InterOil Corporation
NYSE : IOC

InterOil Corporation

March 01, 2010 19:47 ET

InterOil Announces Year End 2009 Financial Results

CAIRNS, AUSTRALIA AND HOUSTON, TEXAS--(Marketwire - March 1, 2010) - InterOil Corporation (NYSE:IOC) (POMSoX:IOC) announces financial results for the 2009 full year and fourth quarter.

2009 Annual Highlights

- Upstream gross capital expenditures of $91.8 million add best case gross initial recoverable resources of 889 million barrels of oil equivalent, as estimated by GLJ Petroleum Consultants Ltd., which evaluated InterOil's resources at the Elk and Antelope field in Papua New Guinea effective as at December 31, 2009.

- Conversion of all 8% convertible subordinated debentures issued in May 2008 and a U.S. $70.4 million registered direct common stock offering strengthen balance sheet.

- LNG Project Agreement signed with the PNG Government establishing the fiscal and legal framework for development of the joint venture liquefaction facility.

- The 2009 year is the first recording an annual net profit.

Financial Highlights

Profits from InterOil's refining and distribution businesses more than offset losses incurred in our developing upstream and liquefaction businesses. Net profit for the year ended December 31, 2009 was $6.1 million, compared with a net loss of $11.8 million for the same period in 2008, an improvement of $17.9 million. This profit figure includes a significant expense item amounting to $31.7 million for a 'loss on extinguishment of indirect participation interest liability' and which relates to an exchange transaction entered into with certain indirect participation interest ('IPI') holders when their interests were exchanged for a certain number of InterOil's common shares. On December 17, 2009, InterOil announced adoption of the extinguishment of the liability model to account for this transaction, with the difference between fair value and book value of the IPI liability for this interest being expensed. InterOil today re-filed its third quarter results to reflect this treatment.

InterOil petroleum products sold in Papua New Guinea totalled 6.5 million barrels for fiscal year 2009 compared with 6.6 million barrels in 2008, a steady result in light of the global economic backdrop. Total revenue for the year was $693.1 million, compared with $919.7 million for 2008. The difference is primarily explained by lower crude oil prices giving rise to commensurately lower product pricing in the current year.

InterOil's earnings before interest taxes, depreciation and amortization ("EBITDA") for the year ended December 31, 2009 was $19.3 million, a reduction of $3.1 million from $22.4 million for 2008. This EBITDA figure would be $51.0 million if the $31.7 million 'loss on extinguishment' of the IPI liability, as noted above, was excluded.

Business Segment Results

InterOil's Upstream business generated a net loss of $39.5 million in 2009 (2008 - profit of $2.2 million) mainly due to the $31.7 million loss on extinguishment of the IPI liability noted above, and $5.3 million higher inter-company interest charges on higher loan balances owed to the InterOil Corporation, the parent.

Net profit from the Company's Midstream Refining operations totaled $41.8 million in 2009 (2008 - $4.7 million) benefiting from hedge accounted and non-hedge accounted derivative gains realized in the amount of $18.2 million, the recognition of $14.3 million worth of deferred tax assets relating to carried forward tax losses from prior years, better gross margins due to higher yielding crude cargoes and higher export premiums.

The Company's Midstream Liquefaction business generated a loss of $8.4 million in 2009 (2008 - $7.9 million) during the year, being its share of the joint ventured LNG project expenses. As the Project Agreement governing the proposed LNG project was signed by the Government of Papua New Guinea in December 2009, commencing on January 1, 2010, all direct project- related costs will be capitalized to the LNG project rather than expensed.

InterOil's Downstream operations generated a net profit of $8.5 million in 2009 (2008 - loss of $1.2 million), largely due to the positive effect of product price movements as applied to inventory holdings during the year.

The Corporate segment generated a net profit of $4.3 million in 2009 (2008 - loss of $10.6 million), primarily due to increased inter-company interest recharges on loans provided to other business segments and a $6.8 million reduction in the interest expense on external borrowings compared with 2008. The reduction in interest expense is due to the conversion of all of InterOil's outstanding $95.0 million principal amount 8% convertible subordinated debentures issued in May 2008 into common shares, and repayment of a $130 million bridging facility in May 2008 with no corresponding interest expense in 2009.

An Improvement in Our Balance Sheet and Liquidity

InterOil closed the year with cash, cash equivalents and cash restricted totalling $75.8 million, of which $29.3 million was restricted (in accordance with its BNP working capital facility utilization requirements and the terms of its OPIC secured loan facility). We also had working capital facilities in the aggregate of $238.1 million, with $116.5 million available for use in our Midstream Refining operations, and $36.6 million available for use in our Downstream operations.

Our debt-to-capital ratio (long term debt/(shareholders' equity + long term debt)) was reduced to 11% in December 2009 from 36% in December 2008. This reduction in gearing was mainly due to the conversion during 2009 of the remaining $65 million outstanding of the $95.0 million principal amount 8% convertible subordinated debentures issued in May 2008, plus the registered direct offering of 2,013,815 common shares in June 2009 raising gross proceeds of $70.4 million.

Summary of Debt Facilities

Summarized below are the debt facilities available to us and the balances outstanding as at December 31, 2009.



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Balance
Outstanding
December Maturity
Organization Facility 31,2009 date
----------------------------------------------------------------------------
OPIC secured loan $ 53,500,000 $ 53,500,000 December 2015
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BNP Paribas working capital December 2010
facility $190,000,000 $ 16,794,153(1)
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Westpac working capital facility $ 29,600,000 $ 7,832,266 October 2011
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BSP working capital facility $ 18,500,000 $ 0 August 2010
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(1) Excludes letters of credit totaling $56.7 million.


SELECTED ANNUAL FINANCIAL INFORMATION AND HIGHLIGHTS:

Consolidated Statement of Operations
(Expressed in United States dollars)

Year ended
----------------------------------------------------------------------------
December 31, December 31, December 31,
2009 2008 2007
$ $ $
----------------------------------------------------------------------------
Revenue
Sales and operating revenues 688,478,965 915,578,709 625,526,068
Interest 350,629 931,785 2,180,285
Other 4,228,415 3,216,445 2,666,890
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693,058,009 919,726,939 630,373,243
----------------------------------------------------------------------------
Expenses
Cost of sales and operating
expenses 601,983,432 888,623,109 573,609,441
Administrative and general
expenses 33,254,708 31,227,627 31,998,655
Derivative (gains)/losses (1,008,585) (24,038,550) 7,271,693
Legal and professional fees 9,067,413 11,523,045 6,532,646
Exploration costs, excluding
exploration impairment (note 11) 208,694 995,532 13,305,437
Exploration impairment (note 11) - 107,788 1,242,606
Short term borrowing costs 3,776,590 6,514,060 5,565,828
Long term borrowing costs 8,788,041 17,459,186 17,182,446
Depreciation and amortization 14,321,775 14,142,546 13,024,258
Gain on LNG shareholder
agreement (note 19) - - (6,553,080)
Gain on sale of oil and gas
properties (note 11) (7,364,468) (11,235,084) -
Loss on extinguishment of IPI
liability (note 20) 31,710,027 - -
Foreign exchange loss/(gain) 3,305,383 (3,878,150) (5,078,338)
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698,043,010 931,441,109 658,101,592
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Loss before income taxes and
non-controlling interest (4,985,001) (11,714,170) (27,728,349)

Income taxes
Current (2,272,645) (1,564,038) (2,491,761)
Future 13,348,634 1,482,074 1,284,869
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11,075,989 (81,964) (1,206,892)
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Income/(loss) before
non-controlling interest 6,090,988 (11,796,134) (28,935,241)
----------------------------------------------------------------------------

Non-controlling interest
(note 21) (8,361) (943) 22,333

----------------------------------------------------------------------------
Net income/(loss) 6,082,627 (11,797,077) (28,912,908)
----------------------------------------------------------------------------

Basic income/(loss) per share
(note 27) 0.15 (0.35) (0.96)
Diluted income/(loss) per share
(note 27) 0.15 (0.35) (0.96)
Weighted average number of
common shares outstanding
Basic (Expressed in number of
common shares) 39,900,583 33,632,390 29,998,133
Diluted (Expressed in number of
common shares) 40,681,586 33,632,390 29,998,133
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See accompanying notes to the consolidated financial statements


Consolidated Balance Sheets
(Expressed in United States dollars)

As at
----------------------------------------------------------------------------
December 31, December 31, December 31,
2009 2008 2007
$ $ $
----------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents
(note 5) 46,449,819 48,970,572 43,861,762
Cash restricted (note 7) 22,698,829 25,994,258 22,002,302
Trade receivables (note 8) 61,194,136 42,887,823 63,145,444
Commodity derivative contracts
(note 7) - 31,335,050 -
Other assets 639,646 167,885 146,992
Inventories (note 9) 70,127,049 83,037,326 82,589,242
Prepaid expenses 6,964,950 4,489,574 5,102,540
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Total current assets 208,074,429 236,882,488 216,848,282
Cash restricted (note 7) 6,609,746 290,782 382,058
Goodwill (note 15) 6,626,317 - -
Plant and equipment (note 10) 221,046,709 223,585,559 232,852,222
Oil and gas properties
(note 11) 172,483,562 128,013,959 84,865,127
Future income tax benefit
(note 12) 16,912,969 3,070,182 2,867,312
----------------------------------------------------------------------------
Total assets 631,753,732 591,842,970 537,815,001
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and shareholders'
equity
Current liabilities:
Accounts payable and accrued
liabilities (note 13) 59,372,354 78,147,736 60,427,607
Commodity derivative contracts
(note 7) - - 1,960,300
Working capital facility
(note 16) 24,626,419 68,792,402 66,501,372
Current portion of secured loan
(note 19) 9,000,000 9,000,000 136,776,760
Current portion of indirect
participation interest - PNGDV
(note 20) 540,002 540,002 1,080,004
----------------------------------------------------------------------------
Total current liabilities 93,538,775 156,480,140 266,746,043
Secured loan (note 19) 43,589,278 52,365,333 61,141,389
8% subordinated debenture
liability (note 24) - 65,040,067 -
Preference share liability
(note 23) - - 7,797,312
Deferred gain on contributions
to LNG project (note 14) 13,076,272 17,497,110 9,096,537
Indirect participation interest
(note 20) 38,715,228 72,476,668 96,086,369
Indirect participation interest
PNGDV (note 20) 844,490 844,490 844,490
----------------------------------------------------------------------------
Total liabilities 189,764,043 364,703,808 441,712,140
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Non-controlling interest
(note 21) 13,596 5,235 4,292
----------------------------------------------------------------------------
Shareholders' equity:
Share capital (note 22) 613,361,363 373,904,356 259,324,133
Authorised - unlimited
Issued and outstanding -
43,545,654
(Dec 31, 2008 - 35,923,692)
(Dec 31, 2007 - 31,026,356)
Preference shares (note 23) - - 6,842,688
(Authorised - 1,035,554, issued
and outstanding - nil)
8% subordinated debentures
(note 24) - 10,837,394 -
Contributed surplus 21,297,177 15,621,767 10,337,548
Warrants (note 26) - 2,119,034 2,119,034
Accumulated Other Comprehensive
Income 8,150,976 27,698,306 6,025,019
Conversion options (note 20) 13,270,880 17,140,000 19,840,000
Accumulated deficit (214,104,303) (220,186,930) (208,389,853)
----------------------------------------------------------------------------
Total shareholders' equity 441,976,093 227,133,927 96,098,569
----------------------------------------------------------------------------
Total liabilities and
shareholders' equity 631,753,732 591,842,970 537,815,001
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to the consolidated financial statements.
Commitments and contingencies (note 28), Going Concern (note 2(b))

On behalf of the Board - Phil Mulacek, Director Christian Vinson, Director


Consolidated Statement of Cash Flows
(Expressed in United States dollars)

Year ended
----------------------------------------------------------------------------
December 31, December 31, December 31,
2009 2008 2007
$ $ $
----------------------------------------------------------------------------
Cash flow s provided by (used in):
Operating activities
Net profit/(loss) 6,082,627 (11,797,077) (28,912,908)
Adjustments for non-cash and
non-operating transactions
Non-controlling interest 8,361 943 (22,333)
Depreciation and amortization 14,321,775 14,142,546 13,024,258
Future income tax asset (13,842,787) (202,870) (1,600,985)
Fair value adjustment on IPL
PNG Ltd. acquisition - - (367,935)
(Gain)/loss on sale of plant and
equipment - (16,250) 269,321
Gain on sale of exploration
assets (7,364,468) (11,235,084) -
Impairment of plant and
equipment - - 960,000
Amortization of discount on
debentures liability 1,212,262 1,915,910 -
Amortization of deferred
financing costs 223,945 260,400 421,691
(Gain)/loss on unsettled hedge
contracts (851,500) 851,500 (47,314)
Timing difference between
derivatives recognised
and settled 15,074,050 (17,034,350) 3,765,800
Stock compensation expense 8,290,681 5,741,086 6,062,962
Inventory revaluation 140,278 8,379,587 -
Non-cash interest on secured
loan facility - 2,189,907 6,143,660
Non-cash interest settlement on
preference shares - 372,950 -
Non-cash interest settlement on
debentures 2,352,084 2,620,628 -
Oil and gas properties expensed 208,694 1,103,320 14,548,043
Loss on extinguishment of IPI
Liability 31,710,027 - -
Gain on LNG shareholder
agreement - - (6,553,080)
Preference share transaction
costs - - 390,000
Gain on buy back of minority
interest - - (394,290)
Loss/(gain) on proportionate
consolidation of LNG project 724,357 (811,765) 2,375,278
Unrealized foreign exchange gain (574,778) (3,728,721) (5,078,338)
Change in operating working
capital
(Increase)/decrease in trade
receivables (9,523,370) 18,684,422 6,661,838
(Decrease)/increase in
unrealised hedge gains (900,000) 900,000 -
(Increase)/decrease in other
assets and prepaid expenses (2,947,137) 592,073 (2,698,546)
Decrease/(increase) in
inventories 12,226,616 (3,189,859) (6,033,038)
(Decrease)/increase in accounts
payable, accrued liabilities
and income tax payable (12,071,350) 5,846,860 (34,533,991)
----------------------------------------------------------------------------
Net cash from/(used in)
operating activities 44,500,367 15,586,156 (31,619,907)
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Investing activities
Expenditure on oil and gas
properties (91,788,438) (63,890,512) (69,090,092)
Proceeds from IPI cash calls 15,406,022 18,323,365 21,782,988
Expenditure on plant and
equipment (11,782,925) (5,172,133) (7,289,319)
Proceeds received on sale of
assets - 312,500 65,072
Proceeds received on sale of
exploration assets - 6,500,000 -
Acquisition of subsidiary - - (3,326,631)
Proceeds from insurance claim - - 7,000,000
Increase in restricted cash held
as security on borrowings (3,023,535) (3,900,680) 10,134,864
Change in non-cash working
capital
Increase in accounts payable and
accrued liabilities 5,621,530 436,775 6,353,247
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Net cash used in investing
activities (85,567,346) (47,390,685) (34,369,871)
----------------------------------------------------------------------------

Financing activities
Repayments of secured loan (9,000,000) (9,000,000) (4,500,000)
Repayments of bridging facility,
net of transaction costs - (70,000,000) -
Financing fees related to
bridging facility - - (100,000)
Proceeds from PNG LNG cash call - 9,447,250 9,450,308
Payments for deferred financing
fees - - (362,500)
Proceeds from Clarion Finanz for
Elk option agreement 3,577,288 5,500,000 5,922,712
Proceeds from Petromin for Elk
participation agreement 6,435,000 4,000,000 -
(Repayments of)/proceeds from
working capital facility (44,165,983) 2,291,030 29,627,864
Proceeds from issue of common
shares/conversion of debt,
exercise of w arrants, net of
transaction costs 81,699,921 (104,975) 23,881,721
Proceeds from issue of
debentures, net of
transaction costs - 94,780,034 -
Proceeds from preference shares,
net of transaction costs - - 14,250,000
----------------------------------------------------------------------------
Net cash from financing
activities 38,546,226 36,913,339 78,170,105
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(Decrease)/increase in cash and
cash equivalents (2,520,753) 5,108,810 12,180,327
Cash and cash equivalents,
beginning of period 48,970,572 43,861,762 31,681,435
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Cash and cash equivalents, end
of period (note 5) 46,449,819 48,970,572 43,861,762
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See accompanying notes to the consolidated financial statements
See note 6 for non cash financing and investing activities


NON-GAAP EBITDA Reconciliation

Gross Margin is a non-GAAP measure and is "sales and operating revenues" less "cost of sales and operating expenses". The following table reconciles sales and operating revenues, a GAAP measure, to Gross Margin:



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Consolidated -- Operating results Year ended December 31,
($ thousands) 2009 2008 2007
----------------------------------------------------------------------------
Midstream -- Refining 574,409 786,114 523,817
Downstream 388,991 556,868 391,738
Corporate 21,194 24,567 9,482
Consolidation Entries (296,115) (451,970) (299,511)
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Sales and operating revenues 688,479 915,579 625,526
----------------------------------------------------------------------------
Midstream -- Refining (516,349) (779,832) (495,059)
Downstream (359,623) (536,920) (368,803)
Corporate (1) - - -
Consolidation Entries 273,989 428,129 290,253
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Cost of sales and operating expenses (601,983) (888,623) (573,609)
----------------------------------------------------------------------------
Midstream -- Refining 58,060 6,282 28,758
Downstream 29,368 19,948 22,935
Corporate (1) 21,194 24,567 9,482
Consolidation Entries (22,126) (23,841) (9,258)
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Gross Margin 86,496 26,956 51,917
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(1) Corporate expenses are classified below the gross margin line and mainly
relates to 'Office and admin and other expenses' and 'Interest expense'.


EBITDA represents our net income/(loss) plus total interest expense (excluding amortization of debt issuance costs), income tax expense, depreciation and amortization expense. EBITDA is used by us to analyze operating performance. EBITDA does not have a standardized meaning prescribed by United States or Canadian generally accepted accounting principles and, therefore, may not be comparable with the calculation of similar measures for other companies. The items excluded from EBITDA are significant in assessing our operating results. Therefore, EBITDA should not be considered in isolation or as an alternative to net earnings, operating profit, net cash provided from operating activities and other measures of financial performance prepared in accordance with GAAP. Further, EBITDA is not a measure of cash flow under GAAP and should not be considered as such. For reconciliation of EBITDA to the net income (loss) under GAAP, refer to the following table.

The following table reconciles net income (loss), a GAAP measure, to EBITDA, a non-GAAP measure for each of the last eight quarters.



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Quarters ended 2009 2008
($ thousands) Dec-31 Sep-30 Jun-30 Mar-31
----------------------------------------------------------------------------
Upstream 574 (29,097) (669) (469)
Midstream - Refining 8,492 8,199 14,134 14,747
Midstream - Liquefaction (1,200) (2,119) (1,379) (2,361)
Downstream 4,391 6,542 4,150 3,241
Corporate 1,765 1,980 1,897 3,051
Consolidation Entries (4,884) (4,092) (278) (7,285)
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Earnings before interest, taxes,
depreciation and amortization 9,138 (18,587) 17,855 10,924
----------------------------------------------------------------------------
Subtract:
----------------------------------------------------------------------------
Upstream (4,056) (2,164) (1,563) (1,552)
Midstream - Refining (1,973) (1,682) (1,709) (1,786)
Midstream - Liquefaction (379) (348) (333) (158)
Downstream (930) (1,045) (1,013) (1,142)
Corporate (27) 0 (1,600) (2,325)
Consolidation Entries 5,905 3,823 3,141 2,923
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Interest expense (1,460) (1,416) (3,077) (4,040)
----------------------------------------------------------------------------
Upstream - - - -
Midstream - Refining 14,316 - - -
Midstream - Liquefaction (8) (3) (32) (12)
Downstream (411) (1,398) (733) (485)
Corporate 1,340 (339) (800) (359)
Consolidation Entries (3) (1) (2) (2)
----------------------------------------------------------------------------
Income taxes and non-controlling
interest 15,234 (1,741) (1,567) (858)
----------------------------------------------------------------------------
Upstream (144) (132) (150) (112)
Midstream - Refining (2,765) (2,755) (2,801) (2,611)
Midstream - Liquefaction (7) (10) (20) (20)
Downstream (679) (658) (662) (651)
Corporate (43) (40) (174) (18)
Consolidation Entries 33 33 32 32
----------------------------------------------------------------------------
Depreciation and amortisation (3,605) (3,562) (3,775) (3,380)
----------------------------------------------------------------------------
Upstream (3,626) (31,392) (2,382) (2,134)
Midstream - Refining 18,071 3,762 9,624 10,349
Midstream - Liquefaction (1,593) (2,481) (1,764) (2,551)
Downstream 2,371 3,440 1,742 964
Corporate 3,034 1,601 (677) 350
Consolidation Entries 1,050 (236) 2,893 (4,332)
----------------------------------------------------------------------------
Net profit/(loss) per segment 19,307 (25,306) 9,436 2,646
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Quarters ended 2009 2008
($ thousands) Dec-31 Sep-30 Jun-30 Mar-31
----------------------------------------------------------------------------
Upstream (2,483) 231 10,164 (1,135)
Midstream - Refining (13,976) 17,516 16,329 5,724
Midstream - Liquefaction (2,501) (1,570) (1,784) (1,636)
Downstream (7,244) 610 7,893 4,529
Corporate 226 764 (2,155) 1,796
Consolidation Entries (2,866) (736) (3,092) (2,143)
----------------------------------------------------------------------------
Earnings before interest, taxes,
depreciation and amortization (28,844) 16,815 27,355 7,135
----------------------------------------------------------------------------
Subtract:
----------------------------------------------------------------------------
Upstream (1,345) (1,137) (841) (704)
Midstream - Refining (2,771) (2,113) (2,263) (2,761)
Midstream - Liquefaction (65) (63) (60) (53)
Downstream (2,232) (885) (715) (1,005)
Corporate (2,320) (2,484) (2,871) (3,091)
Consolidation Entries 2,866 2,633 1,824 2,424
----------------------------------------------------------------------------
Interest expense (5,867) (4,049) (4,926) (5,190)
----------------------------------------------------------------------------
Upstream - - - -
Midstream - Refining - - - -
Midstream - Liquefaction (12) (25) (49) (24)
Downstream 4,297 83 (3,212) (753)
Corporate (163) (21) (122) (81)
Consolidation Entries 4 (3) (2) 0
----------------------------------------------------------------------------
Income taxes and non-controlling
interest 4,126 34 (3,385) (858)
----------------------------------------------------------------------------
Upstream (175) (134) (135) (154)
Midstream - Refining (2,742) (2,742) (2,723) (2,760)
Midstream - Liquefaction (19) (19) (16) (15)
Downstream (722) (693) (582) (573)
Corporate (19) (18) (16) (15)
Consolidation Entries 32 33 32 32
----------------------------------------------------------------------------
Depreciation and amortisation (3,645) (3,573) (3,440) (3,485)
----------------------------------------------------------------------------
Upstream (4,003) (1,039) 9,188 (1,993)
Midstream - Refining (19,490) 12,660 11,345 201
Midstream - Liquefaction (2,596) (1,677) (1,910) (1,727)
Downstream (5,900) (886) 3,384 2,197
Corporate (2,276) (1,759) (5,164) (1,390)
Consolidation Entries 35 1,928 (1,239) 314
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Net profit/(loss) per segment (34,230) 9,227 15,604 (2,398)
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(1) The inter-company interest charges have been restated for quarter ended
March 31, 2008 and June 30, 2008 to reflect transfer of certain inter-
company loan balances to inter-company investments.
(2) During the year, the Company has transferred notional interest cost from
Corporate segment to the Upstream and Midstream -- Liquefaction segments
to reflect a more accurate view of its segment results. The prior year
comparatives have been reclassified to conform to the current
classification.


InterOil Corporation is developing a vertically integrated energy business whose primary focus is Papua New Guinea and the surrounding region. InterOil's assets consist of petroleum licenses covering about 3.9 million acres, an oil refinery, and retail and commercial distribution facilities, all located in Papua New Guinea. In addition, InterOil is a shareholder in a joint venture established to construct an LNG plant on a site adjacent to InterOil's refinery in Port Moresby, Papua New Guinea.

InterOil's common shares trade on the NYSE in US dollars.

Cautionary Statements

Forward Looking Statements

This press release may include "forward-looking statements" as defined in United States federal and Canadian securities laws. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the InterOil expects, believes or anticipates will or may occur in the future are forward-looking statements, including in particular the estimates of resources and future accounting treatments of certain activities, and business plans and strategies. Statements relating to 'resources' are forward looking, as they involve the applied assessment, based on certain estimates and assumptions, that the resources described exist in the quantities estimated. These statements are based on certain assumptions made by the Company based on its experience and perception of current conditions, expected future developments and other factors it believes are appropriate in the circumstances. No assurances can be given however, that these events will occur. Actual results will differ, and the difference may be material and adverse to the Company and its shareholders. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause our actual results to differ materially from those implied or expressed by the forward-looking statements. Some of these factors include the risk factors discussed in the Company's filings with the Securities and Exchange Commission and SEDAR, including but not limited to those in the Company's Annual Report for the year ended December 31, 2009 on Form 40-F and its Annual Information Form for the year ended December 31, 2009. In particular, there is no established market for natural gas or gas condensate in Papua New Guinea and no guarantee that gas or gas condensate from the Elk and Antelope fields will ultimately be able to be extracted and sold commercially.

Investors are urged to consider closely the disclosure in the Company's Form 40-F, available from us at www.interoil.com or from the SEC at www.sec.gov and its and its Annual Information Form available on SEDAR at www.sedar.com.

The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves. We include in this press release resource estimates other than proved reserves, that the SEC's guidelines strictly prohibit us from including in filings with the SEC.

Resource Information

InterOil currently has no production or reserves as defined in Canadian National Instrument 51-101 or under the definitions established by the United States Securities and Exchange Commission.

Contingent resources are those quantities of natural gas and condensate estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. The economic status of the resources is undetermined and there is no certainty that it will be commercially viable to produce any portion of the resources. The following contingencies must be met before the resources can be classified as reserves: (i) Sanctioning of the facilities required to process and transport marketable natural gas to market, (ii) confirmation of a market for the marketable natural gas and condensate, and (iii) determination of economic viability.

Although a final project has not yet been sanctioned, pre - Front End Engineering and Design (FEED) studies are ongoing for liquid natural gas (LNG) and condensate stripping operations as options for monetization of the gas and condensate.

The "low" estimate is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. With the probabilistic methods used, there should be at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate. The "best" estimate is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. With the probabilistic methods used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate. The "high" estimate is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. With the probabilistic methods used, there should be at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate. The accuracy of resource estimates are in part a function of the quality and quantity of the available data and of engineering and geological interpretation and judgment. Other factors in the classification as a resource include a requirement for more delineation wells, detailed design estimates and near term development plans. The size of the resource estimate could be positively impacted, potentially in a material amount, if additional delineation wells determined that the aerial extent, reservoir quality and/or the thickness of the reservoir is larger than what is currently estimated based on the interpretation of the seismic and well data. The size of the resource estimate could be negatively impacted, potentially in a material amount, if additional delineation wells determined that the aerial extent, reservoir quality and/or the thickness of the reservoir are less than what is currently estimated based on the interpretation of the seismic and well data.

BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Contact Information

  • InterOil Corporation
    Wayne Andrews
    V. P. Capital Markets, The Woodlands, TX USA
    (281) 292-1800
    Wayne.Andrews@InterOil.com
    or
    InterOil Corporation
    Anesti Dermedgoglou
    V.P. Investor Relations, Cairns Qld, Australia
    +61 7 4046 4600
    anesti@interoil.com
    www.interoil.com
    or
    Media Contact for InterOil:
    Andrea Priest/Ed Trissel
    Joele Frank, Wilkinson Brimmer Katcher
    (212) 355-4449