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Raymond James update on InterOil December 18

December 18th, 2009 · 27 Comments

Increasing it’s NAV. No surprise, they had to do it sooner rather than later.. Still very conservative though.

  • Since hitting “pay dirt” at its Antelope-2 appraisal well just over two months ago, the shares of InterOil have been off to the races – climbing roughly 50%. The successful drill stem test (DST) at that time essentially de-risked the potential of the well coming up “dry” and turned investors’ attention toward the question of “just how big is Elk/Antelope.” The subsequent positive momentum in the shares received another shot of adrenaline after the company reported a world-record flow rate at Antelope-2 at the start of December. This latest drilling report also yielded an uptick in the condensate ratio, while more extensive testing of the lower, more condensate-rich zone of the structure (including the potential oil leg) is coming up over the next few weeks/months.
  • As we move closer to an updated third-party resource estimate (set to be released in February/March), we are taking the opportunity to forecast the new numbers, particularly in light of the recent upstream data points. While it is unclear precisely how much “credit” the third-party reserve engineers will give for Antelope-2, our “guesstimate” is a year-end 2009 gross resource range of 5.5 – 10 Tcfe, of which the midpoint (7.7 Tcfe) represents a two-fold increase vs. GLJ’s year-end 2008 mid-case estimate, and also sits above the 6.8 Tcfe figure posted by Knowledge Reservoir in June. This figure should be thought of loosely as probable (2P) resources, which we calculate offers risked upside of ~$35/share on top of our current “de facto” proved NAV of $50.32/share (the proved NAV continues to be based strictly on the low end of the year-end 2008 resource range). We would underscore that this “total risked NAV” estimate of $85.61/share is simply the middle of a very wide fairway, with the potential to swing over $15/share in either direction based on our estimated resource range – not counting any incremental impact of the potential oil leg. Furthermore, our resource valuation assumptions of $1/Mcf for gas and $10/Bbl for condensate will in all likelihood be proven wrong (on either side) once the trigger is pulled on a strategic liquefied natural gas (LNG) partnership. We would also point out that while the comparison is not exact for many reasons, of the traditional U.S. E&P stocks for which we calculate a risked NAV, they are currently at an average discount of 20% to the risked NAV estimate (vs. IOC’s discount of 23%), and of course InterOil’s operations carry a higher risk profile.
  • InterOil has achieved a number of key milestones, as the move to “prove up” its resource base has been met with an investor base eagerly trying to fit a valuation to the Elk/Antelope structure. As we hope we have made clear, this is much easier said than done. The apparent magnitude of the resource base has materially diminished our view of the monetization risks associated with the LNG project. That said, we believe it remains essential for investors to recognize that execution risks have not disappeared. These include substantial operational and timing risks as the upstream assets and the LNG plant are developed over the next five-plus years. While recognizing the longer-term valuation upside, we maintain our Market Perform rating.

Tags: IOC · Research Reports

27 responses so far ↓

  • 1 Janine // Dec 18, 2009 at 11:46 pm

    I hear we are going to have a big ceremony on the Island on Tuesday. Alot of biggies flying in… Looks like everything has come together. Happy Holidays to all!!

  • 2 TJ Charlotte // Dec 19, 2009 at 12:09 am

    Thanks Janine…sounds to me like Mitsui Petrochem may be present.

    STP, my favorite part of the RayJay report is the low end of the NEW estimate…5.5 TCF. So this is less than KR’s estimate and doesn’t take in account ANY of Ant-2. Bizarre…

  • 3 Roger // Dec 19, 2009 at 12:18 am

    Thank you Janine!

  • 4 kencooksam // Dec 19, 2009 at 4:07 am

    I think they announce the test results then the stripping plant deal as TJ suggests..

  • 5 Harold Chamberlin // Dec 19, 2009 at 6:09 pm

    Appreciate your posts Janine. Thanks, hope you too have great holidays.

  • 6 kencooksam // Dec 20, 2009 at 1:30 am

    Could just be the formal signing of the LNG accord.. Thats would be good also..Stripping would be better..Condensate is the current focus . How much and when..

  • 7 Janine // Dec 20, 2009 at 2:24 am

    Ken: I hear 40k a day with the condensate….. Hope so!!

  • 8 Roger // Dec 20, 2009 at 4:59 am

    Janine is that 40000 barrels of condensate a day?

  • 9 Shamrock // Dec 20, 2009 at 5:05 am

    Incredible!!!

  • 10 Janine // Dec 20, 2009 at 5:53 am

    si’

  • 11 Roger // Dec 20, 2009 at 4:34 pm

    Thank you Janine!!! Merry christmas too you!!

  • 12 bob // Dec 20, 2009 at 6:36 pm

    these events have been such a long time coming; almost hard to believe we are at the doorsteps of announcements and deals;

  • 13 kencooksam // Dec 20, 2009 at 8:49 pm

    Next 60 days it all comes together.

  • 14 kencooksam // Dec 20, 2009 at 8:51 pm

    Oh thats hoped for starting production in condensates, They hope with new wells to get that up to 100,000 barrels of condensate per day by the time
    the LNG plant opens..Now thats cash flow boys and girls..

  • 15 MDMD // Dec 21, 2009 at 3:44 am

    $400MM from the Japanese is coming. Not sure if it’s this week.

  • 16 kencooksam // Dec 21, 2009 at 4:52 pm

    MDMD, I hear the same ,$400 million to pay for the stripping plant. A 4 year loan I hear…

  • 17 kencooksam // Dec 21, 2009 at 6:38 pm

    To Howard S. This $400 loan amount is on the IOC slides.Its part of the feasibilty study the costs huh. The terms are from the feasibilty study also. Two years to build the stripping plant and payback is is 2 years. Why would any biz person do a loan for longer. Howard you really need to learn how to do DD…You a shame to the legal community with your posting and lack of DD.You are short and it shows..I post this in full disclosure for you and other shorts may know our sources. They are in this case IOC slide presentations. Please…………Reading them is required SIR!!!!

  • 18 MDMD // Dec 21, 2009 at 11:33 pm

    Ken- I’m hearing HUGE oil at the bottom of
    Ant-2. Possibly 200-300ft deep, 2 miles long, maybe close to 1 mile wide. Are you hearing that? I also hear oil is coming to the top sans pumping. Sounds like a good sign to me.

  • 19 Roger // Dec 21, 2009 at 11:51 pm

    wow, that would be incredible!

  • 20 me // Dec 21, 2009 at 11:55 pm

    If it’s true, we’ll be at $100 by new year.

  • 21 Darcy Patten // Dec 21, 2009 at 11:59 pm

    Jumping Jehosaphat!!!!

    *falls off chair*

  • 22 kencooksam // Dec 22, 2009 at 12:03 am

    MDMD, I can not confirm or deny your report. I know the oil zone is several miles wide by at least a mile.The zone is 380 feet tall.(source Pet Engin Yahoo poster) We know per the DST the Dolomite extends into the oil zone.(source IOC P/R) So yes we will have a commercial find. That quantity I can not say. If they have porous rock that oil would flow to the surface I think.(per Pet Engin IOC yahoo board) I have not heard everything you post but it seems reasonable.
    So much good news is coming out hard to know what happens next..Its all coming together though..

  • 23 MDMD // Dec 22, 2009 at 12:52 am

    Let me clear so there is no misunderstanding. I have heard/read/done my DD. I am not in contact with anyone from IOC or on PNG. I am WAY long and hope/expect the good news to keep rolling in. As far as the size of the oil find, if it’s approaches some of the guesses I have read or heard, IOC is a rocket ship that hasn’t left the launching pad yet. Happy Holidays!!

  • 24 lexinvest // Dec 22, 2009 at 2:00 am

    Oil – “200-300ft deep, 2 miles long, maybe close to 1 mile wide. ” That is a Speculation or a Rumor. “The zone is 380 feet tall.” What will be found in this 380 feet tall area IMO is Not yet known. I’m Long (IOC is my Biggest Investment by FAR). But I urge moderation and prudence in these speculations. Yes lets hope for OIL and Great Condensate Stripping Plants. If these rumors have any Proven actual basis — IOC will very quickly be issuing Press Releases, as this is an Extremely Material Event.

  • 25 kencooksam // Dec 22, 2009 at 3:43 am

    Pet Engineer/Yahoo Poster has set up what the expectations are.He has sized the field and states they will have a commercial oil find here at Antelope 2. He has been amazing right in his analysis..I suggest persons read his posts and understand what we have here..He makes no promises but is a well seasoned industry professional. ARCO when they found Prudhoe Bay sat on that news for months,had to figure how to get it to the US. They built a pipeline..Antelope 2 is no Prudhoe Bay…But companies do sit on these things sometimes as they figure what the heck to do. What to do first..

  • 26 MDMD // Dec 22, 2009 at 5:13 am

    Lex- I am only sharing what I have heard, read or extrapolated while doing my DD. It seems Ken, whose work I really appreciate, is on the same wavelength as me. It is rumor, if and until it’s news. It’s also naiive to think companies don’t hold onto news. It IS fact, not rumor, that they do.

  • 27 lexinvest // Dec 22, 2009 at 9:29 am

    Good Luck Fellow Longs. Lets see how this turns out. But feel free to remember or remind me — that I urged caution on the prospects of the oil zone being 380 feet tall. The condensate zone is huge, but the oil zone IMO is still unknown. I do like the approach IOC is taking with Ant2 (Casing) — as IOC really needs Condensate estimates lower down, and to find oil if it there.