Westlake Securities does detailed analysis and projections for IOC's Pacific Rubiales deal. In addition to the development costs PRE will carry for IOC and the initial cash payments of $116 million toward their 10% net share of the Triceratops/PPL 237 resources, PRE will pay for the resources found as of the completion of the appraisal program less the upfront cash payments and carried capital expenses. The final resource payment will be calculated on the resource estimates after completion of the planned Triceratops-8 appraisal well. There is currently a third-party preliminary projected estimate for that of 4.5 Tcf. Based on the PRE deal terms and assuming a 79% recovery factor as used by GLJ for E/A, translating into a net 3.6 Tcf resource, Westlake calculates an estimated total final resource payment of $1.498 billion. After deducting the development carry in the deal and the $116 million resource prepayments, that would leave the net remaining final resource payment due over time at an additional $1.15 billion! Westlake, however, in a very conservative approach, has included no value for this in its calculated and risked NAV and current $115 target for IOC!
Sentiment: Strong Buy