Alignment of Interests

[davidhmtk]

Alignment of the interests of XOM and former IOC shareholders who will be entitled to a share of the Contingent Resource Payment is based on that the same appraisal/certification process will govern it as well as the Total/IOC SPA payment which will now be due to XOM.  This was not the case with the OSH deal, which extinguished the SPA as part of the side deal between Total and OSH.

Yes, but I see two issues.  First, and most important, as shareholders we don't have an advocate overseeing this process. Second, we have lost the second certification (as well as all other subsequent payments) to make us whole.

Of course the third is giving away for $0 everything else.

Your 3rd point is undeniable - XOM will collect the FID and completion pmts from Total.  As for points 1 and 2, note that XOM capped the CRP@10tcf, while Pinkie managed to get Total to pay uncapped.  So anything over 10tcf goes full to XOM, their interest and ours are aligned.

[sageo]

Alignment of the interests of XOM and former IOC shareholders who will be entitled to a share of the Contingent Resource Payment is based on that the same appraisal/certification process will govern it as well as the Total/IOC SPA payment which will now be due to XOM.  This was not the case with the OSH deal, which extinguished the SPA as part of the side deal between Total and OSH.

David - Good afternoon . Speaking about the Total/IOC payment, one of our fine board members (sorry,at this moment their name escapes me) recently stated that it would be irresponsible on Totals part to not make a counter offer over Exxon's offer. If I read his meaning correctly, it would be unfair to the TOT shareholders to just let this prize slip away. Hope my understanding was correct. Good luck to all patient longs.

[Putncalls]

Why would TOT have to pay XOM for FID if there is no Papua LNG?

[ArtM72]

Why would TOT have to pay XOM for FID if there is no Papua LNG?

Consideration given for change of obligation under PSA to pursue FID.

[CAC]

Why would TOT have to pay XOM for FID if there is no Papua LNG?

*****

True. No FID payment if no FID, but that number is peanuts compared to the real exposure.  If there is any collusion to keep cert numbers down now, that won't be possible after they've pulled out 11T's (in five years). This is a risk for TOT plant or no plant.

[Stavros]

The SPA between IOC/TOTAL is a very poorly constructed document, with many MANY elements open to interpretations.

A main one is the issue of FID.

The SPA defines FID as "Final Investment Decision" BUTT does not say what the investment is for!
Perhaps there's something in the JVOA, but the SPA doesn't make reference to the JVOA in terms of the FID Payment.

XOM can easily argue that undertaking ANY LNG Plant (be it Papua LNG or PNG LNG expansion) constitutes "FID" for the PRL15 gas.

[jft310]

What does an FID do it monetizes the gas . Which plant should not matter . I agree with Stavros .
Puts more pressure on Total to consider a bid . If eventually E/A has 12-16 T's as some think that second appraisal is a very heavy financial load for Total also more motivation to consider a bid . I can't imagine with the possibility of Total paying Exxon several Billion why they will not bid . But stranger things have happened .

[ArtM72]

What does an FID do it monetizes the gas . Which plant should not matter . I agree with Stavros . Puts more pressure on Total to consider a bid . If eventually E/A has 12-16 T's as some think that second appraisal is a very heavy financial load for Total also more motivation to consider a bid . I can't imagine with the possibility of Total paying Exxon several Billion why they will not bid . But stranger things have happened .

FWIW I can't imagine E/A having 12-16.  PRL15? Yes, possibly with AS. But what anyone familiar with the geology should want is that String of Pearls, including TB&R.  That string, if it in fact exists, would fuel Total's dominance of the Asia Pacific market given the likely cost structure for a major conventional field so close to that market.

[Li'loilady]

In looking for the answer to the original question of this thread, I did some certification numbers play.  XOM does not profit from the certification unless it's OVER 9.2 Tcfe.  So…to the extent that XOM has influence, they might want to play it towards really low (along with Total) or push it really high.

PAYMENTS RECEIVED BY:

7.2:  IOC $7.07 x 51.1M = $361 million.  AKA $0.90 x 1 = $0.90

7.2:  XOM .7T x $401M = $281 million. AKA $1.00 x .7T = $0.70

.

8.2:  IOC = $14.14 x 51.1M = $723 million.   AKA $0.90 x 2T = $1.80

8.2:  XOM = 1.7T x $401M = $682 million.  AKA $1.00 x 1.7T = $1.70

.

9.1:  IOC = $20.50 x 51.1M = $1.048  billion.  AKA $0.90 x 2.9T = $2.61

9.1:  XOM = 2.6T x $401M = $1,043  billion.  AKA $1.00 x 2.6 T = $2.60

.

9.2:  IOC = $21.21 x 51.1M = $1.084+ billion.  AKA $.90 x 3T = $2.70

9.2:  XOM = 2.7T x $401M = $1.083 billion.  AKA $1.00 x 2.7T = $2.70

.

6.5 and below XOM $0.  IOC:  6.5:  $108 million.  6.4:  $72 million

[petrengr1]

In looking for the answer to the original question of this thread, I did some certification numbers play.  XOM does not profit from the certification unless it's OVER 9.2 Tcfe.  So…to the extent that XOM has influence, they might want to play it towards really low (along with Total) or push it really high.

PAYMENTS RECEIVED BY:

7.2:  IOC $7.07 x 51.1M = $361 million.  AKA $0.90 x 1 = $0.90

7.2:  XOM .7T x $401M = $281 million. AKA $1.00 x .7T = $0.70

.

8.2:  IOC = $14.14 x 51.1M = $723 million.   AKA $0.90 x 2T = $1.80

8.2:  XOM = 1.7T x $401M = $682 million.  AKA $1.00 x 1.7T = $1.70

.

9.1:  IOC = $20.50 x 51.1M = $1.048  billion.  AKA $0.90 x 2.9T = $2.61

9.1:  XOM = 2.6T x $401M = $1,043  billion.  AKA $1.00 x 2.6 T = $2.60

.

9.2:  IOC = $21.21 x 51.1M = $1.084+ billion.  AKA $.90 x 3T = $2.70

9.2:  XOM = 2.7T x $401M = $1.083 billion.  AKA $1.00 x 2.7T = $2.70

.

6.5 and below XOM $0.  IOC:  6.5:  $108 million.  6.4:  $72 million

Li’loilady- Thank you for this very interesting information. So it looks like you have broken the code about the bidding by Exxon. I have used part of your table below and extended it to 10 TCFe:

7.2: IOC $7.07 x 51.1M = $361 million

7.2: XOM .7T x $401M = $281 million

8.2: IOC = $14.14 x 51.1M = $723 million.

8.2: XOM = 1.7T x $401M = $682 million.

9.2: IOC = $21.21 x 51.1M = $1.084+ billion.

9.2 XOM = 2.7T x $401M = $1.083 billion.

10.0 IOC =  $26.87 x 5.1.1M = $1.404 billion

10.0 XOM = 3.5 T x $401M = $1.373 billion

The maximum that XOM will have to pay to the IOC shareholders in the CRP is $1.404 billion ($26.87/sh) and Exxon will receive $1.373 billion from Total to cover the cost of their CRP payments. Exxon stands to benefit further from Total if the resource estimate comes in above their cap of 10 TCFe because the SPA agreement is unlimited on the up side. No CRP will be paid to IOC shareholders for any gas above their cap of 10 TCFe but Total is obligated to pay Exxon $1.00/MCF ALL gas above 6.5 TCFe.

So Exxon is paying IOC shareholders $45/sh for their 36.54% of the Elk/Antelope

Field and they are passing along the Total payments due to IOC shareholders for Total’s 40.1% of the Elk/Antelope Field. All Exxon is really paying for IOC is $45/share ($45 x 51.1 million shares) or $2.3 Billion. For this price they get not only 36.54% of the Elk/Antelope Field but all of the other IOC assets: remaining prospects in PRL-15 such as Antelope South, Raptor and Mule Deer, Triceratops (PRL39), Raptor, Bob Cat and ~4 million acres of licenses with ~35 more prospects.

As shown in the table below from the Total/IOC SPA:

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

Total was supposed to Pay IOC $0.80/MCF for that 1.1TCFe. I believe Exxon will still get paid for the 1.1 TCFe from 5.4 -6.5 TCFe at $0.80/Mcf which I think will amount to $353 million.

If Total does not build an LNG Plant they will never reach FID so there will be no FID payment of $457 million to Exxon for the gas from 3.5 TCFe to 5.4 TCFe. There will also be no first cargo payment of $65 million.

Let’s again refer to http://tinyurl.com/z4yzgue page 16. I believe the $517 shown for FID includes $60 million for the carry of IOC on three wells. This $60 million will be mostly recovered by Total from the certification payment that will be made to Exxon.

So how much is Exxon paying/MCF for this gas?

10.0 TCFe  $2.3 Billion/3.654 TCFe = $0.63/MCF

How much is Total paying /MCF at 10.0 TCFe?

Resource payment above 6.2 TCFE             $1.373 billion

Completion payment                                         0.401 billion

Resource payment to Exxon 5.4 -6.2 TCFe      0.256 billion

Resource payment 0 -5.4 TCFE                            0

FID payment                                                          0

First Cargo payment                                              0

Drilling Cost Est.                                                 0.120 billion

Personnel cost France & PNG                             0.052 billion

Total                                                                   2.202 Billion

10.0TCFe  $2.202 Billion/4.01 TCFE = $0.55/MCF

And how much per MCF if the resource level is just 6.2 TCFe?

Exxon:   $2.3 Billion/2.27 TCFe = $1.01/MCF

Total: Resource payment above 6.2 TCFe                  0

Completion payment                                                   0.401 billion

Resource payment to Exxon 5.4- 6.2 TCFe                0.256 billion

Resource payment 0 - 5.4 TCFe                                   0

FID payment                                                                 0

First Cargo payment                                                     0

Drilling Cost Est.                                                          0.120 billion

Personnel cost France & PNG Est.                               0. 052 billion

Total                                                                             $0.829 Billion

TOTAL $0.829 Billion/2.49 TCFe = $0.33/MCF

I doubt the Total will offer another bid because:

1. Exxon matched their original SPA bid for gas above 6.2 TCFe. Total may not want to go higher.

2. If the resource level comes in low they have obtained 40.1% of this massive field for ~$829 Million or $0.33/MCF.

3. If the resource level comes in at 10.0 TCFe they have obtained 40.1% of the field for  $2.2 Billion ($0.55/MCF) which is less than Exxon is paying for 36.54% of the field.

4. They sill own 40.1% of everything inside PRL-15.

5. Their gas is no longer stranded as it will be processed by PNGLNG.

6. They may prefer to turn over operatorship of PRL-15 to Exxon and reduce their overhead in PNG and in France.

I been wrong before and hope I am wrong again!!