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InterOil Corporation Message Board

  • iocwhatmew5 iocwhatmew5 Nov 1, 2012 7:21 AM Flag

    Connecting some dots?

    I have long lamented that I was the only one on this or the SU board talking about the apparent significant concessions the PNG government would be asking of IOC, after it became apparent, shortly after the O'Neill re-election.
    Last night, when I was asked for the link to the lawyer assisted negotiations team by a couple of long time longs, it became apparent that I may have been the only one talking about it because I was the only one who noticed the information or that others failed to connect the dots. It seems also that other have failed to connect the dots between this PNG negotiation initiative and the latest revelations about IOC's offer to sell up to 50% of E/A to PNG; surely an attempt at resolution of those negotiations. Let me first lay the original information out in one place to help your understanding.

    Sydney (Platts)--22Aug2012/437 am EDT/837 GMT
The incoming government of Papua New Guinea plans to "give priority support to ensure the delivery" of InterOil Corporation's Gulf LNG project during its current term, Governor General Michael Ogio said Tuesday.

"In this regards the government will immediately establish a state negotiating team comprising of key agencies to negotiate a gas agreement with InterOil and its partners," Ogio told the opening of the newly elected parliament under Prime Minister Peter O'Neill, according to a transcript of his speech.

"The team will work with Petromin, the state nominee to ensure that the best gas agreement is negotiated," he said. "Specific consideration will be given to increased benefits for landowners, local level governments and provincial governments."

    Gulf LNG slips to 2017: report Friday, 24 August 2012 Blair Price
    Governor General Sir Michael Ogio revealed on Tuesday that the PNG government would establish a negotiating team which would work with the state-owned Gulf LNG partner Petromin to “ensure the best gas agreement” outcome. has not been able to find out much more at this stage, other than a Port Moresby-based source’s observation that of late some high-paid lawyers have been flown over from Sydney by the government.

    While it was clear as day to me that this new high-paid Australian lawyer led negotiating team would try to win some SIGNIFICANT concessions from IOC (and I said so here) when the up to 50% sale of E/A was proposed, the link was undeniable (at least in my mind). This was obviously the government's and IOC's preferred resolution to those talks. O'Neill and Duma gave it their blessing, because it was the resolution that came out of their team's lawyer led negotiations with IOC.

    I am guessing that these dots were harder for longs to connect because IOC concessions are not something longs like to connect, in contrast to all the happy stuff that pumpers admonish us to connect. The good news here is that IOC believes this is the best approximation to a win-win that could come out of the negotiations, and I am prepared to believe fully accept that. I let more sophisticated oil and gas industry deal experts make a more informed decision on how good a deal this is for IOC.
    It seems like a very reasonable win-win to me, especially because Tri is likely to be a similar monster to E/A, and they have many more likely prospects we could happily move on to discovering. My only disappointment here is that the market does not seem to think that this resolution is as much of a win for IOC as I do; but I hope that was because of the added uncertainty and not because fails to be a win for IOC. So be it. The die was cast after these late August "negotiation" developments.
    Good luck to all longs.

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    • Very insightful. And yes, it is fascinating that most IOC champions and SHU avoid this issue issue like the plague.

    • Is there a point in your post? Thank you for your arrogance and lamentations. It has been obvious to all, not just you, that IOC & PNG are in negotiations, so are IOC & multiple bidders, so are IOC, PNG, multiple bidders and the effected landowners and Governor in Gulf Province. Yes the devil is in the details and yes the details make the deal.

    • Thanks for laying out this information. I do remember reading both articles, but did not consider GG Michael Ogio’s comments at the time under the same light, given the current impasse.

      So the government, IOC and their respective lawyers have been working on a PA that will allow the project to move forward since the new administration was sworn in late August this year. In the give and take of negotiations IOC offered up the 50/50 solution on the ownership of E/A as outlined in the WSJ article.

      I agree, the suggestion that the bids were too low causing IOC to offer up gas to the Government is not supported by anything verifiable.

      We know the government is interested in the proposal, but we do not know its current status.

      We do not know if bidders were aware of the 50/50 offer, or in what way it could change their bids. The rumor that Mitsui is no longer a bidder and why has not been confirmed.

      We do not know how IOC will be compensated for the sale of gas to the government.

      We continue to be told by IOC that NEC approval of the project is expected “any day”.

      The current problem lies not so much with the bidders, but with the government. Encouragingly, both sides desire an expedited resolution.

      Sentiment: Strong Buy

      • 3 Replies to sfiaes
      • sfiaes, as you probably are aware now and as I mentioned elsewhere, management has described the rumor about Mitsui being out as "absolutely not true". I can also verify from very reliable sources that bidders not only were aware of the "50/50" offer but favored that and the corresponding changes in the Project Agreement.

        IOC and other current owners would be compensated at market prices for gas above the government's 22.5% option at cost.

        Sentiment: Strong Buy

      • sfiaes, it is my best guess that the devil is in the details of the agreements ( all the parties who have a stake in this reviewing this will be giving establishing their positions before NEC approval). As with pork barrel projects, everyone wants their share or more. With that notion in mind, it is no surprise that the deal is taking time to bounce around the members of the NEC before approval. I just hope they can reach some consensus among members of the NEC in a final plan that will satisfy them all in time for O'Neill's December deadline. Keep in mind that the more players you get involved in any decision (all with their own parochial interests), the longer it is likely to take to get agreement. This process will mean big potential dollars for lots of people on PNG. It is no longer a stable 2009 agreement that had already been hammered out.

      • sfiaes.......I would love to know, who or whom from IOC is telling you that NEC approval of the project is expected “any day”.

        Getting frustrated and I am losing too much money. I bought 1000 shares at 82 in 401k

        Sentiment: Strong Buy

    • Good post. thanks.
      PS Remember that according to the IOC/govm't proposal, the PNG govm't would pay market price[whatever that turns out to be]. Also, Phil had stated that the bidding process had bids that were multiples of pps valuation. If not, how can he possibly explain his statement away to investors?

      Sentiment: Strong Buy

    • Lest you miss it again, you don't hire high prices lawyers from Australia to give anything away. You hire them to wring out concession from the guy across the negotiations table (in this case, IOC). "

"The team will work with Petromin, the state nominee to ensure that the best gas agreement is negotiated," he said. "Specific consideration will be given to increased benefits for landowners, local level governments and provincial governments."

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