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InterOil Daily Distortions 27

April 24th, 2009 · 3 Comments

The misinformation campaign gathers storm (no surprise there, the shorts are rapidly running out of time), but it’s not hard to refute..

A by now disturbingly familiar figure (a real busybody, we have just refuted other nonsense from him) had this to say when asked about InterOil’s “misdeeds,” invariably providing not even a single source for these claims.

That’s remarkable in itself, because he can clearly provide cogent and linked stories instantly (within half an hour!, see the timing difference between the first two post in that thread) when somebody accuses his partners in crime (an indication that these people are indeed related, and this is not the only link, we’ll have more on that later).

So the fact that this character cannot provide any link for his accusations of InterOil while doing so instantly for a story about a completely different company that has never been mentioned before on the IOC message board should already be a big red flag to start off with.

Now, here are his “claims”

  1. Telling investors that you have “Saudi Arabian sized oil fields” when you’ve barely drilled the resource.
  2. Hiring a convicted stock swindler as your head of investor relations.
  3. Hiring the main analyst/cheerleader for your company.
  4. Allowing a man with past involvement in natural resource frauds as your lead investor.
  5. Controlling the board through an entity that the CEO owns.
  6. Announcing to investors that you have struck oil and then capping the well a few months later. Doing this more than once?
  7. Announcing that you have “record EBITDA” when in fact the only reason for this is that you had one-time non operating charges.
  8. Disclosing to material information to some investors and not others.

Let’s see, shall we.

1) The Saudi Arabian sized oil fields.  he doesn’t provide any link so we don’t know:

  • Whether, in fact, anyone related to InterOil has actually said anything to this effect
  • If it was indeed said, in what context it was said. For instance, seismics might have indicated some large structures, and anyone knows that before you drill and test, you can’t really say you have a commercial find (but the structures can be there nevertheless). It’s a difference (between pre- and post-test assessments) that the shorts have tried to exploit previously, we will discuss that below under 6).

2) It’s interesting in itself that people with a very shady past (and indeed, present) but claim to be “reformed” characters, even fraud busters (like Sam Antar) are now digging into the past of people involved with InterOil, and even if they find stuff, these people apparently cannot be “reformed” like themselves.

But anyway. Although (as usual), he was not specific in mentioning anyone, the shorts have mentioned  Carl Cassata before so he is likely to be the first ‘victim’ of this. Whatever his past (there have been some official inquiries into him, in the 1980s..), his contract with InterOil (which we don’t believe was an employment contract but involved a contract as a separate IR firm) was terminated as soon as the company found out about this.

To keep matters in perspective, we would also be very surprised if searching the past of all the people involved in many (if not most) companies (even the ones not having a formal employment contract) with a $1 billion market cap, even as far as 25 years ago, failed to turn up anybody with any brush with the law. Statistically, that’s just highly improbable. And does that say anything about a company? What matters much more is how the company deals with it, and we’ve already argued what InterOil did as it found out.

3) Portraying the hiring of Raymond James’ top energy analyst Wayne Andrews as something criminal is really turning the world upside down. In fact, Wayne’s move to InterOil is extremely bullish sign for InterOil’s exploration prospects. Not only did Wayne cover InterOil for years so he knows the business inside out, he is a trained geologist. Wayne has seen the story unfold, knows how solid it is, can cut through the BS, and put his money where his mouth is.

4) That man who supposedly was involved in past natural resource frauds supposedly is Carlo Civelli. The simple question is this, has he ever been convicted of any of these accusations? The even simpler answer is ‘NO.’ And it’s not hard to figure out why either, look at the retraction in a newspaper below:

5) This is also rather simple, corporate governance practices vary in the world. Considering what has happened in the American financial sector, to say that having independent boards is by no means a guarantee of anything is the understatement of the year at the minimum.

6) Once again maliciously exploiting the difference between pre- and post-testing findings. A company can find a resource, even a large one, announce that (as they’re required to), but only testing can ascertain whether the resource is commercially viable. People who repeatedly and consistently blur this distinction do so for a reason. You might want to read this in it’s entirety before you proceed..

7) Again, no specifics, (as we showed above, this poster only gets into specifics when he is defending his partners in crime, with amazing speed), but we think this accusation pertains to the Q308 results, which indeed had a one time gain (selling off some licences). However, what the poster ignores is that in that very same quarter, InterOil also had a one time loss, of roughly equal size (due to hedging)…

8) Again, no specifics. We assume he is referring to certain rumors that appear on the internet from time to time. Apart from arguing that more or less every company is subject to these, we have to point out that InterOil is obliged to provide data, for instance to the PNG government, and that there is no evidence to indicate that the shorts themselves are not plugged into the rumor circuit.

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Since the window of opportunity is fast closing for the shorts, we think that the volume of unsources misinformation and half-truths will increase. In fact, that is already happening. But you’ll know where to look for the necessary inoculation. We will increase our efforts to weed out the misinformation in this series.

Tags: Daily Distortions · IOC

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