"Interim Resource Payment" Date

[Kaliboo]

Apologies if this detail has already been hashed.  I invite your views and insults.

A re-look at the SPA (thanks JFT) says in clause 3.3(a) that the parties must  after completion of drilling and testing of "the last well under the Appraisal Work Program" must "promptly" ..."procure the Interim Resource Certification."

So clearly the timing of IRC is defined by the AWP.  Clause 6 defines this as referred in the glossary definition of AWP "for PRL 15 Field".

The AWP is defined in 6.1(a) as "comprising two firm appraisal wells.......".  Without reading further this to me means that the AWP is done when two wells are done and therefore both companies must "promptly procure IRC.

Clause 6.1(b) is a poorly worded clause which seems to imply that more appraisal wells than just the two in clause 6.1(a) can be classed as part of the AWP.  But this point is not explicitly stated.  They are appraisal wells no doubt but the question is by adding to the contractual definition of what comprises the AWP, they drag out the start of IRC.  So are they part of AWP or not? I suspect yes is the case.  I give these lawyers a low grade on clarity.  You have to start IRC at some clearly defined completion point.  What is it and when is it?  We will only know after the fact.

But then this renders 6.1(b) which is also poorly worded and provides no real quantifiable schedule, as useless.  It says in regard to additional appraisal wells "...that such additional well(s) shall not adversely affect the parties' objective to reach FID in the shortest practicable timeframe....".

I would conclude by the tone and unhappiness by many postings here that we are way beyond this language.

I guess adding the other rig will help but it seems the only real deadline driver is the government.

Unless IOC has cut staff to zilch it seems if we have cash and expectation of a lot more cash coming soon, then we should be conducting exploration and appraisal in a lower cost drilling environment on the other leases.  When you shut a program like that down, momentum goes to zero, knowledge, learning and experience rapidly evaporate.  It's very costly and slow to restart. You stop only if there's a significant unfavorable picture ahead and you need all the expected future cash.

The strategy clearly seems to be shifting on the other leases.  I suspect Hession is realizing he needs deals where others, not IOC, pay the majority or full cost of drilling and testing exploration and appraisal wells, at least until there is full certainty of the timing and amount of a recurring income stream.

Fwiw,

Kaliboo

[jft310]

My take is Oil Search and PAC have selected 2 of 5 designated SPA reservoir engineers . GCA and Netherland Sewell . OilSearch had stated mid second quarter 2016 for their report due date . The average of those 2 reports at a minimum will be reported to the market because Oil Search will be legally required to pay PAC any excess amount with a larger reservoir number. All the analysts will pick up on the new T number and adjust their Interoil numbers accordingly . When Interoil and Total announce will be less important from a size point of view because we now have a good fix on what our T estimate should be . The Total dollars will come (slightly different time per IR) because of a separate agreement . It will not be rocket science to estimate the Total payment . Could the payment vary a bit I would say yes to slightly . No reason to worry , mid second quarter the size issue is mostly resolved .

[Palm]

The agreement has some fuzzy parts, I agree. But as far as the AWP goes and then the call for certification, it's clear enough. You pull parts of 3.3a but taken as whole the intentions are clear. 2 appraisal wells (Ants 4 and 5) were selected as the "firm" wells. Then 6.1(b) discusses any further appraisal wells which take "into account the results of the first (2) wells" in the AWP. Crystal clear.

That clause then goes on to state that "one or more additional appraisal wells" in either or both Elk and Ant shall be considered as long as FID isn't adversely affected or the ability to drill the Carried Exploration Well (Ant S). So any appraisal wells have to be agreed upon by Total and IOC.

Then back to 3.3(a) the Buyer (Total's sub) must "procure" that the Operator (Total or it's sub) notifies Seller (IOC) within 5 business days of completion of drilling and testing of the last appraisal well.

Unless BOTH IOC and Total decide to an Ant 7, Ant 6 is the last ageed upon appraisal well. Doesn't seem likely at this point Ant 7 happens. And until spud is approved on Ant 6 by the govt, Ant 6 isn't guaranteed. If anything I can see the gov saying scrap Ant 6 as far as Certification and move ahead as soon as Ant 4 is complete.

IMO 6 is it as far as any extent for AWP and Certification. Chances very slim it gets extended unless they have problems drilling and completing Ant 6.

[sageo]

Apologies if this detail has already been hashed.  I invite your views and insults.

A re-look at the SPA (thanks JFT) says in clause 3.3(a) that the parties must  after completion of drilling and testing of "the last well under the Appraisal Work Program" must "promptly" ..."procure the Interim Resource Certification."

So clearly the timing of IRC is defined by the AWP.  Clause 6 defines this as referred in the glossary definition of AWP "for PRL 15 Field".

The AWP is defined in 6.1(a) as "comprising two firm appraisal wells.......".  Without reading further this to me means that the AWP is done when two wells are done and therefore both companies must "promptly procure IRC.

Clause 6.1(b) is a poorly worded clause which seems to imply that more appraisal wells than just the two in clause 6.1(a) can be classed as part of the AWP.  But this point is not explicitly stated.  They are appraisal wells no doubt but the question is by adding to the contractual definition of what comprises the AWP, they drag out the start of IRC.  So are they part of AWP or not? I suspect yes is the case.  I give these lawyers a low grade on clarity.  You have to start IRC at some clearly defined completion point.  What is it and when is it?  We will only know after the fact.

But then this renders 6.1(b) which is also poorly worded and provides no real quantifiable schedule, as useless.  It says in regard to additional appraisal wells "...that such additional well(s) shall not adversely affect the parties' objective to reach FID in the shortest practicable timeframe....".

I would conclude by the tone and unhappiness by many postings here that we are way beyond this language.

I guess adding the other rig will help but it seems the only real deadline driver is the government.

Unless IOC has cut staff to zilch it seems if we have cash and expectation of a lot more cash coming soon, then we should be conducting exploration and appraisal in a lower cost drilling environment on the other leases.  When you shut a program like that down, momentum goes to zero, knowledge, learning and experience rapidly evaporate.  It's very costly and slow to restart. You stop only if there's a significant unfavorable picture ahead and you need all the expected future cash.

The strategy clearly seems to be shifting on the other leases.  I suspect Hession is realizing he needs deals where others, not IOC, pay the majority or full cost of drilling and testing exploration and appraisal wells, at least until there is full certainty of the timing and amount of a recurring income stream.

Fwiw,

Kaliboo

Kaliboo Good day to you ! No insults and only thanks for your comments .Your second to last paragraph was especially important to our present situation.With the "lower costs drilling enviornment" that we are in right now,your suggestion is extremely valid imo.I know we face the 70 million dollar outlay in a couple of weeks, but the cost to drill the Raptor ST 1 now ,should be less than it would have been a few months ago.I hope your thinking will at least be given some serious thought by our execs. Thanks again for your past contributions to our cause. [ ps- my spouse is dreaming about the day your last 3 words start happening....."recurring income stream" ] Have a pleasant weekend.

[Kaliboo]

Thanks for the comments and please pardon my slip of cynicism.  Your responses are reminiscent of the more cordial, fun days on this board.I hope JFT is correct.  I think I may save that response on paper to keep it in mind.

I'm no lawyer but the contract was written when both companies were fully aligned with going ahead full steam ASAP.  The spirit and lack of specificity in the sections I referred to clearly suggest both companies gave little thought to the possibility of the world energy markets continuing to worsen to this degree and how such situations might test this agreement.  With 2020 hindsight as a shareholder I certainly would want to run the contract through that filter to strengthen the points around when I was going to get the big check.  I guess it's not surprising that IOC didn't think of that.  That' typical management behavior in oil companies when things are looking rosy.

I believe a new China effect could start manifesting in ~9 months or sooner when the next Chinese baby boom begins appearing literally.  Survey requests on the number of expecting mothers are at most only weeks away.   I suspect barring any really bad news in the world, that markets may start to become giddy with excitement at the thought of all this  new tidal wave of consumers and contributors to a faster growing GDP in China.  That can only help energy markets and IOC.  Hession should restart the exploration program and lock it in at lower costs before it's too late!!!!!

I've been pretty spot on predicting both gluts oil and gas, having seen and lived through a few downturns.  It would be nice to get this call right too.  Announced second and third round of layoffs by the SMs, usually the last companies to react, are a good sign.  My PETE child graduates in May with honors and the job market is abysmal.  My kid says no more than 2% have job offers.  I suspect 2 years ago 98% had job offers.  PETE enrollments should start plummeting.  Another good indicator that all elements are coming together for plummeting production and potential strong price rebound.

At the SPE Annual Technical Convention and Exhibition in Houston a few weeks ago, the outgoing president said 50% of the current upstream employees will be retired in 5 years; that's a global prediction.  The young kids left in the industry are analogous to leaving the cub scouts to fight WWII.  It's not going to be pretty.  Signing bonuses and retention packages are maybe 3-4 years away,perhaps much sooner, when the bidding war in the small market of talent and experience begins.  Very big mistakes will be made.  The seeds are planted.  Volatility will continue for the foreseeable future.  Availability of people with experience and skills will be the key restraint limiting production.  We have guys retiring who received a retention bonus to not leave the company just a few years ago and now are being paid a sizable incentive to leave.  Two large incentives being paid simultaneously.  Crazy!

My predictions fwiw.

Have a nice weekend.

Kaliboo

P.S.

I'll be retired from my super major employer in a month after 37 years of service mostly on GoM projects. A fulfillment of the above comment that I predicted a year ago.  Hoping IOC will delight all in 2016.

[jft310]

Kaliboo - Oil Search and PAC have a different deal which we have not seen . Based on Oil Search announcements they are not waiting on Ant 6 completion to proceed but maybe will include Ant 6 as it progresses in their reservoir analysis due mid 2nd quarter 2016 . No one can argue with a GCA and Netherland Sewell average number . But GLJ has proven to be the bright light , Mr David Harris is quite the engineer . It's possible the Feb 2016 GLJ report will get more credibility with the market based on their assessments being closer to reality than GCA . Most likely the Market will wait for the Oil Search average number sad to say .
It's also interesting to see Cheniere Energy buying gas at HH prices plus 15 percent (more than $3 today )for their project and Total buying gas from Interoil at @$1 per MCF . Proving Total should love the Interoil deal . Let's see who number is cheaper $1 or $3 plus for just the raw gas .

[Relker]

Apologies if this detail has already been hashed.  I invite your views and insults.

A re-look at the SPA (thanks JFT) says in clause 3.3(a) that the parties must  after completion of drilling and testing of "the last well under the Appraisal Work Program" must "promptly" ..."procure the Interim Resource Certification."

So clearly the timing of IRC is defined by the AWP.  Clause 6 defines this as referred in the glossary definition of AWP "for PRL 15 Field".

The AWP is defined in 6.1(a) as "comprising two firm appraisal wells.......".  Without reading further this to me means that the AWP is done when two wells are done and therefore both companies must "promptly procure IRC.

Clause 6.1(b) is a poorly worded clause which seems to imply that more appraisal wells than just the two in clause 6.1(a) can be classed as part of the AWP.  But this point is not explicitly stated.  They are appraisal wells no doubt but the question is by adding to the contractual definition of what comprises the AWP, they drag out the start of IRC.  So are they part of AWP or not? I suspect yes is the case.  I give these lawyers a low grade on clarity.  You have to start IRC at some clearly defined completion point.  What is it and when is it?  We will only know after the fact.

But then this renders 6.1(b) which is also poorly worded and provides no real quantifiable schedule, as useless.  It says in regard to additional appraisal wells "...that such additional well(s) shall not adversely affect the parties' objective to reach FID in the shortest practicable timeframe....".

I would conclude by the tone and unhappiness by many postings here that we are way beyond this language.

I guess adding the other rig will help but it seems the only real deadline driver is the government.

Unless IOC has cut staff to zilch it seems if we have cash and expectation of a lot more cash coming soon, then we should be conducting exploration and appraisal in a lower cost drilling environment on the other leases.  When you shut a program like that down, momentum goes to zero, knowledge, learning and experience rapidly evaporate.  It's very costly and slow to restart. You stop only if there's a significant unfavorable picture ahead and you need all the expected future cash.

The strategy clearly seems to be shifting on the other leases.  I suspect Hession is realizing he needs deals where others, not IOC, pay the majority or full cost of drilling and testing exploration and appraisal wells, at least until there is full certainty of the timing and amount of a recurring income stream.

Fwiw,

Kaliboo

As long as IOC is forced to cooperate with supermajors for developing new fields, it is wise not to hurry. IOC did a good deal with Total when prices for LNG were high. This is not longer the case. The decision to reduce the drilling is understandable. IOC can speed up when they strike a good deal. Two deals are in the air. A Japanese company wants to set up a chemical plant. PNGLNG wants a third train with P'Nyang gas. If this development is too expensive they have to look for other scenarios. During the Q2 update the Total CEO revealed ongoing negotiations with PNGLNG.  

[2126]

The SPA provides for a definitive definition of the 'trigger date' for the Buyer/Operator (Total) to call for the certification of the E/A field: the end of testing and completion of the appraisal well program. The provisions that A4 (including the sidetrack) and A5 are the first two appraisal wells is also clear. Adding A6 neccesarily adds a longer timeline to the testing and completion of the appraisal well program, but that delay (by adding to the gross resource total and, thus, increasing the Interim resoource payment) would seem to be in IOC's favor overall. Additionally, the delay caused by going forward with the A4 sidetrack, while also delaying the 'trigger date' and thus the IRP, also would seem to ultimately be in IOC's favor overall, by, again, adding to the upside for the resouce certification. All of the actions in the appraisal well program are designed to delineate the extent of the resource as completely as possible prior to actual production and, thus far, all of the drilling results of the appraisal program (per PET) have only added to the upside of the eventual certification numbers. I just don't see the problems that many seem to see in these delays.

[Putncalls]

The problem with the delays is the current share price.

[ArtM72]

At least the assignment of the new High Arctic rig to A6 seems both rational and indicative of an attempt to conserve cash while putting a (delayed) end to the appraisal process. Of course Raptor doesn't get drilled for a while but nobody really appears focused on finding more gas at this time.