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Evan Calio – Morgan Stanley
September 28, 2015 4:01 AM GMT
Key take-aways include: Elk/Antelope resource continues to grow with implied resource estimate now 8-10Tcfe (Street's 7Tcfe); interest level remains high in PNG assets as highlighted by reported M&A interest and highlights from Total’s analyst day last week. “Game on” in PNG as payment approaches.
Elk-Antelope: size maters and supports IOC as our top small/mid cap upstream stock pick. The biggest driver of IOC’s value, particularly at current levels, is the appraised size of Elk/Antelope field which determines the size of the cash resource payment from Total due by mid-2016. We believe this cash payment will be equal to, or exceed, IOC’s current market cap and is based upon a fixed price, 100% independent or agnostic to oil/LNG price. Conversely, it implies zero value for IOC’s ~28% interest in Total’s planned LNG facility, existing discovered resource and exploration, exactly when PNG’s relative potential value is being promoted in Majors portfolios (Total this past week and XOM) and regional M&A interest is widely reported. Further, we estimate Total will have paid $2.3Bn for an interest the same size as IOC’s (post sell-down), or $47/sh, which is valued at nil in IOC’s current stock price.
Size of Elk Antelope: big fields getting bigger. An incremental take-away of our recent marketing supports our long standing view of a 9.9Tcfe resource. This would imply the original and long-standing GLJ audit report is correct. We believe Street remains at- or-below 7 Tcfe vs. ~9.9 Tcfe MS, where each 1 Tcfe over 7 Tcfe equals $400MM (tax free), or 23% of IOC's market cap. The dynamic test data (extended flow test) the company released in August supports a P90 gas-in-place of 10Tcfe resource, a new view supported by management. Assuming an 85% recovery factor (expect this could ultimately reach 95%, yet range 80-95%) and a conservative 15% uplift to P50 (net of other molecules, range 10-20%), supports a resource size of 9.7 Tcfe.
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