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Congrats to the longs who stuck by our covering on InterOil

December 10th, 2009 · 5 Comments

Today is an important day…

There is some chance of some degree of profit taking in the immediate future, but this is a news driven stock, and the fundamental news is extraordinarily good the last couple of months. And any profit taking might be rapidly absorbed by covering shorts and/or institutions new to the story, as there is ample room for more good news.

  1. Within weeks, one or more DST tests are going to give us some news that will likely be definite on the possibilities of the liquids stripping plant. Our assessment is that this plant is a near certainty.
  2. A couple of weeks after that, we will have preliminary results on testing the oilzone. If that disappoints, there is still a reasonable chance that horizontal drilling will get it to flow. If it flows in significant quantities, this will take the shareprice much higher, but if it doesn’t, there is likely to be some disappointment and a sell-off. We think the chances are good, better than 50%, but there is no guarantee here.
  3. The news today, the PNG Government approval of the LNG plant, is removing a potential obstacle to moving ahead with the LNG plant. Note that in a recent report, Nataxis basically argued the chance of this project moving ahead as 100%. Timing of this issue is another matter though, but the first half of next year seems a reasonable bet.
  4. Upgrades and new covering will be very likely
  5. New resource estimates will be in by Februari next year, and it’s inevitable that they will show a substantial increase in resource estimations. On the basis of that, one large upgrade by an analyst house (Raymond James) is all but inevitable, as they base their NAV on the P1 value of the (now rather old and essentially pre-Antelope1) official resource estimate by GLJ.
  6. The deals will come, but we won’t know when. Liquids stripping plant will likely be the first.

We still think the company is substantially undervalued, but depending on the news shares might also give back a bit if that disappoints. That is likely to be temporary though, so these can be seen as good buying opportunities. Longer term it’s still a solid buy.

Tags: IOC

5 responses so far ↓

  • 1 JoEllen // Dec 10, 2009 at 9:57 pm

    Our congratulations to you! We thank you for guiding us through. As you point out more exciting times are ahead, that we look forward to with you.

  • 2 Kurt // Dec 10, 2009 at 11:01 pm

    Thank you. No more needs to be said.

    Thank you.


  • 3 Darcy Patten // Dec 10, 2009 at 11:58 pm

    Professor, question/objection to your post regarding LNG plant and “Timing of this issue is another matter though, but the first half of next year seems a reasonable bet.”

    Are you referring to a FID by first half next year? If so, I think it it will be more along the lines of end of next year. This is because the new off take partner with the midstream sale will have to bring their people in, perform their analysis and such. I just think that by the time someone signs and all the diligence is done we are looking at 10-12 months.

    But as always, you provide insight that I don’t consider, so I await your thoughts!


  • 4 shamrock // Dec 11, 2009 at 12:37 am

    Stp- My thanks to you for your absolute resolve during the last few years on this stock. I appreciate all your hard work and wisdom.


  • 5 my2cows // Dec 11, 2009 at 2:56 am

    thanks STP… A great day for IOC indeed!!