Papua New Guinea Endorses InterOil's LNG Project

InterOil Corp.

InterOil Corp. on Wednesday provided an update on its efforts to commercialize the previously announced Elk natural gas and condensate discovery in Papua New Guinea.

In a recent statement, the Government of Papua New Guinea endorsed InterOil's liquefied natural gas (LNG) project proposal and recommended to proceed to the next phase - finalizing a project agreement, which will establish the framework for developing the regulatory, licensing and fiscal requirements for the project.

"We are excited to have received support from the Government. It is apparent that they recognize how advanced our LNG project is and the benefits of utilizing existing infrastructure," said InterOil Chairman and CEO Phil Mulacek. "We share the Government's belief that their actions are an important step for the country in becoming a world-scale LNG producer."

InterOil has completed the preliminary engineering and evaluation design work, and an evaluation of potential contractors for the project. The LNG facility is planned to be built adjacent to the company's refinery where operational synergies can be achieved. The current project design consists of a liquefaction plant with capacity up to 9 million tons per year of LNG from two processing trains, condensate and gas liquid processing, handling and storage facilities, and a 36-inch natural gas pipeline from supply sources. First supply of LNG is targeted to commence by 2012.

The project will be led by Liquid Niugini Gas, a group of LNG experts brought together by the project partners - InterOil, Merrill Lynch Global Commodities (Europe) and Pacific LNG. Total investment required is expected to be approximately US$4 to 6 billion. "We have made significant progress since kicking off our LNG initiative, which I attribute to the hard work of our people and running activities in parallel," said Mulacek.

The company is presently drilling a delineation well, Elk-2, about 2.9 miles north-west from the discovery well in a down-dip position, along with acquiring about 100-kilometers of high-quality 2D seismic. "This additional well and seismic data will provide valuable information to better understand the natural gas resource potential in the Elk structure, which is targeted to underpin the development of the proposed LNG project. The next location, Antelope, is already being prepared to advance the Exploration and appraisal process," said Mulacek.

The Elk-2 well had been drilled to a vertical depth of about 5,379 feet (1,640 meters) with drilling operations resuming after tripping for a new drill bit and conditioning the wellbore. Drilling progress has slowed over the last couple of weeks as it was necessary to increase the drilling mud weight to 14 pounds per gallon and to spend considerable drilling time maintaining the wellbore largely due to the swelling and sloughing of the shale. "The drop in drilling productivity is common, and safety will continue to be our focus as we approach the target zone. We expect to be in the target zone with-in 15 days, " Mulacek concluded.

InterOil Corp. is developing a vertically integrated energy company whose primary focus is Papua New Guinea and the surrounding region. InterOil's asset comprise of exploration petroleum licenses covering about 9 million acres, a 36,500 barrel per day capacity oil refinery, and retail and commercial distribution assets servicing 67% of the domestic market. During 2006, the company made a significant gas and condensate discovery, revamped and optimized its refinery, and more than doubled its downstream market presence. In addition, it initiated early stage development activity on a liquefied natural gas project.