Although May or June options seem to be the most optimal for playing IOC, there is something to be said for September options in case Elk4 will be a success, as there is a likely follow-up.
Why is that? Well, if the gas they already found at the first two drilling sites is confirmed once again at Elk4, there will be more positive news coming pretty soon (but, perhaps not soon enough for those May or June options, alas).
- A short squeeze. There are presently 9+M shares short, almost half the float.
- Merrill Lynch refinances it’s outstanding loan at favourable rates once again (see here for more on this)
- An independent assessment of Elk by world-class engineering firm Netherland Sewell.
- An agreement with the PNG government about the LNG facility, giving Liquid Niugini (of which IOC holds a third) an almost unassailable lead over competing LNG projects.
- An agreement with outside (Japanese, Korean) investors for a participation in the LNG facility.
- The active negotiation with a strategic partner for the sale of a 10% interest in Elk, which has the potential to create an implied “industry” valuation several-fold higher than the market’s current valuation.
- The possibility of farmout opportunities to industry partners, which could further accelerate the exploration of the company’s extensive acreage position.
A potentially very explosive mix, throw a little oil in the picture, and we could have a real explosion.