Why InterOil's Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of oil and gas producer InterOil (NYSE: IOC  ) fell as much as 18% in early trading today after it released earnings and said its LNG project was on ice. Shares had recovered about half of those losses in later trading.

So what: The company said first-quarter revenue rose 18% to $338.2 million and net profit reached $9.4 million, or $0.19 per share, but the market didn't seem to care. The big news was word that Papua New Guinea was planning to cancel its agreement for a $6 billion liquefied natural gas project.

Now what: The company got word of the cancellation through an unofficial channel and plans to meet with government officials. The project has been up in the air since officials called for revisions in September because the company's plans didn't live up to the country's original approval. If true, it will be a loss for InterOil because the company has already spent $81 million on its construction and was planning to begin liquefaction by 2015. I don't see this as a good sign for the stock going forward.

Interested in more info on InterOil? Add it to your watchlist by clicking here.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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  • Report this Comment On May 14, 2012, at 3:40 PM, dcgatlanta wrote:

    IOC may be on it's way to $10 a share once the fantasy of the LNG facility becomes clear to the market. Without it, you've got a barely profitable refinery and little else.

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