A Decision Deadline for InterOil Corporation (IOC)

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One step forward, two steps back
Investors have learned to be disappointed in InterOil. Drilling delays have hampered progress, rumors of a partnership with Royal Dutch Shell plc (NYSE:RDS.A) never panned out, and Exxon Mobil Corporation (NYSE:XOM) will be firing up its own LNG operation in PNG next year.

But one of the “bidders” for InterOil’s resources is Korea Gas, also known as Kogas, which has substantial experience in building and operating LNG facilities. It’s the biggest supplier of LNG to South Korea and the world’s biggest buyer. Asia may prove to be the biggest market for gas exporters and InterOil may like the potential Kogas represents.

Others recognize the opportunity in Asia, too. Apache Corporation (NYSE:APA) wants to build an export facility in northwestern Canada with Chevron Corporation (NYSE:CVX) which also bought half of a pipeline project to supply the terminal, underscoring how Canada’s vast oil and gas resources makes it a huge rival to plans others are developing. Asian markets provide a pricing premium compared to those in North America.

A short story
As the proposal deadline nears, the number of shares sold short continues to mount as expectations of further disappointment grow. Nearly 11.5 million shares were sold short at last count, translating into more than 18 days to cover (the Fool believes anything over seven is a lot).

Should the driller receive the bids it’s looking for (and the deadline it set suggests the proposals at least are hopeful), the shorts could be left holding the bag as the stock runs up and the rush to cover those short positions leads to a squeeze.

While I’m not confident enough in the short thesis to actually go that route — surprises do happen — InterOil’s history has not been one that instills confidence, even if sometimes it hasn’t been the company’s fault. That’s not enough, however, to warrant an investment here, at least not by diving in headfirst. Because such industry giants like Kogas have publicly expressed an interest, I’m thinking InterOil will pull it off. I’m going to rate the stock to outperform the broad market indexes on Motley Fool CAPS as a way to track my mildly bullish stance, yet let me know in the comments box below if you agree that InterOil finally gets a chance to grab the brass ring, or will investors once again come to know the hollow disappointment its delivered so many times in the past.

The article A Decision Deadline for InterOil originally appeared on Fool.com and is written by Rich Duprey.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of Apache.

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