The piece presented below was posted today by Resourcearb, an unidentified newbie, on Seeking Alpha. It is an interesting read.
VS
InterOil (NYSE: IOC) - Opportunity Of A Lifetime 0 comments
Jul 9, 2012 9:11 AM | about stocks: IOC
I have encountered many investment opportunities with significant dislocations over the course of my career, but there were only a handful in which the catalytic path towards a revaluation has been so clear and imminent. It is rare to discover a stock with a steep upward sloping price trajectory that could be considered a distressed asset, but InterOil's exploration success in the past several years has far surpassed the appreciation in its market value. As an example, following an exceptional year with the drill bit during which Interoil's certified resource estimate grew to 9.1 Tcfe gross (5.2 Tcfe net), the enterprise value (EV) at the end of the year was $3.3 billion. Despite an improved LNG market, finding another significant structure, and identifying several additional prospective targets, the company's EV is roughly the same two and a half years later. InterOil's current net 5.6 Tcf of exceedingly low cost natural gas and condensate resources in the Eastern Papuan Basin trades at a depressed valuation of ~$0.60/mcfe excluding any value for its exploration acreage, downstream assets, and its recent Triceratops discovery, a reefal structure with twice the aerial extent of Antelope.
InterOil is in the midst of concluding a multi-billion dollar sell down of Elk/Antelope to internationally recognized LNG partners, and the imminent culmination of this process is likely catalyze a revaluation of the company to in excess of $200 per share. The NAV of InterOil's resources significantly exceeds the arbitrary value being ascribed by the market, and the upcoming sequence of catalysts will make this dislocation very clear. On October 6, 2010, Bernstein issued a research report titled "Global Gas Decoupling, the Rising Marginal Cost of LNG and the Asian Gas Premium", which argues that Australia is the marginal producer at costs ranging from $6 - $11/mcf (subsequent cost overruns likely resulted in this range having been substantially understated). Conventional gas resources such as those possessed by InterOil in PNG have substantially lower F&D costs and much more prolific production rates than coal bed methane resources and hence have much higher NAVs. The most relevant recent LNG transaction was arguably Marubeni's acquisition of a 1% stake in the PNG LNG project through its purchase of a 20% stake in Merlin Petroleum in November of 2011. The stake equates to ~$3 per mcf of reserves or in excess of 5X InterOil's current valuation, excluding Triceratops and its other assets. InterOil's Elk/Antelope reservoir, however, has higher productivity and lower costs than other structures in PNG and has among the lowest F&D costs globally. Also, InterOil's plant and infrastructure costs are estimated to be approximately half those of Exxon's PNG LNG project. Liquid Niugini's FOB breakeven price was estimated to be $0.70 per mcf while that of PNG LNG was estimated to be $7.50 per mcf (Source: www.liquidniuginigas.com/Bloomberg Dec '10, Jan '11). Assuming a $7 FOB breakeven differential for a 6 Mtpa LNG project with a 20 year life and a 20% discount rate, Elk/Antelope's resources would be worth ~$1.75 per mcf more than PNG LNG's resources. PNG LNG will commence operations approximately 2 years in advance of the Liquid Niugini project, so the differential is somewhat mitigated, but it's difficult to model a scenario in which the intrinsic value of InterOil's resource is not significantly in excess of $3 per mcf, even if LNG prices, which are linked to crude oil in Asia, come off their current elevated levels.
There are several possible reasons for which InterOil trades at a substantial discount to its intrinsic value, but the stars are now aligned for a transformational sell down of Elk/Antelope and FID on its Gulf LNG Project to revalue the company substantially higher in the coming weeks. The company had been caught in a whirlwind of political resistance over most of the last year, as the PNG Department of Petroleum and Energy (DPE) did not support InterOil's modular and floating LNG strategy, which may have breached the 2009 Project Agreement. Also, the return of Michael Somare to PNG during PM O'Neill's reign complicated the political landscape, as the Supreme Court ordered O'Neill to step down and Sir Michael to be reinstated as recently as May of this year. With the elections in PNG having commenced and the writs scheduled to be returned later this month, political stability is on the horizon. Last month, PM O'Neill issued an unprecedented press release in support of InterOil and its Gulf Project. In his release, O'Neill wrote, "Our government fully supports this second LNG project for the country, and we hope InterOil will develop it as quickly as possible". The release also urged the Department of Petroleum and Energy to assist InterOil in proceeding rapidly. There is already strong support for the Gulf LNG Project on the provincial government level, as a state-owned company has been formed to develop a new port and a highway connecting the Gulf to the Southern Highlands Province (www.pngindustrynews.net/storyview.asp?st...).
To read the rest of the article, go here
Disclosure: I am long IOC.
Themes: LNG Stocks: IOC
Buried away in the article is the statement "the company's move last week to replace its CEO, Phil Mulacek, with Gaylen Byker, may be symptomatic of a pivotal shift in the company's philosophy away from seeking maximum control over its assets and towards maximizing shareholder value .......".
This is misleading. Good governance calls for separation of the CEO and Chairman of the Board positions. This is all that was done. Gaylen Byker has been a partner of Phil Mulacek in the InterOil venture for a very long time. Given that he recently retired as President of Calvin College gave him more time to take an active role in InterOil and lighted Phil's responsibility for various BOD activities.
There is zero change of philosophy here, as anybody reasonably familiar with IOC would know -- i.e. AGM attendees.
VS
VS
InterOil (NYSE: IOC) - Opportunity Of A Lifetime 0 comments
Jul 9, 2012 9:11 AM | about stocks: IOC
I have encountered many investment opportunities with significant dislocations over the course of my career, but there were only a handful in which the catalytic path towards a revaluation has been so clear and imminent. It is rare to discover a stock with a steep upward sloping price trajectory that could be considered a distressed asset, but InterOil's exploration success in the past several years has far surpassed the appreciation in its market value. As an example, following an exceptional year with the drill bit during which Interoil's certified resource estimate grew to 9.1 Tcfe gross (5.2 Tcfe net), the enterprise value (EV) at the end of the year was $3.3 billion. Despite an improved LNG market, finding another significant structure, and identifying several additional prospective targets, the company's EV is roughly the same two and a half years later. InterOil's current net 5.6 Tcf of exceedingly low cost natural gas and condensate resources in the Eastern Papuan Basin trades at a depressed valuation of ~$0.60/mcfe excluding any value for its exploration acreage, downstream assets, and its recent Triceratops discovery, a reefal structure with twice the aerial extent of Antelope.
InterOil is in the midst of concluding a multi-billion dollar sell down of Elk/Antelope to internationally recognized LNG partners, and the imminent culmination of this process is likely catalyze a revaluation of the company to in excess of $200 per share. The NAV of InterOil's resources significantly exceeds the arbitrary value being ascribed by the market, and the upcoming sequence of catalysts will make this dislocation very clear. On October 6, 2010, Bernstein issued a research report titled "Global Gas Decoupling, the Rising Marginal Cost of LNG and the Asian Gas Premium", which argues that Australia is the marginal producer at costs ranging from $6 - $11/mcf (subsequent cost overruns likely resulted in this range having been substantially understated). Conventional gas resources such as those possessed by InterOil in PNG have substantially lower F&D costs and much more prolific production rates than coal bed methane resources and hence have much higher NAVs. The most relevant recent LNG transaction was arguably Marubeni's acquisition of a 1% stake in the PNG LNG project through its purchase of a 20% stake in Merlin Petroleum in November of 2011. The stake equates to ~$3 per mcf of reserves or in excess of 5X InterOil's current valuation, excluding Triceratops and its other assets. InterOil's Elk/Antelope reservoir, however, has higher productivity and lower costs than other structures in PNG and has among the lowest F&D costs globally. Also, InterOil's plant and infrastructure costs are estimated to be approximately half those of Exxon's PNG LNG project. Liquid Niugini's FOB breakeven price was estimated to be $0.70 per mcf while that of PNG LNG was estimated to be $7.50 per mcf (Source: www.liquidniuginigas.com/Bloomberg Dec '10, Jan '11). Assuming a $7 FOB breakeven differential for a 6 Mtpa LNG project with a 20 year life and a 20% discount rate, Elk/Antelope's resources would be worth ~$1.75 per mcf more than PNG LNG's resources. PNG LNG will commence operations approximately 2 years in advance of the Liquid Niugini project, so the differential is somewhat mitigated, but it's difficult to model a scenario in which the intrinsic value of InterOil's resource is not significantly in excess of $3 per mcf, even if LNG prices, which are linked to crude oil in Asia, come off their current elevated levels.
There are several possible reasons for which InterOil trades at a substantial discount to its intrinsic value, but the stars are now aligned for a transformational sell down of Elk/Antelope and FID on its Gulf LNG Project to revalue the company substantially higher in the coming weeks. The company had been caught in a whirlwind of political resistance over most of the last year, as the PNG Department of Petroleum and Energy (DPE) did not support InterOil's modular and floating LNG strategy, which may have breached the 2009 Project Agreement. Also, the return of Michael Somare to PNG during PM O'Neill's reign complicated the political landscape, as the Supreme Court ordered O'Neill to step down and Sir Michael to be reinstated as recently as May of this year. With the elections in PNG having commenced and the writs scheduled to be returned later this month, political stability is on the horizon. Last month, PM O'Neill issued an unprecedented press release in support of InterOil and its Gulf Project. In his release, O'Neill wrote, "Our government fully supports this second LNG project for the country, and we hope InterOil will develop it as quickly as possible". The release also urged the Department of Petroleum and Energy to assist InterOil in proceeding rapidly. There is already strong support for the Gulf LNG Project on the provincial government level, as a state-owned company has been formed to develop a new port and a highway connecting the Gulf to the Southern Highlands Province (www.pngindustrynews.net/storyview.asp?st...).
To read the rest of the article, go here
Disclosure: I am long IOC.
Themes: LNG Stocks: IOC
Buried away in the article is the statement "the company's move last week to replace its CEO, Phil Mulacek, with Gaylen Byker, may be symptomatic of a pivotal shift in the company's philosophy away from seeking maximum control over its assets and towards maximizing shareholder value .......".
This is misleading. Good governance calls for separation of the CEO and Chairman of the Board positions. This is all that was done. Gaylen Byker has been a partner of Phil Mulacek in the InterOil venture for a very long time. Given that he recently retired as President of Calvin College gave him more time to take an active role in InterOil and lighted Phil's responsibility for various BOD activities.
There is zero change of philosophy here, as anybody reasonably familiar with IOC would know -- i.e. AGM attendees.
VS
