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Bernstein Downgrades InterOil, But Continues To See Upside For Long-Term Investors

Following the bidding war between Exxon Mobil Corporation XOM and Total SA (ADR) TOT for the Antelope resource of InterOil Corporation (USA) IOC, Bernstein’s Neil Beveridge believes a counter-bid from Total was now unlikely.

Beveridge downgraded the rating on InterOil from Outperform to Market-Perform, while raising the price target from $50 to $52.

Certification

“The value of InterOil shares will reflect the outcome of resource certification,” the analyst mentioned.

The midpoint of the latest certification suggests 2C resources of 6.43TCFe. Beveridge expects upside potential to this expectation due to the change in certifiers in the next round and “involvement of ExxonMobil who are incentivized to maximize the resource estimate.”

Upside Potential

The analyst also expects further upside from Antelope-7, which is expected to be drilled at the end of 2016. Oil Search guided to upside from Antelope-7 yielding 1-2TCFe, while InterOil guided to potential upside of as much as 3TCF.

“Taking the more conservative 1-2TCF range and risking by 50 percent, this gives an additional upside of 0.75TCFe. This gives a total mean risked estimate of 7.25TCFe,” Beveridge explained.

In the event that Antelope-7 is completely successful, there could be further upside to the stock valuation as well.

“For long term investors, we see more long term upside in Oil Search which will benefit from exposure to both PNG LNG and Papua LNG growth,” the analyst added.

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DateFirmActionFromTo
Aug 2016BernsteinDowngradesOutperformMarket Perform
Aug 2016Goldman SachsReinstatesNeutral
Jun 2016Raymond JamesDowngradesMarket Perform

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