PPS versus GLJ

[Putncalls]

It seems to me that the trading range is defined more by a NAV calcualted using GCA estimates.  A +50% -30% discrepency with the GLJ estimate makes me think that the two comapanies are using some very different numbers. A3 just seemed to confrm the A1 and A2 numbers.  RJ has been using the GLJ estimate. Others have been using the GCA numbers. IOC presents both  GCA and GLJ numbers.  I can see why OSH and TOT would prefer to use GCA numbers. I hope the difference isn't purely subjective.

[jft310]

Interoil booked the GCA numbers.

[Putncalls]

Interoil booked the GCA numbers.

I think that JFT just answered a common question. Please let me paraphrase the question I'm referring to. "Should IOC officers make decisions based on how the stock trades?". I suspect that IOC booked GCA numbers so that they could get a 300 million dollar loan. That means that operational based decisions trumps the daily PPS as it should be.

[Palm]

If one reads the 1Q financials (and it was discussed here after the release) you'll see their notes on how they monetized certain assets on the books. IOC used the GCA 7.1Ts to book its assets after the Total closing.

"Resource estimate used:
The cash flows listed above have been calculated using the best case scenario provided by Gaffney Cline & Associates
(“GCA”) of 7.10 Tcfe for the Elk and Antelope fields. GCA is a recognized certifier under the Total SPA. The interim
resource certification under the Total SPA will vary post the completion of up to three appraisal wells that will be drilled
within Elk and Antelope fields prior to the certification.

The above calculation also does not take into account any potential discovery bonus payable by Total to InterOil in the
event that the required exploration well to be drilled within the PRL 15 Area, but outside the Elk and Antelope fields, is
successful in identifying hydrocarbons.

When future resource estimates are received, the discounted cash flow analysis will be updated accordingly. The entries
to reflect the change would be to increase or decrease the financial asset based on the updated NPV calculation, reduce
any carried forward cost base on the balance sheet to zero, and the remaining balance will be recognized as profit and
loss."

[petrengr1]

Interoil booked the GCA numbers.

We have always said that IOC could not book reserves until we reach FID on a project that would allow us to sell the gas and liquids. Where did the idea come from that IOC booked the GCA numbers?

The first line on page 2 of the most recent IOC presentation says "It should be noted that we have no production or reserves or future net revenue as defined in NI 51-101 or under definitions established by the United States Securities and Exchange Commission. GLJ, an independent qualified reserves evaluator, effective as of December 31, 2013,
evaluated our gas and condensate resources for the Elk, Antelope and Triceratops fields, all of which are in onshore Papua New Guinea."

[Palm]

Pet, they did not book reserves, but they did use conveyance accounting using the GCA 7.1Ts to book a recovery of cost and a conveyance proceeds receivable which resulted in a Gain on Conveyance. This is spelled out in notes 6 and 7 of the Q1 2014 financials. As you say, Reserves come later.

"Note 6:
Conveyance accounting:
Based on the accounting policies followed by the Company, conveyance accounting is triggered on the sale of a property,
where applying judgment to the facts presented, it concludes that sufficient risks and benefits of ownership has passed to
the transferee. If a part of the interest in an unproved property is sold, the amount received shall be treated as a recovery
of cost. If the sales price exceeds the carrying amount of a property, or exceeds the original cost of a property, a gain
shall be recognized in the amount of such excess. As the Elk and Antelope fields do not have proved reserves as at the
date of accounting for this transaction, the amounts received are first treated as a recovery of cost, and only amounts
received over the carrying amount of property is booked as a gain on conveyance of the asset.
The conveyance accounting for the Total SPA has been accounted for in the quarter ended March 31, 2014. The
following table presents the cash flows and the resulting gain on conveyance that has been recorded for the quarter
ended March 31, 2014."

[jft310]

Palm is correct

[Getitrt2]

I'm afraid this "InterOil booked the GCA numbers" comment is a very vague and unexplained one that is causing a lot of confusion. It has nothing to do with booking "reserves" or getting a loan, or even the interest IOC still owns in PRL 15. In order to record the sale of part interest in the resources in PRL 15 to Total, including the part of the proceeds represented by the $401 million received from Total, and recognize the estimated capital gain on the sale in the Financial Statements, IOC had to use some estimated amount of gas resource being bought by Total (not the gas IOC still owns), to calculate from the pricing in the SPA the total amount estimated to be due from Total for that amount of gas, and "book" or record the receivable in the Balance Sheet. Look at it as an estimate of what will be due from Total, to be reduced by the $401 million paid, and to be adjusted in the future as appropriate. Given the GCA and GLJ estimates available, the SEC probably would not look kindly on their using the more aggressive estimates to calculate the capital gain, regardless of what IOC might consider more accurate. There is no "booking" of the interest IOC owns in PRL 15, based on any estimate, beyond the exploration and development cost previously spent, or invested, in PRL 15 and recorded by IOC.

As I posted this I saw that Palm had posted some helpful technical information on the accounting and what has been done. Hopefully, my attempt to explain my understanding of it more in layman's language is helpful as well.

[Putncalls]

You guys are doing a terrible job getting my daughter(half hearted CSU student) interested in business and accounting.

The GCA's 7.1 T's are not reserves but they are now part of the balance sheet is what I hear. The GCA estimate is not used because it may be more accurate it is being used because it is more conservative is also what I hear.

Given the 526E6USDs; the market's value of E/A is 63*50E6 - 526E6 + 0 for TBWR and others. This works out to 53$/sh or 2.75E9$ Given that TOT owes IOC 1.62E9$, IOC's 37% of E/A is then worth 1.13E9$ for 2.5 Ts.

[Getitrt2]

No, I do not think the "7.1 T's" are "now part of the balance sheet".

I don't get your numbers, but I don't really have time to try.