This is a market ruled by fear and indiscriminate selling. It now seems to have arrived at InterOil. We are not aware of anything changing in the fundamental picture, the whole sector of small exploration companies has already sold off steeply, InterOil was one of the last ones standing.
Not anymore. In fact, this morning’s sell-off might have been triggered by a big holder we know who was getting into trouble with other holdings. He asked us for advice late last night, this is what we told him (as we get quite a few of these questions):
- We have no reason to think that the picture has changed in a fundamental way. Gas is still badly needed in Asia, if anything, because of rather large cost advantages compared to coal seam gas projects in Australia, this could even play out in IOC’s favour. Interested clients are Asian utilities, we are not aware that they have been badly affected by the credit crisis
- Other potential deal makers are oil majors, they are interested in drilling prospects (which they have too few themselves), and these oil majors also have rather large sums to invest at their disposal
- This is a market of fear, and it offers opportunities for those that have made it their currency, often in an exaggerated or downright twisted or made-up fashion
- What to do? If you can sit out the volatility, then sit it out. If you can’t, then don’t. As simple as that.