It’s already on the boards, but for the sake of completeness we post it here as well.
- In its latest drilling update, InterOil reported a massive preliminary flow rate of 63 MMcf/d following the completion of its Elk-4 well. This exceptional flow rate, producing from a relatively small (4½ inch) borehole, represents merely the first gas flows from the well since the company installed production tubing.
- Furthermore, the company has yet to acid-stimulate the well, which should further enhance the productivity of this already world-class discovery, with the next step being the installation of additional testing equipment to increase the overall flow capacity.
- Translation: we believe that Elk-4 is capable of generating even higher flow rates. Lest there be any confusion, we are thoroughly impressed with this initial flow rate and believe the company has confirmed a world-class hydrocarbon discovery.
- Another key data point coming from this update is the strong condensate flow rate of 1,130 barrels per day. We remain highly encouraged by the natural gas/liquids composition, with the condensate level reaching an estimated 18 Bbls/MMcf for the entire section.
- In fact, we believe that this high liquid content points to the prospects of developing a liquids-stripping plant, which would accelerate near-term cash flow and further enhance the value of the overall project.
- The company also disclosed significant surface flowing pressure of 2,243 psi and down hole reservoir pressure of ~3,700 psi, alongside high-quality condensate characteristics with 48 degrees API gravity.
- This impressive initial flow rate at Elk-4, which we believe has room to move higher following additional production testing, should pave the way for a number of upcoming catalysts for InterOil.
- First, and not necessarily in this particular order, we believe that this down-dip test of the reservoir should provide the engineers with enough data to refine (and increase) the resource estimate for the Elk/Antelope structure, which should most likely support a full two train LNG development.
- Second, this production test should enable the PNG government to move ahead with the project agreement.
- Lastly, we would anticipate a strategic partner stepping up to the plate and taking an interest in Elk/Antelope, the LNG plant, and an LNG offtake agreement – aligning its interests with InterOil across the range of the company’s business segments.
- This transaction has the potential to create an implied “industry” valuation several-fold higher than the market’s current valuation of InterOil shares.
- In conclusion, as supported by this recent production test, we believe that InterOil has discovered several billion dollars worth of hydrocarbons, while the enterprise value of the company remains under $1 billion. We reiterate our Strong Buy rating.
We have little to add to this.
Beautiful! Go IOC, go. When will the big funds get in??
When can we expect this to be put on the books as a proven reserve?