We wrote an article for SeekingAlfa about Interoil. Now, go to the comments below the story. Some of the reactions are rather interesting, albeit for different reasons than you might expect. 

There is a certain Alan von Altendorf, who had the following to say:

“The last thing I wanted to do this weekend was look at another impenetrable scam spawned by Enron and Merrill. Rather than comment here, I’ll do a formal assessment.”

Now, there are a couple of curious elements in that answer:

• Why does he call the company a scam even before he embarked on a formal assessment?
• Why does he feel the need to embark on a formal assessment if it is “the last thing” he wanted to do?

This Alan has some sort of oil consultancy, although his name is nowhere on that website. He doesn’t seem to have done any research on InterOil, and he admits it’s the last thing he wants to do, but he instantly calls the company an “impenetrable scam spawned by Enron”.

Such a comment suggests he might not start with the necessary open mind when he embarks on his ‘formal assessment’, to say the least. And when asked about that he gets a little defensive (some other commenter mentioned Stocklemon):

“Well, that was educational. I didn’t know about StockLemon taking a position before they issued a research report. CWSX doesn’t buy, sell, hold, short, or have any commercial relationship with the companies we cover. I don’t personally have an axe to grind. IOC got added to my list of things to do this month, that’s all.”

So he, or his company, don’t have any commercial relationship they cover, but does this imply his company is going to ‘cover’ InterOil? And why would they do that? He also basically denies that he called the company a scam:

“I don’t intend to read StockLemon. Our shop does geology. My remark about IOC’s history referred to Enron’s JEDI scam, which has nothing to do with valuing the Elk-Antelope exploration prospect.”
www.nytimes.com/2007/0…

So a newspaper article from one and a half year ago was apparently the first thing he remembered when he saw our InterOil article. That’s more than a little odd.

If any reader doubts this, ask yourself the following question: how many newspaper articles from a year and a half ago do you remember about companies you have not researched and do not have any commercial interest in?

By the way, we did an analysis of that rather lousy newspaper article, see here.

Let’s reflect on what just happened:

We write an article about InterOil. Alan immediately responds, calling the company a scam spawned by Enron even before he embarked on his ‘formal assessment’. Apparently, the first thing he ‘remembered’ when reading our article was a newspaper story from one and a half years ago. But he also argues:

• That he referred to an Enron scam (which is obviously not the case, as he clearly referred to InterOil as “a scam spawned by Enron and Merrill”)
• That it has nothing to do with valuing the Elk-Antelope exploration prospect. Indeed.

Now, if it has nothing to do with valuing the Elk-Antelope exploration present, why is it the first thing he mentioned? Why mentioning it at all?

But it the situation is even more intriguing. We asked him what would involve a ‘formal assessment’ which he has promised to do. Although he hasn’t answered we think one out of two must be true:

1. It’s either done perfunctory, in which case one has to wonder what he can add to formal assessment already having been done (by Wayne Andrews from Raymond James) or being done (Netherland Sewell).
2. Or it’s done in depth, with all the relevant information, the complete logs from the wells. But this is work that takes weeks and requires access to information that is not freely available. And, since he admitted that his company does not have any interest (position or trading wise), why would he actually embark on such an effort unless somebody is paying him to do just that, especially after admitting it was “the last thing he wanted to do”? Nobody is forcing him to do that, or?

His business is a consultancy. Basically, a hired hand. We would like to know who’s paying him for his troubles of having to spend his weekend doing a formal assessment he really doesn’t want to do..

And there is another curious comment at the end of our article, from a certain ‘ACapitalist‘:

I find the co very interesting, mostly from a learning standpoint. The geology is beyound me to know which way this one is going to go. Too risky for me to go either direction on it. The short argument is rather simple. The gas find is in highly fractured rock that gives very powerful early flows but then blows down quickly thus not giving long term production. With out a long term flow rate, no LNG facility and you just have another worthless stranded gas find. The rest of the company has zero net value. Time will tell if management is blowing a lot of smoke or the independent geologist will confirm this “whale”. Be careful on either side. The risk is huge on being “wrong”.

Isn’t it curious that:

• The geology is beyond him
• Despite it being “rather simple”, but
• He nevertheless pulls the short “argument” out of his sleeve
• For which he gives no source
• A short argument that one can basically find nowhere else, apart from some guy, writing on some message board (the ‘value investors club’, if you must know), three years ago. Now, that guy three years ago also didn’t have any geological background or knowledge, yet he comes up with his own geological “theory” (the one our friend ACapitalist is using here), without using a single geological source (and hardly any other). He has written only a handful of times since, the message board is only visited by a handful of other posters, who post very infrequently, and they didn’t pose him even a single critical question.

Luckily he admits that this short “argument” is rather simple. Apart from being complete baloney, it is. So simple in fact that if it had any merit, it wouldn’t it have been the first thing T Boone Pickens (masters in geology and industry legend billionaire) would have asked before buying 3M shares in InterOil?

Somehow, we’re also pretty sure Wayne Andrews (the Raymond James analyst covering InterOil, he also has a masters in geology) might have mentioned it if it did have any merit. Or it seems like one of the first things industry people would have asked at any of the myriad of industry conferences at which Mulacek holds technical presentations.

In a later response he argues to have a geology degree, but the geology of that short “argument” is beyond him, despite it being, in his own words, “rather simple”. Huh? Perhaps he only answered only the difficult questions at his exams..

We asked him for a textbook example of another case of such a geological situation. After all, if it is “rather simple”, that should not be hard to find for someone with a geology degree. We’re still waiting for such an example…

By the way, after almost a month, we’re still waiting for that ‘formal assessment’ that Alan von Altendorf promised to do over that weekend…