After Morgan Stanley (NYSE:MS) analyst Evan Calio called InterOil (NYSE:IOC) a ‘Long Research Tactical Idea,’ the stock surged by over 4 percent, and while pulling back a little, still is up by over 3.5 percent as I write.
Morgan Stanley and Calio have been been high on the stocks since they instituted coverage on it in 2009, maintaining an overweight rating on the stock from that time, and never deviating from it.
Just recently the stock has exploded by 25 percent in the first week of April, and it is still far below the target price of $120 a share Morgan Stanley has on it.
With the vast majority of InterOil’s business being in Papua New Guinea, where they explore and produce oil and gas, everything is based upon their performance at that location, and questions have risen as to the validity of the location, as major energy companies in the past have investigated and abandoned the area because they considered it lacking resources, even though there were initial successes, which they said didn’t pan out.
Practically what that entails, is when the companies have worked on the site, the pressure from the gas and oil – at the beginning – is strong, but that pressure isn’t sustainable, based on the type of rock they’re working with.
So it seems what is happening is when it is viewed by those visiting it as to how it can produce, they are actually watching the early part of the process which produces huge, initial results, but over a period of time dies down to much lower levels.
That is at least what others who are negative on the stock say.
This won’t be too hard to figure out going forward, as we’ll simply have to watch and see how much gas and oil is being extracted from the area. That alone will tell the story.
Until then, it seems the stock is running almost solely on the positive stance taken by Morgan Stanley analyst Evan Calio. If he ever turns against it, it could crush the share price of the company unless proven reserves match the estimates being put forth by InterOil.
