IOC Update re Call for Special Meeting

[Stavros]

I don't think he'll hold much longer if the changes he put on the table are not made NOOS.

[Putncalls]

He doesn't have a choice. If the gas is there he has to stay until certification. If the market is there he has to trust Total. If Hessian and crew get over-paid it doesn't matter much at this point.

[Paciottiman]

PM says that Hession is negotiating with Oil Search to aquire IOC. Hesssion would be CEO. We would get stock. Later,Hession would seek to sell the company to Woodside where he would become the CEO.

This is not a plan that would maximize value for us. The transparency emanating from IOC is DISGRACEFUL. The analysts following this company don't know what the hell is going on. We are the owners of Interoil. The management works for the owners.

There is a lot of chit chat on this board but not much in the way of street smarts.

[jft310]

Hession can negotiate a deal with Oil Search and the BOD could even approve same . But the shareholders have the final say in any sale . We get a vote . Yes or no , many of the shareholders have been invested for many years and have been waiting for monetization. The majority of shareholders seem to be long term and selling assets at the bottom of the oil cycle is not going to get a positive vote it would appear . Capital Research and Wells Fargo and others have not held the stock for years for a fire sale .
Right now we are very close to a payment and also possible monetization of TBR so it makes no sense to sell right now . Would Phil sell cheap ?. His actions say no , My opinion .

[2126]

RE: RSUs and 2016 Managment Information Circular for AGM

This from Cynthia Black at IOC:

"- One RSU converts to one common share, with time restrictions on the conversion. 

- The management information circular should be available in a few weeks. If you are a registered shareholder, you should automatically receive a copy by mail. It will also be posted on our website."

RE: Hession 'skin in the game"

If one buys shares with cash from one's compensation or one obtains shares as compensation, I see little difference in the final outcome: one has 'skin in the game'

RE: Speculation that MH is seeking to sell IOC to OSH and become OSH CEO, and then sell OSH to Woodside and become Woodside CEO.

Speculation is simply speculation. That is not 'street smarts' . . .

[Thylacine-2]

RE: RSUs and 2016 Managment Information Circular for AGM

This from Cynthia Black at IOC:

"- One RSU converts to one common share, with time restrictions on the conversion. 

- The management information circular should be available in a few weeks. If you are a registered shareholder, you should automatically receive a copy by mail. It will also be posted on our website."

RE: Hession 'skin in the game"

If one buys shares with cash from one's compensation or one obtains shares as compensation, I see little difference in the final outcome: one has 'skin in the game'

RE: Speculation that MH is seeking to sell IOC to OSH and become OSH CEO, and then sell OSH to Woodside and become Woodside CEO.

Speculation is simply speculation. That is not 'street smarts' . . .

The belief concerning MH's intention to sell IOC to OSH was attributed to PM.  If that is indeed PM's belief, it is likely supported by more than just speculation.

[jft310]

Actually the merger discusions about Interoil and Oil Search was discussed in the AFR, article posted on this board by me several weeks ago , maybe Phil read the article ??

[Kaliboo]

It seems that some members of this board don't really appreciate the value of an experienced and diverse board of directors for a small O&G exploration company operating in a developing country in SE Asia that has entered into a multi-billion dollar agreement with one of the largest major oil companies in the world. IOC has positioned itself to move into a very different phase of its existence in the near future: that of participating in the design, financing and construction of a multi-billion dollar LNG plant, including all of the attendant social, environmental, legal, engineering, design, financing, and construction aspects that such an endeavor entails. As of December 2013, IOC is no longer a small independent company pursuing gas exploration on a small island nation. When it entered into the deal with Total, it became a major partner in a very expensive and wide-ranging international development project.

Since that time, the IOC board of directors has moved to solidify and expand the expertise that it has available to bring to bear on the increasingly complex decisions that it must make. The BOD now has 9 members and their experience and expertise spans a range of qualifications and expertise that were not necessary in the 'old' IOC, but are highly valuable to IOC now and in the immediate future. IOCs current BOD has much greater depth in O&G financing and large-scale capital projects as well as greater experience in the PNG/Asian banking and development arena. To review a bit: the IOC board now has:

• Chris Finlayson: a geologist, physicist and petroleum engineer with over 37 years experience, including 33 with Royal Dutch Shell, with extensive experience in large-scale capital projects in Russia, Africa, Asia, and Europe.
• Ford Nicholson: a financial executive with extensive experience with the financing and development of energy projects worldwide.
• Chee Keong Yap: a financial executive with extensive experience in the Signapore/Asian/Australian financial arena
• Sir Kermit Wilson: recently retired Chairman of the Board of the Bank of Papua New Guinea and current member of the BOD of the Asian Development Bank
• Roger Lewis: finance executive with over 20 experience with Woodside, most recently as its Financial Controller
• Sir Rabbie Namaliu: former Prime Minister of Papua New Guinea, former Speaker of the PNG Parliament and former PNG Minister of Foreign Affairs and Trade
• Dr. Ellis Armstrong: petroleum financial executive with over 30 years experience with BP, finishing as the Chief Financial Officer of its global exploration and production group
• Katherine Hirschfeld: an engineer with over 20 years experience with BP on projects throughout the world, finishing her career as Executive Director of BP Australasia
• Isikeli Taureka: Executive Director of Papua New Guinea and former executive with Chevron Asia (including as former President of Chevron Texaco China Energy) and with extensive petroleum financing experience

This is not pumping--these are simply the facts surrounding the current IOC BOD. In the very near future, IOC will be entering a a very difficult phase of its existence: handling a massive influx of funds from its Interim Resource Payment from Total, preparing for the upcoming FEED and FID for a world-class LNG plant development project and, equally important, fending off likely takeover attempts while negotiating potential sell-downs of some of its non-E/A resources, while planning further exploration of its PNG acreage. Personally, I would not want IOC to enter into this next phase with a BOD with less range of experience and knowledge than the current board.

Thanks for pointing all this out.  It definitely gives me pause to rethink whether reducing the board size is appropriate.  I don't really know the answer, but here's some thoughts after 37 years as an engineer at a super major.

1.  IOC is not the operator.  They are not leading.  Total is.  I'm sure there has and will be a lot of jointly shared work.  On major projects I was involved with, we had jointly staffed teams with managers and technical staff seconded to our company to work on the project.  I think that's the case here to some degree, but IOC it would seem has input only on the upstream part and very little input on the downstream, LNG part.  On other big projects we did not operate, we sometimes had a one or two man shadow team monitoring everything and spending a lot of time doing it, depending on our working interest.  On smaller projects we would have one guy accountable as the JV technical/business contact, but he would tend to it only when we needed something from them or vice versa, such as approving a plan or AFE.  Clearly, for IOC this is not just a big project, it is the whole future of the company for the next several years to come.  It is right to be involved in every aspect as much as possible.

2.  IOC previously had a lot more influence in the country, directly employing lots of people in the upstream and downstream business.  Now it's much closer to zero in terms of direct employment.  Seismic and gravity surveys account for what's left.  To recoup that clout to a degree, one way is to hire a large prestigious board.  I see this as buying influence, prestige and protection against what bad things might be lurking down the road.  This is a fresh improvement over the days when the "brother-in-law" was on the board.  The mere sound of "having your BOL on the board" immediately evokes a perception of corruption and disception, no matter what the reality is.  So in that since it is laughable that PM is telling them what the BOD should be, but at least he is consistent.  I think having the lease rights is a lot of clout, but controlling or employing people is major and IOC no longer has that type of influence.  Selling off the refinery also decreased a lot of influence and visibility.

3.  IMHO shareholders have been screwed both by PM and MH and their boards.  They both have their good points and their many great disappointments.  The only reason anyone is invested here is because the size of the E/A resource plus the rest is tremendous.  I, apparently like the rest of you, am still in it because I think/hope/pray the resource will prevail over all the failings that management and the market can throw at it.  And I believe demand for LNG and the lower cost in PNG will continue to make this a top project and opportunity.  But greater transparency and providing more explicit and timely progress communication to shareholders is badly needed.  Again it is ironic that PM is the engine driving this.  But this type of thing fits well with the ongoing soap opera that is IOC, which provides great entertainment, frustration, excitement, and something to do for the members and readers of this board.  What price tag would you put on that?  Sure beats cable TV and cutting the grass.

4.  A question is what actually are the individual BOD members contributing?  It does seem top heavy.  But all it takes is one influence, one guidance, one connection that can make all the difference in the world.  At this juncture prior to FID, it seems wise to err in the direction of having way too many.  There's a Bible passage that strongly advises that success is best assured in having plenty of wise counsel.  I think now, more so than ever before where huge future investments are at stake, is the time to risk having too many.  The cost of too many is inconsequential at this point.  At some point after FID after most of the biggest decisions and financial commitments are made (I don't know when), revisiting the BOD composition probably makes sense to "right size" the board.

5.  Regarding skin in the game.  As long as MH and others are not dumping large numbers of shares, then he has skin in the game with the shares he has if the numbers in these postings are correct. In this low price environment it is disturbing to see that he has not accumulated more on the open market.  That is a negative signal.  But he is not dumping.  I received numerous shares via ISOs, RSUs and ESPPs most years later in my career.  It was a good enough amount to where I didn't want more exposure.  But I wasn't CEO where my direct actions would actually change the stock price. After a few years of accumulating shares I realized my investment in my company wasn't delivering what I hoped for, so I began dumping shares.  And then every year I received new shares, I along with many other guys I talked to immediately dumped the shares as soon as they were given to us.  Many of us saw better opportunities elsewhere.  So contrary to what virtually all articles say about senior managers selling shares as being a nonevent, I don't agree here.  If MH sells any, it's a very bad sign, and as they always say, if he buys any, it's a great sign.  So of the 3 options - buy, hold, sell - things could be worse, so I'll tolerate that.

In summary, I favor efforts to improve transparency, and to provide more explicit and timely updates.  I probably wouldn't tamper with the BOD now.  IF PM and others succeed in reducing the BOD now, then it may significantly harm the company's reputation and credibility in the future and will give PM perhaps too much power as a sort of pseudo CEO, which I suspect is what he really wants.  Giving PM the appearance of having the ability to disrupt IOC management, might in an of itself be viewed as a negative by the market because it's PM doing it, whereas if it was anyone else, that wouldn't be the case.  Clearly with today's press release it looks like it will be a win/lose outcome instead of a win/win, i.e., with the players being PM and his immediate group vs. IOC BOD and senior management.  Where the rest of us will end up in this is not clear to me yet.  Mr. Market will decide.

Just my thoughts FWIW,

Kaliboo

[2126]

Very good analysis, Kaliboo.

[2126]

It may also be a good idea to review what exactly PM et.al. are seeking. They are seeking to have a special shareholders meeting at which all shareholders would be able to vote on the following proposals:

• reduce the size of the BOD from 10 to 6
• change IOC executive compensation policy to 1) reduce the amount of cash paid to $600K/year max, 2) require compensation to be at least 50% equity, 2) impose holding periods for stock compensation (actually to restrict the sale of any IOC stock to no more than 50% of director/officer's holding while employed and for 1 year after) , 3) restrict 'change of control' compensation payments to not allow such unless the IOC share price is over $60 and also over the share price when the office/director was hired or pro-rate the compensation respectively
• amend BOD policy on board member's qualifications to require 1/3 of directors to have competency in exploration/development of onshore O&G assets in the "PNG jungle"
• amend BOD policy of third-party reviews of assets to increase communication to shareholders regarding discoveries and development plans, specifically that the BOD disclose 1) why a discovery location is considered 'commercial' by the BOD, including the BOD views and assumptions on the cost of development, including specifically overall cost breakdowns for wells and development,) 2) likely markets for the production from the discovery, and 3) what update such discovery may imply to the company's annual resource reports
• amend BOD policy to insure that any resource evaluation companies retained have expertise in evaluating assets in the "PNG jungle".
• amend IOC charter to require shareholder approval of any sale of 10% or greater of IOC assets
• adopt a more rigorous disclosure policy by BOD to insure that shareholders "understand fully the exploration and development status of the Corporation's onshore licenses and development assets in the Papua New Guinea jungle"