MIC delivered today

[Kaliboo]

[quote='Palm' pid='79152' dateline='1485352547'] Northoil has done a great job presenting reality. Exxon knows what they are doing and they have addressed the issues which were a shortfall the first time around. Assuming this deal is approved by shareholders, Exxon/IOC will hold fast to the BMO valuation vs dissenters and budge very little if at all. It's then in the court's hands and they will have to weigh BMO vs Paradigm and you know Exxxon's team will argue hard for the BMO valuation. Will be interesting but people need to be aware of all opportunities and related risks. No slam dunks by any means.

Has BMO been paid yet?  Until such time that the parties involved show proof of transfer of funds (fee payment), the BMO valuation is suspect.

I did not read anywhere that the fee has been paid.

Distrust And Verify

A question worth asking I suppose Tucker, but in considering what is most likely, I'm willing to believe that there's a very high probability that things with BMO are air-tight.  If Exxon wants something done, they have made sure to have the hired guns on staff who cover all bases.  The one things they screwed up on was Phil's tenacity and they underestimated to what extent he would go to protect his baby.  Maybe they screwed up again, so there is that glimmer of hope.

Cheers!

Perhaps that screw up may of come due to task at hand.  The transaction committee documented in the MIC that the first contact with BMO was Nov 18th 2016.  The day after a meeting with XOM. The first mention of the Fairness  Opinion  being received was Dec 09th 2016.  15 working days based on a 8 hour working day, or 120 hours for one individual.

BMO states that many different groups created the report.  So... how many individuals on a per hour basis were involved?

$4,000,000.00 USD fee as a cost was quantified mostly as hourly charge?  So... how many hours of work can you buy from BMO for 4 Million dollars?

For grins, lets say 250.00 USD per hour.  That would 16,000 hours of billable time.  250.00 USD per hour for 120 hours one individual.

So... 133 employees of BMO stopped what ever they were doing for 15 business days and worked exclusively on the Fairness Opinion. Nice work, if you can get it.

That seems ridiculous of course, but it does bring up a reasonable suspicion.  Did BMO subcontracted the work to a outside firm.  If non BMO employees/firms were contracted to completed tasks on behalf of BMO there is a question of conflict.  Especially if the outside firms involved have current or past business with XOM or subsidery operations in Canada.

Also note, the Vice Chairman/committee member has been a participant in Canadian commerce as a Canadian National in the oil and gas industry for say 40 years.  What has been the past relationship with BMO both private and public prior the the election and call to BMO for the Fairness Opinion.  Did this individual have past business, continuing business or loans with BMO private or public?

/quote]

Good points.  I thought the $4Mln fee was outrageous given they have the prior MIC and report my Morgan Stanley.  Maybe it is a flat fee paid up front and a big refund if the court does not approve it.

[Palm]

Northoil has done a great job presenting reality. Exxon knows what they are doing and they have addressed the issues which were a shortfall the first time around. Assuming this deal is approved by shareholders, Exxon/IOC will hold fast to the BMO valuation vs dissenters and budge very little if at all. It's then in the court's hands and they will have to weigh BMO vs Paradigm and you know Exxxon's team will argue hard for the BMO valuation. Will be interesting but people need to be aware of all opportunities and related risks. No slam dunks by any means.

Has BMO been paid yet?  Until such time that the parties involved show proof of transfer of funds (fee payment), the BMO valuation is suspect.

I did not read anywhere that the fee has been paid.

Distrust And Verify

A question worth asking I suppose Tucker, but in considering what is most likely, I'm willing to believe that there's a very high probability that things with BMO are air-tight.  If Exxon wants something done, they have made sure to have the hired guns on staff who cover all bases.  The one things they screwed up on was Phil's tenacity and they underestimated to what extent he would go to protect his baby.  Maybe they screwed up again, so there is that glimmer of hope.

Cheers!

Perhaps that screw up may of come due to task at hand.  The transaction committee documented in the MIC that the first contact with BMO was Nov 18th 2016.  The day after a meeting with XOM. The first mention of the Fairness  Opinion  being received was Dec 09th 2016.  15 working days based on a 8 hour working day, or 120 hours for one individual.

BMO states that many different groups created the report.  So... how many individuals on a per hour basis were involved?

$4,000,000.00 USD fee as a cost was quantified mostly as hourly charge?  So... how many hours of work can you buy from BMO for 4 Million dollars?

For grins, lets say 250.00 USD per hour.  That would 16,000 hours of billable time.  250.00 USD per hour for 120 hours one individual.

So... 133 employees of BMO stopped what ever they were doing for 15 business days and worked exclusively on the Fairness Opinion. Nice work, if you can get it.

That seems ridiculous of course, but it does bring up a reasonable suspicion.  Did BMO subcontracted the work to a outside firm.  If non BMO employees/firms were contracted to completed tasks on behalf of BMO there is a question of conflict.  Especially if the outside firms involved have current or past business with XOM or subsidery operations in Canada.

Also note, the Vice Chairman/committee member has been a participant in Canadian commerce as a Canadian National in the oil and gas industry for say 40 years.  What has been the past relationship with BMO both private and public prior the the election and call to BMO for the Fairness Opinion.  Did this individual have past business, continuing business or loans with BMO private or public?

Sure, we can assume impropriety until the cows come home.  And you can bet that Exxon's legals will have things ready if necessary to show neither Paradigm or Phil is squeaky clean in their past.  So we have a whole slew of corrupt, money-hungry people with their own interests debating what a "fair value" is.  Nothing new for courts to sort through.  They know each side is "tainted".

So now Exxon/IOC has come back with what the court has asked for unlike the first time.  When you read any Canadian sourced legal opinions of what has gone on with this (and I've read several) they basically say the same thing; 1st time around Exxon/IOC messed up and they were told where the shortcomings were in their processes and documentation.  They now have come back with things (in their minds) cleaned up to the letter of what the court asked them do.  It now goes to shareholders for vote.

The court said in the first instance that shareholders did vote for the deal and that holds great weight normally.  But with tainted info to make that decision with the deal was not valid.  This time around (assuming shareholders approve the deal) the court most likely will say it's done and approve the deal, but anyone who dissents can have at it with Exxon/IOC mano a mano.  My guess is Exxon being Exxon, they will offer little or no premium as they don't want to set precedent.  So then you are at the mercy of the Court who has stated in their decsion, are not in the business of valuing businesses.

In following all of this I have gradually reduced my ownership in IOC to a small % of my holdings and feel I can be very objective with how I look at this.  Anyone with a fairly high % of IOC in their portfolio has a hard time being very objective because emotions/egos get in the way.  I started reducing my ownership back when I started pointing out what I saw as major red flags in the financials.  I was told I was over-reacting.  I don't think so and I don't think I am over-reacting here.

Good luck to all who end up dissenting; I hope you are able to get a yuuuuuge premium through this processs.  I'll likely sell any balance just before the shareholder vote.

[jft310]

The courts are not in the business of valuing business's . But Canadian legislators set up this dissent
process. That process requires the courts to hire independent persons and they do a NAV estimate not Fair value determination . Since BMO ignores all of Interoil assets a NAV estimate should come in substanially higher . I doubt the court NAV is Paradigm's number but the court accepted their work last time . Number unknown .
What Exxon thinks does not matter
What Phil thinks does not matter .
What matters is what the independent person thinks ,
Exxon pays all the costs . Both courts last time completed their review in 8 weeks or less . Whatever the number may turn out to be the answer should not take more than several months .
This new fairness opinion seems flawed . My opinion . How that impacts things will be interesting .

[Kaliboo]

All, the dialogue has been very helpful.  Thanks and good luck to all as our clock is winding down.  I still have not made a decision on dissenting.  I’m waiting to see if Mr. Mulacek will communicate to us. I hope he does communicate with us as to his plans, especially for dissenters, and wish him and his organization all the best in their endeavors.

Apologies that this is long.  I started this a day or so ago and I see Palm and others are echoing some of the same points.  I hope it is useful, especially for likely dissenters.  I don't have much more to opine unless Phil steps forward with something helpful.

I think NorthOil has it right in his comments about the summary of the courts comments.  The court has not made much if any comments about what IOC is worth or whether they accept anyone's value.  Their main points have been around conflicts of interest, wrong incentives, bad corporate governance, and inadequate/improper disclosure to shareholders.  Phil and his expert witnesses ripped IOC completely apart in this regard.  He did a great job, and the court agreed.  This should not have needed an appeal.  Well done!

However, valuation of IOC seems to be a matter not really addressed by the court, even though Phil presented his assessment through his experts at Paradigm Capital.  The court simply restated what was presented.  Given that the last MIC was improper, anything in there on value was compromised and of no consideration for the purpose of the last trial.

Also, I agree with NorthOil and others comments that the new MIC shows they have likely addressed all of the court's concerns or at least made an effort to.  Whether the court will accept that as sufficient remains to be seen.  But I think it will be very hard for the court to NOT accept the deal if/when 80+% of the shareholders again vote in favor of the deal.  The court has made every effort in the first judgment to make shareholders aware of how they were bamboozled by IOC management and so the court killed the prior deal, thanks to Phil making all of the faults clear.  So the court must surely believe that if shareholders once again allow themselves to be fooled by IOC, this time it's shame on the shareholders.  They have no excuse.  The companies – IOC/XOM - appear to have remedied all or almost all of the issues to some degree or another.  So it would seem ridiculous for the court to again kill the deal.  I feel certain it will be approved by the court if again the deal passes with a high majority.  However, if the vote count takes a big drop say to barely passing and/or there is a large number of dissenters, then they may reconsider it much more closely.  My opinions.  If I were a judge I would be prejudiced from the prior trial to believe that IOC management are basically corrupt and lacking competence, as was clearly shown in the challenge and their judgment and the outrageous amount of money IOC management are getting from this deal.  As such I think the court still feels they have a duty where appropriate, to exercise a more critical review AND NOT let these crooks get away with anything.  But Phil et al will HAVE TO give the court the ammunition they need to shoot it down again.  If that is the court’s thinking and IF the vote count is low and/or dissents  high and IF Phil makes a good case, then they just might hammer IOC again until they get it exactly right, if possible.  But I think this is a remote outcome.  Overall, I feel certain the deal will pass easily. IMHO.  The court has less motivation to look after shareholders now if they accept the deal again with high majority.

The only thing remaining in my mind is can dissenters get more money, and if it were so certain that they can, then everyone would dissent but not vote, because they want the deal to pass.  It’s all about the payment and NOT killing the deal.  So this is what the rest of this posting is about.

I just looked back over Phil’s presentation for Concerned InterOil Shareholders on June 6, 2016 prior to the vote on the OSH deal.  He says InterOil has "3 key assets" that he uses  for valuing IOC.  1.  The Total payments, 2. Value of the remaining PRL interest at 36.54% and 3. Value of the exploration assets.  See slides 35-38 of that presentation.  His E/A volumes used for his calculation are Base Case - 10 TCFE, MOST LIKELY CASE - 12.5 TCFE and Upside Case - 15 TCFE.  From these he arrives at a value for IOC shares of $95, $133 and $170 per share, respectively for each case. In is analysis he adds no value for the exploration assets, probably because he was simply making a point that the OSH offer was grossly low.  It was not about nailing the full valuation.  That's what I think.

Similarly he makes note of an OSH road show in May of 2016 where their 3 estimates were given as an average of 6.75 TCFE for E/A.  I think at this point Phil was believing that OSH has applied a water drive recovery factor to the numbers, thereby shrinking them, while he maintains belief in a depletion drive which gives the high numbers.

But we now know based on 3 different 3rd party reservoir evaluations that the C2 numbers are in the range of 6.15 to 7.8 TCFE of raw gas, and this includes GLJ who previously had provided a steady stream of increasing numbers, until the post A6 reassessment in November 2016.  It is quite evident from the MIC that A6 pay thickness and porosity were the main reasons for the decrease in reserves, among other lesser factors, and NOT a change in recovery efficiency as many of us (me included) had speculated.  There is no mention by GLJ of any change in recovery efficiency.  If that were a factor AND if GLJ failed to mention that, it would be a case of gross negligence in the MIC and by GLJ.  So clearly, the recovery factor has almost zero to do with the large negative change in volumes.  The below three quotations from the MIC show this clearly.

Page 28 of the MIC:  "During the update from GLJ, the Transaction Committee requested that Mr. Keith Braaten of GLJ explain, in his professional opinion, why GLJ’s estimates in the Updated GLJ Certification were lower than the estimates in GLJ’s prior December 31, 2015 report (which estimated the volume of 1C Contingent Resources in the Elk-Antelope Fields to be 7.68 tcfe, the 2C estimate of Contingent Resources to be 10.18 tcfe and the 3C estimate of Contingent Resources to be 12.30 tcfe).Mr. Braaten advised the Transaction Committee that incorporating the data from the Antelope-6 appraisal well (which was not available at the time of GLJ’s certification as at December 31, 2015) was the biggest factor in GLJ’s lowered estimates, but noted other factors, including updated data which indicated that the fault interpretation moved slightly eastward and a reinterpretation of Antelope-4, also played a role in GLJ’s lowered estimates."

Page 45 of the MIC: "BMO also observed, based on information provided by GLJ, that in the professional judgment of GLJ, based on information available at the effective date of the Updated GLJ Certification, there was a less than 1% probability that the volume of the PRL 15 2C Resources would equal or exceed 11 tcfe."  [My comment: XOM knew this and so raised the CRP cap to 11 TCFE, feeling comfortable that doing this won’t cost them a penny, but it would give the appearance to the court and perhaps some others, that they had raised their offer.  No, XOM did not raise their offer.  They just added a veiled insult to their offer.  Based on this statistic, they just should have eliminated the cap altogether.]

Page 113 of the MIC:  The primary contributor to the changes in GLJ’s estimates from December 31, 2015 to November 30, 2016 were due to the results of Antelope-6. GLJ’s predrill prognosis for top reservoir in respect of the Antelope-6 well, based on their December 31, 2015 map, was 1,848 meters True Vertical Depth Subsea (TVDSS), while the actual top was 2,076 meters TVDSS (228 meters lower than the GLJ pre-drill prognosis). This impacted the volume in GLJ’s estimate of the eastern flank of the field.  Secondary contributors were the position of the western fault position where the revised GLJ interpretation moved the fault position 300 meters to the east (on the line through Antelope-5 and Antelope-7) based on 2016 reprocessed seismic and updates to their interpretation of the results of Antelope-4.  [My comment: Dissenters will NOT benefit from any new information in Antelop-7 which might/should move the fault back to the West and thus restore some volume that was subtracted as a result of drilling Antelope-6, because the evaluation cutoff date for dissenters is the business day immediately before the IOC board of directors approved the resolution for the deal per YBCA Section 193, subsection (3).  The cutoff date would be December 14.]

In summary, Phil’s original arguments for IOC value based on very high C2 values of Elk Antelope raw gas are no longer valid and are tremendously way off.  The evidence is overwhelming as noted above.  His prior presentation can now be used against him.  Until there are more drilling results and even better, several years of post development production history, the values for C2 raw gas are now fixed by multiple reports using industry best/accepted reservoir engineering practices from independent experts.  So arguing over this is moot.  Other arguments will have to be used to establish higher value for IOC.  But as NorthOil has said, it’s all baked into the report to one degree or another.  However, Phil has always maintained that a fair offer can happen only AFTER several years of production data have been obtained.  He is completely right on that.  BMO, IOC and XOM have not addressed that at all.  I think going foward, this will have to be one of Phil's major points, if not THE major point in establishing value.  How one takes that point and generates a value is not something I'm able to do, but below are maybe some ideas.

Where is the case for higher value going to come from?  It will be for Phil and his experts to present in court.  But it won’t be by arguing E/A volumes using typical valuation methods as these 3^rd party experts have done.  Here is my brainstorm of approaches.  Again IMHO.

1. Convince the court that PNG is not a competitive market.  XOM monopolizes it because they have the only LNG plant and operate it.  Their incremental cost to tie in small or large fields to the plant and expand the plant are minuscule in comparison to what any other company (including TOT) would have to pay to get the gas to market, i.e., build a new LNG plant, gathering system, export terminal AND develop the fields.  As the MIC clearly shows, no one has or will bid on IOC assets.  Everyone realizes XOM can easily exceed their best offer and still have a tremendous ROI, so no one bids against XOM.  It’s futile.  The record stated in the MIC makes this painfully clear.
2. Ensure that the court understands that the PNG government has failed to ensure a competitive market for bidding on IOC.  Previously they were insisting on two LNG plants and TOT was going to deliver that plant.  Now they have gone silent on that.  In fact PNG may be incentivized to get rid of IOC and allowing XOM to have their way, is the easiest way to do it.  If the host country wants you out, then you are not going to get a fair deal on your assets.  PNG should have prevented XOM and OSH from bidding and thereby leveling the playing field e.g., by requiring that E/A gas be processed by anyone but XOM.
3. Given the above two points, it is not possible to get a fair deal for any of IOC assets in PNG.  IOC has repeatedly stated that IOC in partnership with TOT and OSH can develop one of the lowest cost LNG developments in the world.  Shouldn’t that garner multiple attractive bids in a competitive market?  Of course!  But it is a monopolistic market so it hasn’t happened and PNG wants them out.
4. The MIC seems to use arm waving statements to ignore the value of IOC’s other assets – Triceratops, Raptor, Bobcat, 40+ drilling opportunities.  These are not trivial amounts of gas, especially with Bobcat and Raptor collectively at ~2.2 TCFE of risked recoverable raw gas.  In a low price gas market like the USA, 2 TCF of natural gas (not LNG; not liquids) is worth between $6-7 Bln in revenue.   More appraisal wells for these discoveries are highly likely to grow the volumes.  XOM and IOC know this.  These are huge volumes already.  This statement is in the MIC: "An extensive amount of work and testing (including further appraisal drilling) would need to be completed in order to determine if any of the Triceratops, Raptor and Bobcat gas fields could become commercially viable projects."  This is a rediculous statement intended to force an undervaluation of these assets.  When drilling a single well yields over a TCFE of hydrocarbon discovery volume, you can bet the number is only going upwards with more appraisal drilling.  I think this is a smokescreen intended to deceive shareholders.  Phil needs to launch world war 3 on this attack point.
5. People value investments in different ways, but a major consideration for a small cap company is the growth potential and that is what drives its price and that is why we bought in .  Phil needs to establish this as a premise in court in regard to finalizing the value.  IOC and its PNG leases are not bonds; they are high value growth stocks where derisking (i.e, exploration and appraisal results) conducted to date have confirmed a very high future value will be obtained.  That’s why you see small caps like Taser with a (forward) PE multiple of 51 (trailing at 80+) vs. behemoth like XOM at 20 (forward) and TOT at 11 (forward), which many are saying is overvalued for XOM.  Taser, like IOC, has tremendous growth potential and is priced like it does.  XOM and TOT clearly do NOT.  If they grow at all, it is tiny incremental steps over long periods of time.  The IOC price per share is deflated due to the monoplistic market is is in.  XOMs value for IOC should be in the high PE, small cap range, reflecting all of its future potential; not just the next few years focusing on the one E/A opportunity.  The MIC completely fails to address this concept of value.  It is essentially dismissed.
6. What is the future potential of IOC leases?  There are some things to show this and I’m sure XOM has considered all of these as have past IOC explorers.  The USGS has made an evaluation of the region in 2011assigning volumes of estimated recoverable hydrocarbons.  Also there are global studies that show that post development, oil and gas fields tend to grow reserves, and this is most pronounced in larger fields, like E/A.  Also, there are statistical studies which relate the exploration drilling success rate and the number and size of different accumulations found in a given basin over time.  All of this information is very useful in assessing the value of any given play or basin and the likelihood of future discoveries.  IOCs leases are very immature in their evaluation, except for E/A.  The connectivity results of the Antelope wells over large distances is a tremendous indicator for the potential of huge accumulations that will require only a few penetrations to drain them (i.e., low development costs).  Collectively these data points paint a lucrative future potential in IOC leases specifically, and the Eastern Papuan Basin as a whole, of which IOC (now with TOT and OSH sharing) is the major leaseholder.  This is in part, where the 40+ IOC drilling opportunities come from.  There are not going to be 40 dry holes.  Having 5 discoveries on 6 leases is an indicator of a very high success rate; very unusual for exploration.  Having TCF+ size, single well discoveries is indicative of a highly prolific basin.  Discovering a very large field like Antelope is an indicator that future exploration will yield continued success.  Bobcat, Raptor and Triceratops haven’t even begun an appraisal program yet.  So the volume potential is tremendous.  But the MIC reads like another economic assessment in a low growth, mature, over developed environment.  They seem oblivious to what it means to be in a substantially under explored, under tested realm which is PNG.  They don’t get it. XOM does, but isn’t paying the right value for it.  Phil needs to make this case.
7. The argument in the MIC that IOC shareholders will “share” in XOM’s success in PNG is laughable.  The existence of PNG in the XOM portfolio is a good thing, but is a fraction of a fraction of XOM’s value and revenue stream.  No upside in PNG will benefit IOC shareholders to any measurable scale AFTER the deal is approved. XOM is so large that no single investment moves the needle.  XOM price per share is not going to rise 20%, 50% or 100% because of PNG alone.  But this magnitude of gains is common over short periods of time for small companies like IOC when success occurs.  Shareholders are essentially exchanging a potential Ferrari (IOC) for a bus (XOM) in terms of the potential for increase in value.  This is why Phil’s point on needing years of production history in E/A is so important.  Unfortunately, that is what is required to get to the true value, but statistical analogue studies may be shed a lot of light on that.
8. Phil must make the case that IOC is a very unique situation which requires other than conventional valuation approaches.  There are not many unexplored/under explored exploration provinces left in the world like PNG which also have friendly governments and can be developed at lower cost.  If only conventional valuation approaches are allowed, then IOC value will be significantly under stated and that is the current case.  While the E/A opportunity is the focus of the MIC, Phil will need to emphasize that it is only the beginning of much more to come from IOC leases.  Two out of 3 exploration wells (Wahoo, Bobcat, Raptor) found hydrocarbons in large volumes.  Wahoo did not reach TD due to severe hole conditions and “safety concerns,” so it might have been 3 for 3.  If only 1/4^th of the ~40 drill opportunities hit, that’s 10 more  discoveries.  Based on the past track record, it could be much higher.  Triceratops, Bobcat and Raptor still need further appraisal.  There is tremendous opportunity that should yield the owners tremendous value.  This currently depressed market and XOM’s monopoly, along with currently poor IOC management, have placed shareholders in a poor situation where a fair deal is not possible without court action to remedy the situation.
9. Phil should have access to the success rates and lease info of all the companies that have operated in PNG.  He can use that data to show how IOCs success compares to others, how OSH success rate has changed over time as they have gained better understanding and their more recent success.  This information is useful in predicting success trends in the basin going forward and value of the IOC assets, especially those other than the Elk and Antelope fields.  He can show how IOC’s interpretations have proven MORE successful than others at finding large volumes of hydrocarbons and how that has translated to a far superior portfolio of opportunities.  You pay more for assets that have been selected and bought by people who have proven that their interpretations and methodologies are superior to all others at finding hydrocarbons in superior properties.  Clearly, IOC under Phil have succeeded in proving their depositional model is right, while all others failed and mostly gave up and left.  Even OSH have been far less successful.  IOC properties deserve a "success premium" because they have been acquired using a superior model and process of evaluation.  If you need a water well to survive, you are going to pay the company that is the best at acquiring land and finding water a whole lot more money for its assets, than those who just ocassionally get lucky.  The valuation approach should place high value on this attribute.  The current offer places zero value and the MIC fails to address it.

This is about all I can add.  Apologies for the repetition.  Good luck to all.

Kaliboo

Whoops.  I need to add this one great point:

1.  Phil needs to demonstrate how IOC management have destroyed shareholder value and how the company has misinformed and under informed shareholders.  The latest example is the fact that Michael Hession completely botched this first MIC disclosure in the first attempt, revealing how it is all about putting money in his pocket.  This has cost IOC, Phil and his group as well as all IOC shareholders millions of dollars and many months of wasted time.  The cost in terms of dollars and delay need to come out of Hession's pocket, not the company.  Because of this the only fair deal is a deal where he forgoes all of his change of control bonuses.  The board should also lose theirs.  The colusion is over.

[Palm]

Well stated overall Kaliboo.

Agree that the court did not accept the Paradigm VALUE but the methodology as an example of what should have been provided to shareholders by Exxon/IOC. Exxon/IOC believe they have now complied with that, and as you say, should the shareholder vote be for the deal (and IMO it won't matter if it a closer vote as the court would be getting pretty subjective to say what % is "too close"), the court is likely to approve the deal.

Also agree with mention that no one else has bid on IOC formally with a superior bid. With that it will be hard for a court to say the offer isn't high enough.

Must disagree a bit on how Phil might argue value due to conditions in PNG. The fact that it is a "closed" market and the PNG government have helped make it that way speaks to how a valuation is done. To try and argue otherwise would be very tough; and trying only supports a lower value.

Again, I think what has happened to IOC is sickening and Hession, empowered by the Board, has committed a great injustice to shareholders. So I guess an option is a lawsuit. As far as Exxon goes, they are known to be a predator, and they are doing it here. To expect other than complete predatory actions to the end while holding a large interest in IOC may be something others are willing to risk, but not me. With the run up in the markets I have done much better with the IOC proceeds than I likely would have done holding it all in IOC to the bitter end.

GLTA

[Kaliboo]

Well stated overall Kaliboo. Agree that the court did not accept the Paradigm VALUE but the methodology as an example of what should have been provided to shareholders by Exxon/IOC. Exxon/IOC believe they have now complied with that, and as you say, should the shareholder vote be for the deal (and IMO it won't matter if it a closer vote as the court would be getting pretty subjective to say what % is "too close", the court is likely to approve the deal. Also agree with mention that no one else has bid on IOC formally with a superior bid. With that it will be hard for a court to say the offer isn't high enough. Must disagree a bit on how Phil might argue value due to conditions in PNG. The fact that it is a "closed" market and the PNG government have helped make it that way speaks to how a valuation is done. To try and argue otherwise would be very tough; and trying only supports a lower value. Again, I think what has happened to IOC is sickening and Hession, empowered by the Board, has committed a great injustice to shareholders. So I guess an option is a lawsuit. As far as Exxon goes, they are known to be a predator, and they are doing it here. To expect other than complete predatory actions to the end while holding a large interest in IOC may be something others are willing to risk, but not me. With the run up in the markets I have done much better with the IOC proceeds than I likely would have done holding it all in IOC to the bitter end. GLTA

Thanks for the comments.  I wouldn't necessarily disagree on the highlighted point.

I think that all depends on how the court defines and intends to determine "fair value."  If they think fair value requires a competitive market, then dissenters are in luck.  If they believe the market is not competitive in PNG, then dissenters are in luck.  If not, then your point is made.

I suppose the court will allow a few back and forth proposals/counter proposals between dissenters and IOC/XOM within a time window the court defines and/or both parties agree to.  If they (IOC/XOM and the dissenters) can't agree, then the court will force an outcome.  This is where I think dissenters can get into real trouble.  How will they force this outcome?  (1) Average the effective values and see if they will take that.  If not, then (2) Hire a third party to determine the value.  If the third party is not given specific instructions favorable for shareholders (such as noted above), then we end up with the same sort of product in the MIC, which could be lower value, similar or maybe higher, but like you say, for some, not worth waiting for.

All the best to dissenters.

[jft310]

Appreciate everyone thinking ,
Two points not given credit or mention by the above posters are the 2 contracts with Total .
What's a stream of payments , plus the second certification payment worth ?
Given zero value by BMO and posters above . First payment most likely this summer .
Second what's a contract to build an LNG plant with a 30 percent ownership worth ??
Exxon should be required to address the 2 above issues .
I can assure you dissenters will point out these deficiencies .
I believe the deal passes and that's what makes the dissent valuable .

[Palm]

Those 2 points have been vetted before:

1. The pps before the OSH made their offer was lingering in the high $20s, then when rumors started swirling it moved to $30. OSH made their initial offer of $40, then came XOM at $45 and they included paying off the debt and the termination fee with OSH. The Certification payment is part of all of that. Future payments were considered in light of timing and cossts to get there, and took into consideration the hard time to get a project financed with a very weak partner in IOC. IOC on its own has always been a negative when talking to banks on a project.
2. The 30% share in an LNG plant is vapor. There is no existing contract and a tough row to hoe to get one with IOC in the picture. IOC as a company would not be valued for what it might add to getting a contract in place. That value is with a Total/Exxon.

[jft310]

Palm you should vote yes
The courts called the last offer substanially below fair value , the drilling results lower the Paradigm work . But the Paradigm work included all assets which BMO does not
The $20 price was when Oil was $27 a barrel .Oil is $53 today almost a double .
LNG was $3.75 and is now $8.35 ,
You and BM0 can ignore the price of of oil and LNG recovery but the courts will not.
Palm states he is selling out before the 14th so that sends a message .
No the Total contracts both are NOT zero .

[Northoil]

Those 2 points have been vetted before: 1. The pps before the OSH made their offer was lingering in the high $20s, then when rumors started swirling it moved to $30. OSH made their initial offer of $40, then came XOM at $45 and they included paying off the debt and the termination fee with OSH. The Certification payment is part of all of that. Future payments were considered in light of timing and cossts to get there, and took into consideration the hard time to get a project financed with a very weak partner in IOC. IOC on its own has always been a negative when talking to banks on a project. 2. The 30% share in an LNG plant is vapor. There is no existing contract and a tough row to hoe to get one with IOC in the picture. IOC as a company would not be valued for what it might add to getting a contract in place. That value is with a Total/Exxon.

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Palm – great posts and you’re absolutely right on the two points.  People keep stating that the Total payments and the exploration assets are not in the valuation.  But they are and it’s clearly stated in the BMO opinion.  “Vapor” is a generous description of the Total plant.

Kaliboo – I am seriously impressed, certainly with your effort and willingness to communicate your thoughts, and even most of your points.  Thanks for doing what you did.

However, it seems you’re in a bind if you haven’t decided yet how to vote.  I’ll make the following thoughts to your numbered points:

1-3.  Uncompetitive market – So what?  What is the remedy?  No one is going to “deem” a competitive U.S. gas market to value assets in PNG.  No one forced IOC to explore there.  It’s like saying a raw diamond isn’t getting a fair price in the Congo because it’s not Amsterdam.  See also "Precedent Transactions"  in BMO, E-17. They took in sales over the whole region, not just PNG.

4, 6, 8 and 9.  You’re arguing potential.   Sure, anyone with exploration experience would salivate over IOC’s acreage… BUT… it’s not a financial asset.  It’s hopes and dreams.  That’s why farm-ins usually consist of work programs and success bonuses, not cash.  And BMO did say they considered it and even gave it some value:

“BMO Capital Markets notes that the Projections did not include estimated future cash flows for the Company’s exploration assets (other than PRL 15) given the challenges associated with forecasting cash flows for such early stage assets. However, for the purposes of the discounted cash flow analysis, BMO Capital Markets included the average of equity research analyst net asset value estimates available to BMO Capital Markets (which average was US$272 million) for these assets in calculating an implied per Share discounted cash flow reference range. BMO Capital Markets notes that given (i) the uncertain economics of these exploration assets, (ii) the near term funding required to maintain the Company’s interest in these exploration assets, and (iii) the market feedback provided in respect of these exploration assets from the review of strategic alternatives undertaken by the Company, the average of equity research analyst net asset value estimates available to BMO Capital Markets for these exploration assets may overstate their value. BMO Capital Markets also considered the book value of these assets.

5.  IOC should be given a higher P/E.  I know a drowning man will grasp at any straw, but really?  Anyway, the P/E given by the market was already implicit in IOC’s price when it was in the 20’s.  Since then, it has doubled.

Voting now comes down to yes, no, and no with dissent.  “No” makes little sense, particularly if both “no”’s kill the deal.

The appeal judge clearly was reluctant to interfere with a shareholder decision.  Given the blatant unfairness of the Fairness Opinion, he had to.  It’s not going to happen again.  The BMO opinion looks like a well decorated Christmas tree.  The deal will pass, the courts will approve, and the dissenters will be heard.  You just have to decide if you want to be part of that. You won’t get Exxon shares or dividends or appreciation while the dissent goes on, and you won’t get any CRP, if any, upside.  But maybe you’ll get more cash.

Palm and I have made the same decision, although I got out just before the last vote and he indicates he’s out with this one.  For my part, the market has been good since last October.  Let’s hope it continues.