InterOil Corporation Message Board

"InterOil Corp. January 24, 2013
(IOC:NYSE) Company Brief
Pavel Molchanov
Exploration and Production ____________________________________________

Decision Time: LNG Partnership Talks to Conclude Within Five Weeks

♦ In our InterOil brief on December 4, we underscored that year-end did not represent a
deadline of any kind for the long-awaited LNG project partnership / resource selldown
announcement. In fact, after getting burned several times in the past by setting (and then
missing) self-imposed deadlines for business development milestones, this time around
InterOil itself has stayed away from promising any specific timeframe for getting a deal
done. But that changed today, as the company publicly disclosed a precise timetable for
wrapping up the partnership talks.

♦ February 28 – exactly five weeks from today – is the date on which the final binding bids
are due from all the prospective partners. Let’s make it clear what this means. Late last
year, management stated that bids have been received from at least four interested
parties: two major oil companies, one national oil company, and one utility (Kogas, based
on its own public comments). Those bids are preliminary, i.e. they could be categorized as
letters of intent or term sheets. As is customary in such cases, negotiations have taken
place between the sides to refine specific points. Once the final binding bids are submitted,
InterOil plans to meet with its investment bankers during the first week of March.
InterOil’s board will then be able to make a decision on which bid to accept. If the decision
is straightforward – one bid is clearly superior to all others – then an announcement can be
made very quickly. If the decision is more complicated, then the board’s deliberations
would presumably take longer. Either way, once InterOil decides, the winning bid can be
converted into a formal contract by signing on the proverbial dotted line.

♦ One point we have previously made in our research is the risk that InterOil will allow the
perfect to be the enemy of the good in these negotiations – in other words, the natural
tension between management’s desire to hold out for the best possible deal terms and the
equity market’s desire for instant gratification. The fact that the company feels confident
enough to self-impose a deadline for concluding the negotiations is encouraging, because
it signifies that management is comfortable with what’s already on the table. There
obviously remains plenty of market skepticism that the company will deliver a deal. Given
this skepticism, short interest has ramped up, and we think the stock is setting up for a
short squeeze once the partnership announcement comes out."

Sentiment: Strong Buy