Another note from Sal Ilacqua from Monness, Crespi, Hardt & Co.
It already appeared on the boards (we’re getting a bit slow, apparently..), but we like to keep things here for the sake of completeness.
IOC Update May 8 2009
InterOil Corp (IOC – BUY – $35.12): InterOil announced increased condensate recovery in the second side track of the Antelope 1 well in Papua New Guinea. Preliminary tests indicate surges of 25-100 barrels of condensate per million cubic feet of natural gas. Condensate production volumes in the range of 50 -100 b/d per million cubic feet would be considered as very rich and getting very close to the value of a light crude oil.
We suspect confirmation of heavy condensates could have an important impact on the current negotiations with potential strategic partners in the proposed LNG facility. It appears that the potential natural gas production stream from this reservoir will contain very rich hydrocarbons that should command a premium value. It should also enhance IOC’s current negotiations with potential partners.
We note that today’s reported results were based on limited testing capability because of weak rock formations in the open well bore. The company has now elected to case the well to isolate the 1,968 feet of known gas pay behind the pipe. Casing and testing may require a few weeks or less, depending on any potential mechanical problems.
The latest test results were based on the 1,074 feet interval between 6,726 –7700 feet. The first Antelope 1 side track reported on April 6 noted some oil recovery from a 121 foot interval between 7,809—7,930 feet some distance below the latest testing. We look forward to the potential test results at this lower level with an oil potential after the well is fully cased.
Investors should recognize the major events now taking place at InterOil. The company has accumulated major natural gas reserves which we estimate at a minimum of five trillion cubic feet of natural gas equivalent with significant open ended incremental potential. Recently, major energy companies located in China, India, Italy Japan and others have announced interest in the proposed LNG project in PNG. Given these facts plus a large number of geologic structures still to be drilled, the upside potential at IOC remains wide open while significant valuation provides considerable protection underneath the shares. Investors should be aggressively accumulating the shares.