$75 Mill for Exploration

[ArtM72]

With this loan IOC has the money to drill one well, presumably Wahoo 1. Evidently they do not expect anything from XOM in the way of a near term "signing bonus". The earlier reports of IOC shutting down its construction operation might have been a misinterpretation of its moving operations to Wahoo. But who knows anything for sure?

The word snafu seems appropriate in this context, although I would argue that IOC had done a lot of things right before Duma started doing his thing.

[Palm]

As mentioned yesterday this move seems to be part of Hession's negotiating; end the exclusive period and move ahead with long-overdue exploration. In setting up this $75 million exploration/drilling loan the company has overall only increased its debt by $30 million, since $45 million was moved from their other facility due to management's feelings that the downstream business is creating better cash flow than in the past. Also, I'd guess the shutting down of the construction division is almost entirely about the cost cutting mentioned in the financials and CC. They have created enough project infrastructure and anything further should be part of a project-share.

Rig #2 has been moved to Hurd to "consolidate" camps and undergo some refurbishing until the next site is ready; likely Wahoo-1 since all of the seismic is done and they have identified the drill site. Probably makes it the quickest site to get going and they have in the past stated that they had begun setting up the base camps in that area. After Hession and his team reviewed everything they likely think this is a great formation to have a high chance of success. Pet has stated that it should be a pretty shallow well, so the costs from here should be lower than others they have done. Hopefully they get things ready, get permission from DPE and get the rig heliported quickly. I believe they stated November.

A question might be whether Tri would be next, but there is more seismic to be done there, and wisely IOC is controlling that. This way OSH has something that IOC wants (no fights over future train(s) at PNG LNG), and IOC has what OSH needs (seismic crews and work necessary to see whether Tri extends into OSH license area). Weather and such can really affect whether seismic crews can get work done timely. Hopefully things work out as OSH is struggling to prove up resources and even Citi says that the well OSH is drilling offshore does not appear to have a high probability of being what was hoped earlier. In IOC's MD&A they state the following as far as the joint seismic work:
"We will act as the operator of the work program under a data sharing and joint processing arrangement."

Hope all works out for both IOC and OSH in the negotiations.

Meanwhile Wahoo-1 could end up doing just what is needed; showing bidders we are ready and able to resume drilling, and if it hits as expected things are much more de-risked.