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Two of the following consultants will be used to determine the certified resource volume for the Elk and Antelope Fields: Gaffney, Cline & Associates, Ryder Scott, Beicip, Nederland Sewell & Associates, Inc. and Miller and Lents, Ltd.
Note this list does NOT include GLJ
Total must have vetoed the use of GLJ. They did include Gaffney, Cline & Associates, Inc. who had a lower number for the resource. Now we have to hope we can pick another expert consultant who will come up with a number at least as high as what GLJ had calculated. Maybe after drilling more wells Gaffney, Cline & Associates will also raise their number.
I believe they are supposed to drill two wells in 2014 and one well in 2015. They say they will drill "up to three" wells before certification so I guess it is possible that they could recertify after drilling only two wells.
After recertification IOC gets paid and they still have an option for another recertification if they think the drilling of more well(s) has increased the resource volume. If that happens they may be paid an additional amount.
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["They say they will drill "up to three" wells before certification so I guess it is possible that they could recertify after drilling only two wells."]
Yes. And this is actually a BIG deal, as the scale is increasing at the margin, you'll get the double whammy of not only more Tcfe's, but Total's rate per Tcfe goes up.
Based on GLJ's P50, they get:
- $4.1B ($4.2B in the CC) of variable payment (upon certification)
- $613M fixed payment upon deal closure
- Maintain 30% of PRL 15, although IOC will have to buy out 18.5% of the IPI/Civelli stake for that
This is handsomely above $6B (probably closer to $7B), and since most of it is in cash, and paid fairly rapidly (within 2 years), a discount factor won't do great damage to it. That is, it's more than double the present market cap ($2.5B)
But.. it's dependent on the GLJ P50 number (9.9Tcfe) holding in the new certification.
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Thanks Pet. Recertification I think spooks some people and the shorts use it to prove that SMs don't believe IOC. I have always assumed this is SOP for the big boys in these types of deals where bilins of dollars are being allocated. While some shorts doubt the resource, I haven't heard any challenge GLJ as a firm. I'm sure if there was some dirt there we would have heard of it. What is your opinion of thier reputation? Are they viewed as aggressive or conservative in their work, not implying either term is good or bad. Given that, how "off" could they be with we know now?
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'SamAdams' pid='33497' datel Wrote:Thanks Pet. Recertification I think spooks some people and the shorts use it to prove that SMs don't believe IOC. I have always assumed this is SOP for the big boys in these types of deals where bilins of dollars are being allocated. While some shorts doubt the resource, I haven't heard any challenge GLJ as a firm. I'm sure if there was some dirt there we would have heard of it. What is your opinion of thier reputation? Are they viewed as aggressive or conservative in their work, not implying either term is good or bad. Given that, how "off" could they be with we know now?
I believe they are as well qualified as the others. I have no reason to think otherwise. I think it is just that the Buyer wants the number to be low and the seller wants the number to be high. The Buyer has the big stick so he may have vetoed GLJ knowing their number was somewhat higher than Gaffney, Cline hoping for another opinion lower than the GLJ number or maybe they think GLJ was not conservative enough. Total gets to pick one expert from the list and IOC gets to pick one. I assume they will average the two results to get the official number to pay IOC from.
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Thanks Pet. They will average the two per the SPA. How much play is there in the recertification. I assume the science is the science but that these firms also know who's paying them. Do they provide just one low/best/high estimate and that's it, no discussion? I know with auditors, for instance, there are discussions with clients about accounting interpretations and applications but ultimately the rules are the rules and the auditors have to sign off on the financials. Imguessmhow much wiggle room is there for the buyer to low ball or force the consultant lower or higher?
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'SamAdams' pid='33499' datel Wrote:
Thanks Pet. They will average the two per the SPA. How much play is there in the recertification. I assume the science is the science but that these firms also know who's paying them. Do they provide just one low/best/high estimate and that's it, no discussion? I know with auditors, for instance, there are discussions with clients about accounting interpretations and applications but ultimately the rules are the rules and the auditors have to sign off on the financials. Imguessmhow much wiggle room is there for the buyer to low ball or force the consultant lower or higher?
Sam, per the SPA the two firms are to be hired jointly by IOC and Total.
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Thanks. It is in everyone's best interest to have more gas. MH structured this so hopefully we avoid a conflict by not having to certify by a set date. I think TOT will be more than happy to pay $1.29 for more gas.
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I don't see why recertification can't occur on the existing data. GLJ's job was to audit and interpret the data., not create it. All you are doing is wasting a year, unless of coursethe real agenda is to find and certify more gas.
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'mlbennetts' pid='33504' datel Wrote:I don't see why recertification can't occur on the existing data. GLJ's job was to audit and interpret the data., not create it. All you are doing is wasting a year, unless of coursethe real agenda is to find and certify more gas.
Well, there will be new data from the two, possibly three new appraisal wells. If you're going to commit billions of dollars, it's not that unreasonable to make extra sure what exactly you are buying, and there might also be a bit of gamesmanship, where Total hopes for a lower number and IOC for a higher number, and chosing third party's accordingly. These will be averaged, so there is a limit to that.
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IOC has had their resources certified multiple times. The data points on the 6 wells drilled at E/A agreed to by both parties are virtually identical. Hession informed us he has had multiple independent analyst look at the data. He clearly feels there is more gas than has been certified and has structured a deal to create upside for Interoil. The Elephant in PRL 15 has also been mentioned multiple times. To the extent all suitors were excited by this prospect. Again, he has created a "bonus" for additional gas found here. I love what he has done and fully expect an upside or significant upside to reource estimates.
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