Focus on 3 revenue sources from the Exxon deal

[Resourcearb]

Thanks. Very helpful posts.

The transaction is much simpler than the market is contemplating, and the dissemination of only some of the puzzle pieces has resulted in the market's incorrect perspective that the SPA is complex or that it incorporates contingencies. I anticipate that an NAV per mcf will be provided for the 4.6 Tcf gas purchase by XOM, and this figure will embody an appropriately discounted present value of the immediate and future cash flow stream provided by XOM. I anticipate that this figure multiplied by InterOil's 59% stake in the 4.6 Tcf will exceed the company's entire market cap.

I also anticipate that the company will provide an estimated NAV per mcf for the first train of the Gulf LNG Project. This figure will almost certainly be significantly in excess of the NAV of the first 4.6 Tcf purchased by XOM, and it will fill in the remaining value for the gas in Elk/Antelope based on GLJ's current appraisal. IOC, of course, believes that with additional delineation wells, the size of the resource will grow, and it's possible that Elk/Antelope could supply a second train at the Gulf Project. It is, of course, possible that the gas for InterOil's first Gulf train will be used for a fourth train at PNG LNG instead, but XOM will have to pay a much higher valuation for the second tranche of gas and it must be competitive with an NAV that I estimate significantly exceeds $3 per mcf. The brilliance of this deal is that IOC is free to exert complete discretion of the resources beyond the first 4.6 Tcf and hence to maximize its value to IOC shareholders.

Even at a weighted average of only $2 per mcf for the first 2 trains, the value of InterOil's stake in the Elk/Antelope gas based on its current ownership is well in excess of $10 billion today. The company will also retain its pro rata cash flows from the CSP, a large stake in (most likely 30 - 40%) additional discoveries in PRL 15, and its ownership of Triceratops and its other 3 PPL's will not be diluted at all by this transaction. In fact, with FID of the Gulf Project getting closer, the value of InterOil's other prospects will materially increase.

This really isn't a complicated transaction, and it's unfortunate that the company has been forced into such selective disclosure given the continued need for confidentiality and for XOM's approval to disseminate information. Nonetheless, the confusion has created an extraordinary opportunity that is about to materialize into a surge in the share price. With NAV per mcf figures and well supported underlying assumptions provided to the market along with completion and disclosure of the SPA, I expect that market participants will clearly see that this transaction implies a value of well over 3X InterOil's market cap just for Elk/Antelope!

Enjoy your weekend.