Expectations and Reality

[jft310]

Thanks Hemi
Before we invest in a stock I get to know management .
I slowly build large positions and buy the dips .
Management of the companies we invest in like steady investors.
We are long term value investors .
Interoil has great value long term within my 68 year old lifetime .
I pass along point in time information to help with the wait.
Use or flush .

[Palm]

Nice artwork there Hefi. Isn't Excel amazing?
One thing I disagree a little on; Ant Deep is something we would normally get nothing on (undiscovered hydros). Getting $100 million/T isn't all bad considering we now own the % we do post-Total deal. Our experts here never felt there would be communication between it and Ant, and if there was, it would not necessarily be a good thing.

Now let's get the rig from Raptor moved and ready to drill. Then maybe see what going on with rig 116.

[Movieguy]

Thanks, Hemi, for your very informative and detailed post. It has generated a lot of quality discussion. However, I disagree with your first and possibly most important point, "Discoveries are really meaningless to the PPS over the next 4-6 years (minus oil)." I think the history of Interoil (and probably most similar companies) completely contradict that point.

From October 2009 - present, Interoil has had a value in the $$ billions. Glancing at a monthly chart it seems the average share price has been about $60, so that would value the company around $3 billion. Deducting about $500 million ($10/share) for the refinery, one gets an average Interoil value of $2.5 billion. Well what did Interoil really have other than its Elk/Antelope discovery? It has maintained this $2.5 billion valuation for years, and during the majority of that time it had no deal with an SM, questionable management, and at times a hostile and unstable government. Through all that the discovery had a value in the billions.

Now Interoil has a deal with an SM, with two others having bid. It also has a fairly stable and friendly government to deal with, and perhaps most importantly, a much more professional and accomplished management team. If discoveries by the old Interoil were worth $2 billion +, why would discoveries by the current Interoil be meaningless in terms of value?

[Thylacine-2]

Looking back over the years I've been invested in IOC, the posters who have been most useful to me have been those who have provided sound analysis and clear thinking to information in the public domain. A list of such posters would of necessity exclude some so I will mention just two...Pet and Palm.

Posts by "connected" individuals, ostensibly passing on something they heard from someone in the know, have at best been of entertainment value.

[will2bgreat]

• Why do some posters keep thinking we are going to be bought out??
  
  • Over a two years ago we just opened our data room to everyone on the planet and no one was impressed enough to buy us out then.
    
    • How are we really any different today then 2 years ago when we were trying to selldown
  • Why would someone buy us out when OSH is actually producing and making $$$ - me thinks they are a better target
  • "Insanity: doing the same thing over and over again and expecting different results.

Hemi,

I think the statement above assumes the conditions are equal now as they were 2 years ago, and as they will be in 6 months and I do not believe this is correct.  2 years ago, when the data room was open there were outstanding questions about the quantity of gas, hence why we have Ant 4 & 5.  Also, IOC did not pose a threat to the PNG LNG group at that time since they did not have a way of getting the NG off of the island.  XOM knew they would have to go thru this additional process of proving up the resource so why would XOM be interested in submitting a serious bid?  2 years ago XOM was at $86/share and now they are at $95 and IOC was at $62/share.  So rignt now, assuming the same markup on IOC stock, XOM can buy IOC at a greater than 10% discount to where it was 2 years ago.

Furthermore, once A4 & 5 are complete and prior to FID, IOC will be a wide open target for a takeout.   Why?  Because they will have proven up their resource, have numerous other resource leads with WBR, et al, and now IOC is a threat to the XOM/OSH monopoly on the NG business in PNG.  Hence, this is when a takeout will attempt or may happen.

The bottom line, until such time of an approaching FID, IOC does not pose a threat and therefore no serious offers will happen.

Thoughts from a simple engineer.  Good luck longs.

[jft310]

Will-I think there is a gap between Ant 4 and 5 results and the Total certification payment . I expect some offers not to say we will ever hear about them unless full value . But what is full value .?.At FID the uncertainty is removed and its a simple discounted cash flow to plant open thus a large surge in the stock price . See the move in price per share OSH had post FID . But if one thinks about what Hession stated on the call Find gas , monetize it and find more gas I doubt if the board will sell on the first LNG deal .
Also Per Credit Suisse Interoil will do a secondary post Total payment to bridge into plant opening . Money to be used to fund further exploration and for operating cash . The need per Credit Suisse is $2 billion range . Part can be raised with a second sell down of some type but part will involve issuing more shares . Remember OSH went to the market for their LNG money . All the more reason to think the price per share will not be robust enough for a sale .
My opinion and Credit Suisse report info .

[efi426hemi]

Movie - Let me give you an analogy of my reasoning why I don't think new finds impact pps - let's look at the movie Castaway.  Hanks is on that island starving to death and when he spears his first fish that is a game changing emotional event and means he now has a chance.  Fast forward 4 years and he is spearing fish without even trying and there is no emotional response afterwards.  While it is good he can still feed himself, all he cares about is getting off the island.  This is where IOC is at - that first fish (E/A) was a game changing emotional event, now all they want is to get the gas off the island.  Fundamentally new finds are outstanding, however we will have to agree to disagree on this one in terms of short term pps impact.

Will - In regards to a company buyout, my argument is that this same almost identical situation happened before with OSH and no one took them out. How is IOC so much more fundamentally different today as compared to OSH then?  There will be more PRL's and I strongly believe Hession will create more favourable SPA's bringing in new partners which will elminate any buyouts.  I speculate that the word on the street will be "You can't buy us out, but you can be a partner in our next PRL - while we take all the risk in future exploration".  If investors are holding their shares hoping for a buyout personally this is a poor investment strategy in my mind.  In any event, there is always a possiblity of a full company buyout, it is a publically traded company afterall, I just beleive this percentage is less than 5%.  Again we will have to agree to disagree.

Health and Happiness,

Hemi

[jft310]

Based on the last call it appears Heesion wants to find more sell gas, monetize it and find more gas .That explains why no sell down on the remaining PPL's so far .Keep the higher interest 65-75 percent ownership wait for the PRL assignment get it certified then do a sell down . Then find more gas . That strategy has 10 years of life I think which is why Henry Aldorf stated Interoil will be a mid sized oil and gas company . Hession has obviously sold that idea to all the Woodside converts .Think they left Woodside to let Hession sell out the company early ?.Especially when many don't own stock in Interoil yet.

[calvin grad]

Ii have always thought Hession to be  honest but I  am finding this statement of finding more gas  and finding more gas a little bit hard to believe. I would think his big dream to be a little different..I think he would like Interoil be what  Woodside is in australia. I believe he thinks the biggest mistake he can make is to be bought out  by the wrong company which is Exxon. I do not believe Exxon can stomach the thought of 40T s being discovered with 2 or 3 different producers . It is a global market  but  they  must believe that their margin will be affected for the existing plant. Yet they do not pay for unproven reserves.. This a poker game and Hessions instinct is to not  show his cards . We are getting closer to seeing the river  card.

[2126]

While I agree with the Eli426Hemi analysis and chart in most respects, particularly that the pps will go up on Ant 4 & 5 results, more so on the appraisal recertification, and again on the TOTAL payment, I disagree in two respects: (1) I believe that arbitration uncertainty is holding back institutional investors, and once that particular uncertainty is removed, there will be an increase in new investors; (2) I also feel that the market will not necessarily wait for FID to invest in IOC. Once the size of E/A is agreed upon by IOC and TOTAL and then TOTAL makes a very significant resource payment to IOC, I believe that the resource payment event will remove enough further uncertainty as to IOC's future that there will be a significant surge in institutional IOC investment. Of course, FID will also cause the pps to rise as well, but IOC is not OSH. IOC has a much more significant set of prospects and even discoveries in its basket right now than OSH had at the PNGLNG FID. Those additional prospects, particularly the 'tie-back' prospects/discoveries significantly enhance IOC's future. Once TOTAL makes its resource payment to IOC of upwards of $1 billion+ (and possibly much larger), I believe the institutional market will make its move.