Stocklemon Updates Interoil (AMEX:IOC)

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Stocklemon Updates Interoil…Is The Story Out of Gas?

As of our last writing on Interoil (AMEX:IOC), we told our readers that we were no longer following the story. Yet, in the past two months, the story has become so entertaining, in a mystery novel sort of way, they we can’t help ourselves but to comment.

In a time when Exxon is exiting LNG projects in remote regions due to the cost of construction, we are to believe that Interoil will be an LNG leader in the next 10 years.  This is from a company that has no proven reserves, has collateralized all of its assets, and has barely enough cash to make it out of the year.

This report will address two issues that have been positive influences on the stock price over the past few months.

For years Stocklemon has been stating its opinion that Interoil management’s presentation of drilling results cannot be trusted. For years, the consistency of CEO Mulacek’s exaggerated exploration claims is matched only by the consistency of discovering nothing of value.

Third Party Analysis

In the most comprehensive piece of research that we have seen written on the drilling operations of Interoil, we refer to a recent study done by Ross Smith Energy, the leading independent energy research firm in North America.

Stocklemon cannot reprint the research but we can refer to the findings. If anyone is interested in the full report, we recommend you contact Ross Smith Energy Group. www.rseg.com

The findings of Ross Smith is based upon analysis of the January 4, 2007 released “Elk Technical Review”, combined with the January 8 conference call.   Ross Smith also engaged APA Associates of Calgary to analyze the drilling data.  Here are their conclusions: 

“In our view, the Elk#1 well was drilled into, or very close to a major fault that very likely is responsible for the intense fracturing and extremely high gas rates.”

“we believe that the company’s optimistic resource estimate for ELK is not supported by evidence gatherred to date”

“from the flow test, we estimate that the gas in place in the fractures could be as low as 0.5 TCF”

“In our view, the Elk#1 well was drilled into, or very close to a major fault that very likely is responsible for the intense fracturing and extremely high gas rates.”

“currently there is no evidence that it is effective or can yield commercial gas rates”  

Just Another Character in the Interoil Story

Much of the credibility of IOC’s LNG story lies in the hands of Clarion Finanz and its main operator Carlo Civelli. Clarion is not only a major shareholder, but they are also 1/3rd partner in this supposed LNG Facility that one day might get built.

On February 15, 2007 Bloomberg published a story that Clarion Finanz was going to sell to Helia Tec part of its interest in Interoil for $425 mil.

http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=IOC:US&sid=a0LWyoOaqz_I

This put some sort of voodoo valuation on Interoil that Wall St. was supposed to get excited over. But here is what we found out about the alleged deal.

1. Helia Tec was a high flier on the Korean Stock Exchange that recently crashed and burned. Look what has happened to their share price in the past few months.
http://estock.koscom.co.kr/kosdaq_sise/kosdaq_hyun_dailysise.jsp?code=A038920&market=B&upcode=156   (click on chart button)

2.  Helia Tec’s subsidiary (Helia Tec Resources) was supposed to fund this acquisition.  Quite a feat, considering that Helia Tec Resources was funded with a whopping $258,000 startup money.
http://finance.google.com/finance?cid=688602&morenews=10&rating=1&newsbefore=2007-01-12

But here is our favorite:  Who is behind this alleged transaction with Interoil?  None other than Cary E Hughes:
http://ecpa.cpa.state.tx.us/coa/servlet/cpa.app.coa.CoaGetTp?Pg=tpid&Search_Nm=Helia%20Tec%20&Button=search&Search_ID=32024551676  (click on officers and directors)

Cary Hughes’ last job was president of Ness Energy (OTC:NESS), currently trading at 10 cents.  Ness Energy was the company made notorious for claiming that God was going to show them where to drill for oil in Israel.  [“Ness” means “miracle” in Hebrew.  “God has it all orchestrated”, per Ness’s CEO.]  Needless to say, this one didn’t end well.  http://www.ortzion.org/oilfield.html

Conclusion

Another quarter, another story.  As Interoil buys time to figure out their next move, the market has been blindly accepting any information they put out.  Maybe it is time that investors open their eyes to the realities of Interoil, and hold the company accountable for unsubstantiated claims and unfulfilled promises.