The latest research report, getting from just ordinary bullish to, well, just read for yourself..

InterOil Corp (IOC – BUY – $35.77): On April 6, IOC announced recovery of 44 API gravity oil from the Antelope-1 side track at a depth of about 7,800 feet. On May 28, IOC announced recovery of oil from a second side track of the Antelope-1 well. Gas, condensate and oil were tested between 7,700 -7,900 feet. Subsequently, an 89 foot section of open hole was isolated below 7,792 feet  and on test recovered 35 API gravity oil with very little gas. The foreword plan is to drill an additional 148 feet to determine the extent of any oil column height which could enhance the commercial possibilities for this well.  We would expect some incremental test data within the next few weeks.

While IOC has yet to find a commercial volume of oil in the Antelope-1 well, we now have at least two locations with indications of oil and the best place to drill for oil is where some has already been located. Apparently, the porosity in this area leaves much to be desired and there may be a better rock formation close by. With each oil encounter, we suspect the odds for a commercial oil find should be enhanced.

For those investors who are confused with the basic situation at InterOil, we would suggest a review of InterOil’s drilling results to date. So far, only four significant wells have been drilled in PNG with three reported successes. Based on published data, we believe IOC has developed a minimum of  five trillion cubic feet of natural gas reserves. In a location with no market, this stranded gas could be valued at about $1.00 per MCF or about $5.0 billion ($100 per IOC  common share). If and when an LNG export facility is put in place, proven gas reserves could double in value to $2.00 per MCF. In addition we would not under estimate the impact from any success at the next well  Antelope-2 which in our opinion could double our above noted reserve estimate.

We believe a larger strategic investor will be on board shortly, which should provide financing for an LNG project as well as funds for an accelerated drilling program. These factors indicate open ended upside possibilities for the common shares while the current reserve position should provide major downside protection. Investors should continue to accumulate the IOC common shares.