October 26, 2009
InterOil Corporation
Management road show and
Antelope-2 well data support
improved risk/reward profile
What's Changed
Price Target $67.00 to $73.00
Improved Risk/Reward: We are raising our scenario
outlook and see 5:1 reward-to-risk (Bull-to-Bear)
supporting investment at current levels, particularly
given the recent pullback. We believe the Antelope-2
well data supports:
1) Higher Base Case ($73) primarily driven by higher
condensate flow rates at the top of structure
(increasing NGLs to120mmbbls of NGLs and
assuming facility is project financed).
2) Higher Bear Case ($30) derived by value
assumptions on stranded gas (PNG comps), more
appropriate post-Antelope-2;
3) Higher Bull Case ($142) derived by increasing our
gas estimate (to 8Tcfe after Antelope-2 well was 345’
higher in structure), a higher sale price for upstream
interest ($1.79 per mmcfe, still a discount to recent
comps), a risked estimate for oil, and value for IOC’s
exploration position. We need additional drilling data
to support our Bull case, yet believe this outcome
remains a reasonable possibility and informs an
investment decision.
What's new: Our 3-day, non-deal road show with
management highlighted: (1) higher condensate yields
(NGLs) and oil upside potential in the Antelope structure,
(2) NGL stripping monetization could precede an
upstream sell-down and LNG partnership, (3) valuation
of IOC’s exploration position could come to the forefront
either via inclusion in an upstream sell-down or as
positive drilling results in Antelope-2 continue, and (4)
overall, the transformation of IOC is continuing on-track
with material drilling catalysts into mid-December.