Interoil is perhaps the most-disputed stock I have ever witnessed. The dispute is about the value of a huge claimed gas find in Papua New Guinea. When short-sellers get together the conversation seems to inevitably turn to Interoil. If it is a fraud (as many shorts will have you believe) it is a very long running one and one that can demonstrate impressive flows of gas (flares that make a huge noise and sometimes burn hundreds of feet high).
 

These flares make the shorts look - well - stupid. If the gas is real then it has been uniquely hard to get a serious oil company interested. Deal after announced deal has been announced for about a decade - all of which have come to naught. These deals and their subsequent failures make the Interoil bulls look - well - stupid. The big announcement On Friday Interoil announced its long-awaited deal with a major that may lead to the liquefaction of their huge claimed gas deposits in Papua New Guinea. The major is Total (the French supermajor). Total didn't figure very high in the gossip prior to this deal. This is a big black-eye for the shorts.

Total is committed to spending over half a billion dollars just to get options over the gas in this field. For the shorts this was not meant to happen. The stock may be down almost 40 percent on the deal but it is hard as a short-seller to find comfort in a big and presumably competent oil company stumping up real money to buy a gas field that you previously believed was worthless. But it is also a big black-eye for the longs. Total is stumping up real money - but not much compared to what the bulls thought the field was worth. Incremental TCFs of gas beyond the minimums are sold to Total for $100 million a pop. My first thought when I saw that number: they left a zero off. The stock was down hard for a reason. If the gas find is as good as Interoil claim it is then the management sold it for a song.

There are smart shorts and smart longs in this stock. I swear there are. Today they all look stupid. The shorts may claim victory - but they look stupid too.