Pavel of Raymond James TODAY

[jft310]

In the near future, Interoil is likely to make perhaps the the most impactful announcement in its company history- the long awaited liquified natural gas (LNG) partner selection and resource sell down. Final bids from prospective partners were received on February 28, and the selection of the "winner" will be made by the board. With the stock currently pricing in only $0.70/Mcf of gas resource-vs. the regional industry average of around $1.20/Mcf fro analogous transactions over the past five years - we think the validation provided by the partnership announcement should meaningfully reset valuation

[Getitrt2]

Is that from some internal comment today, jft?

[Getitrt2]

I found it, and what you have above is totally correct, verbatim. The statement is from an official report on "Analyst Current Favorites" with today's date.

There is also another report dated March 8 on Energy stocks with comments on those with "Highlighted Catalysts (high-magnitude events expected within the next month)", where they rate the magnitude of the upcoming catalysts for InterOil as "High" for both of two separate upcoming catalysts, 1) resource selldown, and 2) FID for LNG project.

These are not the first dates, however, that these comments have appeared.

[Putncalls]

Why is Pavel using 1.20$/MCF when PDE was willing to offer 2.60$/MCF????

[ltinvest]

Pavel has always used $1.20 as the average of deals over the last 4 years in the region for a reference. His $102 NAV is calculated using $1/mcf.

[Putncalls]

is Pavel's 1$ number a better guess?

[Getitrt2]

I don't think Pavel is trying to "guess" or predict what price IOC will get in the sell down. He is just using those $1.00 and $1.20 figures as a conservative base to compare IOC's valuation to until we get more information. Note his comment: "we think the validation provided by the partnership announcement should meaningfully reset valuation."

[SamAdams]

[quote='Getitrt2' pid='18676' dateline='1363130012'] I don't think Pavel is trying to "guess" or predict what price IOC will get in the sell down. He is just using those $1.00 and $1.20 figures as a conservative base to compare IOC's valuation to until we get more information. Note his comment: "we think the validation provided by the partnership announcement should meaningfully reset valuation." [/qu

Exactly.  So "the street" will use numbers/metrics that make their case and are hopefully beatable, creating the upside surprise.  It's also important to know where the buy side is at.  In some stocks, you can find out informally what the buy side is thinking.  For IOC, Pavel is the street.  The buy side is so concentrated though you can't know where buy side expectations are.  No one here is in this for a move to $100.  My guess is buy side estimates of a deal price are substantially higher.  When stocks beat street numbers, but sell off or don't appreciate as much as you think that is because the buy side was even higher.  I think $1.20  mcf would be disappointing to the big holders and that shouldn't be a surprise to anyone here.  That said, there are many other vaiables other tham $ per mcf but that will be a headline # that many will look to first..  IMO, a $2+ per mcf print, all else being equal, sends the stock much higher and $3+ crushes the shorts.  The short killer is a takeout or a much higher than  expected $ per mcf.  They will not wait around to sift through the details at that point.

[Palm]

Excellent comments Sam. Appreciate your perspectives.

[admin]

Sam, as much as I agree with this, I think it's only part of the story. For me it's more a question of a deal removing risk and uncertainty from the project, setting the clock ticking towards monetization, and allowing InterOil to create more upside by an acceleration in exploration and appraisal.

Even a disappointing deal, price wise, would achieve that, and for the life of me, I can't really see all that much downside from here (unless the deal is at 50 cents or so or has so many contingencies that a lot of uncertainty remains).

Say we get $1/mcf with a fairly conclusive deal. Given the opportunities at Triceratops, with liquids, with the rest of their licenses, with the project largely derisked, with farm-out deals, would anyone start a short position in InterOil?

I don't really think so. The shorts think that "the geology is suspect and management is suspect" They believe InterOil isn't able to get any deal. Almost any deal destroys that thesis (if it hasn't already).