It's highly unlikely that the executive team at InterOil (NYSE: IOC) is popping a bottle of champagne to celebrate this recent "achievement," but it just became the most shorted energy stock on the New York Stock Exchange that isn't a micro-cap company. According to The Wall Street Journal's short interest research, 33.6% of the company's shares are sold short. There have been other companies at the top of this list, and some of them probably didn't deserve to be there. So do InterOil's haters have it right? Or is this just another case of a misunderstood energy stock? Let's look at why many aren't too impressed with InterOil's future and whether that hatred is deserved. 

And now, for my next trick ...
You certainly can't blame InterOil for taking on a challenge, because its business plan has been one of the most difficult to execute out there for a natural gas company. The company holds more than 3 million prospective acres in Papua New Guinea, as well as a small smattering of oil refining and fueling stations on the island. What InterOil plans to do is develop these natural gas assets and build an LNG export facility to serve the Asia-Pacific market. Aside from the small amount of cash it generates from its downstream assets, the only way for the company to finance this move is through debt issuance and bringing on more well financed partners. 

The upside of this company is that those natural gas fields could hold loads of natural gas. That's the very reason Total (TTE -0.66%) just inked a deal to take a majority operator's stake in InterOil's Elk and Antelope fields. However, the reason that investors haven't jumped for joy at this deal is that Total is taking a very measured approach to the deal and will do a full-year assessment of the fields to determine the final payment amount. Also, by teaming up with Total, it could be several more years before any of this gas is actually commercially sold.

The reason it could take that long is that both InterOil and Total will explore the idea of building their own LNG export facility on the island, but Total doesn't expect to make an actual investment decision on the facility until 2016. Had InterOil inked a deal with its other primary suitor, ExxonMobil (XOM -0.76%), it could have been possible to start selling gas much sooner, because Exxon expects to complete its own LNG facility in Papua New Guinea in the first half of 2014.

So why short?
There is essentially one catalyst for the company's stock within the next year or so: Total's field assessment. If the assessment doesn't turn up as much gas as advertised, then InterOil could receive pennies on the dollar for its fields. This would also make it awfully difficult to make a sale to other prospective buyers on the remaining 2.9 million acres that are on the company's books. 

Over the next several years, the payments from Total will essentially be the lifeblood of the company. InterOil will receive just over $600 million to complete the deal sometime next quarter. Then, the company can expect anywhere between $1.5 billion and $3 billion sometime in 2015 based on the size of the aforementioned fields. As wonderful as these payments may sound, InterOil will need to hang on to this pile of cash until Total makes the final investment decision on the fields and the LNG facility because it will be the only way it can find its development. 

What a Fool believes
Now that InterOil's fate is tied so deeply to Total, it is less likely the company will go completely belly-up. The payment Total will make to sign the deal would more than adequately cover any contractual obligations it may have, with plenty left over. Instead, it looks as if this company will remain in limbo for several years until a Total/InterOil LNG export facility is up and running. The only way that would change is if someone else -- ExxonMobil, more specifically -- were to invest in some of InterOil's other prospective fields. 

Overall, shorting this stock may not be the best move, but going all in and waiting till the end of the decade to start generating profits from the sale of its actual product isn't that appealing, either. Probably the best approach for most investors would be to let this one pass and look for opportunities elsewhere.