Per ValueSleuth on IV:

As Selldown's Closing Is Awaited, Drilling Catalysts Also Enter Picture

While IOC’s 18% gain has made it one of the top-performing E&P stocks year-to-date (E&P index down 2.6% YTD), let’s also not forget its 37% shellacking on December 6 (the day the resource selldown to Total was announced), followed by tax loss selling later in December. In other words, the recent rebound - spurred, among other factors, by Oil Search’s purchase of a stake in Elk/Antelope - offsets only some of those prior losses. We do not see the stock as anywhere near priced for perfection, bearing in mind our base case NAV/share of $102.87 (the stock is currently trading at 59% of NAV). Today we take the opportunity to highlight the catalysts we’ll be keeping an eye on over the next few weeks and beyond.

In the very near future, the deal with Total is set to close. Recall, one of the key milestones on the way to closing the resource selldown has been for InterOil to buy out the indirect participation interest (IPI) investors. With the exception of a few small third-party owners (totaling 1.6% of Elk/Antelope), that buyout has been taken care by Oil Search. This means that InterOil does not face any more associated dilution risk, and it also opens the door to closing the selldown. Both companies have stated that closing is expected in 1Q14, and InterOil will certainly provide an update concurrent with the release of the year-end financials over the next two weeks. As we noted after the Oil Search buyout, InterOil and Total may end up modifying the resource selldown (i.e., by reducing Total’s ownership from the originally envisioned 61.3%) to reflect Oil Search’s stake. Once the resource selldown closes, InterOil will get the upfront payment from Total, which will essentially recapitalize the company (on a tax-free basis).

Heading into the summer, exploration adds juice to the story. After essentially no exploration newsflow in 2013, the exploration program resumed this month. Of the (at least) three prospects set to be drilled in 2014, the first two spud during the second week of March: Bobcat-1 on the PPL 238 block (60.5% net interest) and Wahoo-1 on the PPL 236 block (60.5% net interest). The next well to spud – expected in late March – will be Raptor-1 on the PPL 237 block (50.5% net interest). (For a geographic setting of all three wells, see the map on page 2.) The company has – quite wisely, in our view – avoided detailing estimates for the unrisked resource potential. Given the emphatically early-stage nature of this acreage, we are also not in a position to provide a cogent estimate of prospect sizes, though in general terms we look at all these targets as multi-Tcf in scale (without ascribing any credit for oil potential – which would be the ultimate “icing on the cake&rdquo. More importantly, we believe that none of the exploration optionality is currently priced into the shares. As far as timing goes, the company has stated that the process of drilling, logging and testing should take approximately 90 days, implying that initial results from all three wells should come in June/July – so for all you well-watchers out there, that’s when things get really interesting.

Hudsojo

I see RJ mentioned the O word as an aside.

Yea, things could go quite fast now:

• New licenses already in the bag
• Closing of the Total deal
• First Total payment
• Say we have one out of three from the new prospects now drilled (anything more would be an enormous bonus)
• Appraisal of E/A and Triceratops

When the smoke clears up it's quite likely a very good deal, cash in the bank and three multi-Tcf prospects totalling well over 10Tcf

Is that priced in? Not even close as you also have to realize closing of the Total deal will remove most risk and therefore almost any downside..

If well over 10Tcf is confirmed, it also opens more doors, like a two-train LNG plant with Total and perhaps early gas delivery for a third train at OSH/Exxon. Not necessarily, but certainly possible. The latter delivers faster cash flow.

Just curious as to everyone's thoughts here - Let's just say there is enough gas for 2 train lng plant with Total, AND for a 3rd train with Exxon. Regarding the 3rd train, (and I know nobody can say for sure), what are the chances we get % ownership of third train, albeit small, vs just selling gas outright to Exxon for third train. Either one would send the pps up but I wonder how the market would react to each of the different scenarios. Always like to hear my friends' thoughts at SHU.

'cybersssss' pid='39279' datel Wrote:I may be of dissenting opinion but to me it makes no sense to sell has to pnglng if we are pursuing a greenfield LNG project in the gulf. The more trains at a gulf LNG plant the more profitable it is. Why build two when you can build three. With that I do think that it makes the most sense to just expand png LNG with train 3,4,5 and have participation in that. Most economical and speediest.

I agree, Cyber, with the possible exception that it may make more sense to simply concentrate on building a greenfield 3 or more train LNG plant for the IOC partnership.

I see roughly a one, possibly 2 year time difference between expanding at PNG LNG versus our own LNG plant.

Unless Exxon et al can match the ownership of the LNG plant to the IOC partnership, I believe it is simply best to build our own.