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InterOil Corporation Message Board

buy_the_fear_101 7 posts  |  Last Activity: Aug 21, 2014 12:39 PM Member since: Sep 28, 2011
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  • Ends up in a triple digit deal by Halloween imo

  • FULL 57 report on investorvillage or shareholdersunite IOC board - its worth a read for SURE. Here is summary

    InterOil: Initiating Coverage - Transformation of a Papuan

    Basin Master. Outperform, PT US$90

    Coverage Initiation


    The transformation of InterOil is underway. With a credible management team in place and reconfiguration

    of the PRL-15 partnership, monetization of Elk-Antelope as a major LNG project is moving closer to

    reality. The key controversy remains the resource base for a two-train LNG development. One train looks in

    the bag, but we believe two trains are more likely. At US$2000/ton, Elk-Antelope LNG will be highly

    competitive with other global LNG projects making development highly likely once reserves are

    established. With a 4 million acre position in the underexplored Eastern Papuan basin, the exploration

    upside could be significant. We rate InterOil Outperform with a price target of US$90/share.

    Σ We are initiating coverage of InterOil Corporation with a price target of US$90 and an outperform


    Σ While InterOil has had a chequered past, the upgrading of management and re-structuring of the

    Elk-Antelope partnership make us new believers in the stock. Two major changes have occurred in

    the past twelve months. Firstly, there has been a transformation of the management team through the

    appointment of CEO Mike Hessian (ex-Woodside and BP) and Chairman Chris Finlayson (ex-BG and

    Shell). Secondly, with the farm-in to PRL-15 (production license containing Elk-Antelope) by Total and

    Oil Search, there is now a credible partnership which has the right experience to move forward with an

    LNG development.

    Σ The key controversy revolves around the size and quality of the Elk-Antelope reservoir. We take a

    positive view on the resource potential. Elk-Antelope is not a unique reservoir with similarities to some

    of the world's most prolific oil and gas producing reservoirs in Iran and Indonesia. The key controversy is

    the gas resource, with a range, which appears to be anything between 3.5TCF to 11TCF. We believe the

    mid to upside case is more likely based on (a) independent reserves reports and farm-in transactions

    which imply an expectation of at least 7TCF (b) new 2-D seismic data which appears to support a larger

    volume and (c) the exploration upside (or yet-to-find) in the Eastern Papuan basin of 24TCF. Over the

    next 12 months, appraisal and exploration drilling will confirm the Elk/Antelope resource base. We

    believe the risk falls to the upside.

    Σ We expect a minimum of a one-train LNG development although our base case is two trains. While

    a one-train development seems inevitable, we believe that the reserves will ultimately meet or exceed

    7TCF (2P) and will support a two-train 6.8MTPA development. We expect reserves certification at the

    end of 2015, Final Investment Decision in early 2018 and first LNG production in 2022.

    Σ Elk/Antelope LNG development should be lower cost than PNG LNG given the location of the asset

    and synergies with the existing LNG development. We estimate the capex for Elk/Antelope LNG

    (excluding FEED) will be US$15bn, which is almost US$3bn cheaper than PNG LNG. We see lower

    costs coming from a shorter onshore pipeline, no airfield required and synergies at the LNG site in Port

    Moresby. At US$2000/ton, Elk Antelope LNG will be one of the lowest cost LNG developments in the

    region making it highly competitive relative with other projects and US LNG exports.

    Σ The exploration upside of the Eastern Papuan basin could be significant based on the discovery

    trend so far and InterOil is the 'basin master'. The Eastern Papuan basin is under-explored and underappraised

    with very limited seismic and exploration drilling. IOC owns the core acreage in the basin with

    a 4 million acre gross position. The USGS estimates there is a further 24TCF (5bn boe) of risked yet-to

    find. The basin 'creaming-curve' supports this and suggests a number of material gas discoveries yet-tobe

    made. Over the next 12 months, IOC will drill four high impact exploration wells based on new

    seismic data with a combined un-risked prospective resource of 1.1bn boe.

    Σ Funding does not appear to be an issue given IOC's cash position and likely financing structure of

    an LNG development, which will be project financed. With the sell down of the PNG refinery,

    InterOil has $585MM cash. With Total's funding commitments towards appraisal drilling (as part of the

    farm-in), additional cash from reserves certification and a 70/30 project financing structure on any large

    scale LNG development, we believe InterOil could fund their 28% share in an LNG development without

    needing to raise additional equity from investors.

    Σ The drilling program over the next 12 months (which is the largest in PNG history) provides key

    catalysts for investors. InterOil will drill eight wells over the next twelve months, leading to reserves

    certification at Elk-Antelope by end 2015. Key wells to watch are the three appraisal wells on Elk-

    Antelope, which are required to prove up sufficient reserves for a two-train case (minimum 7TCF 2P).

    Antelope deep is the key exploration well (planned for 2H 2015), which has the best chance of success (1

    in 3) based on proximity to Elk-Antelope and on our estimates an un-risked resource of up to 3TCF.

    Σ The outcome of the arbitration dispute arising from Total's farm in to PRL-15 remains unclear,

    although we see little downside for IOC. We have no unique insight into whether Oil Search or InterOil

    will emerge as the victor from the arbitration dispute on pre-emption rights relating to Total's farm in to

    the PRL-15 license. From our understanding of the agreements, we do not see any material financial

    downside for InterOil if they lose, although if Oil Search did win and were able to on-sell an interest to

    Exxon, it could result in even better project synergies with the PNG LNG project.

    Σ M&A seems a real possibility for IOC with a number of buyers who would be interested in

    acquiring. Exxon, Woodside, Total and Oil Search are all possible bidders for InterOil. Exxon have the

    most to gain given synergies with PNG LNG, with Oil Search being another possibility (although

    funding would be an issue). If Total believe in the upside reserves case, a buy-out of InterOil would make

    financial sense. Woodside who are actively looking for LNG companies in the US$3-5bn range would

    also likely be interested in this asset.

    Σ Our valuation of US$90/share is based on the net asset value of a two-train LNG development with

    a 25% discount to NAV. Using a DCF model of a two-train development (8.5TCF reserves) and a 25%

    discount to NAV implies InterOil is worth US$90/share. Benchmarking to Oil Search's recent

    acquisition of Pac LNG implies a minimum value of US74/share (inc. cash), which is above where

    IOC is currently trading (US$56/share). Blue sky upside by 2022, using a P/CF multiple of 7-10x

    (where LNG peers are trading) and a cash flow of US$30 per share implies a value which could

    ultimately reach US$200-300per share.

    Investment Conclusion

    We are initiating coverage on InterOil with a positive stance. While the company has been controversial

    among investors, two things have changed from our perspective. Firstly, there has been root and branch

    restructuring of the management team with recent appointments of CEO and Chairman. In our opinion,

    this has significantly enhanced their credibility as an operator. Secondly, the farm-in by Total and Oil

    Search into PRL-15 has brought together a partnership, which has the capability to develop Elk-Antelope

    as a major LNG export project.

    While InterOil has changed, the geology has not. Elk-Antelope can support at least one LNG train but we

    believe a two-train development is more likely. This is the key controversy among investors. With

    appraisal drilling over the next twelve months and the highly promising 'Antelope deep' well, we believe

    that InterOil will reach the 7TCF (2P) threshold required for a two-train development. We take this opinion

    based on independent reserve audits, recent arm-in transactions (Oil Search priced at 7TCF and Total would

    not enter for one train), recently acquired 2-D seismic data (which points to more volume) and the

    enormous upside of 24CTF yet-to find in the eastern Papuan basin in which InterOil is basin master. Not

    only is Elk-Antelope the lowest cost LNG project in the region (and lowest cost projects always go first) but

    the PNG government wants to see progress as soon as possible.

    If appraisal goes according to plan, we could see a two-train LNG development sanctioned by 2018. While

    our target price is US$90/share (based on NAV with a 25% discount), investors could expect appreciation

    to US$120 over the next 3 years as we approach FID and a blue sky price of US$200-300/share on start

    up in 2022. The downside seems limited with the current share price below the US$72/share (including

    cash) implied by the recent Oil Search acquisition of Pac LNG. Could InterOil be the next Oil Search?

    We think so, although an M&A take-out would also not be surprising. We rate IOC as outperform with a

    price target of US$90/share.

  • We hosted investor meetings this week with InterOil's CEO Mike Hession and other members of the management team. Below we recap our latest thoughts – though, to be sure, there is nothing new with regard to what the market is (rightly or wrongly) focused on these days, which is results of the exploration wells.
    Dis-integration: InterOil sheds vestiges of its downstream past. Since our coverage of InterOil extends into the mists of time (well, okay, 2004), we still remember when the refinery had been the company's main asset, and we would pore over Singapore crack spreads. No more. The new management team had signaled over the past year that a sale of the downstream operations – the refinery and fuel station network – was under consideration. On Monday, the company announced that these assets are indeed being sold, to privately held Puma Energy. The sale price of $526 million (all cash) is attractive, in our view – it’s above our $467 million DCF estimate for the downstream segment, i.e., it’s accretive to NAV. The stock traded up slightly on the news, but downstream has long been regarded as a minor appendage to the InterOil story – certainly not something that’s central to how investors think about the stock. The cash proceeds will go onto the balance sheet to fund the exploration program. In the near term, each well is expected to cost $50-70 million, though management hopes that new rigs and improved operational efficiencies will eventually reduce the cost to under $50 million.
    Exploration: Patience is a virtue – one that the market distinctly lacks. Needless to say, the market's focus is not on the refinery, nor even on the balance sheet – it's on the three exploration wells (Wahoo-1, Bobcat-1, Raptor-1) that have been drilling since March. As a textbook well-watching stock – at least for the time being – InterOil will indeed have exploration catalysts in the near future. At last week's annual shareholder meeting, management noted that the three wells are taking longer than the originally expected ~90 days. In numerous meetings this week, the inevitable questions came up: When will the results come, and how's it looking so far? As far as the timetable, management is being very careful not to get into the game of offering detailed guidance, but our sense is that some newsflow (not necessarily everything the market would want) is likely in July/August. And on the second question, it would be rather academic (and, frankly, useless) to talk about anything resembling results before the wells reach total depth and can be tested, so the market will simply need to be patient. That said, these are all multi-Tcf targets, and Raptor has liquids potential in addition to gas.
    Certification: Appraisal drilling with Total is set to start this quarter. Going back to the original resource selldown announcement from December 2013, investors have been understandably apprehensive about the Elk/Antelope resource certification process – because, after all, this process will determine how much cash will ultimately be received from Total. What we know today (but not last December) is when the appraisal drilling will begin: 3Q14. At least two Antelope wells will be drilled, possibly three. As part of the process, InterOil and Total will each name a third-party reserve engineering firm to review the resource base. The two firms will each quantify the resource, and the midpoint will be the amount certified. Certification is expected to take place in the second half of 2015. Accordingly, none of the existing resource estimates that have been floating around – GLJ, Gaffney Cline, etc. – are particularly relevant. To borrow a term from the legal profession, resource certification will incorporate "de novo" estimates after the appraisal drilling, rather than simply rehash old numbers

  • buy_the_fear_101 buy_the_fear_101 Jun 30, 2014 10:34 AM Flag

    Offer a double today to anyone and they will consider vs a triple or more down the road. They just might - either way there will be a PUBLIC offer that will get this to triple digits by yr end or much sooner imo - the offer may be accelerated to BEFORE drilling results because they know this soars on positive drilling results. Stay tuned.

  • IOC bidding war coming...Woodside, Exxon, Shell, Total...

    This could get ....VERRRRY Interesting.

  • Reply to

    InterOil Sells Downstream Business

    by wesp3000 Jun 30, 2014 2:27 AM
    buy_the_fear_101 buy_the_fear_101 Jun 30, 2014 10:20 AM Flag

    Takeover is a virtual certainty imho unless IOC gets over 100 on its own. Before yr end 120 imo

  • upside coming from Total valuation down road....simpler story - definite takeover coming imho.

57.76-0.56(-0.96%)Sep 17 4:07 PMEDT

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