What's changed when IOC was $106

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The response to all of these 4 points was made clear by the latest Bernstein Research report following their site visit to IOC holdings in PNG late fall.

1. This point is moot, although there are still residual effects of the market not fully grasping the significance of the overall TOTAL/IOC deal, particularly the fact that IOC will have a 30% share of the LNG plant.

2. IOC IS in an agreement to develop a LNG plant. The agreement is with TOTAL and is an SPA (Share Purchase Agreement) that can be found on the IOC website. That agreement is in effect and TOTAL has paid IOC over $400 million in the first of many payments under the agreement. TOTAL will also pay up to $50 million of the cost of each of the Antelope appraisal wells under that agreement, as well as currently working with IOC teams to evaluate design concepts for the plant. While it is true that there are further steps to take before a plant will begin construction (Resource certification and payments, FEED, FID, etc.) these are all encompassed under both the SPA and the JOA between TOTAL/IOC. There is no further agreement to sign. All of the details of the ongoing relationship between TOTAL and IOC are in the SPA and the JOA. (Joint Operating Agreement--that we do not have access to).

3. While it is possible, but unlikely, that the TOTAL/IOC SPA will be negated by a decision regarding the current completed arbitration process, IOC will NOT have to negotiate with OSH or EXXON or anyone else should IOC lose the arbitration. OSH (or possibly EXXON, if OSH can somehow sell its interest in PRL 15 to EXXON AND somehow EXXON can convince the PNG government to waive the govt's long-standing demand that there be 2 super majors involved in PNG gas development) still must match the TOTAL deal in all respects. Nothing is negotiable. IF IOC loses arbitration AND OSH/EXXON do not match the deal, the TOTAL/IOC deal stands. Pre-emptive rights are nothing more than the right to match another's deal.

4. If anything, it will be easier in today's environment to raise funds to build a LNG plant where the feedstock price is as low as IOCs. The large bank consortium that joined forces to back the $300 million credit facility to IOC earlier this year would jump at an opportunity to fund an LNG plant with low-cost gas at the gateway to the largest future gas purchasing countries in the world. Additionally, Japan and/or Korea would also be very interested in funding an LNG plant with an agreement to purchase the LNG under a long-term contract. The low price of oil right now has removed hundreds of projects worldwide from funding consideration, but NOT cost-effective LNG plants. They have only moved up higher on the funding priority list. Bankers are always looking for solid long-term loan projects and the Gulf LNG plant project will have no trouble receiving funding.

I do agree with Art however, that this confusion surrounding these key issues has had a distinct negative impact on the understanding of how good a position IOC is in. If you read through the various analyst and research reports on IOC over the past year (Bernstein, Morgan Stanley, Credit Suisse, Raymond James) you can get a deep understanding of the actual position that IOC is in with regards to the upcoming plant. Two world-class analyses of the gas in place at E/A (GLC and GCA) have held that they have enough to fuel a 2-train LNG plant. The new seismic seems to indicate that IOC probably has more gas than even those estimates, while the Ant 4 and 5 wells will only add to, and not detract from, the estimates (in my opinion).

I feel that this current price drop is due not so much to market forces than to manipulation of the share price for reasons unrelated to the actual IOC situation.