Here it is, confirming our earlier readings of the situation.
From Raymond James Oct.24 2008
- Earlier this week, the board of Liquid Niugini Gas – the joint venture between InterOil, Clarion Finanz and Merrill Lynch (MER/$17.51) for developing an LNG facility in Papua New Guinea – moved to displace Merrill Lynch as the sole guarantor of LNG offtake from the proposed LNG plant. In effect, this decision opened up the playing field for negotiations with a range of industry operators looking to obtain a secure long-term source of LNG. While its class A voting shares were redeemed by way of this recent board decision, Merrill will continue to hold its class B shares – representing a continued economic interest in the project.
- In our view, Merrill’s multi-billion LNG offtake guarantee is perceived to be weakened by the global financial crisis as well as Merrill’s pending merger with Bank of America (BAC/$23.00/Strong Buy). In fact, potential partners in funding, plant participation, and long-term LNG offtake commitments may prefer to negotiate directly with Liquid Nuigini Gas and InterOil rather than through an intermediary where a change of control is set to occur. Furthermore, LNG offtake commitments need to be secured by AA credit rated partners tied directly to the project, such that the necessary funding for the facility can be obtained. InterOil, in an effort to head off frivolous lawsuits, has sought protection from the New York Supreme Court, which if granted, would require Merrill to make its case to a judge and receive a ruling before it could impose any sanctions on the continuance of the LNG project. We believe InterOil and the board of Liquid Nuigini Gas have made the necessary moves which should allow the LNG project plans to move forward, even during these difficult market conditions.
- Separately, InterOil announced today that it has secured a $57.5 million revolving working capital facility from two local banks covering its distribution business segment. We view this development as a sound vote of confidence from the local PNG banking system in the long-term viability and profitability of InterOil’s refining and distribution business segments which have demonstrated continued profitability over the last few quarters. A further and potentially more significant benefit from the new credit line is the freeing of formerly restricted cash required by the creditors of the company’s refinery inventory working capital facility.
- Despite market turmoil and uncertainty regarding major project funding, we believe industry interest in PNG’s natural resources and InterOil’s LNG project remain high. These recent announcements increase our confidence that InterOil, the government of PNG, and potential LNG partners are nearing an agreement. We reiterate our Strong Buy rating.
They indeed lowered the price target to $45, but not the NAV, which still stands at $63.12