Bigger Picture - who controls the gas?

[cybersssss]

Now that it appears that Xom will buy Interoil. Maybe.

Oil search has been trying to control the gas from the beginning. First via arbitration and then by attempting to takeover Interoil. The whole time it was about control with Xom. A clear opposition to total having control. If they have full control via a majority with Xom can that hurt total?

again. Just trying to make sense of how and why total would be ok with this

[Stavros]

Now that it appears that Xom will buy Interoil. Maybe.

Oil search has been trying to control the gas from the beginning. First via arbitration and then by attempting to takeover Interoil. The whole time it was about control with Xom. A clear opposition to total having control. If they have full control via a majority with Xom can that hurt total?

again. Just trying to make sense of how and why total would be ok with this

Cyber - - - I agree with you that logically TOTAL is not OK with this.

Their problem is they are already in somewhat poor financial shape relative to other major oil companies.

• They have a Market Cap of $111.53 Billion - - - so if they paid $3.5 Billion for IOC in an all share swop, it's over 3% diltion of their shares.
• They must pay a 5.2% Dividend on their Shares, which comes to $5.8 Billion. This is not sustainable for them unless Oil goes above $60 per barrel
• They've reduced thair capital spending significantly BUTT claim that projects will go ahead because Contractors are lowering their prices dramatically. THAT's NOT TRUE! Contractors only lowered their prices by about 10% and are now already raising them.

As a result of their situation, TOTAL have corporate rules on how to spend their money over the next few years. That's why they had to make the original statement that their support for the OSH Bid was within their stringent guidelines.

It will be very intersting to see what TOTAL (Phatprick Pouyanne) does over the next 6 weeks.

If they don't bid against XOM, TOTAL will probably stop development of Papua LNG and use their 40.1% share to become a minority shareholder of the much larger combined PNG LNG. XOM will continue to be the Operator.

If they do bid against XOM, it will be because they know that E/A and the other resources are much larger than they currently admit.

[ebster123]

Stavros, your last two points are spot on. Time will tell...

[ebster123]

Stavros, your last three points seem spot on and I suspect the last two are very accurate. I suspect this will all come to a flurry of activity come mid August/September with closure of everything by early/mid November. This will allow for final paperwork, dotting "i"'s and crossing "t"'s before books close year end. Pick your target and buy January 17 options. Time will tell...

[kkozkkoz]

How would the crp play into the 2017 options? Assuming the deal closes before then would the option be assigned before January? If the stock is below the strike would the crp be lost?

[2126]

Regarding who controls the gas from E/A:

Total is now Operator of the E/A field. This Operatorship is per terms of the Total/IOC SPA dated 3/26/2014.

Specifically, Section 3.10 [New PRL 15 JOA] which states:

"The Seller shall take and shall procure that its Related Bodies Corporate shall take all action under this Agreement and the PRL 15 lOA or New PRL 15 lOA (as the case may be) to facilitate the appointment of the Buyer or its Related Body Corporate as Operator and shall vote in favour of the appointment of the Buyer or its Related Body Corporate as Operator under PRL 15 lOA (or the New PRL 15 JOA, as the case may be).

Each party shall use its reasonable endeavours to procure that any other person holding an interest in the PRL 15 Title shall execute the New PRL 15 lOA and vote in favour of the appointment of the Buyer or its Related Body Corporate as Operator under the PRL 15 lOA (or the New PRL 15 lOA, as the case may be) as soon as reasonably practicable following execution ofthis Agreement."

These SPA terms obligate the Seller (IOC) to vote in favor of Total (Buyer) as Operator. It also obligates IOC to use its reasonable endeavors to procure that any other entity holding an interest in PRL 15 [ie. Oil Search, for the time being] also vote in favor of Total as Operator.

Assuming that Exxon will win the bid, Exxon will take IOC's place [as "Seller"] in the SPA, and be bound by its terms, including the obligation to retain Total as Operator.

Whether Exxon and Oil Search together hold a majority percentage of E/A is irrelevant under the terms of the SPA. Of course, Exxon can renegotiate the SPA with Total after taking over from IOC, but Total will be in the driver's seat to some extent by virtue of the terms of this portion of the SPA.

[jft310]

If Exxon and OSH team up in voting they out vote Total . Then theres the govt opting in and their vote . Gets interesting

[cybersssss]

Exxon and osh have aligned economic interests. Totals interest are currently different.

[jft310]

I can't see anyway Exxon let's Total off the hook for the SPA payments . In the OSH deal Total got a larger slice of the pie so that's what they want to achieve . If Exxon buys IOC their portion remains the same and they would not have a majority vote . The Total owned gas could be sent to the Exxon plant ..Total has this Singapore LNG trading office with possibly no LNG of their own in Asia .
Who thinks Total stands by and let's Exxon take over ???
Here's the way to look at it .

Minimum gas under Exxon bid

Exxon pays $2.5 Billion in stock and Total pays Exxon $1.2.Billion(T payment and FID payment ) in cash from the SPA.
Net to Exxon buying Interoil costs them $1.3 Billion

Max gas under Exxon bid

Exxon pays $3.5 Billion part stock part cash . But Total pays Exxon $2 Billion(T payment and FID payment
Exxon buying Interoil costs them $1.5 Billion .

Using the minimal numbers Total can bid $1.2 Billion more than Exxon and break even . Or Interoil investors receive $3.7 Billion , assume 51 million shares that's $72.549 per IOC share
Using the max numbers Total can bid $2 Billion more than Exxon and break even . Or Interoil investors receive $5.5 Billion . Assume 51 million shares that's $107.84 per IOC shares

Reality most likely Total would not bid the max and certifying the max is also suspect . But most posters on this board would say even at the $107 price we think we are being robbed .
Not our call though . The ball is in Total's court .

[Stavros]

Regarding who controls the gas from E/A:

Total is now Operator of the E/A field. This Operatorship is per terms of the Total/IOC SPA dated 3/26/2014.

Specifically, Section 3.10 [New PRL 15 JOA] which states:

"The Seller shall take and shall procure that its Related Bodies Corporate shall take all action under this Agreement and the PRL 15 lOA or New PRL 15 lOA (as the case may be) to facilitate the appointment of the Buyer or its Related Body Corporate as Operator and shall vote in favour of the appointment of the Buyer or its Related Body Corporate as Operator under PRL 15 lOA (or the New PRL 15 JOA, as the case may be).

Each party shall use its reasonable endeavours to procure that any other person holding an interest in the PRL 15 Title shall execute the New PRL 15 lOA and vote in favour of the appointment of the Buyer or its Related Body Corporate as Operator under the PRL 15 lOA (or the New PRL 15 lOA, as the case may be) as soon as reasonably practicable following execution ofthis Agreement."

These SPA terms obligate the Seller (IOC) to vote in favor of Total (Buyer) as Operator. It also obligates IOC to use its reasonable endeavors to procure that any other entity holding an interest in PRL 15 [ie. Oil Search, for the time being] also vote in favor of Total as Operator.

Assuming that Exxon will win the bid, Exxon will take IOC's place [as "Seller"] in the SPA, and be bound by its terms, including the obligation to retain Total as Operator.

Whether Exxon and Oil Search together hold a majority percentage of E/A is irrelevant under the terms of the SPA. Of course, Exxon can renegotiate the SPA with Total after taking over from IOC, but Total will be in the driver's seat to some extent by virtue of the terms of this portion of the SPA.

I AGREE that TOTAL remains as the "Operator" of PRL 15.

BUTT I've seen nothing that says how the partners decide where and how the gas and condensate are monetized.

After the Government backs-in, TOTAL will only have 31.1% ownership of the resources. It would be ...

• In the minority if the Gov't joins XOM/OSH to vote together to process the gas in PNG LNG
• In the majority if the Gov't votes WITH TOTAL to process the gas in Papua LNG

Also of course ... "Reasonable Endeavours" is weaker legaleze relative to "Best Endeavours"

Below is Section 1.4 of the SPA ... Clause c ) gives XOM an out:

1.4 Reasonable Endeavours

Any provision of this Agreement which requires a party to use "reasonable endeavours" or "all reasonable endeavours", or to take all steps reasonably necessary, to procure that something is performed, does not include any obligation:

(a ) to pay any significant sum of money or to provide any significant financial compensation, significant valuable consideration or any other significant incentive to or for the benefit of any person, except for payment of any applicable fee for the lodgement or filing of any relevant application with any Governmental Agency or fees to any professional advisers;

(b ) to commence any legal action or proceeding against any person, to procure that that thing is done or happens; or

(c ) to carry out any actions that would be detrimental to such party's business,