Why should Total buy IOC?

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For the attorneys on the board, Section 13.7 of the SPA has to do with Assignment: "Assignment A party may not sell, assign, encumber or otherwise dispose of its rights and obligations under this Agreement without the prior written consent of the other party provided that if, after Completion, the Buyer wishes to sell, assign, encumber or otherwise dispose of its rights and obligations under this Agreement, it must give notice to the Seller and further such sale, assignment or encumbering shall not be effective unless and until the proposed transferee expressly undertakes in an instrument reasonably satisfactory to the Seller to perform the obligations of the Buyer under this Agreement in respect of the interest to be transferred." Does this mean that Total must sign off on the sale of IOC?

No, I think this is legalese to provide that a new entrant must assure in written form that the SPA terms will be executed.  Hey, but I'm not an attorney!

Actually, this particular legalese does provide an obligation to IOC [Seller] to obtain 'prior written consent' from the Buyer [Total] before it sells, assigns, encumbers or otherwise disposes of its interest under the SPA. Under the OSH bid, this section of the SPA was essentially irrelevant, since Total was a party to the MOU with OSH, and would, of course, consent to the deal if the OSH bid had succeeded.

However, with the bid from Exxon, Total has an enhanced bargaining position vis-a-vis Exxon via this provision of the SPA. Total must approve of the sale of IOC to Exxon, unless Exxon and Total can renegotiate this particular term of the SPA, obviously in some manner that will benefit Total.

[Note: this is a poorly written contract provision in that it should be reciprocal [ie. provide the same obligations/benefits to each party]. Under this provision, Total need only 'give notice' to IOC and assure IOC that any new Buyer will uphold the SPA, if it wishes to sell its interest in the SPA.  IOC must, however, obtain written permission from Total to do so.

As I noted under a different thread [Bigger Picture-who controls the gas], Total also has another strong card in its hand from the terms of the SPA: that the Seller under the SPA [IOC, and then perhaps Exxon if it wins the bid contest] is obligated to vote for the Buyer [Total] to be Operator of E/A.

This gives two nice negotiation tools to Total that it can use to work out any number of side deals with Exxon regarding the disposition of the E/A gas as well as the viability of Papua LNG.

I also believe that there is still a strong possibility that Total will submit a superior bid to Exxon's. It has plenty of time to do so: any time prior to the final meeting/vote on the Exxon deal, set presumably for early September. As outlined by Pet and others, there are many very good reasons for Total to want to take control of IOC and its assets, particularly those beyond PRL 15. Total [or Exxon, for that matter] can always sell down various portions of IOC assets at any time after taking control, in order to finance part of any IOC purchase price. It goes without saying that IOC could have done the same, but that ship has apparently sailed [without any IOC shareholders on board].