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InterOil Soro’s vs Whitney Tilson

InterOil

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InterOil (IOC) is exploring for natural gas in Papua New Guinea. Morgan Stanley has just successfully raised $266 million of much-needed capital and eliminated short-term liquidity issues. George Soros has been a believer and recently disclosed he owns 12% of IOC. SEC documents indicated this is George Soro’s third biggest holding.

Whitney Tilson is a bear who manages a hedge fund called T2 partners (www.tapartnersllc.com) hates the play. He insists the reserve valuations are a fraction of what is being reported and therefore feels the stock is overvalued.

InterOil Chief Executive Officer Phil Mulacek in a very recent quarterly earnings release commented

 “Our delineation drilling results further demonstrate the value of our reservoir at Antelope 2.”

 The headline in the press release also included this tidbit.

“The Antelope 2 horizontal well confirmed a higher condensate-to-natural gas ratio of 24-27.7 barrels per million cubic feet of natural gas, approximately 60% higher than observed at the top of the reservoir.  The horizontal well also demonstrated higher porosity deeper in the reservoir than previously modelled”

DealBook reports that Whitney Tilson in a Nov 6 blast email to 2000 supposed clients said

This is a company that has NO RESERVES — not proven, probable or even possible; just a ‘contingent resource estimate’ from a firm that InterOil paid, after shopping among firms — and has NEVER delivered on its countless promises of huge natural resource finds in over 200 press releases over more than 10 years. Sure, there’s gas there — this isn’t Bre-X — but we think there’s only a tiny fraction of what IOC claims.”

The difference in opinion is fundamental. Whitney Tilson does not believe in the engineering reports. What information does he have to back up his claim? Other than just disputing management why not put your cards on the table? Whitney if you can bust open InterOil your reputation is secure forever.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.