PNG Negotiating Leverage

[Putncalls]

One reason I can think of with repect to the PPS non move over the last couple of the days is: Tinal approval is contagent on succesful negotiation.  Does that not give PNG a lot of leverage in the price negotiated?

[ltinvest]

I have given that issue a great deal of thought. It could be easy to conclude that PNG has all the negotiating leverage since final approval ultimately rests with them. However, it is my opinion that PNG has as much or more at stake than IOC does in these negotiations. There is a lot of macro research to support the increasing LNG demand from the Asia Pacific area. PNG is a poor country who needs to be able to Monetize their vast energy resources in order to improve the standard of living in the country. If PNG were to negotiate an unreasonably low-price with IOC, it would set a precedent that would damage future business plans and return on investment for others considering coming to PNG. It may be an instance where they win the battle but lose the war. Thus, I believe the future of PNG is far too dependent and far too important not to establish a reasonable market price that would be attractive to Prime Minister O'Neil's infrastructure plans as well as future investment in the country. I look for a price similar to PRE minus a home court discount.

[Libtardius Maximus]

I'm of the opinion the price has been established and agreed to by both parties, it's all details and politics now. I cannot fathom a reason why PM would commit his country to something so vital without knowing the investment required especially given the tribalism of his country. I'm also nutty enough to believe the partner announcement will be the next news event since goverment piece is based on a nameplate.

That means by the end of this month.

[Palm]

Great comments ltinvest. For those reasons we have every reason to believe that what will be negotiated will be a fair going rate. In normal business purchases someone wanting to buy 50% is going to actually pay a premium because the seller is giving up controlling interest, whereas someone buying say 20% gets a minority interest discount. PNG is basically saying that they want say in how things develop and who does what. By virtue of being the government they have a good degree of that anyway, but if they end up at 50% IOC's side will say a little more should be paid because it has been derisked to the point that they have several SMs/NOCs wanting in. For PNG to then strong arm would send the message you mention. You SMs/NOCs are free to come here and take a great risk in a very undeveloped 3rd world country, but we as the host nation may want to buy in above our allowed "up to 22.5%" but don't plan on getting a fair price. What an added risk for those willing to come in!. PNG is now a competitor lurking in the weeds for the best projects with low costs. What incentive is there for these companies to keep development costs low? So the result? PNG ends up having a company like Shell with free reign to do things their way. PNG has already seen that movie and they didn't like the ending. So they flew to Indon to visit a different movie set and liked what they saw.

[Putncalls]

The market isn't agreeing with you though. If the market agreed Palm the PPS would be up big since THUR?

[Ass0ciatedPress]

So the fifty percent that is being negotiated. Is this for the whole field of whatever is produced or is this 50 percent of calculated reserves? Ie if the field is currently valued at 10tcf, the government gets 5 however if the field is really 20tcf, does the government get 5 and the other 5 to IOC? or does the government get 10?


I guess my questions are concerning the selldown. Will there be upfront payments or will payment be made once the field is producing and if that is the case why settle for $2.85 when you will get $10+ from the end user market?

Confused.....

[Palm]

Puts, I agree the market isn't agreeing right now but it is waiting to see if that is the result. The market isn't going to price in something that isn't there yet on this stock. That's what markets do. Today we have a conditional framework for a deal and the details are like the Wizard of Oz; behind the curtain. The big question of risk that IS being priced in is what do we hear between now and Nov 30? Is Nov 30 a deal deadline date or what the PR says; a report back to NEC on progress date? What % does the government REALLY want? What is the commercial rate they are willing to pay? How much of that comes up front? Etc etc etc.

My point was simply what I said. As a British Commonwealth country PNG has laws in place and ways in which they must act to continue getting support from Aus and others. You think this important? Look at the response and how PNG reacted when they tried to delay elections and Aus said get it done on time. PNG will give a fair price for its up to 27.5% additional share of EA. That's my point; not whether or not the market is pricing that in right now.

[kommonsents]

Seems to me we were up 2+ on Thursday, 1+ on Friday, up early today and then the shorting came into play. Even so, with volume of 1.5~ million shares traded, we are only down 1+ today. Looking at the trading on those 3 days, I saw accumulation coming into play. So, somebody is buying against the shorts.

Then there is the possibility that Shell is holding the price down to make their play for the whole shebang. Are they working with the hedge funds?  That would make sense to me.

Are the shorts/hedge funds using circular trading to suppress the pps while at the same time hedging their shorting with long positions? IOC falls faster/further on selling than it rises on buying, especially with an accommodating MM, which makes circular trading very profitable.

I agree with the others here that the whole thing will probably change before the end of the year, perhaps even before the end of this month. I can honestly say that IOC is the hardest stock to own that I have come across. But, I will hold and continue to add on dips like I did on Wednesday.

[Getitrt2]

The Company will be getting a combination of up front payments and subsequent contingent payments for the sell down. The Company in fact has just stated in the conference call there will be substantial up front payments.

The Company has stated, and Morgan Stanley in its report stated that "The amended Project Agreement will grant PNG an option to acquire up to some additional amount of Elk/Antelope at similar terms determined in the sell down." Where are all the doubts about that coming from? Surely, no one thinks we can trust the shorts for the truth on this, or anything else.

[Palm]

Will also be interesting to see how subsequent payments are structured. The PR said they would be reviewing the "fiscal incentives" that are in the current PA. We could see some tax incentives enhanced in kind.