JFT, Note 6 to the September 30, 2014 financials showed that they used more than just the $401 million in calculating their Gain on Conveyance from the closing of the Total deal. They assumed the 7.1Ts from GCA and also included $594 million and calculated the PV fo the expected cashflow. They ended up with a $340.5 million gain on conveyance from this calculation and that was reflected in the Income statement at Sept 30. Here is the disclosure from Note 6:
The conveyance accounting for the Total SSA has been accounted for in the nine months ended September 30, 2014. The following table presents the cash flows and the resulting gain on conveyance that has been recorded for the nine
months ended September 30, 2014.
Nine months ended September 30, 2014
Conveyance proceeds received 401,338,497
Conveyance proceeds receivable 593,887,729
Total 995,226,226
Discounted value of cash f low s 953,231,438
Less allocation against oil and gas properties in the balance sheet (611,939,426)
Less discounted value of cash f low s payable to IPI partners (752,001)
Gain on conveyance for the period 340,540,011
Conveyance accounting (excluding FID and cargo payments, and appraisal carry on wells within PRL 15) based on Gaffney Cline certified best case scenario of 7.10 Tcfe
No cash flows relating to final investment decision or subsequent first LNG cargo payments relating to the Elk and Antelope fields have been included within the cash flows calculation above. The discounted value of cash flows has been
calculated using a discount rate of 8.23%. In deriving the discount rate, management has used the risk free rate on US treasury securities and added a risk premium on lending for PNG.
On March 26, 2014, the Company also completed the acquisition from IPI holders of an additional 1.0536% participating interest in PRL 15 for consideration of $41.53 million satisfied by the issuance of 688,654 common shares of the
Company, plus additional variable resource payments if interim or final resource certifications exceeds 7.0 Tcfe under the Total SSA. Accordingly, the gain on conveyance for the Total transaction has been reduced by the discounted value of
cash flows that would be payable to the IPI holders assuming a resource estimate of 7.10 Tcfe.
At each following reporting period, the discount rate and the timing of expected cash flows will be assessed to take into account any changes to the underlying risk factors used in the calculation along with changes to resource estimates,
which will result in adjustments to the gain on conveyance.
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 SSA. The interim
resource certification under the Total SSA 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 area covered by PRL 15, 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."
