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"It's unheard of..."
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12-13-2013, 01:12 AM
The "bonus" is that this SPA is only for PRL15. Assuming there ARE at least 10Ts in EA and they are successful in other areas outside PRL 15 it makes the other discoveries worth more as you have infrastructure and gas produced and sold. Total has first option on future PRL/license areas, BUT that means they must still pay a fair price. Otherwise other bidders are welcome.
12-13-2013, 01:29 AM
CAC, while I agree with you that there is a little bit of a Heisenberg cat in there (once discovered, the gas is no longer undiscovered), it really isn't custom to reward companies for undiscovered gas, and less so when the drilling of the first well are carried. Tot buys a stake in PRL 15 as a whole, but as a potential bonus, it rewards IOC for an additional find and even pays for the first well. It isn't that material when you compare it with InterOil's 30% stake in PRL 15 and the LNG plant, they're likely to make much more of any undiscovered gas (once discovered) in PRL 15, but it's a tacit acknowledgement from Total that there probably is a lot more in PRL 15 than just EA. *********
I suppose this arrangement could provide a benefit (i.e. a "reward"
12-13-2013, 01:46 AM
No, I really don't believe that, CAC. It's a bonus. Total bought 47.5% of PRL 15, including all undiscovered prospects. IOC keeps 30% (all after Govt buyin and IPI buyout).
Total didn't have to reward IOC extra for any undiscovered gas (when it's discovered, hence Heisenberg's cat) or pay for an exploration well. But it's a bonus. It could add up if the find is significant, which they seem to think. But by far the largest pay-off from a new find in PRL 15 comes from IOC's 30% stake in PRL 15 and the LNG plant. 
12-13-2013, 01:53 AM
'CAC' pid='34124' datel Wrote:
They also get 30% of the gas that they didn't pay to drill for!
12-13-2013, 02:06 AM
'Putncalls' pid='34146' datel Wrote: Exactly, Puts. I beleive Total agrred to spend $60M on the new discoverery well and IOC will own 30% of any discovery plus the "bonus" $100M per tcf for gas above 1T. How could anyone think that is a bad deal for IOC?
12-13-2013, 03:40 AM
'admin' pid='34144' datel Wrote:No, I really don't believe that, CAC. It's a bonus. Total bought 47.5% of PRL 15, including all undiscovered prospects. IOC keeps 30% (all after Govt buyin and IPI buyout). Total didn't have to reward IOC extra for any undiscovered gas (when it's discovered, hence Heisenberg's cat) or pay for an exploration well. But it's a bonus. It could add up if the find is significant, which they seem to think. But by far the largest pay-off from a new find in PRL 15 comes from IOC's 30% stake in PRL 15 and the LNG plant. ********* Yep. Makes sense, Admin. It might have helped the market's reaction for management to emphasize the 30% as a larger part of the consideration. I would have liked (and still would like) some detailed explanation of how they view the potential for the 30% to play out going forward. A statement in the cc indicating "the 100M per tcf may initially seem low in comparison to the $1.29 but it's a tradeoff we made to get 30% rather than 25% of the plant and we see much more long term value in that".
12-13-2013, 03:53 AM
["the 100M per tcf may initially seem low in comparison to the $1.29 but it's a tradeoff we made to get 30% rather than 25% of the plant and we see much more long term value in that"]
Yes, quite. They yielded some short-term gain for much larger longer-term gains. And this is exactly what some of the big holders are apparently disappointed about, as they're subject to quarterly performance reviews, etc. But should we have forfeited bigger longer-term gains which made more business sense, in exchange for a more immediate pay-off (presumably by going with Exxon)? Since we don't know what was on the table for Exxon, this is all speculation anyway.
12-13-2013, 04:46 AM
The top 30 shareholders have been contacted and they say they like the deal . As of last night. The market double counts shares traded . Example a buy is reported and a sale is reported as two separate transactions. Rumors of a big selling can't be verified. Has not been reported yet on Sedar.
12-13-2013, 09:39 AM
'CAC' pid='34124' datel Wrote: I very much understand Hession’s enthusiasm for the deal. The odds are now very high that IOC will be valued in excess of $10 billion in a few years, doing much for both his bank account and his reputation. You ask what tangible reward. The obvious answer is $613 million. A pay to play fee of $613 million up front is almost unheard of for an unproven resource. In addition, the payments for the most likely reserves based on available reserve analysis promises the company an additional $4.1 billion. Further, Total has committed to building an LNG plant and giving IOC a no-cost interest in that plant, which has great economic potential for IOC. Total, it appears, can only get out of that agreement if the reserves are insufficient to justify the building of a plant. The reserve analysis has now been blessed by one of the supermajors, and IOC has been supplied with plenty of cash to exploit its mammoth resource opportunities. And there are other upside benefits in the deal. John Maynard Keynes once said that the market can remain irrational for longer than you can remain solvent. Mr. Market (who sets the price of IOC stock, not Dr. Hession) doesn’t like complicated probabilities such as we have here, even if expected value calculations based on those probabilities is very high, as is also the case here. The expected value of IOC has gone up dramatically even if the market disagrees. We can all make a lot of money on this stock if we (1) accept the irrationality of the market, and (2) are very careful!
12-13-2013, 10:08 AM
" giving IOC a no-cost interest in that plant,"
I like what you are saying, but I'm not sure the above statement is correct. IOC will contribute their percentage of the gas and share in their percentage of the costs. At todays 30% forecast of IOC ownership, the costs will be considerable. |
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if IOC internally questioned whether they were going to be willing/able to spend their own money to ever "discover" the additional gas in those locations. Maybe they like Triceratops' potential better and knew internally that these other areas would just sit idle for a long time if they had to go it alone. Maybe they thought..."We don't feel super-confident that there's more gas there but if TOT wants to spend their money looking...we'll happily take what we can get if they find some"???