Question 1. Likelihood of a Buyout in 2013 ... HIGH and before July; Share price ... $400+
I think that if there is a buyout, it has to be now instead of a Sell Down. IOC already has a 10% partner in Triceratops in PRE. If IOC is taken out, PRE would also be asked to give up their share of Tri in the takeover. That complicates things, but can be managed. If IOC sells a major portion of Elk/Antelope, and the project gets going in earnest, then the SD Partner would also be asked to give up their share.
A lot of majors seem to be coming up with Dry Holes around the world, thereby losing reserves on their books ... out is greater than in!
They are once again faced with the reality that small exploration companies such as IOC are more adept at finding oil, condensate and gas reserves than their own crackpot teams.
With 4 majors (Chevron, Shell, ExxonMobil and Total) plus several Asian National Oil Companies and Utilities ( PTT Thailand, PETRONAS Malaysia, PetroChina et al, JKM) all circling IOC, it's likely that at least one of them has already made a non-conforming bid for all of IOC. I would hazard a guess that a low-ball offer in the $6 Billion range is already on the table; to my opinion, it won't be accepted by the Board of Directors.
Now let's take a step back and look at Anadarko Petroleum (NYSE: APC) in the US.
Anadarko is the second-largest U.S. independent oil and natural gas producer and has been mentioned as a possible target for Exxon. One analyst has speculated the takeover price for Anadarko could be as high as $52 billion. If Exxon and its $18 billion in cash could move on Anadarko, so could Chevron with $22 billion in cash.
Recently, Bloomberg reported Anadarko's reserve replacement ratio last year was 148 percent compared to just 107 percent for Exxon. The company had total reserves of 2.5 billion barrels at the end of 2011 and is targeting 3 billion by the end of 2014.
Back to IOC ... the 9.3 TCF gas in Elk/ Antelope is equivalent to something on the order of 1.5 billion barrels of oil (equivalent) excluding the associated condensate. IOC currently controls 80% of that amount, with 20% in the hands of Partners that can be clawed back at some price. After the PNG Government takes their 22.5%, IOC is left with something over 58%.
If we take 58% of 1.5 billion barrels, that comes to 0.87 billion barrels. Add the Condensate and we come to about 1 billion barrels of oil equivalent in E/A.
Now suppose that Triceratops has roughly the same amount.
That total comes to 2 billion BOE owned by InterOil.
Now suppose the other IOC acreage in PNG has another 1 billion BOE.
=== we're up to 3 billion barrels of oil equivalent .... THE SAME AS ANADARKO WILL HAVE BY THE END OF 2014.
That begs the question: "Is IOC a potential takeover candidate at $52 Billion?"
The answer is surely NO.
So what is the logical amount that a winner would pay to acquire IOC in a bidding war?
ANSWER: at least $20 Billion. That comes to less than $7 per Barrel of Oil equivalent. That's a steal if you ask me.
With 48.59 Million IOC shares outstanding, that comes to $411.69 per share of IOC stock.
Chevron's stock price on Monday was $108.14.
In an all-stock takeover, we would get 3.81 shares of CVX per share of IOC.
Let's round that up to 4 and be done.
Question 2. Stock price for 2013 if a Sell Down but no Buy Out ... $120 per share at most.
The stock would still be at the mercy of SHORTS since political risk and project risk would be in-play until first shipments of LNG in 2017.
Question 3. What is it that makes me so Bullish?
The main reason I'm so bullish on IOC is that the Aussie land-based LNG projects are now suffering badly. The ones under construction will be completed at way over their budgeted costs (in-vogue description is "blow out" cost. New plants won't happen because they won't be able to get financing until the banks see what happens to LNG prices post 2020; project IRR's are unknown. Would you loan someone $35 Billion to build another one???
It's simply too expensive to drill so many holes in the ocean, gather the gas, pipe it to land and build massive plants in remote areas of Australia where environmentalists are fighting tooth and nail to stop them.
The PNG LNG Project, even at $20 billion, is less than half the cost of the Aussie Projects.
The Gulf LNG Project cannot possibly cost as much as PNG LNG. There is no project execution risk whatsoever if a major undertakes the Gulf LNG Project.
I don't understand this: "it's likely that at least one of them has already made a non-conforming bid for all of IOC."
I was under the impression that a buyout offer was a material event, and therefore would need to be reported.
"I was under the impression that a buyout offer was a material event, and therefore would need to be reported."
Of course it would. Kenny's contact works for the contractor that runs IOC's refinery in Port Moresby - unlikely he's sweeping the floor outside the data room.
Sentiment: Strong Sell
Thank you for this comprehensive overview. Really puts everything into perspective. I too think that now's the time for a slew of buyout offers to come to the table. I don't think the stock will be in the $50s ever again after today.
Sentiment: Strong Buy