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IOC update 23/4

April 23rd, 2008 · 2 Comments

We don’t like the price action in IOC. What explantations are there?

1) Drilling results are disappointing. We’re quite sure this cannot be the case. InterOil needs to perform a DST test (and usually more than one), and they have not performed any yet. They’re not even done drilling.

2) The negotiations with Merrill Lynch to refinance the outstanding loan are not going smooth. This is a possibility we wrote about yesterday. It’s possible that Merrill could play hardball because alternative finance might not be immediately available at the best terms for IOC, we argued. But we think it’s unlikely there would be a major break-up. Both companies stand to win enormously from the LNG facility. A bit of brinkmanship is to be expected in these kind of negotiations, perhaps.

3) Most likely, it’s the market perception of something going wrong. Drilling results are delayed. There is no news about the Merrill loan, this could lead to investors getting cold feet, and shorts taking advantage. Although it’s published with a couple of weeks delay, the latest short count has gone up by a million.

As ever, if you’re long, hedge.

Tags: IOC

2 responses so far ↓

  • 1 Rafael Cavalcanti // Apr 23, 2008 at 9:20 pm

    I agree with the conclusion that 3) is most likely. As long as there is no news, there is a tendency by the market to let the stock drift down as investors become more aprehensive that there might be something wrong. Perception becomes the reality of the stock price. Never mind the fact that Elk-1 alone is enough to support a much higher price and existing LNG refinery plans.

  • 2 admin // Apr 23, 2008 at 10:12 pm

    Yes, agreed. Perception is the new reality, how Braudillard, haha.

    And there was the usual fun and games at the end. It remains a gripping story (admin).