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Daily distortions on InterOil no.6

August 4th, 2008 · 3 Comments

The next instalment, two non-geologist (to put it politely) think they know it better than all the geologists. We promise you, this really is funny, even hilarious stuff..

Both these funny characters Bostonkenmore, and Jaxson905 (the latter being quoted extensively by the former) argue that nobody was interested in the part of the island where InterOil is drilling. And that is because the geology is different, it’s fractured limestone which, if it contains gas at all, will only do so for a short while, the wells “collapse”. We give you a couple of remarkable quotes:

  • The writeup at Value Investors club had one very important point. If IOCs assets are so great then why exactly wasn’t anyone with a track record drilling in the eastern part of the island? Even Oil Search, which would be a natural because they supply all of PNGs oil needs, wasn’t interested. [Bostonkenmore]
  • The question then becomes one of geology. We can see from the map that Elk is to the north east of Ubuntu (up and to the right). Is the geology on Elk substantially different than the main Oil Search resevoirs? I say yes. If not, then why doesn’t Oil Search drill northeast of Ubuntu? There is plenty of property there for the taking. [Bostonkenmore]
  • Estimates are based upon a geological model and if the geological model is proven to be faulty, IOC will quickly go to single digits. The best series of writeups I have seen on this name is on the value investor club website. The author goes through the geology of the situtation and clearly explains why it is that IOCs exploration assets are worth zero. [Bostonkenmore]
  • His argument is that the fracturing will collapse because of the low porsity in the area. [Bostonkenmore]

We especially like that latter point, wells collapse because of low porosity! It’s funny. Low porosity means tight rock, and even less chance of a well collapsing, but anyway.  Some more idiotic points:

  • ” why should we trust this guy’s ‘analysis’??” [‘this guy is Jaxson905 who originated this geological “theory” shareholdersunite’]
    Because its starts with a basic question. Why won’t Oil Search drill or anyone with a track record drill on the fractured limestone if there is so much energy there? Why have all the majors abandoned the fractured limestone area? [Bostonkenmore]
  • Its not made up at all. Wells that collapse can’t be drilled. What about it sounds made up? Why don’t you call Oil Search yourself and find out if he’s telling the truth? [Bostonkenmore]
  • Why don’t you do us a favor. You have time on your hands. Why don’t you ask Oil Search if there is a difference between the geology in Eastern and Western PNG. [Bostonkenmore]

All it takes is a phone call to OilSearch! As if they know more about an area where they haven’t drilled (and InterOil has extensively drilled).

He also argues that Boone Pickens (he holds 3M shares in InterOil) and Raymond James analyst Wayne Andrews are not aware of these geological shortcomings and “collapsing wells”. It’s funny, becuase they both hold masters in geology and have extensive industry experience, whilst Boston and Jaxson, well, nothing of the sort.

  • we don’t know what Boone’s research is and if he’s taking the fractured limestone into account. Wayne Andrews defintely isn’t. He’s using Oil Search’s model though the geology is different. He’s pretty much a cheerleader anyways. [Bostonkenmore]
  • Its not his own. We all know that if the rock can’t hold the oil or gas that is underneath the ground then you can’t get at the gas. [Bostonkenmore]
  • Name me a well that consistantly collapses yet you are still able to drill. [Bostonkenmore]

Anyone care to have a go at explaining the last two points above? They are hilariously funny, but what they mean, it’s anyone’s guess..

  • “knew from the seismics what they were drilling into.” Due to the mountainous terrain in the area, seismics are unreliable. So no, they DID NOT know what they were drilling into. [Bostonkenmore]
  • Oh and according to another poster here. Andrews is using Oil Search’s wells to model Interoil. So I guess its relevant if Oil Search’s wells exist on a different type of rock. [Bostonkenmore]

So Wayne and Boone don’t realize, and basically, nobody else, but they have, Boston and Jaxson, geological geniuses:

  • I don’t think you have to be an expert on geology to conclude what I’ve concluded. [Bostonkenmore]

So, in summary, they make the following points:

  1. The geology where InterOil drills is different from that where others drill. It is bad geology, because
  2. Nobody else wanted to drill there (“ask OilSearch!”)
  3. It’s fractured limestone, which produces “collapsing” wells (“every well ever drilled there has collapsed!”)
  4. These “facts” are so easily grasped and obvious, that even non-geologist like Boston and Jaxson can master it. All it takes is a phone call to OilSearch
  5. Yet T Boone Pickens, and Wayne Andrews (the analyst from Raymond James following IOC), both hold a masters in geology and have extensive industry experience, somehow missed this point
  6. The geology is apparently widely known according to these two clowns (“just phone OilSearch”) but additional research won’t yield anything extra, quite the contrary. Seismics are “unreliable” and drilling doesn’t yield additional info. Drilling which IOC has done there and OilSearch hasn’t, but somehow, according to these clowns, OilSearch knows more about that area than InterOil.

This “theory” has a number of, how shall we put it.. “shortcomings”:

  1. Wells don’t collapse, Elk1 did have extended tests as we showed in Daily Distortions on InterOil no.1
  2. The only source is a supposed phone call to OilSearch, neither Jaxson nor Boston uses any additional geological source
  3. There are other reasons why nobody drilled in the areay where InterOil is drilling: Phil Mulacek a month ago talking for institutional investors: “In 1992  PNG had 30-38 Tcf of NG. It was worth 2 -5 cents per Mcf, Today $20. Thats how IOC got the fields from BP and Shell…”
  4. If the geology is so widely known (even non-geologist can easily ascertain, all it takes is a phone call to OilSearch), it’s not only inexplicable that very seasoned industry people with geological background like Boone Pickens and Wayne Andrews never mentioned it, it has never been mentioned anywhere. Phil Mulacek has held dozens of talks for specialists, analysts, institutional investors, energy people, someone somewhere would have brought it up. In fact, if it was true, it would be the first thing people would bring up: “Mr. Mulacek, can you explain us why you’re drilling into dodgy formations, and why haven’t your wells collapsed yet?” Questions like that have never been asked, because they are silly.

It’s time to let a real geologist speak on the geology InterOil encounters on it’s leases, Joseph Dancy:

  • “Note the company has a license to explore for oil and gas on 9 million acres of lands in PNG. This equates to over 14,000 square miles. To put that in perspective, this area is larger than the District of Columbia as well as each of the following states: Rhode Island, Delaware, Connecticut, New Jersey, New Hampshire, Vermont, Massachusetts, Hawaii, and Maryland.”
  • “Of course all the land in the world is irrelevant for oil and gas exploration and production purposes unless it has the following attributes: (1) a source rock of (2) appropriate geologic age that (3) has been subject to geochemical and geothermal conditions (4) conducive to forming crude oil or natural gas, and (5) a reservoir with (6) permeability and porosity allowing such hydrocarbons to be extracted as well as (7) a cap rock and/or structural trap to keep the reserves in place.”
  • The wells have confirmed the presence of source rock, that the appropriate geochemical and geothermal conditions were present to ‘cook’ the organic material to create hydrocarbons, that a reservoir exists that exhibits both porosity and permeability, and that a cap rock and geological structure exists to trap these reserves. The geologic anomalies that exist on the Elk structure appear to be present at a number of locations on the company’s nine million acre license. At least a dozen potential structures – maybe more – might be attractive enough from a risk/reward standpoint to drill. Seismic and gravity surveys will better delineate the potential prospects.

We have little to add to this..

Tags: Daily Distortions · IOC

3 responses so far ↓

  • 1 Jan Tort // Aug 4, 2008 at 9:18 pm

    as always, great stuff. Thank you!

  • 2 Daily Distortions on InterOil no.8 // Aug 7, 2008 at 4:55 pm

    […] test. It’s back to the collapsed well theory, but we’ve already dealt with that in Daily Distortions no.6. And for the extended testing, see Daily Distortions […]

  • 3 Daily Distortions on InterOil no11. The corrupt UCLA professor. // Aug 10, 2008 at 7:44 pm

    […] of some clowns called Boston, and it’s original inventor Jaxson (see no.1, no.6 and no.7 in particular). Here is what Sussman has to say about […]