I think I said earlier "convince IOC's board that they are sufficiently committed to a better offer to get the BOD to back off of OIS", so I agree. Also agree that institutions are in the same position as BOD. But there really has to be something better and concrete. I think the statement that they continue to recommend a near-term vote for IOS is a goad to the new bidder to put something binding down quickly. They can always postpone the vote.
However, IF it's a problematic bid (future payments, production bonuses, discovery bonuses, etc) AND the BOD decides to go ahead, then they will get the votes, because, as you say, people want to end this thing.
I realize there's a body of thought that thinks we #$%$-ant shareholders have enough votes to overturn the recommendations of the BOD and the combined millions of votes of all the mutual funds and proxy mgmt service companies, for a bird in the bush, but in 99 cases out of a 100, management controls these things. Witness Mulaceks' efforts. Anyway, since I believe it's a buyers' market and also believe the stock will drop like a stone if the deal is turned down, I intend to vote my 6600 shares for any deal nominally higher and less uncertain than OIS's. So you have to start with cancelling me and any others who will take the deal. Think also of the arbitrageurs who jumped in last week and want to close out their spreads. I'm not sure there's any "rather" there.
Bold, indeed. But, who cares? I've bought as high as $80, prior to Total and as low as $23 post-Total. I sold totally out, about a week after the OIS deal was announced, at $43-44. I started buying again with the new offer (and it had to be Total or Exxon). This morning the price dipped below $46 briefly and I bought several thousand between 46 and 46.25.
What will the offer be? How high will the stock go? I honestly don't think it will be that much better. $60 all cash - I'd be ecstatic. $50 is also in the range of likelihood. Could it be $45 all cash? Yeah, maybe. I just hope it doesn't have production bonuses and that sort of thing.
Just remember, there are a lot of people out there who are buying on the rumor and will sell on the news.
While I agree Exxon is VERY tight-lipped, we have other players with other agenda. So a leak is likely and Exxon is very credible as a bidder. There are only a few in the mix, anyway - Total and Exxon have the biggest advantage. Who else could it be?
Exxon lost in an earlier round. The great thing about that is that all the technical and financial homework are done. At this point, it's all in the Executive Committee, so decisions can be made quickly (not exactly a hallmark of Exxon).
I still think OIS deal will NOT be voted down without a concrete, better offer, and time is short. I think Exxon would think the same thing and not make an idle bid just to throw a wrench into the process. I believe they have tabled something better than OIS, albeit non-binding. Still, it can't be non-binding for very long. They either have to pony up or convince IOC's board that they are sufficiently committed to a better offer to get the BOD to back off of OIS and continue negotiations. A company like Exxon (if that's who it is) doesn't just fool around. They are deadly serious in what they do, so I think the scenarios are all worked out and ready to go. I don't think the deal will knock us over, but should top OIS.
Full disclosure - I'm now a shareholder again since the offer was announced and am up to 7K shares.
I wouldn't say there is no upside to the CVRs, I just have no idea what it is.
The whole deal is this: First, you get OSH shares. They are listed on the Australian exchange. That in itself is not the end of the world. Most brokers (my shares are with Schwab) can handle it. You have to pay broker commissions like we used to pay in the US. I think Scwab told me 0.75%. Not terrible. There are Pink Sheet and ADR possibilities, but more complicated.
As I said before, OSH is not a bad company to have, especially with low oil prices and if you think they screwed IOC. That means the value has moved to them. The trouble is, they have large debt and as you noted, will need a lot of cash themselves. And the project will take years and years to monetize.
Second, the CVRs. Trade-able? - usually, but they haven't said so. And it's a one-time deal - more like betting on red at roulette - not investing. Given the uncertain nature of the reserves and the certification process and the time and potential delays, I said I'll pass.
Anyway, in theory, the CVRs have to be already priced into IOC stock price, so selling IOC now gives you the present value of the CVRs.
I always believed IOC had a great resouce base and great exploration potential. However, I didn't invest for an actual LNG project, I did it because they had to sell themselves at some point. Now they have, so we got what we got. Overall, I lost money. Even though I don't think the deal will be voted down, I decided "out" was better than "in" . If the deal goes away, there is no floor under the stock.
Well, I invested for the same reasons. The Total deal broke my heart (and my bank), but I continued to buy in the 20's and 30's, because it IS a string of pearls. 8T's of gas is huge, more has been found and more will be found. Whatever. Where I was mistaken was to assume all that gas would be monetized at some multiple. I failed to see it was a buyers market. When the OIS deal was announced, I waited a week or so, then bailed out. I had 16,000+ shares which I sold at 43-44. I still lost a lot of money on my pre-Total shares.
So, full disclosure, I'm an interested spectator only with no dog in the hunt. I really shouldn't be opining on this board, but I've been on it for a long time and have an historical background with PNG.
I got out because, If the deal doesn't go through, the share price will drop back to 30, then decline from there as we burn cash and sell off attractive acreage. If it does go through, as I think it will, having Oil Search shares, 30% off their highs because of oil prices, isn't a bad thing.
Peroxide – when you say “through startup”, that means the project actually starts. PNG-LNG project cost was listed at $19 Billion. We have a year or two for design, approvals, etc. and 4 years or so for construction, drilling, pipelines, etc. A billion won’t cut it.
Dilution: OSH has actual revenue and multiple producing interests. They pay a dividend. Their offerings have been sold at or near current price (last big one was 150 Million shares to PNG government at about a 5% discount. Although the number of shares expands, the price per share is hardly affected. IOC has only one future project. If the market just said our shares, given all the discounted future earnings, are worth $40 with a $ 2B cap, and we need another $4B(for example), then dilution cuts your value by 2/3rds
Richard – We’re arguing different things. You’re complaining basically about bad, even corrupt, management and a flawed sale process. I think there’s some things you overstate – but never mind. Given everything you say ( if you believe all that, you should have got out long ago – the last thing anyone should invest in is bad management)), I’m talking only about the future. I don’t think the deal will be stopped and there isn’t a better deal. I think the proxy share management companies will conclude the same thing.
Just as an aside, the future is not linear. Sh*t happens. Here’s a quote: “Papua New Guinea has the most active volcanoes in the South West Pacific.”(Volcanodiscovery.com). How would you like a Mt. St. Helens eruption near Antelope? Come back in 20 years. Also check their earthquake history – up to 8.0 and tsunamis. Could the government fall? Could they nationalize? Labor strikes? Bankers and institutional investors think of these things and discount risk accordingly.
Mr Peroxide - Waiting is slow suicide. IOC has no money! PNG operational costs are ridiculous. You’re seeing how fast we’re burning through our trumpeted credit line. That’s debt, by the way.
What has been spent is nothing compared to future LNG development costs. Exxon and Total have the cash or can borrow based on their overall credit worthiness. Oil Search already has substantial debt. That’s likely why they laid off part of the deal to Total. IOC alone could never get project financing. Their alternative is to raise money through major dilution of our (your)stock.
Finally, decisions are being made NOW on plant sizing, pipelines, ports, etc. Botten is right on this. If you’re not in, you’re out. Staying independent would force IOC to spend money they don’t have and make them that much weaker for the inevitable sale.
Again, am I happy with the deal? Not exactly: I had hoped for more, but I think it’s a market price(see my last note). IOC did what they had to do.
Do I like the deal? No. Was there self-enrichment? Probably. But my whole thesis is that there are no better offers out there. One reason I believe that is Exxon’s actions. They are the dog that didn’t bark. Exxon will walk away from any deal that does not fit their rigorously enforced financial standards. They are intense in this and it’s a bedrock in their corporate culture.
You dismiss “a low ball offer by Exxon, who just happens to be partners with Oil Search”. Again, offers are made, then negotiated. As I recall, that went on for some time, then the Total deal was announced. So, Exxon’s final offer, whatever that was, was not as good as Total’s. In Exxon’s eyes, they offered “fair value”(whatever that may be). They weren’t willing to up the offer. In Exxon’s eyes, Total overpaid. And, the “just happens” insinuates some collusion. Exxon does what’s best for Exxon. And they don’t tell anybody what that is. The “Iron Curtain” may have been invented by Churchill, but Exxon thought of it first.
In round two, their name didn’t show up (actually, nobody’s name showed up- hats off to IOC for keeping it quiet). But I’d be amazed if they weren’t there. (Yes, an opinion). Again, Oil Search was the overpayer. If you think Exxon would gratuitously step aside while their partner, Oil Search, enrich themselves, you don’t know Exxon.
A thing is worth what someone will pay, not what the great unwashed retail investor class thinks is “fair”. Is the OIS deal full value? Probably not. Is it better than anyone else’s? Probably yes. Did OIC hype the reserves? They ALWAYS WERE, the seller, so probably yes.
Were there other offers? Probably, but how could they be substantially better? Existing LNG initiatives have an enormous, overwhelming advantage in bidding for reserves. Who else is out there? This deal is over. There is no better deal. This is it.
Of course Oil Search or any purchaser pays the lowest possible price. They will screw us to the wall if they can. The point which you don't seem to see is that other people have looked at this already. IOC was/is totally incapable of funding or executing a grass roots LNG project. They HAD to find a white knight. IOC would have had data rooms with every map, well log, seismic section, consultant reports, etc. available. Any interested company could come in, sign a confidentiality agreement and see the whole IOC story. They would make their own evaluation with a less than the rose-colored glasses Mulachek and some retail investors might have.
We do not know if companies other than Oil Search and Exxon have talked to IOC. Shell was rumored at one point, Total almost surely was in the mix but there were probably others. This also didn't happen overnight. It's been going on for a long time. And it's not like Oil Search mailed in a bid and IOC said " Gee, that's a great deal, let's take it." These things are negotiated ferociously and such a deal has to go through the BOD's on both sides. They have fiduciary responsibilities and the awareness that there could be shareholder suits.
There are only a few companies who could approach this project and NO ONE ELSE HAS MADE A BETTER OFFER. The no vote has no chance anyway, but do you really think it's just a matter of saying "we're available again" while you watch the stock go back to 30? "Force(!) a more constructive offer"? Really? "No one can afford a delay", yet that's exactly what starting over would do.
You can call me names, but you have no clue on how these deals are done. I do. And I don't take fools for a client.
It's not so much that there's more or less gas (in fact, I think there's more, and super exploration potential to find even more.), the question is: what is it worth today? Oil search just told us, and Exxon confirmed it by walking away from earlier negotiations and not stepping in now. With 10's of billions in development cost, production not slated until 2022-4, time value of money (and oil companies don't use 5% discount factors - my company used 15% in the US, 25% in 3rd world countries), price risk, etc.. No, we got what industry(who know a hellava lot more than we do) thought it was worth, it's a done deal and it's over. If you want to play the cvrs or Oil Search itself, fine, but IOC? - stick a fork in it.
Totally agree with this. The market is the market. We had competition for the Total deal, but Exxon walked away. They are so financially rigorous it told me Total overpaid. Since then, I don't believe Oil Search was the only suitor for IOC. It's almost a rule in the oil business (others as well), that the successful bidder usually overpays. Oil Search is a respectable company but small in comparison to Total or Exxon. If Oil Search is stealing IOC, the stolen fruits should be reflected in its stock price. If anything, their price has gone down, or at best is in a trading range. Frankly, I'd rather have the Oil Search stock with the outlook for a more efficient, lower cost monetization of IOCs wonderful discoveries, than IOC itself. On top, Oil Search has oil production which should have a positive kick in the future (don't ask me when). I voted 6000 shares on the white proxy.
The CVRs? Who knows. I think the certification process is "honest", but can be influenced to some extent. IOC probably holds the better cards. As far as I understand the deal, once A7 is drilled, the certification will be done and the value of the CVRs will be determined. There is no effect from oil pricing.
Oil Search and Total have competent geoscientists. My opinion is that they know what they are exposed to as far as upside of reserves and likely CVR payments. A7 is a kicker, but not done in the dark. They paid based on a lot of data and - the market is the market, not fantasyland.