Why should Total buy IOC?

[sageo]

1. They would be buying back the SPA agreement,  removing the risk that they may have to pay Exxon $1.00/ MCF for an unlimited resource volume.

2. They could probably buy IOC for less than they may eventually have to pay Exxon ie unlimited upside on resource payment.

3. They could proceed with Papua LNG and benefit for 20 - 30 years of LNG sales. If they proceed with Papua LNG they would no longer owe the FID payment, the first cargo payment and would not have the risk of having to pay more for the certification after production has commenced.

4. They would get 4 million acres, 35 prospects including Triceratops, Bob Cat and Raptor. That would give them a use for the millions of dollars worth of seismic and gravity data that IOC has acquired.

5. They could continue to benefit from the work they have already done in France and with the people they have brought to PNG. If Exxon prevails they will probably be reassigning personnel.

6. They would not have Exxon and OSH controling where the gas will be processed.

There are probably many more reasons that you can think of.

Pet -Good am to you . All EXCELLENT points,sir .As I ponder the OSH/IOC merger offering,I believe PB and PP decided to just "throw something up against the wall and see if anything sticks" . Since that now appears to be a failure (with the XOM offer coming in) , they will now consider "plan B" .

Art ,in another thread talking about our pearls mentioned " that string,if it in fact exists," ( I believe he was speaking about TOT being able to become the dominant player in LNG in SE Asia ) . Well it seems to me ,that with TBR surrounding E/A that the string is there ! At this time we just don't know how long that string is or just how large some of these pearls truly are . ...[in our 35 prospects ]

In future years,someone will write a story (or book) about the PNG reservoirs that Phil uncovered when he discoverd E/A . It will probably be an awesome story .

Good health to you and yours .

[2126]

For the attorneys on the board, Section 13.7 of the SPA has to do with Assignment: "Assignment A party may not sell, assign, encumber or otherwise dispose of its rights and obligations under this Agreement without the prior written consent of the other party provided that if, after Completion, the Buyer wishes to sell, assign, encumber or otherwise dispose of its rights and obligations under this Agreement, it must give notice to the Seller and further such sale, assignment or encumbering shall not be effective unless and until the proposed transferee expressly undertakes in an instrument reasonably satisfactory to the Seller to perform the obligations of the Buyer under this Agreement in respect of the interest to be transferred." Does this mean that Total must sign off on the sale of IOC?

No, I think this is legalese to provide that a new entrant must assure in written form that the SPA terms will be executed.  Hey, but I'm not an attorney!

Actually, this particular legalese does provide an obligation to IOC [Seller] to obtain 'prior written consent' from the Buyer [Total] before it sells, assigns, encumbers or otherwise disposes of its interest under the SPA. Under the OSH bid, this section of the SPA was essentially irrelevant, since Total was a party to the MOU with OSH, and would, of course, consent to the deal if the OSH bid had succeeded.

However, with the bid from Exxon, Total has an enhanced bargaining position vis-a-vis Exxon via this provision of the SPA. Total must approve of the sale of IOC to Exxon, unless Exxon and Total can renegotiate this particular term of the SPA, obviously in some manner that will benefit Total.

[Note: this is a poorly written contract provision in that it should be reciprocal [ie. provide the same obligations/benefits to each party]. Under this provision, Total need only 'give notice' to IOC and assure IOC that any new Buyer will uphold the SPA, if it wishes to sell its interest in the SPA.  IOC must, however, obtain written permission from Total to do so.

As I noted under a different thread [Bigger Picture-who controls the gas], Total also has another strong card in its hand from the terms of the SPA: that the Seller under the SPA [IOC, and then perhaps Exxon if it wins the bid contest] is obligated to vote for the Buyer [Total] to be Operator of E/A.

This gives two nice negotiation tools to Total that it can use to work out any number of side deals with Exxon regarding the disposition of the E/A gas as well as the viability of Papua LNG.

I also believe that there is still a strong possibility that Total will submit a superior bid to Exxon's. It has plenty of time to do so: any time prior to the final meeting/vote on the Exxon deal, set presumably for early September. As outlined by Pet and others, there are many very good reasons for Total to want to take control of IOC and its assets, particularly those beyond PRL 15. Total [or Exxon, for that matter] can always sell down various portions of IOC assets at any time after taking control, in order to finance part of any IOC purchase price. It goes without saying that IOC could have done the same, but that ship has apparently sailed [without any IOC shareholders on board].

[admin]

Actually, this particular legalese does provide an obligation to IOC [Seller] to obtain 'prior written consent' from the Buyer [Total] before it sells, assigns, encumbers or otherwise disposes of its interest under the SPA.

Industry people can better answer this question, but could Total actually veto the deal? I'm inclined to say this isn't likely, as the world of supermajors is small and they will have to cooperate elsewhere, but on the other hand, raw power plays are not unheared off in this industry.

[katytrader]

For the attorneys on the board, Section 13.7 of the SPA has to do with Assignment: "Assignment A party may not sell, assign, encumber or otherwise dispose of its rights and obligations under this Agreement without the prior written consent of the other party provided that if, after Completion, the Buyer wishes to sell, assign, encumber or otherwise dispose of its rights and obligations under this Agreement, it must give notice to the Seller and further such sale, assignment or encumbering shall not be effective unless and until the proposed transferee expressly undertakes in an instrument reasonably satisfactory to the Seller to perform the obligations of the Buyer under this Agreement in respect of the interest to be transferred." Does this mean that Total must sign off on the sale of IOC?

No, I think this is legalese to provide that a new entrant must assure in written form that the SPA terms will be executed.  Hey, but I'm not an attorney!

 Actually, this particular legalese does provide an obligation to IOC [Seller] to obtain 'prior written consent' from the Buyer [Total] before it sells, assigns, encumbers or otherwise disposes of its interest under the SPA. Under the OSH bid, this section of the SPA was essentially irrelevant, since Total was a party to the MOU with OSH, and would, of course, consent to the deal if the OSH bid had succeeded.

However, with the bid from Exxon, Total has an enhanced bargaining position vis-a-vis Exxon via this provision of the SPA. Total must approve of the sale of IOC to Exxon, unless Exxon and Total can renegotiate this particular term of the SPA, obviously in some manner that will benefit Total.

[Note: this is a poorly written contract provision in that it should be reciprocal [ie. provide the same obligations/benefits to each party]. Under this provision, Total need only 'give notice' to IOC and assure IOC that any new Buyer will uphold the SPA, if it wishes to sell its interest in the SPA.  IOC must, however, obtain written permission from Total to do so.

As I noted under a different thread [Bigger Picture-who controls the gas], Total also has another strong card in its hand from the terms of the SPA: that the Seller under the SPA [IOC, and then perhaps Exxon if it wins the bid contest] is obligated to vote for the Buyer [Total] to be Operator of E/A.

This gives two nice negotiation tools to Total that it can use to work out any number of side deals with Exxon regarding the disposition of the E/A gas as well as the viability of Papua LNG.

I also believe that there is still a strong possibility that Total will submit a superior bid to Exxon's. It has plenty of time to do so: any time prior to the final meeting/vote on the Exxon deal, set presumably for early September. As outlined by Pet and others, there are many very good reasons for Total to want to take control of IOC and its assets, particularly those beyond PRL 15. Total [or Exxon, for that matter] can always sell down various portions of IOC assets at any time after taking control, in order to finance part of any IOC purchase price. It goes without saying that IOC could have done the same, but that ship has apparently sailed [without any IOC shareholders on board].

  Having no legal training, but with some experience in untangling run-on sentences, I argue that this verbiage is saying that if either party after the SPA is completed wishes to sell all or part of its interest, it must get written assurance that the new buyer will fulfill all obligations under the SPA for whatever their share may require. Opening with "A party", instead of naming parties or using reciprocal language, is sloppy. I believe the actual intent was to require Buyer (TOT) to allow IOC to block in the absence of all the assurances that SPA would be followed by new party or parties.  In this instance, I believe this is why XOM laid out a number of specific things which would take place within the SPA after their purchase is effective because the language is unclear..  TOT could object if they believed that XOM would not completely assume IOC's rights and obligations under the SPA under the guise of TOT's permission being needed for the sale.

So I think this particular provision will present no obstacle and thus no leverage for TOT unless they want to waste time arguing.  I agree that the operatorship by TOT will not be affected unless TOT wants out (which I think highly unlikely).  I also agree with the several posters who have shown why a TOT bid is logical next step, after the timeline is set for the XOM vote.

[Stavros]

TOTAL will remain the "Operator" of WHAT?

At the moment, TOTAL is the "Operator" of the PRL15 asset ... NOT an LNG plant.

To my opinion, TOTAL will NEVER EVER be the "Operator" of an LNG plant if XOM acquires IOC because XOM/OSH (and then the PNG Government after they back-in) will all vote together to direct the gas to PNG LNG.

[Putncalls]

Who knows what this weak LNG market is doing to "attitudes"? RJ predicts that oil prices will continue to rise.

[jft310]

Then we have Electra's crystal ball "It will be an Exxon Island " from years ago . Not to say they are buying IOC the current bid price .