'mikesioc' pid='39147' datel Wrote:This is my final attempt and I'm moving on. Total is willing to pay up to $5.3 billion for PRL 15 gas, 11.79T. Mid case $2.1 billion for up to 6.5T. I've seen countless posts insisting that just E/A has 9.89T which is $4.2 billion from Total. Furthermore, Total is going to let IOC keep 30% of a new facility. Adding the up front cash just for the mid case to the back end cash flow Total gives up to IOC what does it cost Total to go forward with the current SPA based on a 2 train LNG facility? Considerably more than simply buying IOC for $6 billion, controlling everything and profiting from selling off interests as they are confirmed. Every reasonable estimate has enough gas in E/A to likely supply train 3 expansion and 2 trains for a new facility. If there isn't how much risk is there that there is ZERO gas in the rest of the leases? Zero!? What is that worth to Total and Exxon? Total can own everything they want outright for $4 billion! Exxon can take what they want and then some for another $2 billion which is what they would each pay just for the piece they want now and not have to share anything with IOC! It works any which way, 4-2, 2-4, 3-3, whatever. Total and Exxon may have already teed it up. It only makes logical sense that they have discussed it. If everyone believes their own stuff there is considerably more long term value than $6 billion. Why else do you think IOC is worth >$300 per share in some future world IF, IF, IF? Total can delay closing, allow doubt to creep in, watch the PPS drift lower, offer $60, swallow the poison pill and pay $120. END OF STORY. They already screwed IOC on the big PR. With tens of billions of dollars are stake this is not far fetched at all and more likely than not. Thinking Total and/or Exxon are going to shepherd IOC into the deal when it is far cheaper to control it all is simply naive. Machiavelli had a point. IMHO. Good luck in the coming weeks!
I never disagreed that ultimately in the long run Exxon and/or Total could do better just buying IOC, depending on the price, of course, and think they could do well at $120, especially given the hidden value I believe is in the Company, including what you now bring up and add. I did disagree that $6 billion was "considerably" less than they would be paying IOC for "the remaining interest in PRL 15", which you have actually illustrated above. Furthermore, the figures you give above are for gross interest of 61.3%, which was never intended to be the final remaining interest paid for by Total after bringing in a third partner. Now after OSH coming in, the most the "remaining interest" Total would probably be paying for is 42% while leaving IOC the "material interest" of 30% or a little less. Under that scenario also, the major(s) would only later pay for the gas further confirmed to be there, apparently always their preference, which is not what they would be doing by paying $6 billion up front. You are right in that adding the opportunity cost of the LNG ownership left with IOC (and OSH for that matter) would increase that "remaining interest" cost, although not clearly included by you before; but that would need to be a present value and comes with some risk, which majors like to spread, and still might not get you to even $6 billion, much less "considerably more" as you say. In addition, OSH is supposedly using a 7 Tcf mid case from GCA.
You base your argument of what would be smart and likely for Exxon and Total to do on the statement that, in spite of the GCA estimate, "Every reasonable estimate has enough gas in E/A to likely supply train 3 expansion and 2 trains for a new facility", and even further say, "Total can own everything they want outright for $4 billion! Exxon can take what they want and then some for another $2 billion which is what they would each pay just for the piece they want now.". What? Exxon was seeking 4.6 Tcf from PRL 15 off the top for just train 3,leaving it to IOC to worry about how much would be left and how to monetize it, and Total was willing to tentatively commit to an LNG facility only if ALL of PRL 15 was committed to it. Obviously, those majors do not see the situation as you do. Those are strong indications they are not going to be conspiring as partners against IOC to split it up, rather than competing or considering the competition referred to by Hession as won by Total, as they did in December.
Perhaps I should add that the Feb 27 Morgan Stanley Australia report on OSH and their deal expressed the expectation that OSH will participate in an "independent LNG project consisting of 1 or 2 trains" supported by PRL 15, and in "a third train within the Exxon JV" supported by "growth in reserves at the Hides field, development of the P'nyang gas field, or some combination thereof", with "other resource-upside options in the Juha and Angore fields", production from which train "we assume 2018".
I'm not sure all this was worth it, but at least most people probably learned something from it, including me.