This really is good news, but the market needs a little perspective…

• Here is the PR
• Here’s a link to the annual report of EWC (Energy World Corporation)
• And read that page 43..
• Here are some of the backers of EWC
• And some more
• EWC has right of first refusal for parent EWI
• Tokyo Gas and EWC
• Part II
• EWI (parent of EWC) was already involved
• And a well respected observer summing it all up a little later

Now for the perspective:

1. It means InterOil needs NO upfront money (apart from building a pipeline which they were already going to build for the CSP)
2. If finished in time, the gas stripped of the liquids does not need to be re-injected
3. It means early and massive monetization
4. It means reserves can be booked sooner rather than later
5. It means InterOil can keep a large part of the resource themselves
6. It means off-take deals/farm-out/partial resource sell-offs (take your pick) might be around the corner
7. It means InterOil could quite possibly finance the bigger LNG plant in Port Morseby by themselves if further pieces of the puzzle (as listed above) fall into place, obviating the need for a strategic partner or at the minimum hugely improving their bargaining position.

The market is not valuating the deal properly. The upside is that much less of the resource has to be given away at ‘in-the-ground’ prices and monetization will arrive a good deal earlier (apart from the synergies with the CSP).

So the short-bet is that IOC won’t be able to sell 2.5% stakes in Elk/Antelope or farm-out prospects, necessary to get the money for the much more modest capital outlays. Any such deal will provide them with the necessary cash.

To us, that seems a particularly bad bet..

The market doesn’t seem to wholly agree with our take (for now), but we think that won’t last too long..