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While he’s still licking his wounds from the Sino-Forest scandal, hedge-fund titan John Paulson has waded into another controversial stock.
The founder of $18 billion Paulson & Co. scooped up 1.87 million shares of InterOil Corp. in the first quarter, making him the company’s eighth-largest shareholder, with a stake worth roughly $160 million.
InterOil has been touting its access to oil and natural gas reserves in Papua New Guinea, but has yet to extract them — kicking off a Wall Street debate as to the veracity of its claims.
InterOil’s stock has risen 60 percent this year after the company raised hopes that a long-awaited deal to develop its natural gas fields was finally at hand.
But a sudden drop in the stock yesterday raised fresh questions about whether the upward trend will continue, or whether InterOil naysayers will be proven right and the stock will collapse.
“If I am correct, there are no commercially developable resources and this is the beginning of the end,” said hedge fund manager Whitney Tilson, who is short the stock.
In March, InterOil said it received multiple bids from partners eager to get in on its natural gas action. The news sent the stock soaring on speculation that the company would be acquired by a major energy company.
But critics scoffed at news of the bids, attributing it to InterOil’s practice of churning out promising press releases and then failing to deliver.
Short sellers like Tilson got a boost yesterday when InterOil said it had entered into “exclusive negotiations with ExxonMobil Papua New Guinea Ltd.”
The stock soared to $106 before plummeting back down again, when investors realized the deal was far from done. It ended the day off 7.5 percent at $86.40.
InterOil spokesman Wayne Andrews didn’t return a request for comment.
Paulson, who also declined to comment, has found himself on the losing side of a similar debate.
In 2011, his firm lost an estimated $700 million betting on Chinese operated Sino-Forest, which collapsed amid an accounting scandal.