j Wilkins poster
New report from Matt Badiali Part
Report to long for YAHOO. Most we already know, So, I'll just give the summary.
There are too many unknowns to put a hard value on InterOil. But I think we can come up with a rock-bottom value and a potential value for 2015 (after it gets paid for Elk/Antelope). We know that the deal with Total is worth $613 million right now. We know that there is another $212 million in cash for meeting two more milestones. That comes to $825 million in cash payments from Total. We also know InterOil's refining business is worth about $510 million. Then we have the eventual payment for the natural gas resource at Elk/Antelope. As we discussed above, the conservative value there is $4.1 billion. But we won't see that until the end of 2015 or early 2016 at the earliest. On a discounted cash-flow basis, that money is worth about $3.5 billion to us right now.
If we add that up, we get: $510 million for the refining business, $825 million in cash from Total, and $3.5 billion for the Elk/Antelope resource. The company has about $252 million in debt after we subtract the cash. That puts InterOil at a value between $5.6 billion and $6.1 billion today, depending on the Elk/Antelope resource. That works out to about $94 per share (94% gain) conservatively and $115 per share (124% gain) for the best case. Remember, this puts no value on several assets. For example, this assigns no value to InterOil's remaining 30% of the Elk/Antelope LNG project. Nor to its Triceratops discovery, which has the potential to be another Elk/Antelope. That's a good speculation to make. But there's another way to value this investment... Just look at a comparable Australian company called Oil Search. Oil Search is a $9.7 billion oil company with $3.3 billion in debt and $292 million in cash. It has a modest oil-production arm that generated about $380 million in earnings in 2013. However, its most important asset is 29% of ExxonMobil's LNG project in PNG. Less
Total's deal with InterOil instantly makes the company worth more than it is today. Total agreed to buy 61.3% of the Elk/Antelope field. In exchange for their share, Total agreed to pay the following in fixed amounts:
•$613 million when the deal closes
•$112 million when Total decides the LNG project is viable for investment
•$100 million when it ships the first LNG cargo
That means InterOil will get $613 million as soon as the two companies finalize the deal (we expect it any day now). That's a great payout, because it covers all the company's debt with cash to spare for exploration activities.
Total also agreed to pay for the natural gas resource, but it depends on how much they find. The two companies will drill four more wells to fully understand how much the reservoir holds. This should be completed in 2015. At that point, Total will pay InterOil based on this scale:
•$1.5 billion if less than 5.4 TCFE
•$2.1 billion if between 5.4 TCFE and 6.5 TCFE
•$4.1 billion if between 6.5 TCFE and 9.9 TCFE
•$5.3 billion if between 9.9 TCFE and 11.8 TCFE
As you can see, the Total deal could be worth as much as $6.0 billion ($725 million in fixed payments plus $5.3 billion for the natural gas resource). That's a maximum, but the Elk/Antelope geological structure is gigantic. They need additional wells to figure out just how big. Less