It is very difficult for me to see through the smoke and mirrors but let me try once again.
As you know Total has bought 40.1% of Elk/Antelope (PRL-15) from IOC. Keep that 40.1% in mind for you will see it again. Total has bought 40.1% but they have not paid for it yet. So far they have only paid IOC $401 million dollars. I will ignore what they have paid for the carry of three wells since it is mostly recoverable to them from other payments to be made to IOC.
Let’s figure out what Total agreed to pay IOC under the SPA. Please look at the IOC presentation at:
http://tinyurl.com/z4yzgue page 16. Let’s just figure out what Total has agreed to pay IOC up through certification. They agreed to pay according to the following:
Completion payment of $401 million plus
Less than 3.5 TCFe - Zero
3.5 - 5.4 TCFe - $0.60/MCF (US$457 million to be paid at FID).
5.4 - 6.5 TCFe - $0.80/MCF
6.5 TCFe and above- $1.00/MCF
We can see here that everything above 6.5 TCF is to be paid at $1.00/MCF.
Now using the above mentioned chart on page 16 let’s figure out what the Total SPA is worth to IOC up through certification not including the FID payment. So under this scenario we start getting paid at the 5.4 TCF level. From the chart you will see that the completion payment is $401 million. You will also note that each TCF above 6.5 TCF is worth $401 million/TCF. So if we take from the chart the payment for completion and add the certification payment we have what Total will have to pay up through certification. (If they never reach FID on Paupa LNG there will never be an FID payment or a first cargo payment.) They have already paid the completion payment but none of the certification payment. So what Exxon is really buying is the 36.54% of Elk/Antelope that IOC still owns plus the receivables from Total.
Total agreed to pay as shown below:
Gross Resource Level 40.1% of Gross Amount Price/MCF
To be paid
7.5 TCF 3.0 TCF $1155 mil. $0.385/MCF
8.5 TCF 3.41 TCF $1557 mil. $0.457/MCF
9.5 TCF 3.81 TCF $1958 mil. $0.514/MCF
10.5 TCF 4.21 TCF $2359 mil. $0.560/MCF
The average is 9 TCF gross, 3.61 TCF net, $1757 mil and a average price of $0.487/MCF. Keep that $0.48/price in mind for later use. The above is what Total agreed to pay (up through certification) for 40.1% of the field.
IOC still owns 36.54% of the field so what would that be worth under the same pricing scheme? 36.54/40.1 = 0.91 or 91% of the above numbers.
Gross Resource Level 36.54 % of Gross Amount Price/MCF
To be paid
7.5 TCF 2.74 TCF $1051 mil. $0.384/MCF
8.5 TCF 3.11 TCF $1417 mil. $0.456/MCF
9.5 TCF 3.47 TCF $1782 mil. $0.514/MCF
10.5 TCF 3.84 TCF $2147 mil. $0.559/MCF
The average is 9TCF gross, 3.29 TCF net, $1599 mil. and $0.486/MCF.
Now what Exxon is buying is the 36.54% that IOC still owns plus the receivables due from Total. So if we combine the two Tables above but subtract the $401 million that Total has already paid we will get the following:
Gross Resource Level 76.64 % of Gross Amount Price/MCF
To be paid
7.5 TCF 5.75 TCF $1805 mil $0.314/MCF
8.5 TCF 6.51 TCF $2573 mil $0.395/MCF
9.5 TCF 7.28 TCF $3339 mil $0.459/MCF
10.5 TCF 8.05 TCF $4105 mil $0.510/MCF
The average is 9 TCF gross, 6.90 TCF net, $2956 mil and $0.428/MCF. A case could be made for leaving the $401 million in the calculation since that should be a part of the value of IOC, in which the price would return to $0.48/MCF.
Just for comparison purposes let’s look at the OSH bid. I think the $40.25/share payment is meant to pay IOC shareholders for the first 6.2 TCF and the CVR in meant to replace the “upside” given in the Total/IOC SPA agreement.
The OSH bid was $40.25/sh (in OSH shares) plus $6.044/sh/TCF above 6.2 TCF.
The OSH bid of $40.25/share x 51.1 million shares = $2057 million for the first 6.2 TCF gross. They bid $0.77/MCF for the gas above 6.2 TCF gross. For comparison purposes:
The SPA was $1.00/MCF for gas above 6.5 TCF. One TCF would be valued at $1 Billion gross. Under the OSH deal the $0.77/MCF above 6.2 TCF gross would be valued at $770 million/TCF and under the Exxon deal the gas above 6.2 TCF gross would be valued at $0.90/MCF or $900 million/TCF. To bring this to a net basis we have to use the Total percentage of 40.1%. In the case of OSH the calculation would be $770 million/51.1 million shares x 0.401 = $6.044/share/TCF.
In the case of the Exxon bid at $0.90/MCF the calculation would be $900 million/51.1 million shares x 0.401 = $7.07/share/TCF.
In the case of the SPA agreement the calculation at $1.00/MCF would be $1,000 million/51.1 million shares x 0.401 = $7.85/sh/TCF.
Now back to the OSH bid of $2057 million for the first 6.2 TCF and $6.044/share/TCF. If we continue with the idea that they are bidding or IOC’s 36.54% plus the receivables from the Total sale (40.1%) they are really bidding for 76.64% of the field and expectation of a payment from Total after certification. The value would look something like this:
Gross Resource Level 76.64 % of Gross Amount Price/MCF
To be paid
6.2 TCF 4.75 TCF $2057 mil $0.43/MCF
7.2 TCF 5.52 TCF $2365 mil $0.43/MCF
8.2 TCF 6.28 TCF $2674 mil $0.43/MCF
9.2 TCF 7.05 TCF $2983 mil $0.42/MCF
10.2 TCF 7.82 TCF $3291 mil $0.42/MCF
How does the Exxon deal compare? They are offering $45/sh in Exxon stock plus $7.07/sh/TCF above 6.2 TCF. $45/sh x 51.1 million shares = $2299.5 million.
Gross Resource Level 76.64 % of Gross Amount Price/MCF
To be paid
6.2 TCF 4.75 TCF $2299.5 mil $0.48/MCF
7.2 TCF 5.52 TCF $2661 mil $0.48/MCF
8.2 TCF 6.28 TCF $3035 mil $0.48/MCF
9.2 TCF 7.05 TCF $3383 mil $0.48/MCF
10.0 TCF Cap 7.66 TCF $3672 mil $0.48/MCF
Exxon should get a payment from Total as follows:
Gross Resource Level Payment US$ Cumulative Payment US$
5.4 TCF to 6.2 TCF $257 mil $257 mil
6.2 TCF to 7.2 TCF $377mil $634 mil
7.2 TCF to 8.2 TCF $401 mil $1035 mil
8.2 TCF to 9.2 TCF $401 mil $1436 mil
9.2 TCF to 10.2 TCF (no cap) $401 mil $1837 mil
Will continue to get $401 million/TCF to whatever the certified number is.
Example: at 9.2 TCF it would cost Exxon $3383 - $1436 = $1947 mil to acquire IOC’s 36.54% of Elk/Antelope or a total of 3.36 TCF for $1947 mil. Or $.58/MCF. I am lost here as to how I handled the $401 mil completion payment. Maybe some of you accountants can figure it out for me. If I deduct $401 mil from $1947 mil I get $1546 mil which would be $0.46/MCF which is in line with the numbers above.
Of course Total will retain their 40.1% but they will have to pay Exxon to complete their buy-in/
I am sure there are errors somewhere above so feel free to make corrections. Sorry about the length and rambling nature of this post. Hopefully someone will benefit.
ps: I guess the point I am trying to make here is that I think I see the basis of the Exxon bid. They used the same average gas price as the Total SPA but started at a higher level (6.2 TCF) and paid less/MCF ie $0.90/MCF instead of $1/MCF. So the Exxon bid is still worth less to IOC than the Total SPA. Plus the SPA had no upside cap, an FID payment, a first cargo payment and another certification after producion has commenced. OSH did the same thing but with a lower gas price and a lower CVR/CRP payment. So the Exxon deal is superior to the OSH deal.
