Not a whole lot of news, but let’s just put some observations out. An interesting picture emerges..
Some of those observations:
- They have multiple wells with multiple testing showing loads of gas and gas liquids (and even some oil shows).
- There was a disappointing reaction in the market after the results of DST#4 came out, due to flow rates that, although good, were not excellent, and no definite conclusions yet about a possible liquids stripping plant and/or the presence of an oil leg
- As we surmised here some time ago already, there were some problems with the well, they lost the packer (possibly with the data of DST#3), which caused significant delays and forced them to side-track
- The side tracking and subsequent DST#4 test only tested an additional 42ft of resource (82ft in all), which will have contributed to the disappointing flow rates, and there is a part (40ft) of pay zone (as indicated by third party analysis of the logs) left which was untested (before side-tracking, they had already driled to 7815ft and logs showed gas until 7668ft, while the side-track only drilled to 7628ft)
- These somewhat disappointing flow rates are at least partly an underrepresentation. Cleaning up the skin will, in all likelihood, show significantly higher flow rates.
- InterOil’s next move will almost certainly be an extended well flow test which will involve the whole pay zone, and a cleaned skin.
- A New York analyst (the guy that posted this has some excellent connections, we know him) who apparently is close to CEO Phil Mulacek argues that they are serious about working out the liquids stripping plant and put a rubber pipeline to the refinery through the riverbed. We were hasty two days ago discarding the possibility of a liquids stripping plant.
- Since drilling has ended at Elk4, we can look ahead at the next well, Antelope1, right in the middle of Antelope, which has much better chance of discovering an oil leg, if there is one. It could also increase the gas estimates.
Now, what conclusions can we draw from this?
- By multiple accounts it’s almost certainly enough for at least a single train LNG (these are words from Raymond James only two days ago).
- This is the most important conclusion possible, all progress follows from this, valuation wise, negotiations with interested parties, LNG agreements, farming out agreements. What Elk4 had to show is that there is enough gas to support an LNG facility, it almost certainly has
- A liquids stripping plant is still very much in the cards
- We will hear a lot more details at the earnings conference, which is only two weeks away.
We think the market still has InterOil wrong. It’s worth much more than this, but we need patience still, we know it’s frustrating but it’s the only way. The earnings conference should give us some preliminary conclusions about Elk4.