Shareholders: FWIW :
When the deal is announced, shareholders need to keep in mind that:
1. Bidders are NOT using GLJ numbers of 10 tcf in their calculations for E/A bids;
2. Bidders are using Gaffny numbers of roughly 6 tcf for their bidding purposes;
Thus, when the deal is announced, it is important to keep in mind the obvious that the sales price per mcf
will be higher using a denominator of 6 tcf rather than 10.*
I point this out not to disparage or argue the ultimate amount of tcf but merely to be aware that there might be a market reaction to the ''perceived" sales price per mcf.
* One can obviously also argue that: if bidders are currently using 6 tcf and not IOC's 10, then the current pps discount is not as great as is discussed on SHU.
Hopefully, whatever the final deal is, there will be some financial protection to shareholders if there proves to be the 10 tcf that IOC claims, eg. payment for the additional 4 tcf.
Just something to think about and discuss. Keep an open mind to the ramifications of the above.
spieks, your logic and conclusions here are grossly flawed. The primary issue with the total amounts of the resource estimates is whether there is enough gas for the planned project, and all bidders now have a high level of confidence in that. Assessment of that would also affect up front and later near-term staged money, but no partner is going to pay for some total estimate of gas up front. The sell down price per mcf will be a key agreement data point that will be more real and consistent than you claim. It will not be a price simply calculated from some total purchase price based on either certified number, but will work more the other way around. The ultimate total amount paid for the gas will vary directly with the actual future production, and be "obviously", as your say, more for 10 Tcf than for 6 Tcf.
Sentiment: Strong Buy
"The primary issue with the total amounts of the resource estimates is whether there is enough gas for the planned project, and all bidders now have a high level of confidence in that."
This is true. This issue is now firmly behind us., as long as you are conservative and don't assume more than one train, at first.
Where I may disagree with you is:
"The ultimate total amount paid for the gas will vary directly with the actual future production.."
I hope you're right, sincerely and there are numerous ways this could be achieved.
However, have you considered if E/A is sold out right for a definitive amount?
Remember, with gov't involved and Phil now gone, ANYTHING is possible.
Understand, I want IOC to be rewarded on maximum tcf, and hopefully it IS 10 tcf at E/A.
mspieks, do you know what the year end 2012 Gaffney 2C resource estimate was post Antelope 3? Gaffney assumed a steep well spacing discount prior to Antelope 3, so with the confirmation of reservoir continuity across the center of the reef, do you really still believe that the estimate is stuck between 6 to 7 Tcf? Page 7 of IOC's last presentation states, "Resources confirmed by two internationally recognized independent reservoir engineers". There's a slight possibility that one of the two they're referring to is Knowledge, but they definitely seem to be referring to Gaffney and GLJ.
Sentiment: Strong Buy
I do not know if GC has updated their estimates. It seems everything related to GC numbers are shrouded in mystery by IOC. As you know, IOC went so far as to deny the GC report until it was "leaked" in January 2012.
They commissioned the report through their subsidiary/affiliate/whatever: Liquid Nuginea ( sp).
The last word was that bidders ( and GC) wanted additional wells drilled: hence Elk3 .
Finally, A3 didn't appreciably increase GLJ numbers.
Others have posited that A3 wasn't the blockbuster that IOC hoped for.
There was even talk on SHU that it was a slight disappointment
Those are my 2 cents.
Keep up the good work.,
MS has no clues as to the new estimate. He just likes to bash IOC. Facts who cares he says just make it up. Anything to bash IOC. A moderate in his dreams not in his wallet bet on IOC. No one long would bash IOC like this.
Agree 100%, But There is a moderate discount I believe. I think IOC will get better than $1 for EA, but less than $1.50. I'd be very happy with a PPS at $100.
Of course based on the IOC history, PPS will get chopped and harrassed until FID, which will be only GOD knows when, 12 months from HOA perhaps?
I do think the terms of the deal will be well spelled out to the world, so there is little confusion. With Phil gone IOC may actually begin to make some sensible communication with the investment world.
Great points MS.
I would add a few other considerations, and have my finger on the trigger for some trading opportunities if and when "the deal" is announced:
- Only cold hard non-refundable cash today can be easily valued - so any headline "per mcf" that is not in that form must be analyzed, risked, and discount back to present value terms. E.g. in the PRE deal the $2.80 (or whatever) "resource" payment is a nice headline number but it is a) contingent, b) years in the future, c) only paid out of production (i.e. PRE never cuts a check for it), d) only kicks in once PRE gets all of its cash back, and e) PRE can get all of its cash back except for the initial (and timely) $20M
- A direct interest in the resource / project cannot be directly translated into the share price - shareholders in IOC own shares in IOC which is a "layer" between them and any project - IOC has overheads, cash burn, and is undertaking other risky endeavours , has ongoing option dilution, etc etc so it's not as simple as say a $1.00 cash deal = x share price.
- It will be interesting to see the timing of any payments - IOC is on fumes cash-wise so they need an infusion soon.
I am hoping that I can analyze the deal quickly (assuming IOC releases enough information which is always a problem IMHO) and if there's an unjustified spike in the price it might offer a very sweet trading opportunity.
It is quite funny watching people come around to the views that seemed so obvious to us reasonable folk over the past few years (Phil = train wreck, EWC = weak, FLNG = weak and near-bankrupt, Noble/Gunvor offttakes = weak, gang of touts unrealistic expectations, etc etc.)
It's a shame you took so much abuse for being a long and having the audacity to think for yourself.
Sentiment: Strong Sell
bonk is offering his usual gross distortions of the facts and true outlook. PRE in fact has already paid $116 million in "cold hard cash" just for part of its 10% share of the gas, and it is no longer contingent or refundable (which would out of future revenues in any case) after a few wells, in fact fewer than PRE obviously fully intends to drill based on its recently released capex plans for this year and next year. Also, in addition to its 10%, PRE will be covering another 25% of costs up front as incurred, not "years in the future" and "only paid out of production" as you falsely claim, and only payable back to PRE out of future production.
Your "layer" #$%$ is also more distortion. IOC already has "overhead", and payments for resource purchases and exploration advances will be new real cash flow for the Company for the "cash
burn" for exploration and capital expenditures.
Sentiment: Strong Buy
Yes, the devil is in the details. When a deal is announced ( I believe an HOA in "imminent" ( in Phil's parlance: "soon, soon, soon". LOL) the D.A. will come later), I agree quick analysis and reaction will be necessary. I personally believe there will be cash upfront, a good enough chunk, but that cash will NOT come till a D.A. is signed, certainly not upon the HOA.
With IOC and bidders having negotiated for years, I doubt there is much left to negotiate at this time thus my belief of an imminent HOA. If you accept that they have been negotiating for years, how many details can be left for the D.A? Thus, I don't see that as being too far out in the future either.
If I recall correctly, doesn't the existing P.A. expire this June? Thus, call me crazy, but, now that Phil is no longer an obstacle, it is possible that the D.A. could be in place before P.A. expires. Like I said, call me crazy but now that Phil is gone, things could move quickly.
No one "knows" anything as an absolute at this point and I certainly am not sitting in the board room. One has to put the pieces together.
Two years ago, I first posited that "industry sources" reported that bidders didn't believe GLJ numbers.
Lo and behold, a year and a half ago, IOC, thru its subsidiary/affiliate/whatever, engaged Gaffny to provide an independent, second opinion. This was partially 'leaked" 16 months ago and has since been confirmed.
Second, PNG gov't, last fall, stated that IOC must use Gaffny numbers in its negotiations with the gov't.
There have been other tea leaves as well.
Use it or red thumb me, whatever you want.