IOC has received a loan in the amount of $37.5 million for exploration. I do not count the second installment because that is payable after the deal is signed and should not be needed.
Based upon the exploration activity of the past, what is the expectation of output from these monies?
I am trying to wrap my head around this move. It seems like a really small amount and insufficient to accelerate anything. If it is too small to accelerate anything, why would it convince Exxon to move faster?
Am I missing something?
Pursuant to the license requirements re PPL 236, IOC is required to drill at least one well in PPL 236 ( Wahoo) before March 2014, when the PPL expires.
Failure to drill that well will hurt IOC's expectation for license renewal on PPL 236 ( and maybe the others as well).
Drilling such well probably has no effect on XOM, unless of course it is a huge success.
IMO, IOC would be in a much stronger bargaining position had it drilled, and proved up its prospects, instead of spending millions on roads and two wharfs.
From what I can see, exploration prospects are really very good. It's debatable whether it's better to drill first and bargain or bargain first and drill later. Exploration potential is a great deal sweetener and will justify someone paying more than for the pure reserves. Exploration is fickle, though. If you drill first, you better hit; otherwise, you prove there's no upside.
I think it is all about the retention licenses. If XOM can drag this out into early 2014, isn't IOC in danger of losing some license? If they start drilling now, that is no longer an issue. Seems the only rational explanation for such a small loan.
my question is even simpler: Why use $37+M for exploration to begin with? Why not use it to advertise in paid stock promotion newsletterz? Wouldn't that be better for us as shareholders? I am just asking.