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Morgan Stanley upgrades IOC

October 27th, 2009 · 3 Comments

We told you yesterday’s sell-off was a buying opportunity. Morgan Stanley agrees…

msioc10-27-09

New price target $73

IOC.N, InterOil Corporation ($44.74) /Management Road Show and Antelope-2 Well Data Support Improved Risk/Reward Profile

Evan.Calio@morganstanley.com, Ryan.Todd, Ben.Hur

Our three-day, non-deal road show with management highlighted: 1) higher condensate yields (NGLs) and oil upside potential in the Antelope structure, 2) NGL stripping monetization could precede an upstream sell-down and LNG partnership, 3) valuation of IOC’s exploration position could come to the forefront either via inclusion in an upstream sell-down or as positive drilling results in Antelope-2 continue, and 4) overall, the transformation of IOC is continuing on track with material drilling catalysts into mid-December. We are raising our scenario outlook and see 5:1 reward-to-risk (Bull-to-Bear) supporting investment at current levels, particularly given the recent pullback.

What’s Changed

  • Price Target $67.00 to $73.00
  • Improved Risk/Reward: We are raising our scenario outlook and see 5:1 reward-to-risk (Bull-to-Bear) supporting investment at current levels, particularly given the recent pullback. We believe the Antelope-2 well data supports:
  • 1) Higher Base Case ($73) primarily driven by higher condensate flow rates at the top of structure (increasing NGLs to120mmbbls of NGLs and assuming facility is project financed).
  • 2) Higher Bear Case ($30) derived by value assumptions on stranded gas (PNG comps), more appropriate post-Antelope-2;
  • 3) Higher Bull Case ($142) derived by increasing our gas estimate (to 8Tcfe after Antelope-2 well was 345’ higher in structure), a higher sale price for upstream interest ($1.79 per mmcfe, still a discount to recent comps), a risked estimate for oil, and value for IOC’s exploration position. We need additional drilling data to support our Bull case, yet believe this outcome remains a reasonable possibility and informs an investment decision.

What’s new: Our 3-day, non-deal road show with  management highlighted:

  • (1) higher condensate yields (NGLs) and oil upside potential in the Antelope structure,
  • (2) NGL stripping monetization could precede an upstream sell-down and LNG partnership,
  • (3) valuation of IOC’s exploration position could come to the forefront  either via inclusion in an upstream sell-down or as  positive drilling results in Antelope-2  continue, and
  • (4) overall, the transformation of IOC is continuing on-track with material drilling catalysts into mid-December.

Tags: IOC · Research Reports

3 responses so far ↓

  • 1 kencooksam // Oct 27, 2009 at 6:37 pm

    Sad to say I was stopped out of some accounts who need the money soon.,had to buy em back todat at a lower price and with more shares in all the accounts. I generally do not believe in stops understand though.Depends when one needs the money ya see.

  • 2 rory mcgowan // Oct 27, 2009 at 6:42 pm

    did galleon own IOC ? that would explain the price drop!!!!!!!!!!!!!

  • 3 kencooksam // Oct 28, 2009 at 12:49 am

    They ran the stops and Pavel wrote a terrible report and the its the year end for mutuals fund s who do paired trades selling winners vs selling a loser to balance a net zero loss.