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InterOil update 30/7

July 30th, 2008 · 7 Comments

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?

  1. 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).
  2. 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
  3. A liquids stripping plant is still very much in the cards
  4. 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.

Tags: IOC

7 responses so far ↓

  • 1 rory mcgowan // Jul 30, 2008 at 7:18 pm

    The stock won’t go until IOC has a value for the property? Can we say antelope is worth X without drilling the next well? Does IOC want to get the money from the shareholders via a 2nddary offerring? Risk dilution and another year or two? Please help answer these ?

  • 2 rory mcgowan // Jul 30, 2008 at 7:22 pm

    Did they reach the water contact? What does a packer do again?

  • 3 Jim Tate // Jul 30, 2008 at 8:09 pm

    Mutiple persons say they are close to third party agreement. RJ explictedly stated that fact.Thats your valuation you ask for.I see a private placement coming for Antelope money.If Elk 4 has enough flow from the to be performed flow
    test we get our deal if not we wait for Antelope. The analyst I speak to say they have enough now..No water per the DST 4 test results.A packer is whats between the pipe and the drill hold to pack it in . Does that help..??

  • 4 rory mcgowan // Jul 31, 2008 at 12:52 am

    Jim thank you for your help. Is there another rig coming in SEPT? Could it be more heavy duty thus faster to drill, or is it for a different well site? If two wells going thats $70 millon . Private placement for drilling alone.2.8millon shares. Is that how you see it ?thanks again

  • 5 Jim Tate // Jul 31, 2008 at 3:46 am

    I hear from the just prior earnings conference call IOC will lease a second rig in Sept.I suppose we hear more about that middle of Aug during the next CC. Might get lucky here. If this flow test turns out the way STP projects and I hope then the stock will go up nicely.When they spud Antelope we have a stock in the $30’s, then theres the third party agreement. Might not be as many shares as you project. Could be debt?
    To many questions right now. and few answers. Phil hates dilution I hear…Just need to wait ..now. I would love to know myself.

  • 6 rory mcgowan // Jul 31, 2008 at 8:22 pm

    What are your odds we have a 3rd party agreement before the start of the next well?

  • 7 admin // Jul 31, 2008 at 8:33 pm

    It will take a while for the drill to be removed, the rig is still being used we understand. Now that timing might be a month or so, we would say 50/50, unless the flow rates are so good in the last test, that could speed things up.

    Third party agreement has more chance when the Third party report is out, but we do not know when that would be.