InterOil (NYSE:IOC) is the most confounding stock I have ever seen. It eagerly moves up and down on the slightest rumor and hype, just like a penny stock, even though its market cap is $3.5 billion.
On Friday, author Russell Searancke Wellington wrote an article on upstreamonline.com about how his "sources in Port Moresby" have insider information that InterOil is about to finalize a deal with Royal Dutch Shell (NYSE:RDS.A) to purchase InterOil's gas wells. The stock loved this news and it popped 7%.
This is the same author who wrote an article on September 2012 claiming that InterOil has "up to six offers" for its gas wells. This was right before the stock went as high as $99, only to slump months later down to $52, and which prompted InterOil to announce that it will be accepting final bids. As if those six offers weren't enough, it needs more. Mr. Wellington certainly isn't opposed to exaggeration when it comes to InterOil, and I find his article absurd.
First of all, how could local residents at Port Moresby know that Shell is the going to partner with InterOil? Did Peter Voser, Shells CEO, have beers by the beach with the locals? Did Shell's CFO, Simon Henry, go on an excursion through Papua New Guinea's jungles and tip off the junglemen that he's gonna be making a lot more visits? Or did InterOil's CFO, Collin Visaggio, tip off Mr. Wellington? If that's the case, then whether the news is true or false, it's a clear rule FD violation of revealing insider information to a select few and the SEC might want to look into it.
There are other factors that make it unlikely that Shell is in a deal with InterOil. The two companies have had trouble with communication. Last year, the CFO of Shell, Simon Henry, said:
At the end of the day we haven't been in the data room and we're not in an ongoing discussion.
It's very difficult to have an interest in the asset that the licence holder [InterOil] doesn't want to talk to you (Shell) about.
Also, Shell walked away from the Cove Energy bidding war at $0.50 per mcf of gas. At over $70 a share, InterOil is priced at over $0.60 per mcf.
I still have a strong conviction that InterOil has no deals in the works, and will once again disappoint investors. Wayne Andrews, InterOil's VP of Capital Markets, will be speaking in New York City on Monday at 9:30AM at the IPAA convention. I can predict that he is not going to confirm that InterOil is in deals with Shell. He will pump up InterOil and say something vague but hopeful like they "are making progress with negotiations with bidders." But he will not mention any specific companies that they are dealing with, and he will not give any specifics on the negotiations. That is the InterOil way.
I think I've pretty much said what there needs to be said about InterOil at this point with my many articles. I believe the management is very crooked but they play the market like master fishermen. They are ambiguous with their language so they can't be pinned down to anything, yet they know what to say to get investors excited and hopeful. They send out PR releases and work the news publications at just the right time. And they've been doing this for some ten years.
If the market enjoys these games and people want to dump their money into this hopeless endeavor, then there is nothing I can say to prevent it. Investors will just have to learn the hard way and lose a good chunk of their investment. I've already submitted plenty of evidence in my articles and the comments section that savvy investors should be able to understand. Good luck to you if you are long this stock and hope to get rich on a partnership. Like they say, dreams are free.
Disclosure: I am short IOC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.