Opportunities in smallcaps header image 2

A note on ‘complementary assets’

November 5th, 2009 · No Comments

These are assets that are worth more together than apart. Complementary assets have a good chance of unlocking a significant part of InterOil’s value…

There was a song and dance about whether InterOil’s board had already approved a stripping plant or not. It is not actually thàt interesting (see here for the most likely answer) and we think that it is the wrong question. Why? Simple.

First, although some argue a stripping plant will ensue whatever happens at Ant2 and they are just waiting to gather more relevant data on how to design the production (see excelent post by petrengr here and here for some of these issues), there could just be some more testing needed on the relevant ratios as well.

However, a liquids stripping plant on it’s own could already provide a very profitable opportunity, but with the refinery, especially one having to import crude overseas and operating only at half capacity, the bar for the necesary rate of return on investment (ROI) is set much lower. The refinery is a complementary asset, and quite a powerful one at that.

With low cost input, the refinery could not only have a dramatic margin expansion, but double it’s capacity utilization as well, opening up more export markets (at present somewhat hampered by high cost of importing crude to PNG).

At present, the refinery and downstream business can (even in a difficult quarter) already almost pay for the exploration expenses, but that refinery could quickly turn into a REAL money spinner, operating at full capacity and having huge margins.

Tags: IOC