InterOil Corp. -- A Stock George Soros Loves and Whitney Tilson Loves to Short

Forbes: Well, Whitney, you had mentioned you're on the short side too. Are there any particular standouts there that you think people should get rid of them if they own them or go short them if they were into that approach?

Tilson: Sure. Let me give you a couple of very different types of shorts. Our largest short position is a company called InterOil ( IOC). It's a company that claims to have discovered one of the largest natural gas fields in the world in Papua New Guinea. This is a company that has been drilling in New Guinea for over a decade, has consistently announced incredible finds and then in every case to date it's turned out that there was nothing that was commercially exploitable. Over and over and over again, for more than 10 years, this has been a company that has produced well over 200 press releases, but not much else. The company has a market cap in the $3 billion range and we think it will go down in history as one of the great promotions of all time.

To be clear, this is not Bre-X, one of the famous frauds of yesteryear that claimed to have found gold and there was nothing there. There is natural gas in Papua New Guinea, and there is natural gas in the fields where InterOil is drilling. We simply question whether there's as much as they say there is. To this day, the company has no proven, probable, or even possible reserves. It just has an estimate from a consulting company about what might be there, called a "contingent resource estimate," of which we are quite skeptical.

Even if there is a lot of natural gas there, that might not mean much. There's lots of natural gas all over the world, but most of it is stranded, which means that for whatever reason--it's deep underwater or in a remote area, for example--it's not commercially exploitable. It would be hard to find a more remote area than the jungles of Papua New Guinea, plus it's one of the world's most corrupt and least-developed countries. Finally, even if there is enough gas to be commercially exploitable, this is a company that has very little cash left--and it would cost billions of dollars to develop the infrastructure, to build a pipeline and an LNG facility, etc. We think that the people who would put up that money will end up owning most of the company if there is a big field there. So we question how much would be leftover for InterOil's current common shareholders.