IOC/OSH Court Nov-Decision Q1 15

[Tree]

[/quote]

I would appear the Citi OSH report supports my viewpoint regarding expansion costs with EA Gas:

"PNG gas cost curve supports expansion from Hides/P'nyang/Antelope only — Based on our benchmarking analysis, we have defined a cost curve for known gas resources in PNG under various development scenarios (backfill/expansion), which we compare to the price an LNG project could pay for gas. While Hides & a 2 train Antelope could provide an attractive development, particularly when combined with T3 cost synergies, we think most other gas resources are less attractive and would be marginal if developed to underpin expansion trains.

 While economics underpinned by 2P, expansion needs 1P — ExxonMobil has historically marketed offtake on a 1P reserves basis to maximizes the value of the molecules. LNG expansion is likely to hence need 3-4tcf of incremental 1P reserves per train, thus we expect Train 3 sanction will require both Hides GWC upside and P’nyang. Beyond these resources (ex Antelope), we think other resources are marginal to develop as expansion (T4), though could be developed as backfill gas."

As far as O'neill comments are concerned, I am just reading into what he says.  Why do you think Hession took the Total deal?  Because it was better than what Exxon was offering.  it preserved the upside.  Why did he get out of negotiations with Exxon?  Because they had no leverage.  They do now, and Total doesn't have to build an LNG plant.  They can partner with XOM/OSH on the PNG/LNG project along with IOC.  If it is a win, win why not?  And yes, it is speculation.  This entire message board is speculation.  That is what we are left with right now in a news vacuum.  

Good luck longs

Jdeo

[/quote]

No, CITI is not supporting your viewpoint.

This is a CITI research on OSH.

OSH has ownership in 2 trains of PNG LNG and a JV stake for greenfield Antelope LNG.

The report assumes T3 PNG LNG expansion fed by PNG LNG JV gas AND a 2 train Antelope Project fed by E/A gas, both which OSH will have ownership.  CITI analyzes gas costs and CAPEX for LNG expansion and Antelope LNG and how those 2 projects impact OSH as an investment stock.

This report concludes that the only current gas stock in PNG attractive for LNG development are Hides and Antelope.

CITI is not declaring or implying in this report that E/A gas will feed PNG LNG.

We do know XOM/IOC lash-up is a possibility.  CITI is not addressing this possibility in the report.

[jdeo1969]

I understand that tree. I was pointing to what viable expansion exists, and they reference our gas. It was on reference to what would make sense.

[Getitrt2]

I understand that tree. I was pointing to what viable expansion exists, and they reference our gas. It was on reference to what would make sense.

After following IOC in PNG for many years, any of us in that category would hesitate to rule anything out as a "possibility", but you are arguing for E/A gas now going to PNG LNG as a "viable" option or even a better and preferable direction for IOC, and so far have NOTHING factual or rational to support that, just wild speculation and wishful thinking about the great (but nonexistent) deal you (and most of us) thought IOC was going to get from Exxon in December.  Tree is spot on about the Citi report, on OSH only, you reference above.  It provides NOTHING to support your argument as you claim.  They did NOT "reference our gas" for PNG LNG expansion.  "It was on reference to what would make sense", as you say, actually most sense from a cost viewpoint, for an LNG project or expansion thereof in a generic sense, but NOT as a sensible option now for expansion of PNG LNG now from IOC's viewpoint.  For PNG LNG expansion they "reference" only Hides and P'nyang.  IMHO, it is time for you to DROP THIS and look forward on what is really happening and what are really viable options or "possibilities", especially what really might be best for your investment in IOC AND viable.  Constantly and repeatedly looking back and second guessing management on this can do no good now, and maybe do harm, especially without any real support.

I will say, imo, the Citi comments are not very well written, and as a result can easily cause confusion, for example where they reference Hides and "a 2 train Antelope" (which is obviously not a PNG LNG expansion) in the same sentence in which they subsequently refer to "T3 cost synergies". They also say there that "most other gas resources (other than Hides and a 2 train Antelope) are costwise "less attractive" and "marginal" without mentioning P'nyang, and yet that statement is under a heading, "PNG gas cost curve supports expansion from Hides/P'nyang/Antelope only", subsequent to which they state, "we expect Train 3 sanction will require both Hides GWC upside and P’nyang", sort of contradicting themselves on P'nyang. Then they say that beyond resources at Hides, P'nyang, and Antelope they think other (unnamed) "resources are marginal to develop as expansion (T4)". T4? Definitely confusing. I think probably the thing to understand here is they are commenting mostly on the relative costs of developing different gas sources in PNG for LNG.

[Getitrt2]

Because as I have said time and time again, they want the gas for PNG/LNG and there is still a very good chance that that outcome.  To take it off the table becuase of what "the company is telling you" is absolutely naive.  Furthermore, it would be a great thing for IOC shareholders imo.

The disagreement is NOT just because of what "the company is telling you".  If it were such a "great thing for IOC shareholders",  why was Exxon not chosen in December?

Because I believe the previous mgmnt team backed itself into a corner with regard to going exclusive with Exxon.  I believe that Exxon played it very well in that regard and the BOD realized that they were staring down the barrell of a bad outcome.  They hired Hession, who got a deal done with total in order to meet certain deadlines (see  the article posted on their website re: licenses, expiring etc.)  Hession inks the deal with total, who then releases a bad PR which crushes the stock price and further losses ensue after the market is disappointed in the timeline being pushed back.  Oneill has stated in not so many words that he would like to see EA gas gor to PNG/LNG.  Economies of scale dictate that Exxon would be smart to strike a deal with IOC/Total to get gas to go to their plant, which given the deal IOC and Total have, gives them leverage against being lowballed by XOM, which they likely would have been in December.    So now they have leverage, and I believe in a positive outcome either way, but I like earlier monetization personally.

You are essentially calling the CEO  a liar by saying he got a hurry-up deal done with Total that was not superior "in order to meet certain deadlines", rather than for the multiple substantial reasons given by the CEO as to why the Total deal was superior for IOC; and I think that is dead wrong.  Exxon had plenty of opportunity to outbid Total and chose not to.  They wanted to buy PART of PRL 15 for a bargain price for a train three, probably without ownership in it for IOC, but since they couldn't, chose to pursue their own resources for Train 3.  I don't believe anyone has been able to show that "economies of scale dictate" that Exxon would be better to pay IOC for E/A resources and provide LNG ownership equivalent to, or better than (as required now), the Total deal, rather than use its own resources elsewhere, including you.  There is also nothing but speculation, that IOC would now get "earlier monetization" overall from a new deal with Exxon and cancellation or modification of the Total deal (probably not even possible), than the cash flow from resource payments in 2014-2016 and subsequent LNG from the Total deal, which IOC has already started receiving and investing and used for further credit.  IMHO, the idea of trying to undo all this and start over with all the problems it would entail and the advantages of the deal with Total, which would almost certainly be an absolute mess and not even possible, I think is what I referred to before as "crazy talk", but did not mean literally in terms of someone being "crazy".

I challenge you to provide or point to any statement by O'Neill that he would prefer to see E/A gas go to PNG LNG rather than to a new LNG project with Total.  No one has been able to do that yet.  A general statement by him in the past long before closing of this deal with Total that he would like to see the gas monetized as soon as practical does NOT constitute such a statement of preference.  Furthermore, control of that does not lie in the government's hands.  IOC has the right to strike the best deal with an acceptable partner, which Total certainly is, and the closed contracts are legally binding.  The only chance of changing the deal as you call for is the arbitration case, and that appears to be an extremely small chance, with management very confident about it.

I would appear the Citi OSH report supports my viewpoint regarding expansion costs with EA Gas:

"PNG gas cost curve supports expansion from Hides/P'nyang/Antelope only — Based on our benchmarking analysis, we have defined a cost curve for known gas resources in PNG under various development scenarios (backfill/expansion), which we compare to the price an LNG project could pay for gas. While Hides & a 2 train Antelope could provide an attractive development, particularly when combined with T3 cost synergies, we think most other gas resources are less attractive and would be marginal if developed to underpin expansion trains.

 While economics underpinned by 2P, expansion needs 1P — ExxonMobil has historically marketed offtake on a 1P reserves basis to maximizes the value of the molecules. LNG expansion is likely to hence need 3-4tcf of incremental 1P reserves per train, thus we expect Train 3 sanction will require both Hides GWC upside and P’nyang. Beyond these resources (ex Antelope), we think other resources are marginal to develop as expansion (T4), though could be developed as backfill gas."

As far as O'neill comments are concerned, I am just reading into what he says.  Why do you think Hession took the Total deal?  Because it was better than what Exxon was offering.  it preserved the upside.  Why did he get out of negotiations with Exxon?  Because they had no leverage.  They do now, and Total doesn't have to build an LNG plant.  They can partner with XOM/OSH on the PNG/LNG project along with IOC.  If it is a win, win why not?  And yes, it is speculation.  This entire message board is speculation.  That is what we are left with right now in a news vacuum.  

Good luck longs

Jdeo

Regarding Citi and OSH, see elsewhere.

"As far as O'neill comments are concerned", if he did not say it, don't say or imply he said it.

Regarding Total and that deal, you are right in that it was "better than what Exxon was offering" and "preserved the upside".  It also ensured development of ALL of PRL 15 (not just part of it as Exxon was after for PNG LNG) with an LNG project with substantial IOC ownership, which also provides expansion/development options for additional IOC gas from PRL 15 AND/OR elsewhere, all with the kind of strategic partner they were looking for.  You say IOC had no leverage with Exxon then.  Once Hession was able to bring Total and Shell back in, he did have leverage, and Exxon did not choose to bid to win.  Why would they now, and how could they offer what Total did, which now has closed contracts?  Total did not do this deal to build an expandable LNG project with the ownership it has and huge future potential, to turn around now and degrade its project by selling some of the gas for it to Exxon, unless they have not enough or more gas than they can develop, not likely at all from E/A or anytime soon, but which if the latter would be a supplemental deal and not a "rather than" like you're talking about. Management has closed and moved ahead with the deal they see as the best long-term strategy for IOC and its shareholders, and based on what I know now I agree with that, as I have for a long time, as unhappy as I am about what happened last year.  Trying to reverse all this and start over in the direction you are arguing for seems to me simply ridiculous.  You need more than "speculation", as you say, to support that.  I strongly disagree that, "This entire message board is speculation", and that is all "we are left with right now".  This forum has a great deal of solid, factual, rational information and analysis, and that is what you would need to provide more of.  Am I missing something of that nature?

[jdeo1969]

The disagreement is NOT just because of what "the company is telling you".  If it were such a "great thing for IOC shareholders",  why was Exxon not chosen in December?

Because I believe the previous mgmnt team backed itself into a corner with regard to going exclusive with Exxon.  I believe that Exxon played it very well in that regard and the BOD realized that they were staring down the barrell of a bad outcome.  They hired Hession, who got a deal done with total in order to meet certain deadlines (see  the article posted on their website re: licenses, expiring etc.)  Hession inks the deal with total, who then releases a bad PR which crushes the stock price and further losses ensue after the market is disappointed in the timeline being pushed back.  Oneill has stated in not so many words that he would like to see EA gas gor to PNG/LNG.  Economies of scale dictate that Exxon would be smart to strike a deal with IOC/Total to get gas to go to their plant, which given the deal IOC and Total have, gives them leverage against being lowballed by XOM, which they likely would have been in December.    So now they have leverage, and I believe in a positive outcome either way, but I like earlier monetization personally.

You are essentially calling the CEO  a liar by saying he got a hurry-up deal done with Total that was not superior "in order to meet certain deadlines", rather than for the multiple substantial reasons given by the CEO as to why the Total deal was superior for IOC; and I think that is dead wrong.  Exxon had plenty of opportunity to outbid Total and chose not to.  They wanted to buy PART of PRL 15 for a bargain price for a train three, probably without ownership in it for IOC, but since they couldn't, chose to pursue their own resources for Train 3.  I don't believe anyone has been able to show that "economies of scale dictate" that Exxon would be better to pay IOC for E/A resources and provide LNG ownership equivalent to, or better than (as required now), the Total deal, rather than use its own resources elsewhere, including you.  There is also nothing but speculation, that IOC would now get "earlier monetization" overall from a new deal with Exxon and cancellation or modification of the Total deal (probably not even possible), than the cash flow from resource payments in 2014-2016 and subsequent LNG from the Total deal, which IOC has already started receiving and investing and used for further credit.  IMHO, the idea of trying to undo all this and start over with all the problems it would entail and the advantages of the deal with Total, which would almost certainly be an absolute mess and not even possible, I think is what I referred to before as "crazy talk", but did not mean literally in terms of someone being "crazy".

I challenge you to provide or point to any statement by O'Neill that he would prefer to see E/A gas go to PNG LNG rather than to a new LNG project with Total.  No one has been able to do that yet.  A general statement by him in the past long before closing of this deal with Total that he would like to see the gas monetized as soon as practical does NOT constitute such a statement of preference.  Furthermore, control of that does not lie in the government's hands.  IOC has the right to strike the best deal with an acceptable partner, which Total certainly is, and the closed contracts are legally binding.  The only chance of changing the deal as you call for is the arbitration case, and that appears to be an extremely small chance, with management very confident about it.

I would appear the Citi OSH report supports my viewpoint regarding expansion costs with EA Gas:

"PNG gas cost curve supports expansion from Hides/P'nyang/Antelope only — Based on our benchmarking analysis, we have defined a cost curve for known gas resources in PNG under various development scenarios (backfill/expansion), which we compare to the price an LNG project could pay for gas. While Hides & a 2 train Antelope could provide an attractive development, particularly when combined with T3 cost synergies, we think most other gas resources are less attractive and would be marginal if developed to underpin expansion trains.

 While economics underpinned by 2P, expansion needs 1P — ExxonMobil has historically marketed offtake on a 1P reserves basis to maximizes the value of the molecules. LNG expansion is likely to hence need 3-4tcf of incremental 1P reserves per train, thus we expect Train 3 sanction will require both Hides GWC upside and P’nyang. Beyond these resources (ex Antelope), we think other resources are marginal to develop as expansion (T4), though could be developed as backfill gas."

As far as O'neill comments are concerned, I am just reading into what he says.  Why do you think Hession took the Total deal?  Because it was better than what Exxon was offering.  it preserved the upside.  Why did he get out of negotiations with Exxon?  Because they had no leverage.  They do now, and Total doesn't have to build an LNG plant.  They can partner with XOM/OSH on the PNG/LNG project along with IOC.  If it is a win, win why not?  And yes, it is speculation.  This entire message board is speculation.  That is what we are left with right now in a news vacuum.  

Good luck longs

Jdeo

Regarding Citi and OSH, see elsewhere.

"As far as O'neill comments are concerned", if he did not say it, don't say or imply he said it.

Regarding Total and that deal, you are right in that it was "better than what Exxon was offering" and "preserved the upside".  It also ensured development of ALL of PRL 15 (not just part of it as Exxon was after for PNG LNG) with an LNG project with substantial IOC ownership, which also provides expansion/development options for additional IOC gas from PRL 15 AND/OR elsewhere, all with the kind of strategic partner they were looking for.  You say IOC had no leverage with Exxon then.  Once Hession was able to bring Total and Shell back in, he did have leverage, and Exxon did not choose to bid to win.  Why would they now, and how could they offer what Total did, which now has closed contracts?  Total did not do this deal to build an expandable LNG project with the ownership it has and huge future potential, to turn around now and degrade its project by selling some of the gas for it to Exxon, unless they have not enough or more gas than they can develop, not likely at all from E/A or anytime soon, but which if the latter would be a supplemental deal and not a "rather than" like you're talking about. Management has closed and moved ahead with the deal they see as the best long-term strategy for IOC and its shareholders, and based on what I know now I agree with that, as I have for a long time, as unhappy as I am about what happened last year.  Trying to reverse all this and start over in the direction you are arguing for seems to me simply ridiculous.  You need more than "speculation", as you say, to support that.  I strongly disagree that, "This entire message board is speculation", and that is all "we are left with right now".  This forum has a great deal of solid, factual, rational information and analysis, and that is what you would need to provide more of.  Am I missing something of that nature?

Getit,

I am not saying it WILL happen.  i am merely arguing that a possibility does exist, and giving my opinion as to it's merits.  i still don;t know what you mean about my comments being harmful.  I stress that either outcome will be a good one for IOC.   I have never said once that if EA gas does go to PNG/LNG that it would be a bad thing, in fact it would be a good thing.  I referenced the deal in December because you asked me to explain my line of thinking regarding why Exxon would pay more now.  In painting that picture, I found it relevant to explain how we got to the deal with total.  I have no interest in rehashing it either, but I won;t ignore it when it has a bearing on a discussion here.  Yes, the Citi report is confusing.  I read it to state that EA would be a financially attractive expansion.  If I am wrong, ok, that's fine.  I am not hardline here about the gas going to PNG/LNG.  Again, I am just pointing out that there are still signs to ME it is a possibility.  If you disagree, again, fine.  You just seem to have the tone here that anytime I bring this up, it is harmful?  How?  PLease explain that comment.  Regarding speculation, I am not trying to say that there are no facts on this board.  If it came across that way, I apologize to every member and reader here.  But we all speculate from time to time on topics such as this.  JFT speculated earlier that Phii's body language implied there were buyout offers on the table.  how is that better than my opinion of what Oneill's comments may mean?  I think you should stop giving me advice.  I'm not trying to be rude, but I don;t care what you suggest I do.  it means nothing to me.  I am here to have civil discussions and learn something that will help shape my actions going forward.    This topic seems to be a hot button for you, and I have no interest in pushing it, yet I would like someone to explain to me how having two potentially good outcomes is worse than one potentially good outcome.

[kommonsents]

I agree with you, Jdeo, it is always better to have two potentially good outcomes than only one, especially with IOC, which is full of surprises.

There are those here just can't stand a NIH (Not invented Here) idea and will argue against it and the person that suggests it to the bitter end. We see that here all too often.

Much better to discuss all possibilities so that one can better understand all aspects and be in a position to make a decision rather than be so surprised as so many of us were on December 6.

At least that's the way it looks from here.

[jft310]

Kommon uses Common Sense hummmmm that's why that's his handle huh.

[Thylacine-2]

Jdeo, just one quick point....We have started drilling up our prospects. Assuming we have successes, we will need a market for the additional gas. If Exxon is the only buyer on the island we are screwed. Our leverage in negotiating any future sales of excess gas outside our own LNG project (E/A Total) depends on going ahead with our own project.

[jft310]

Thy
The IOC Board recognizes the possibility of more gas found outside PRL 15. They have incentives for Hession to sign a second deal. Hession can state give us our price for this gas outside PRL 15 or we will process it ourselves. The Board has created choices for Exxon pay up or lose out. They took the time to pass a package in case Exxon decides to pay up.

[jdeo1969]

Jdeo, just one quick point....We have started drilling up our prospects. Assuming we have successes, we will need a market for the additional gas. If Exxon is the only buyer on the island we are screwed. Our leverage in negotiating any future sales of excess gas outside our own LNG project (E/A Total) depends on going ahead with our own project.

Thy,

Go back and read my posts.  I agree with you completely.