InterOil to Spend $125 Million on Exploration Program in PNG

InterOil Corporation has entered into investment agreements in respect of its ongoing exploration program in Papua New Guinea. Under these agreements, certain institutional and accredited investors have agreed to invest US$125 million for an aggregate 25% indirect participation interest in the exploration program. This program comprises eight wells, of which six will be drilled at locations selected by InterOil and two will be drilled at locations approved by the investors, within the three petroleum prospecting licences in Papua New Guinea held solely by InterOil. Forty prospective structures have been identified by InterOil within these licences and the well locations will be chosen from 22 leads over independent structures.

If the exploration program discovers oil or gas in commercial quantities, the investors have the right to participate pro-rata in the development of the fields discovered.

Each investor may convert its indirect working interest percentage into InterOil common shares at any time after June 15, 2006 and before the later of December 15, 2006 and 90 days after the completion of the eighth well, at a conversion price of US$37.50 per common share. The Toronto Stock Exchange was notified on February 4, 2005 of the proposed transaction. InterOil's common shares closed at C$42.49 (US$34.03) on that day. In the event that investors choose to convert all of the indirect participation interest into common shares, this would result in InterOil issuing 3,333,333 common shares during the second half of 2006. Of the US$125 million proposed investment, US$33 million, backed by convertible securities for 877,420 shares, is subject to receiving a waiver from the Australian Stock Exchange (ASX).

The Minister for Petroleum and Energy of Papua New Guinea, The Honourable Sir Moi Avei, said, "Papua New Guinea, with all of our vast resources, welcomes the investment by InterOil in the largest exploration program in Papua New Guinea history. This investment enhances the downstream and petrochemical industry potential and confirms that our fiscal policy reforms have made Papua New Guinea globally competitive."

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