IOC shares have been frustratingly weak in recent weeks, dropping 14% in the past 10 trading sessions – above and beyond the shellacking on December 6, the day the resource selldown to Total was announced. In part, tax loss selling in the final days of 2013 appears to have been a culprit, and unfavorable technicals inevitably come into the picture, as well. From a more fundamental standpoint, the stock is also under pressure given the uncertainty over the upcoming buyout of the indirect participation interest (IPI) investors, in particular the uncertainty on what, if any, equity dilution there might be.

Considering that the stock is trading under 50% of our base case NAV estimate, it is probably stating the obvious that we look at it as undervalued (and considerably near-term oversold) at current levels. Let’s take a look at what needs to happen for the stock to move higher over the next several months.

First, the IPI buyout needs to be completed. As is always the case, the devil’s in the details. There is obviously no liquid market for something like this: it will be a negotiated, bilateral settlement between the company and the IPI investors. The total amount that InterOil will pay for the IPI buyout remains an open question, but what’s probably even more impactful for the stock is the extent to which equity will be issued as part of the settlement. We have previously used a "guesstimate" of around $250 million to buy out the IPI investors from 2005 (or, to be more precise, that portion of their original $125 million investment that has not already been converted into IOC shares). There is also an additional element of buying out Pacific LNG, a long-standing partner of InterOil’s that also has a stake in the Elk/Antelope resource. In aggregate, something in the $500 million range seems plausible to us, but again, this is purely a guesstimate. We would expect this news to be released soon, probably in January, in advance of closing the deal with Total.

Second, the deal with Total is set to close. InterOil and Total have both stated that closing is expected in 1Q14, without giving a precise timetable. Assuming that closing will take place after the IPI buyout is completed, that would indicate that sometime in February is a realistic timetable. We are sensing that there is a small subset of investors that is skeptical that the deal will close, and insofar as there are such skeptics out there, closing the deal should give the stock a bounce. In addition, of course, InterOil will get the $613 million upfront payment from Total in conjunction with closing, which will essentially recapitalize the company (on a tax-free basis, we might add), and a portion of this payment could easily be allocated to the IPI buyout.

Third, the exploration program will soon resume – after a year that had essentially no exploration newsflow amid the company’s singular focus on the resource selldown. Three high-impact prospects are planned for 2014. Bobcat-1 on the PPL 238 block (60.5% interest) is set to spud by the end of March, followed by Raptor-1 on PPL 237 (50.5% interest) and Wahoo-1 on PPL 236 (60.5% interest). Needless to say, none of the potential exploration success is currently priced into the shares – and, to be clear, we look at the stock as undervalued even without ascribing credit for this optionality.

Pavel agrees with our common sense . Use part of the Total closing money to buy out the IPI and tie their second payment to

the size of the recertification . We were using $650 million in total . Including Civelli. Cash and stock in some combination.

Art-page 2 of 9 on the Westlake report posted in another area of this website shows the transaction costs . They model all

the minority interest will be bought out. Using cash/stock . Their model shows all cash payments to IPI. They show payments

with dates along the way for this buyout. Under all situations IOC

retains a 30 percent interest in e/a and a 30 percent interest in the LNG plant after the govt buyin . Or similar to what OSH did

with Exxon. The higher the recertification number the higher the payment to the minority interest.

Pavels estimates can be computed with a 40 percent payment to the minority interest  at closing. Other payments paid out as

Interoil receives them from Total.

There will be no big stock issuance to buy out the minority partners .

Find this report under important threads . Analysts reports . Go to page 3 bottom grouping under Admin poster . Report dated

Dec 13th posted on Dec 16th.Yes you must sign in its protected.

'jft310' pid='35577' datel Wrote:

Art-page 2 of 9 on the Westlake report posted in another area of this website shows the transaction costs . They model all

the minority interest will be bought out. Using cash/stock . Their model shows all cash payments to IPI. They show payments

with dates along the way for this buyout. Under all situations IOC

retains a 30 percent interest in e/a and a 30 percent interest in the LNG plant after the govt buyin . Or similar to what OSH did

with Exxon. The higher the recertification number the higher the payment to the minority interest.

Pavels estimates can be computed with a 40 percent payment to the minority interest  at closing. Other payments paid out as

Interoil receives them from Total.

There will be no big stock issuance to buy out the minority partners .

Find this report under important threads . Analysts reports . Go to page 3 bottom grouping under Admin poster . Report dated

Dec 13th posted on Dec 16th.Yes you must sign in its protected.

JFT - That doesn't answer the question.

Art-Let me restate the minority interest is defined as the IPI and PACLNG . Per all written material and the CC these aggregate

partners are being bought out. Their interest is going to zero. IOC wil retain a 30 percent interest across the board. If they

certify more those partners will get paid more. Their model assumes the IPI and PACLNG wil receive cash payments from

2014-2020 . It's a win win scenario. The payment can be stock and cash but I can't see them using stock at these prices. But it's

not my call.

Today the stock trades as if IOC will have to issue all stock today to close and well that's just Fear Mongering. Not true and

will not happen.

'Getitrt2' pid='36205' datel Wrote:Bringing this up to help someone.

Well, that is complimentary.

What ever were the "Originators" thinking?

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