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Hedge fund sells off InterOil stake

Date: Wednesday, February 13, 2008
Author: Norval Scott, Globe and Mail

CALGARY InterOil Corp., which is seeking to develop a liquefied natural gas project in Papua New Guinea, appears to have lost a believer, as a hedge fund run by one of the U.S.'s richest men has sold all of its shares in the company.

According to a filing Tuesday with the U.S. Securities and Exchange Commission, Pittsburgh-based Duquesne Capital Management LLC now owns no shares in InterOil, which is listed on the Toronto Stock Exchange.

The fund, which is run by Stanley Druckenmiller a former lieutenant of George Soros and the U.S.'s 91st-richest man - had previously owned around 2 million shares in the company, which has a market capitalization of $615-million. Duquesne has been selling those shares off for the past year.

While InterOil operates a 32,500-barrels-a-day oil refinery in Papua New Guinea and a local fuel distribution network, cash flow from those is barely able to service the firm's debt. The firm hopes that potential gas production from its Elk field in Papua New Guinea will provide the basis for the construction of a $4-billion (U.S.) to $6-billion LNG plant, but it's not yet clear that Elk's geology will support such a project.

Nevertheless, major players in the financial world have backed the company. As well as attracting financing from investment banks Merrill Lynch and Clarion Finanzis, legendary investors such as T. Boone Pickens and Mr. Druckenmiller have bought shares in the company.

The news of Duquesne's sale of InterOil stock comes before the release of much-anticipated drilling results at the company's Elk-4 well. InterOil has previously said that it expects to release those results, which are expected to provide more clarity on how much gas the field contains, by mid-February.

Representatives from InterOil weren't immediately available to comment, while Duquesne refused requests for an interview.

Last June, shares in InterOil fell 27 per cent before the company announced that exploration at its Elk-2 well hadn't yet located a commercial discovery. Some investors cried foul over the high levels of share trading seen before release of the drilling information, although others attributed the move to comments made by InterOil management at an investor meeting.