In yesterday’s WSJ article titled “Chevron Places Big Bets on Australia”, the company’s Asia-Pacific head of exploration and production explains that “There is going to be a shortage of LNG in Asia. We think the shortage will be about 150 million tons between now and 2035. That equals bringing on a new Gorgon project every year, which is a tremendous challenge. Also, lots of countries in Asia have energy shortages and constraints in their system”. (http://online.wsj.com/article/SB10001424127887324399404578587010372584812.html) ;
I estimate that the "locked in" NAV of just InterOil’s 4.6 Tcf SPA transaction with Exxon and its residual stake in the condensates will exceed $100 per share. Hence investors are getting paid >$30 per share to retain InterOil’s residual stake in PRL 15, including its stake in all of the remaining gas in Elk/Antelope for the next LNG train and InterOil’s undiluted stakes in Triceratops and its 3 PPL’s. The confluence of a new credible CEO coming on board, closure of the SPA with Exxon, the release of additional seismic data on Triceratops and a blueprint of the upcoming drilling program should send the stock well into the triple-digits in the coming weeks.
The provision of InterOil's NAV estimates attached to the SPA, condensate production, and the first Gulf train when the deal is announced (very likely this month) will swiftly resolve all of the confusion surrounding this deal. Investors just haven’t taken the time to understand how constructive it is for InterOil. It is a non-contingent deal that will likely lock in over $100 of NAV from just the committed purchase agreement and condensate production irrespective of the recertification outcome, it provides for drilling program funded by Exxon to further delineate the Elk/Antelope structure and determine the additional LNG capacity that the reservoir will underpin, it leaves discretion over the first Gulf train, the crown jewel of the transaction with an NAV of >$3 per mcf, in InterOil’s control, and it provides complete funding for all of InterOil's drilling and infrastructure costs (including Gulf infrastructure/pipeline, CSP, and a minumum 2 rig drilling program).
Tony Reagan, principal consultant at Tri-Zen International, an Asian energy consultancy, explained, "It's very good deal for ExxonMobil as it clearly means that they will have enough gas to go ahead with PNG LNG train 3 and may have enough resource to push for train 4 as well. And while on the one hand the government may have been keen to bring in one of the other IOCs (international oil companies) to encourage competition, this is a much cleaner outcome. PNG LNG and InterOil's LNG concept essentially followed the same export route, so there is no real need for a separate facility at this stage." (http://www.icis.com/heren/articles/2013/05/30/9673534/lng/glm/exxonmobil-targets-interoil-assets-for-png-lng-expansion.html)
InterOil essentially has no downside from here and the buyers will be scrambling to buy the stock with the announcement of a new credible CEO who inspires confidence that the many hundreds of dollars per share of value in just Elk/Antelope and Triceratops will be unlocked over the next several months. The Mulacek/management discount could swiftly convert into a significant premium if the right guy is hired. Cheniere Energy (NYSE: LNG) trades at a 40% premium to its “locked in” NAV (first 3 trains), yet unlike InterOil its upside potential is capped and it has no upstream assets to prevent continued dilution required to fund its infrastructure costs. Just like InterOil, its production will begin in 2016. InterOil is about to undergo a very swift transformation, and I expect most of it will be reflected in tremendous appreciation in the shares over the next few weeks. Government approval will occur almost immediately following the SPA agreement with O’Neill’s coalition government holding 95 of 111 seats and a standing ovation having occurred in Parliament when O’Neill announced the exclusive negotiations in late May. In fact, I believe that Exxon has already been progressing on the regulatory front with approvals related to this SPA. The only risk to SPA closure is a bid for all of InterOil by Shell or Total, which would also result in a very positive outcome for shareholders.