InterOil Signs Option Deals Covering Elk Gas Discovery, LNG Project

InterOil Corp. has signed option agreements with a strategic industry partner and a financial investor covering a combined 7.5% participation interest in the Elk gas discovery and 5% participation interest in a proposed liquefied natural gas ("LNG") project, all located in Papua New Guinea.

Entry into final agreements is contingent upon confirmation of the Elk gas reservoir through successful drilling and testing of the Elk-2 well that is currently being drilled.

Under the option agreements, the companies have agreed to deposit funds totaling US$57.5 million into escrow accounts as a sign of good faith to secure the right to negotiate definitive agreements for the interest in Elk, the LNG project and LNG supply.

"We have a preliminary understanding with both parties, including terms, and the next step is to negotiate definitive agreements," InterOil Chairman and CEO Phil Mulacek said. "We expect to conclude the negotiations and have final agreements documenting the terms and conditions over the next several months."

The industry partner, who has extensive LNG experience, has agreed to deposit US$42.5 million, in escrow, for the option to purchase a 5% interest in Elk, a 5% interest in the LNG project and rights to a portion of the LNG supply. Clarion Finanz A.G., a Swiss investment firm, has agreed to advance US$15.0 million for the option to acquire a 2.5% interest in Elk. In the event that final agreements are not signed, the deposited and escrowed funds will be refunded.

InterOil Corp. 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 9 million acres, an oil refinery, and retail and commercial distribution facilities, all located in Papua New Guinea. During 2006, the company announced a gas and condensate discovery, completed an optimization program at the refinery, and doubled the downstream business by acquiring Shell's distribution assets in Papua New Guinea. In addition, InterOil initiated development activity related to a liquefied natural gas (LNG) project.