How I'm looking at my InterOil investment now that the bidding might be done.

[SupaSage2003]

Hey Guys,

Here is how I'm looking at the Exxon deal at this point.  Based on the calculations below, the market is only pricing-in a 59% probability that there is 7.2 Tcfe of natural gas at certification post-Antelope 7.  Given Botten's interview on Bloomberg, where he let slip that there could be 3 trains with only "modest appraisal success" (i.e., Antelope 7) and Exxon's payment cap at 10 Tcfe, it seems that there's still a chance that there is 10 Tcfe.  At the current share price of $49.20, the market is only pricing-in a 16% chance of the certification coming out at 10 Tcfe.

Personally, I think that there's a decent chance that there is 8.2 Tcfe.  However, the current IOC share price is only pricing in a 30% chance of E/A being certified at 8.2 Tcfe, which seems a bit low to me.  Importantly, if anyone buys IOC shares now with the hope that there is 8.2 Tcfe at certification, he/she would be getting a good risk-reward of 2.2-to-1.  The reward would be the incremental upside of $9.94 per share (to $59.14 per share), while the incremental downside would be $4.20 per share (to $45 per share).  Seems like a reasonable bet to me.

If post-Antelope 7 certification ends up at only 7.2 Tcfe, you would still make a 6% return from the current share price, which doesn't seem too bad to me given the low interest rate environment that we are currently in.

If you think there could be 10 Tcfe, the risk-reward is really attractive at 5.1-to-1!

*** If you like this analysis, please click the "Give Reputation" button below (the green plus sign with the person next to it).   Thanks!***

Base	Resource	Incremental	Additional	Total	Upside	Upside	Downside	Implied	Risk-
Payment	(Tcfe)	Tcfe	Payment	Payment	($ / share)	%	%	Probability	Reward
$45.00	6.2	0.0	$0.00	$45.00	-$4.20	-9%	-9%	---	---
$45.00	7.2	1.0	$7.07	$52.07	$2.87	6%	-9%	59%	0.6
$45.00	8.2	2.0	$14.14	$59.14	$9.94	20%	-9%	30%	2.2
$45.00	9.2	3.0	$21.21	$66.21	$17.01	35%	-9%	20%	3.8
$45.00	10.2	3.8	$26.87	$71.87	$22.67	46%	-9%	16%	5.1
	Current IOC Share Price	$49.20
	Implied Option Value	$4.20

[ArtM72]

Really interesting analysis but I sure don't think your thread title is accurate.

[SupaSage2003]

Really interesting analysis but I sure don't think your thread title is accurate.

Good point.  I've modified the title, hoping for the best!

[AU74]

I'm considering backing up the truck to load up even more shares. So much upside and almost no downside, even if TOT and others are really out.

[jft310]

Watch oil prices if it stays weak there may be an opportunity .

[Theman12345]

Here we go again! Always the same issue but hidden in the wording. Exxon deal cuts off the upside at 10 TCFE, but includes the must have of drilling A7. If you think they do not already have a good idea of the gas in A7 we deserve to be ripped off. MH and many others have stated several times in the past how big A7 and the rest of our licenses hold. That is why we are capped at 10 TCFE. Exxon knows there is at least 12-15 TCFE in discovered gas already, not even counting the rest of the acreage. I also believe Total has a prepared bid ready to go at a moments notice. I just do not know where the slight will come from that will get them to put it in.

[ebster123]

My two cents, the bidding is far from over. I don't believe for a minute that TOT is out. We were lead to believe XOM was out after the Oil Search bid and this was not the case. The SM's are playing high stakes poker. IOC is a juicy whake carcass floating in the waters off PNG. There have only been two sharks feeding and regarding the TCFs, we only see the body above the surface but there is more underneath and the Sharks have a better view (and have seen from below/data room) than we do from above. I suspect we will see more feeding before this carcass is gone. Time will tell...

[Lexinvest]

SupaSage2003 I appreciate your probability analysis. The math is beyond me. However I speculate those probabilities are Not just for the Present Value of the size of the natural gas at certification post-Antelope 7, but also include other factors as well.

I voted my few shares NO. I have read that others are voting NO as well. I voted NO and expect to continue to vote NO – until I feel that I have achieved about the Best Deal I can expect out of Interoil (which is likely much less than what I think its Fair Value is).

It looks like the Market is saying -- that probability is very Small. Any idea what the probability that enough Shareholder’s vote NO to stop the Sell Out?

[ebster123]

SupaSage2003 I appreciate your probability analysis. The math is beyond me. However I speculate those probabilities are Not just for the Present Value of the size of the natural gas at certification post-Antelope 7, but also include other factors as well.

I voted my few shares NO. I have read that others are voting NO as well. I voted NO and expect to continue to vote NO – until I feel that I have achieved about the Best Deal I can expect out of Interoil (which is likely much less than what I think its Fair Value is).

It looks like the Market is saying -- that probability is very Small. Any idea what the probability that enough Shareholder’s vote NO to stop the Sell Out?

TOT and XOM have every reason to keep the price down and I do not trust the market.

[ArtM72]

My two cents, the bidding is far from over. I don't believe for a minute that TOT is out. We were lead to believe XOM was out after the Oil Search bid and this was not the case. The SM's are playing high stakes poker. IOC is a juicy whake carcass floating in the waters off PNG. There have only been two sharks feeding and regarding the TCFs, we only see the body above the surface but there is more underneath and the Sharks have a better view (and have seen from below/data room) than we do from above. I suspect we will see more feeding before this carcass is gone. Time will tell...

I agree, but you've overlooked how tightly data has been held by IOC since the start of Hession's tenure. To extend your metaphor, the whale carcass is floating inside a cage in which there may only be two sharks.