had a bit of higher risk and reward. I'd gotten back into the market just after it bottomed and had "played it safe" by using certain ETFs and other funds to hopefully ride the market back up. By Sept I saw that these had worked and I now was willing to take some risk with a piece of my portfolio. Energy was becoming a huge issue with many possibilities and I heard about a company that had objectives of becoming an integrated energy company and be at the front of the LNG move. I wanted both, so took the stab after doing a bit of DD which a friend had provided. IF a buyout happened along the way, so be it, but my goal with IOC is LT seeing it meet those objectives, and as long as that is still THEIR objective and they are making progress toward those ends, I'm hanging with it. I understand that the real payoff with IOC will be similar to what we've seen with OSH. The going is a bit rough because it's PNG, but the closer things get to production cash flows, the more valuable IOC will get. OSH is NOW being touted as a buyout candidate because first LNG production is just around the bend. Up to now it's been considered too speculative as a buyout given all of the constant "winds" in the world and in this industry, let alone PNG.
2. IOC isn't by far the only company or country to announce big plans that haven't happened yet. For instance the DME plant that was announced by O'Neill has been going to happen since 2007. Back then a couple of large companies; Mitsubishi and a consortium of others like JAPEX made a presentation announcing that they had formed Japan DME Ltd and that they were going to build a DME plant in PNG and it would be up and running in 2010-11. What happened fellas??! Why isn't this plant already producing? Lots of instances like this.
3. PNG is a 3rd world country just now with a leader that appears to be steering them down the right path. Development has been slow and full of problems. Too much to review. Many companies have floundered around trying to get things going. But only projects where companies had "ins" or where there was a national interest have been able to get going. PNG LNG is a national interest project; one where it was so important that PNG put their interest in OSH up as collateral and because of that and the timetable for the related bonds to be redeemed is roughly the same as when first production is to occur; and when OSH will be most valuable.
4. IOC management still (IMHO) has its original goals in mind; to survive the SD process and become an integrated energy company. The whole IB sell-down process has been run that way. If they really wanted the company to be bought out, it would have happened by now. The new shareholder rights plan was structured for survival and part of their announced deal parameters is for them to have the right to develop an LNG project separate from XOM. They don't want to just sell gas. They have said and done over the years what they have felt is necessary to reach their goals. No doubt rosy and optimistic, but done to survive like any early-stage company trying to make it long term.
5. The best shot IOC has had at achieving those LT goals is defying the odds of proving up a huge resource, partnering with someone that allows them to survive and become an integrated energy company and having their project be at the top of PNG's priority list and/or be considered of national interest. So who better to have as a partner than XOM who has already proven to PNG that they can get the job done and deliver? No one. And what better time than when the world is valuing LNG very highly and to be in a country that must have your project to keep the economy going and help fill its coffers. Hardly a better time and place.
6. When will IOC be most valuable? Now or down the road and the closer to production the better? For me it's the latter and now is likely an OK time, but a buyout would be just that; OK. The resource is there, but certainly not fully developed. More drilling after an agreement is struck will better define it and make it more valuable. This same resource has been there for eons; IOC has had rights to it for many years; but the more it's proven up and the closer we get to production, the more "certain" value there will be. Even once PNG LNG starts shipping product IOC will become more de-risked and more valuable.
I agree with STP; $250 today is pretty unlikely. It gets more likely once the deal is struck, cash is in IOC's account and drilling results start coming in again and it gets well beyond $250 as we move toward production. I'm hanging on for the LT as long as the story stays intact. And IF a buyout happens, I hope it's further down the road.
That's my "reality". But maybe it's just me.