Whitney Tilson Rips BNP Paribas Over "Report" on InterOil

Whtiney Tilson has been short InterOil for quite some time. On the opposite side of the trade are some pretty good investors such as George Soros, who are long the stock.

BNP Paribas came out with the attached buy report (which helped boost InterOil 4.9% yesterday) that Whitney said was the worst piece of "research" that he ever read. It predicts that IOC’s EBIT will soar to over $3 billion by 2015, thanks to monetizing vast “reserves” –

However, Tilson notes there’s only one tiny, little problem: InterOil HAS NO RESERVES! Not proven, not probable, nor even possible. This is not in dispute – the company discloses this fact everywhere. For example, here’s the fine print on page 2 of IOC’s most recent investor presentation (http://www.interoil.com/presentation/2010-09-16_RBS_Final.pdf): “We currently have no reserves as defined in Canadian National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities.” And here’s page 17 of IOC’s 2009 annual report (www.interoil.com/annualrep.asp):

We do not have any reserves, including proved reserves, as defined under NI 51-101, as per the guidelines set by the United States Securities and Exchange Commission (“SEC”) under ASC Topic 932, as at December 31, 2009.

Despite this, BNP’s “analyst” (Bradley Way) refers to InterOil’s reserves 22 TIMES in his report (according to Tilson's count)

So if it doesn’t have any reserves of any type, what does InterOil have to justify its $2.94 BILLION market cap? Mainly something called “contingent resource estimates” – estimates by a firm paid by InterOil, which has made huge mistakes in past estimates.

Whitney Tilson can only think of one reason that BNP would put out this "report:

A little digging reveals the likely answer: they’re the provider of IOC’s working capital facility (short-term debt), which has ballooned from $4.0 million on 6/30/09 to $24.6 million on 12/31/09, to $57.6 million in its most recent Q2 earnings report. Given the rate at which IOC is burning cash (an average of $45.5 million over the last four quarters), unrestricted cash dwindling from $96.4 million on 6/30/09 to $31.7 million in the most recent quarter, and the usurious terms (nearly 20% interest) of IOC’s recent loan from Carlo Civelli (see below), I’d sure be worried about getting repaid…

Disclosure: The author of this article has no holdings in OIC, or BNP Paribas

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