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New Raymond James comment

September 24th, 2008 · 1 Comment

Not a whole lot of news as we made most of these points already here but still some interesting tidbits.

  • “In July, Indonesia and South Korea’s state-run Kogas (Korea Gas Corp.) reached an agreement whereby Kogas will purchase LNG from the Tangguh project at a record price of $20/Mcf based on a crude price of $120/Bbl. Kogas is already the world’s largest LNG importer.
  • We would also draw investors’ attention to a coalbed methane (CBM)- based LNG project transaction in Queensland, Australia earlier this month, with ConocoPhillips acquiring an interest in a CBM field and associated LNG project, valuing the 3P (proved/probable/possible) reserves at A$1.99/Mcf.
  • Recall, our $65 target price for InterOil is based on a $0.75/Mcf valuation on a conservative, highly-risked estimate of just over 3 Tcf of resource potential.
  • Additionally, recent discussion of resource potential following the successful Elk-4 delineation well ranges from 8 to 12 Tcf, or 3 to 4 times our conservative estimate, of resource potential for both the Elk and Antelope structures combined. Of course, this valuation gives no credit for additional prospects surrounding the discovery, which are enhanced by seismic data, and risk reduced considering the positioning between the Elk/Antelope natural gas and condensate discovery and the deeper oil test at Bwata.
  • We believe that the (recently completed) reservoir tests should provide the engineers (Netherland Sewell) with enough data to refine (and increase) the resource estimate for the Elk/Antelope structure, which we believe should most likely support a full two-train LNG development. InterOil has indicated that reservoir engineering should be completed six to eight weeks following delivery of the final test data from the well, and the last down hole test gauges were pulled and delivered last week; so we anticipate reservoir analysis to be completed around the end of October.
  • InterOil has indicated its intention to accelerate the pace of drilling by adding an additional development drilling rig and up to two workover rigs.”
  • The firm reiterated its STRONG BUY rating and $65 target price.
  • PNG government participation discussions are also progressing.

We were not aware of that Kogas deal, paying a whopping $20 per Mcf. We did comment extensively on the Conoco/Origin deal, and valuations for resource in the ground are also highly encouraging. Note:

  1. It’s 2 Aussie dollars for P3 reserves (US$3.23 for P2 reserves, as we reported)
  2. InterOil has very significant cost advantages compared to Origin, where they have to treat, drill, and man in excess of 20,000 wells to get the gas out and with labour cost a fraction in PNG compared to Australia.
  3. Note the RJ valuation, just 3Tcf at 75 cents.. That’s going to be low on both fronts, both in Tcf terms, and certainly in valuation terms.

All this stuff is highy reassuring though. It’s incredible the quantity of nonsense that is written about InterOil in some places, a direct measure of shorts with large positions starting to panick.

Tags: IOC · Research Reports

1 response so far ↓

  • 1 Jim Tate // Sep 25, 2008 at 1:06 am

    The shorts are DEAD RIP