'CAC' pid='34124' datel Wrote:
'Tree' pid='34112' datel Wrote:Roadshow quote:
"It is unheard of, in this business, to be rewarded for undiscovered gas" - MH
Do you think rewarding IOC for undiscovered gas was TOT's idea or Hession's??
I've never heard of getting both the bird in hand and the 2 in the bush.....I'm gobsmacked.
Expect more roadshow reports.
use or flush
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I did not understand Hession's comment on this. What vested, tangible "reward" did they actually get right now for this undiscovered gas? My understanding was that they would only be getting money for this undiscovered gas...if and when it is actually discovered. So if there's no discovery...they get no reward. And if there is a discovery...they have now pre-agreed to sell the newly "discovered" gas for $100M per tcf. Isn't that an "unheard of" price (on the low end) for would be, at that time, fully discovered gas?
I very much understand Hession’s enthusiasm for the deal. The odds are now very high that IOC will be valued in excess of $10 billion in a few years, doing much for both his bank account and his reputation.
You ask what tangible reward. The obvious answer is $613 million. A pay to play fee of $613 million up front is almost unheard of for an unproven resource. In addition, the payments for the most likely reserves based on available reserve analysis promises the company an additional $4.1 billion. Further, Total has committed to building an LNG plant and giving IOC a no-cost interest in that plant, which has great economic potential for IOC. Total, it appears, can only get out of that agreement if the reserves are insufficient to justify the building of a plant.
The reserve analysis has now been blessed by one of the supermajors, and IOC has been supplied with plenty of cash to exploit its mammoth resource opportunities. And there are other upside benefits in the deal.
John Maynard Keynes once said that the market can remain irrational for longer than you can remain solvent. Mr. Market (who sets the price of IOC stock, not Dr. Hession) doesn’t like complicated probabilities such as we have here, even if expected value calculations based on those probabilities is very high, as is also the case here. The expected value of IOC has gone up dramatically even if the market disagrees.
We can all make a lot of money on this stock if we (1) accept the irrationality of the market, and (2) are very careful!