12-08-2013, 01:25 PM
from IV poster Acadien
I congratulate Hession for such a brilliant deal. It is really tranformational.
By selling 60% of its interest in the Elk/Antilope field, IOC will be paid enough to participate at 30% interest in the LNG plant. This is the elephant in the room. They also keep the full upside of their other licences which i believe hold more Tcf of gas.
I listen to the Conference call and read the agreement. I assume that Elk/Antilope really hold 9.9Tcf, this is the best case estimate of experts. I also assume that the LNG plant will be build. I do not believe Total would spend $600 millions just to have a look.
The payments for the sell down should be as follows:
Completion Payment :$613 Millions in Q1 2014.
FID on LNG Plant Cst : $112 Millions in Q2 2015.
Interim Resource Payment (Based on 9.9TCF) : $700 Millions at FID,Q22015, and $2,623 Millions at Interim Certification,Q32015.
First LNG Cargo Payment : $100 Millions in 2019 (assuming 4 years CST)
For a total payment of $4.15 Billions. This is 88.2 cents per mcf for their interest sold based on a 9.9 TCF Total Resource. Also to note, there is no taxes on those amount.
Now the Elephant in the room :
With the sell down payments, IOC will have the financial capabilities to carry its 30% share of the LNG Plant.
Assuming a 2 train LNG plant with a total capacity of 9mtpa, also assuming $10 profits per Mcf which is not unreasonable, IOC would have pre-taxes profits of $1.5 Billions per year for 20 years just for Elk/Antelope, starting in 2020.
IOC will also have the resources to explore their other licences. For myself i do believe that by finding Elk and Antilope, IOC proved the prospectivity of their other licences. It is hard to place a number on that, but I believe it is huge.
And all this for a $2.6 Billion market cap. I double down on my shares yesterday. If the price stays below $60, I will double down again Monday. My only mistake was to buy call options,which placed myself at the Mercy of the market. I should have stayed with shares which place myself at the Mercy of the future.