03-16-2014, 12:11 PM
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.
. 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