Kind of funny that IOC is now doing extended flow testing as well as communication testing. A topic I took major major abuse on ("Criminal!"), and even had it out on Seeking Alpha with "Indoreservoir" and of course STP.
Guess I wasn't such an stupid lying criminal #$%$ after all
Hah. I'm happy with 55-60. I may collar the position (short call + long put) through the extended well test and/or the certification. Here for a good time not a long time :)
For now! I think the downside resource estimate has been derisked somewhat, I i think we get a strong oil rebound in the next 3 quarters so this thing should rip at some point.
IOC lost a third of its value in the first two weeks of January. The well was suspended with no disclosure in early January.
The XLE lost about 7% of its value over that timeframe so a 33% ding seems a bit rich, even for IOC.
These guys are a joke, IMHO
So net net I think there's a decent shot at a decent return from this point ($44.65 as I type), but a rocky road ahead with some potential potholes. I've mused about buying a bit but I own enough energy and find I don't need to take on a ton of risk to find great entry points in other names - I think that's a big factor here. Heck you could buy Total here and would get a 50% return if it goes back to where it was in July, while clipping a 5.2% yield while you wait. So riskier plays like IOC with no production now and no production for at least 5 years need to offer up a lot for people to take the risk.
I view mid 40s as a "meh" price. But not a bad price.
Nice post MS. My numbers aren't much different. Using a 10% discount rate, a Dec 15 certifcation, a Dec 2016 FID, and a 2020 startup I get numbers of roughly $20 at 7.1 TCF and about $40 at 9.9 TCF.
One of the reasons why it might *seem* on the cheap side is that it is highly sensitive to that TCF figure. e.g. at 5.4 TCF (the original Total and OSH estimate) it is only about $8.
Better seismic, and A#$%$ the top of the reservoir higher are encouraging but still preliminary in terms of value.
My understanding is that the current assessments assume a high percentage of the original gas in place (OGIP) is recoverable. To me, just as important as the other wells, will be the extended well test at A5 while monitoring pressure drawdown in other appraisal wells. The productivity/connectivity will be very important. For example the gas volume could be higher, but if the connectivity is disappointing it may whack the certification.
On this latter point I find it hilarious that IOC is now doing an extended well test, and also a communication test. I had a long discussion with "indoreservoir" on these topics on Seeking Alpha (see comment section of "Interoil's Increasing Value Proposition". Remember all the angst on the EWT?
It also doesn't help that IOC seems to be a train wreck in getting things done - now we learn that A-4 has been suspended for 2 months and nobody knew? Yikes.
Throw in general angst about bad energy markets, reduced capex budgets, and so on, and the price feels about right to me.
Regarding your Q about the NPV of a share in a future LNG plant, I don't think it's a lot right now - it's basically an *option* to invest $billions in an LNG project. An option has value, but they must fund their share of it. For example, 100% of the cash they get in "resource payments" may be diverted to an LNG plant share, so one can't double dip.