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Smoke and Mirrors
#1
What they are telling us and what they are not telling us.

Does anyone remember when we used to talk about the possibilities IOC had to move forward with the exploration of their ~4 million acres of PNG licenses? One of the options that was mentioned was to sell off all of the Elk/Antelope Field and use the money to drill and develop the other ~35 prospects.

Our brilliant Management has figured out a way to sell all of the Elk/Antelope Field and to give away everything else. The only thing OSH or Total or Exxon is paying for is the Elk/Antelope Field. Why didn’t our management just sell the Elk/Antelope Field and keep IOC as an independent Company for developing our ~4 million acres?  The answer is, of course, so that Dr. Hession would achieve a “change of control” of the Company and collect his (our) ~$39 Million.

Here is how this smoke and mirrors deal developed. It is an anti-Robinhood deal, ie steal from the poor and give to the rich.

First Hession struck a deal with Total to sell them 40.1% of the field and they signed the SPA that allowed Total to have their portion of the first 3.5 TCF for free. Then Hession agreed to let Total pay for the rest of the gas they are buying over time, ie the completion payment, the certification payment, the carry for drilling wells, the FID payment and the First Cargo Payment. So what have they paid us so far for their 40.1% of the Field? The completion payment of $401 million and the carry for drilling three wells which they recover from payments owed to IOC. So basically they have paid $401 million for their 40.1%. So we can quit feeling sorry for Total for having to pay IOC or our purchaser the certification payment. They are just paying for the part of the Field they bought. They have 40.1% of the Field but they have never paid for it.

Now comes the next stage of this development with the OSH proposal to buy IOC with Total support in the background. They want to start paying at 6.2 TCF instead of the SPA agreed 3.5 TCF. Here is what the SPA certification payments were supposed to look like:

Less than 3.5 TCFe - Zero
3.5 - 5.4 TCFe - $0.60/MCF (US$457 million to be paid at FID).
5.4 - 6.5 TCFe - $0.80/MCF
6.5 TCFe and above- $1.00/MCF

Under the OSH agreement they eliminate the FID payment so no one gets paid for the gas from 3.5 TCF to 5.4 TCF. Why is that? Because they never plan to reach FID on a Total operated plant.

Next they want to start paying at 6.2 TCF instead of 3.5 TCF. We lose our payments from 3.5 TCF to 6.2 TCF. Then they only want to pay $0.77/ MCF for all of the gas above 6.2 TCF instead of the agreed amount as stated above ie $0.80/MCF from 6.2 TCF to 6.5 TCF and $1.00/MCF for all gas above 6.5 TCF. And Dr. Hession and our BOD agreed to do this.
OSH offered us $40.25/share (in OSH shares) in addition to the certification payment. What are they really buying? They are buying IOC’s 36.54% of the Elk/Antelope Field.  And what are they paying?
$40.25/sh x 51.1 million shares = $2.057 Billion (in OSH stock). What are they getting? At the following resource levels this is what they are paying for IOC’s 36.54% of the gas:

Resource Level                  IOC’s Percentage              $/ MCF
        7.5 TCF                            2.7 TCF                           $0.76
         8.5 TCF                            3.1 TCF                          $0.66
         9.5 TCF                            3.47 TCF                        $0.59
        10.5 TCF                           3.84 TCF                        $0.53

So all they are paying for is the IOC share of the Elk/Antelope Field and they are not paying much for that. Again, why didn’t we just sell them the Field (since that is all  they are paying for) and keep the rest of our assets ie ~4 Million acres and ~35 prospects to develop plus, of course, Triceratops, Bob Cat and Raptor?

Now the next phase. Exxon sees this grand theft taking place and they say: Look at that, Hession is willing to sell the whole Company for a cheap price of just the Elk/Antelope Field. Let’s improve on this proposed theft and offer them a little more.

So they offer us $45/share in Exxon stock and payments for the certification results on the same format as the OSH deal but they offer 0.90/MCF instead of the 0.77/MCF for the gas above 6.2 TCF offered by OSH/Total. Note that they are still not paying us according to the SPA agreement where we were supposed to start getting paid at a resource level of 3.5 TCF.

So, once again, all they are paying for is the Elk/Antelope Field but Hession is throwing in everything else for free so he gets his “change of control” bonus of ~$39 Million.

What is Exxon paying for IOC’s 36.54% of the Field? $45/share x 51.1 million shares = $2.3 Billion.  What are they getting? At the following resource levels IOC’s 36.54% of the gas would be:

Resource Level               IOC’s Percentage           $/ MCF
      7.5 TCF                             2.7 TCF                     0.85
      8.5 TCF                             3.1 TCF                     0.74
      9.5 TCF                            3.47 TCF                    0.66
     10.5 TCF                           3.84 TCF                    0.60

And then the certification payment due from Total. Remember the payment schedule from the SPA agreement:

Less than 3.5 TCFe - Zero
3.5 - 5.4 TCFe - $0.60/MCF (US$457 million to be paid at FID.
5.4 - 6.5 TCFe - $0.80/MCF
6.5 TCFe and above- $1.00/MCF
But now this is the schedule they want to use:
Less than 6.2 TCFe - Zero
Above 6.2 TCF $0.90/MCF

Total will have to pay Exxon for their 40.1% of the Field according to the SPA agreement  starting at 3.5 TCF as shown above. So they will be getting much more from  Total than they are willing to pay IOC shareholders under the present Exxon proposal. They have a lot of room to improve their bid just to make the IOC shareholders whole based on our original SPA agreement. If they are buying IOC they are buying the SPA agreement which will pay them the full price but they are not willing to pay the IOC shareholders the full amount they will receive from Total.
Once again they are not paying enough just for the Field and yet Hession and the BOD are throwing in our ~4 million acres, ~35 prospects, Triceratops, Raptor and Bob Cat for free. Why not just sell the Field since that is all they are paying for and retain the Company as an ongoing concern to develop the rest of our prospects. It hard for me to understand how this smoke and mirrors, anti-robin hood, grand theft is supposed to work and how it ever got approved by our CEO and BOD. The only really good agreement that Hession ever negotiated was his EMPLOYMEFNT AGREEMENT!
The bottom line is IOC is no more. If Exxon is eventually the successful bidder there will not be a Papua LNG plant. Exxon and OSH will own a majority of  the field and the gas will go to PNGLNG for processing.
Total would be left with 40.1% of the field which is not enough for a two train development and they probably would not consider building a one train plant.

The only way for a Papua LNG plant to happen would be for Total to over bid Exxon in which case they would own the majority share of the field and could proceed with their planned project. They would be buying back their SPA agreement so they would not have to pay anyone the FID and First Cargo payment.

Hopefully the bidding will continue until we get a decent price for OUR field and Company.
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#2
You should save yourself a copy of that Peteng1.
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#3

The upshot is we shareholders should vote NO, and continue to vote NO on any of these deals until Hession realizes he can't sell us down the river. Then maybe he can sell E/A to XOM or TOT and leave the rest to PM's group, to do what they do best, find gas.

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#4
Pet, well stated and I agree on the gas most likely going to PNG LNG. And though some feel Exxon might push for a low certification I believe the opposite. By setting the limit at/above where 3 trains would be justified (especially to banks) and stating that Ant 7 will be drilled first, I think they would push for the highest certification.

Total has some real ciphering to do, but this likely isn't anything they didn't expect. I'd expect that they will make a counter bid using their stock as XOM US-listed stock is far superior to OSH stock and they must match that quality. They must show some strength in this and at least force XOM up.

Anybody's guess how many counters might be made, but IMO the SMs have a couple left.
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#5
Pet -

You've done with your commercial analysis what you've done so many times on the technical side. Many thanks. The best thing we might do is see to it such analyses are well publicized.

If we can keep the NO votes going for a year do you think that might undermine Hession's change of control bonus?
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#6

'ArtM72' pid='74269' datel Wrote:Pet - You've done with your commercial analysis what you've done so many times on the technical side. Many thanks. The best thing we might do is see to it such analyses are well publicized. If we can keep the NO votes going for a year do you think that might undermine Hession's change of control bonus?

No, I think we have already lost that one, short of a lawsuit to claw back his ill gotten gains.

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#7

'ArtM72' pid='74269' datel Wrote:Pet - You've done with your commercial analysis what you've done so many times on the technical side. Many thanks. The best thing we might do is see to it such analyses are well publicized. If we can keep the NO votes going for a year do you think that might undermine Hession's change of control bonus?

Is there any way that we SHUsters can turn this analysis into a press release and get it published on the PRNewswire?  If there is a cost, perhaps we can all pitch in a little?

BTW, how come PM and the Concerned Shareholders haven't been heard from lately?

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#8
The first smoke and mirror was how Total tried to do this deal from behind OSH curtain. XOM blew that up. Agreed that I would take XOM stock over OSH stock any day on so many levels. TOT stock works, but they must come out from behind the curtain.

Will they????
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#9
Fantastic piece of work, thanks a lot. The main problem is that our interests are not properly alligned. If a guy who is supposed to look after our interests get 50 million to do something which is not necessarily in our interest, we are asking for trouble. The mistake was his contract. Ofcourse we should sell the field (maybe keep a small percentage) and move on. We can do the same many times... if we have the right people, and ensure they only gain when we gain. This situation is crazy. And Peteng1's piece makes that cristal clear. We are getting shafted. Not too late though. As said before, vote no and keep doing so. It might just work. (But if you want mine, they are for sale-75-85 bucks). PM - where is the man with the plan?
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#10

'AU74' pid='74271' datel Wrote:

'ArtM72' pid='74269' datel Wrote:Pet - You've done with your commercial analysis what you've done so many times on the technical side. Many thanks. The best thing we might do is see to it such analyses are well publicized. If we can keep the NO votes going for a year do you think that might undermine Hession's change of control bonus?

Is there any way that we SHUsters can turn this analysis into a press release and get it published on the PRNewswire?  If there is a cost, perhaps we can all pitch in a little?

BTW, how come PM and the Concerned Shareholders haven't been heard from lately?

The answer is in the question you ask. This information should be sent to Phil and his gang and let them be the blowhorn.

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