InterOil Highlights 4Q10 Financial, Operational Results

InterOil announced financial and operating results for the fourth quarter and full year ended December 31, 2010.

Fourth Quarter 2010 Highlights and Recent Developments

• On November 10, 2010, InterOil completed public offerings of 2.8 million common shares at US $75 per share and US$70 million aggregate principal amount of 2.75% Convertible Senior Notes due 2015. InterOil has received total combined net proceeds from the offerings of approximately $266 million, after deducting underwriting discounts, commissions and estimated offering expenses. InterOil closed 2010 with cash, cash equivalents and restricted cash totalling $280.9 million.
• During the fourth quarter, the seismic program focused on further delineation of the Bwata and Wolverine structures on Petroleum Prospecting License (PPL) 237. At the end of the 2010, the seismic program for PPL 236 was well advanced. The PPL 236 seismic program totals 70 kilometers comprising 6 dip lines which transect the Whale, Tuna, Barracuda, Wahoo, Mako and Shark leads.
• InterOil recorded a consolidated net loss for the year ended December 31, 2010 of $45.5 million. The operating segments returned a net profit of $41.4 million. This was offset by $12.0 million settlement of litigation, investments in development, including $30.6 million expensed for buyback of indirect participation interests (IPI), $8.7 million expensed seismic activity, $8.4 million expensed liquefied natural gas (LNG) project costs, and $8.3 million expensed for rig maintenance.
• Subsequent to the quarter, InterOil announced a Project Funding and Construction Agreement and a Shareholder Agreement with Energy World Corporation Ltd. setting forth the parameters in respect of the development, construction, financing and operation of a planned three million tonne per annum (mtpa) land-based modular LNG facility in the Gulf Province of Papua New Guinea.

InterOil Chief Executive Officer Phil Mulacek commented, "We continue to advance our effort to monetize our resources. We believe that our delineation drilling and the resultant annual resource estimate further demonstrates the value of our reservoirs at Elk and Antelope. Our partners, Mitsui & Co., Ltd. and Energy World Corporation, Ltd. continue to progress our project toward a final investment decisions with respect to our planned condensate stripping and LNG facilities, respectively. These achievements, combined with our strong balance sheet, support our continued growth and operational success."

Corporate Financial Results

InterOil recorded a net loss for the year ended December 31, 2010 of $45.5 million, compared with a net profit of $6.1 million for the same period in 2009, a reduction of $51.6 million. The operating segments of Corporate, Midstream Refining and Downstream collectively returned a net profit for the year of $41.4 million. The development segments of Upstream and Midstream Liquefaction yielded a net loss of $86.9 million for an aggregate net loss of $45.5 million. The net loss from the development segments was the result of a number of unusual/one time charges. The main items contributing to the consolidated loss for the year were: 1) loss on extinguishment of IPI liability of $30.6 million, 2) settlement of litigation for $12.0 million, and 3) seismic activity and rig maintenance costs expensed for $17.0 million.

Inclusive of $59.6 million in non-operating expenses, InterOil's earnings before interest, taxes, depreciation and amortization ("EBITDA") for the year ended December 31, 2010 was a loss of $16.5 million, compared with a gain of $19.3 million in 2009, an reduction of $35.8 million. Total revenue increased by $113.9 million from $693.1 million in 2009 to $807.0 million for the full year ended December 30, 2010.

Business Segment Results

Upstream - During the fourth quarter, the seismic program focused on further delineation of the Bwata and Wolverine structures, apportioned into 58 kilometers for Bwata (consisting of 3 dip lines and 1 strike line) and 45.4 kilometers for Wolverine (consisting of 3 dip lines and a strike line running north-south). The data is being processed and interpreted.

At the end of the 2010, the initial preparatory work on a seismic program for PPL 236 was well advanced with social mapping and construction of the base camp initiated. Work on the PPL 236 seismic comprises 70 kilometers comprising 6 dip lines which transect the Whale, Tuna, Barracuda, Wahoo, Mako and Shark leads. The seismic program will fulfill our license commitment for the first 2-year extension period in PPL 236.

On November 30, 2010, we were granted Petroleum Retention License ("PRL") 15, covering blocks including and surrounding the Elk and Antelope fields, unifying the fields into a single license separate from our exploration acreage and specifying minimum work commitment activities over the next five years. We have initiated work on the application and associated information to be submitted to the State in support of a Petroleum Development License ("PDL"), which is required to be able to produce hydrocarbons.

During the last quarter of 2010, drilling equipment underwent maintenance, and our drilling and associated equipments crew were on standby. All costs in relation to the maintenance and standby time has been expensed. InterOil Rig #2 is ready to resume drilling.

InterOil's Upstream business realized a net loss of $78.6 million in 2010 compared to a loss of $39.5 million in the comparable period a year ago. The increase in the loss in 2010 was mainly due to a $16.8 million increase in exploration costs, $9.2 million higher intercompany interest charges, and a $5.2 million reduction in the gain on sale of exploration assets in 2010 compared with 2009.

Balance Sheet and Liquidity

InterOil closed 2010 with cash, cash equivalents and cash restricted totaling $280.9 million (December 2009 - $75.8 million), of which $47.3 million is restricted (December 2009 - $29.3 million). We also had aggregate working capital facilities of $239.2 million, with $46.3 million available for use in our Midstream Refining operations, and $48.0 million available for use in our Downstream operations.

On November 10, 2010, the Company closed a public offering of 2.8 million common shares at US$75 per share and US$70 million aggregate principal amount of 2.75% convertible senior notes due 2015. InterOil has received total combined net proceeds from the offerings of approximately $266 million, after deducting underwriting discounts, commissions and estimated offering expenses.

Our debt-to-capital ratio (debt / (shareholders' equity + debt)) was increased to 13% in December 2010 from 11% in December 2009. This increase in gearing was mainly due to the 2.75% convertible senior notes issued in November of 2010.