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InterOil all but nails it

June 10th, 2008 · 1 Comment

Burried on it’s website we just discovered a PR with the latest results from Elk4 Drill Stem Test (DST) number two.

The flow rate increased to 14.1MMcf (from 8.4MMcf in DST no1), so our thesis that the flow rates would increase if they drill deeper played out.

However, perhaps the most significant was this: the did not encounter any formation water. This removes the main lingering uncertainty, that there might be water in the hole. We can now fully concentrate on the positives.

Which are that the flow rate, albeit good, would still be a lot higher if:

  • They drill deeper still (still some 120 meters or so to go to total depth)
  • They clean up the skin, this will greatly increase flow rates
  • A new element was that they said they were limited by the DST testing equipment. It was not immediately clear what they meant by that, until we realized that they spoke of “tubular constraints”. We interpret this as they arguing that they used a very small tube for the gas flow. You have to realize two things. First, a bigger tube will significantly increase gas flows, and second, the reason for using a small tube have, in all likelihood, to do with the extreme pressures they’re dealing with.

The total known hydrocarbon column also keeps increasing. We think that when Elk4 is done, a big increase (and narrowing down) of the resource estimate will result.

We had troubles understanding the short-case already, but this seems to have wiped it out altogether.

Tags: IOC

1 response so far ↓

  • 1 Sean McCurry // Jun 19, 2008 at 10:36 pm

    I’ve enjoyed reading your comments on IOC. I used to work as a branch mgr. with RJ and have been in touch with their analysts regarding this story for some time. I’m curious as to what you guys think the price target might become if Elk-4 continues to not dissapoint. Anyway, thanks for the good articles–I’m keeping my position in this company and wish I had even more resources to add to my position.