Future Direction:

Here are my immediate thoughts having read the just released ‘Funded Acquisition of APLNG’s 30% of Mahalo Gas Project’.

COI are buying 30% of Mahalo for $20 Million therefore this gives and inferred value of the total of the Mahalo Gas Project of $66.67 Million.

Santos are stumping up a $13.15 Million loan to COI at 5.125% interest with the remaining $8 million being a deferred payment at $2 million per year unless first gas or Final investment decision comes – 15% of Mahalo is sold – COI changes ownership – whereupon the total amount remaining becomes due.

Santos has a charge over all of COI’s Mahalo Gas projects.

COI MUST repay the entire loan amount within 6 months ‘ The remaining loan principal is repayable by COI exercising Option 1 or the 6 month expiry date of the loan’.

Santos has the right to buy out 12.86% of COI’s 70% of Mahalo at the same ($8.57 Million) pro-rata cost as the APLNG acquisition.

Santos has the right to own 50% of all of COI’s Mahalo blocks (Mahalo – Mahalo North – Mahalo East) at commercial rates to be agreed but only if Santos has exercised Option 1 and bought back the 12.86% above.

So where does this leave COI?

70% ownership of Mahalo with a short term debt of $13.15 Million costing 5.125% interest which has to be repaid within 6 months.

If the debt is not repaid by the 6 month loan expiry date – Santos has a charge over ALL of COI’s Mahalo gas projects.

So – this tells me that COI has 6 months to raise enough money to re-pay the Santos loan.

Alternatively:

COI sells out to a third party who is waiting in the background who has already negotiated with COI management for the totality of COI’s Mahalo gas interests but who wouldn’t play ball with COI just having a 30% interest in Mahalo.

I remember back as a shareholder to the Sunshine Gas days when Queensland Gas bought out Sunshine Gas and then shortly thereafter – BG bought out Queensland Gas. Clearly BG was always in the background when Queensland Gas bought out Sunshine Gas – with BG wanting both Sunshine’s and Queensland’s joint assets but wanting to buy them both as a bundle.

As a fallback position – COI has secured $10 Million of funding from Pure Asset Management at 12% cost PA up until FID then 10% thereafter to move things forward jointly with Santos.

Hmmmmm.