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InterOil's Investors Are Gushing Over $526M Refinery Deal

Correction: Corrects the first paragraph to say InterOil stock is up 25% for the year to date, not 2.5%.

NEW YORK (TheStreet) - -The Papua New Guinea (PNG)-focused InterOil Corp (IOC)  announced the sale of its refinery and petroleum products distribution business to Puma Energy for $525.6 million. Investors have already shown their delight by pushing shares up over 2% to $64.22, up 25% for the year to date.

The deal will make the Singapore-based Puma Energy a major player in PNG's emerging energy industry and the owner of the only oil refinery in the island nation. For InterOil, the deal will allow the company to increase its focus and expand in its "core upstream and LNG [liquefied natural gas] business," InterOil's COO Jon Ozturgut said in a statement.

The announcement comes after InterOil sold most of its stake in the prized Elk and Antelope gas field to Paris-based supermajor Total (TOT). InterOil is currently evaluating its lease holding and will release the well-test results in the near future. Positive test results can open doors to additional deals with energy companies looking to add PNG's gas reserves to their portfolios.

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InterOil's shares are priced 11.5 times trailing earnings, below industry's average of 17.9 times as per data compiled by Thomson Reuters. Any additional deals, particularly related to equity interest in the company's acreage, or strong test results can act as a catalyst for further upside.

On the other hand, InterOil's long-term outlook looks uncertain as it neither owns nor has access to an LNG export terminal.

InterOil has 36% interest in the Elk and Antelope field, one of Asia's biggest undeveloped gas field. Overall, the company owns several exploration licenses in PNG covering an area of around four million acres.

The current sale of non-core assets shows the company's ability to monetize its assets. Three months ago, InterOil completed the sale of 40.1% of its gross interest in a block covering the Elk and Antelope gas field to the French oil major Total for $401 million. Besides InterOil and Total, Oil Search (OISHY) is also a majority stakeholder with 22.8% gross interest.

As per the terms of the deal, InterOil will receive an additional $73 million when Total makes a final investment decision and $65 million on the production of the first LNG cargo.

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