IOC/OSH Court Nov-Decision Q1 15

[jdeo1969]

The disagreement is NOT just because of what "the company is telling you".  If it were such a "great thing for IOC shareholders",  why was Exxon not chosen in December?

Because I believe the previous mgmnt team backed itself into a corner with regard to going exclusive with Exxon.  I believe that Exxon played it very well in that regard and the BOD realized that they were staring down the barrell of a bad outcome.  They hired Hession, who got a deal done with total in order to meet certain deadlines (see  the article posted on their website re: licenses, expiring etc.)  Hession inks the deal with total, who then releases a bad PR which crushes the stock price and further losses ensue after the market is disappointed in the timeline being pushed back.  Oneill has stated in not so many words that he would like to see EA gas gor to PNG/LNG.  Economies of scale dictate that Exxon would be smart to strike a deal with IOC/Total to get gas to go to their plant, which given the deal IOC and Total have, gives them leverage against being lowballed by XOM, which they likely would have been in December.    So now they have leverage, and I believe in a positive outcome either way, but I like earlier monetization personally.

You are essentially calling the CEO  a liar by saying he got a hurry-up deal done with Total that was not superior "in order to meet certain deadlines", rather than for the multiple substantial reasons given by the CEO as to why the Total deal was superior for IOC; and I think that is dead wrong.  Exxon had plenty of opportunity to outbid Total and chose not to.  They wanted to buy PART of PRL 15 for a bargain price for a train three, probably without ownership in it for IOC, but since they couldn't, chose to pursue their own resources for Train 3.  I don't believe anyone has been able to show that "economies of scale dictate" that Exxon would be better to pay IOC for E/A resources and provide LNG ownership equivalent to, or better than (as required now), the Total deal, rather than use its own resources elsewhere, including you.  There is also nothing but speculation, that IOC would now get "earlier monetization" overall from a new deal with Exxon and cancellation or modification of the Total deal (probably not even possible), than the cash flow from resource payments in 2014-2016 and subsequent LNG from the Total deal, which IOC has already started receiving and investing and used for further credit.  IMHO, the idea of trying to undo all this and start over with all the problems it would entail and the advantages of the deal with Total, which would almost certainly be an absolute mess and not even possible, I think is what I referred to before as "crazy talk", but did not mean literally in terms of someone being "crazy".

I challenge you to provide or point to any statement by O'Neill that he would prefer to see E/A gas go to PNG LNG rather than to a new LNG project with Total.  No one has been able to do that yet.  A general statement by him in the past long before closing of this deal with Total that he would like to see the gas monetized as soon as practical does NOT constitute such a statement of preference.  Furthermore, control of that does not lie in the government's hands.  IOC has the right to strike the best deal with an acceptable partner, which Total certainly is, and the closed contracts are legally binding.  The only chance of changing the deal as you call for is the arbitration case, and that appears to be an extremely small chance, with management very confident about it.

I would appear the Citi OSH report supports my viewpoint regarding expansion costs with EA Gas:

"PNG gas cost curve supports expansion from Hides/P'nyang/Antelope only — Based on our benchmarking analysis, we have defined a cost curve for known gas resources in PNG under various development scenarios (backfill/expansion), which we compare to the price an LNG project could pay for gas. While Hides & a 2 train Antelope could provide an attractive development, particularly when combined with T3 cost synergies, we think most other gas resources are less attractive and would be marginal if developed to underpin expansion trains.

 While economics underpinned by 2P, expansion needs 1P — ExxonMobil has historically marketed offtake on a 1P reserves basis to maximizes the value of the molecules. LNG expansion is likely to hence need 3-4tcf of incremental 1P reserves per train, thus we expect Train 3 sanction will require both Hides GWC upside and P’nyang. Beyond these resources (ex Antelope), we think other resources are marginal to develop as expansion (T4), though could be developed as backfill gas."

As far as O'neill comments are concerned, I am just reading into what he says.  Why do you think Hession took the Total deal?  Because it was better than what Exxon was offering.  it preserved the upside.  Why did he get out of negotiations with Exxon?  Because they had no leverage.  They do now, and Total doesn't have to build an LNG plant.  They can partner with XOM/OSH on the PNG/LNG project along with IOC.  If it is a win, win why not?  And yes, it is speculation.  This entire message board is speculation.  That is what we are left with right now in a news vacuum.  

Good luck longs

Jdeo

Regarding Citi and OSH, see elsewhere.

"As far as O'neill comments are concerned", if he did not say it, don't say or imply he said it.

Regarding Total and that deal, you are right in that it was "better than what Exxon was offering" and "preserved the upside".  It also ensured development of ALL of PRL 15 (not just part of it as Exxon was after for PNG LNG) with an LNG project with substantial IOC ownership, which also provides expansion/development options for additional IOC gas from PRL 15 AND/OR elsewhere, all with the kind of strategic partner they were looking for.  You say IOC had no leverage with Exxon then.  Once Hession was able to bring Total and Shell back in, he did have leverage, and Exxon did not choose to bid to win.  Why would they now, and how could they offer what Total did, which now has closed contracts?  Total did not do this deal to build an expandable LNG project with the ownership it has and huge future potential, to turn around now and degrade its project by selling some of the gas for it to Exxon, unless they have not enough or more gas than they can develop, not likely at all from E/A or anytime soon, but which if the latter would be a supplemental deal and not a "rather than" like you're talking about. Management has closed and moved ahead with the deal they see as the best long-term strategy for IOC and its shareholders, and based on what I know now I agree with that, as I have for a long time, as unhappy as I am about what happened last year.  Trying to reverse all this and start over in the direction you are arguing for seems to me simply ridiculous.  You need more than "speculation", as you say, to support that.  I strongly disagree that, "This entire message board is speculation", and that is all "we are left with right now".  This forum has a great deal of solid, factual, rational information and analysis, and that is what you would need to provide more of.  Am I missing something of that nature?

Getit,

I am not saying it WILL happen.  i am merely arguing that a possibility does exist, and giving my opinion as to it's merits.  i still don;t know what you mean about my comments being harmful.  I stress that either outcome will be a good one for IOC.   I have never said once that if EA gas does go to PNG/LNG that it would be a bad thing, in fact it would be a good thing.  I referenced the deal in December because you asked me to explain my line of thinking regarding why Exxon would pay more now.  In painting that picture, I found it relevant to explain how we got to the deal with total.  I have no interest in rehashing it either, but I won;t ignore it when it has a bearing on a discussion here.  Yes, the Citi report is confusing.  I read it to state that EA would be a financially attractive expansion.  If I am wrong, ok, that's fine.  I am not hardline here about the gas going to PNG/LNG.  Again, I am just pointing out that there are still signs to ME it is a possibility.  If you disagree, again, fine.  You just seem to have the tone here that anytime I bring this up, it is harmful?  How?  PLease explain that comment.  Regarding speculation, I am not trying to say that there are no facts on this board.  If it came across that way, I apologize to every member and reader here.  But we all speculate from time to time on topics such as this.  JFT speculated earlier that Phii's body language implied there were buyout offers on the table.  how is that better than my opinion of what Oneill's comments may mean?  I think you should stop giving me advice.  I'm not trying to be rude, but I don;t care what you suggest I do.  it means nothing to me.  I am here to have civil discussions and learn something that will help shape my actions going forward.    This topic seems to be a hot button for you, and I have no interest in pushing it, yet I would like someone to explain to me how having two potentially good outcomes is worse than one potentially good outcome.