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InterOil Corporation Message Board

  • pickboone pickboone Mar 21, 2013 12:41 PM Flag

    Why the stock will continue to head higher in the coming days following this Thailand news

    At first glance, the reports that Thailand's PM is headed to PNG partially to discuss a potential investment in IOC's LNG project may not seem like a very big deal. Here's why it's much more significant than most have grasped thus far...

    The short case has been reduced from devastating arguments such as elevated political risk, lack of adequate resources, etc... to the simple argument that though the sell-down will soon happen, the terms may not be as optimistic as some expect. While I strongly believe that the implied price will exceed $2 per mcf and result in the stock appreciating 3-fold in a very short period, let's assume that IOC concludes a deal with a major at only $0.80 or $1 per mcf (still significantly in excess of its current valuation excluding Triceratops and the surrounding acreage). Subsequent to that transaction, the project will largely be derisked and thereafter sell-downs will come at significant premiums to the initial transaction. PTT is a large and well capitalized entity that could buy into a substantial stake in E/A and/or Triceratops.

    The last transaction on PNG LNG was Marubeni's acquisition of a 1% stake for about $3 per mcf. So for those who take comfort in the idea that maybe the deal terms on this initial sell-down won't be great, I would argue that:

    1) You're almost certainly going to be wrong given that several bidders are competing for the asset, and
    2) If the project gets derisked with the addition of a major operator, subsequent sell-downs could occur at vast premiums and in a short period subsequent to the initial sell-down. Just look at Oil Search - with XOM coming on as PNG LNG's operator, the company grew into a very healthy derisked valuation of $10 billion.

    Sentiment: Strong Buy

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39.04+0.57(+1.48%)Oct 8 4:05 PMEDT