Monday, December 9, 2013
Interoil: both longs and shorts look like fools
When short-sellers get together the conversation seems to inevitably turn to Interoil.
If it is a fraud (as many shorts will have you believe) it is a very long running one and one that can demonstrate impressive flows of gas (flares that make a huge noise and sometimes burn hundreds of feet high).
These flares make the shorts look - well - stupid.
If the gas is real then it has been uniquely hard to get a serious oil company interested. There has been announced deal after announced deal for about a decade - all of which have come to naught.
These deals and their subsequent failures make the Interoil bulls look - well - stupid.
The big announcement
On Friday Interoil announced its long-awaited deal with a major that may lead to the liquefaction of their huge claimed gas deposits in Papua New Guinea. The major is Total (the French supermajor). Total didn't figure very high in the gossip prior to this deal.
This is a big black-eye for the shorts. Total is committed to spending over half a billion dollars just to get options over the gas in this field. For the shorts this was not meant to happen. The stock may be down almost 40 percent on the deal but it is hard as a short-seller to find comfort in a big and presumably competent oil company stumping up real money to buy a gas field that you previously believed was worthless.
But it is also a big black-eye for the longs. Total is stumping up real money - but not much compared to what the bulls thought the field was worth. Incremental TCFs of gas beyond the minimums are sold to Total for $100 million a pop. My first thought when I saw that number: they left a zero off.
The stock was down hard for a reason. If the gas find is as good as Interoil claim it is then the management sold it for a song.
There are smart shorts and smart longs in this stock. I swear there are.
Today they all look stupid.
The shorts may claim victory - but they look stupid too.
Disclosure: Short. I made a profit but look stupid. Hey, its not how smart you are that counts.
The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.