InterOil Announces Third Quarter 2011 Financial and Operating Results

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PORT MORESBY, Papua New Guinea and HOUSTON, Nov. 14, 2011 /CNW/ -- InterOil Corporation (NYSE: IOC) (POMSoX: IOC) today announced financial and operating results for the third quarter ended September 30, 2011.

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    Third Quarter 2011 Highlights and Recent Developments

    --  InterOil recorded a consolidated net loss for the quarter ended
        September 30, 2011 of $19.8 million.  The operating segments of
        Corporate, Midstream Refining and Downstream collectively derived a
net
        loss for the quarter of $0.7 million, while the development segments
of
        Upstream and Midstream Liquefaction had a collective net loss of $19.1
        million.
    --  At the end of the quarter, we retained Morgan Stanley & Co. LLC,
        Macquarie Capital (USA) Inc. and UBS AG as joint financial advisors to
        assist us with soliciting and evaluating proposals from potential
        strategic partners.  We anticipate that these proposals will relate to
        obtaining an internationally recognized LNG operating partner for
        development of the Gulf LNG Project's gas liquefaction and associated
        facilities in the Gulf Province of Papua New Guinea, together with a
        sale of an interest in the Elk and Antelope fields, and in our other
        exploration tenements in Papua New Guinea.
    --  Civil works on the road between the Purari river wharf and the
        Elk/Antelope fields continued during the year through the third
        quarter, with the connection to Antelope-2 completed towards the end
of
        the quarter.  Work now involves cleaning up, grading, strengthening
        bridges and surfacing of the road.
    --  Subsequent to the quarter end, a further phase of 50 kilometers of
        exploration seismic is currently underway to further delineate 
        identified leads in PPLs [236 and 238], which will assist us in
        locating our next well in these license areas which we are required to
        drill before the end of March 2013 in compliance with our license
        commitments.


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InterOil Chief Executive Officer Phil Mulacek commented, "We are pleased to be working with internationally-recognized advisors to seek proposals from potential strategic partners. While we look forward to a prompt conclusion to this process and to our discussions with the PNG Government concerning the Gulf LNG Project, we continue to pre-invest in our Gulf LNG Project and the civil works and the front-end engineering and design . We believe that the considerable strengthening of the Asian LNG market, the increased interest in exploration and investment in Papua New Guinea, as well as the Company's reservoir analysis and project design fundamentals, will yield a successful result from the partnering process. We continue to negotiate LNG offtake agreements and are working with a number of parties with this aim."

"We look forward to spudding the Triceratops 2 well and expect to do so towards the end of this fourth quarter. The phase three seismic program has improved our structural model of the prospect and increased our optimism for a successful confirmation with the drill bit. In addition, our exploration activities are maturing our prospect inventory."

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    Corporate Financial Results

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The net loss for the quarter ended September 30, 2011 was $19.8 million compared with a net loss of $14.4 million for the same quarter of 2010, an increase in the loss of $5.4 million. The results for the quarter ended September 30, 2011 were affected by lower gross margins of $13.4 million due to lower crack spreads on our export products during the quarter and inventory write downs due to a fall in crude and product prices at the end of the third quarter of 2011, expensed seismic costs were higher by $5.5 million compared with the prior year quarter, and the recognition of a loss on Flex LNG investment of $6.0 million due to fall in its quoted share price.

InterOil's earnings before interest, taxes, depreciation and amortization ("EBITDA") for the quarter ended September 30, 2011 was a loss of $11.5 million, compared with a loss of $8.6 million for the same period in 2010, an increase in the loss of $2.9 million. Total revenue increased by $73.4 million from $208.5 million in 2010 to $281.9 million for the third quarter ended September 30, 2011.

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    Business Segment Results

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Upstream - Construction on the road between the Purari river wharf and the Elk and Antelope fields continued through the third quarter of 2011, with the connection to the Antelope-2 well completed towards the end of the quarter. Work now involves cleaning up, grading, strengthening bridges and surfacing of the road. During the third quarter of 2011, areas between the lay down area and the barge wharf near the Purari river were reclaimed and compacted. The construction team commenced raising the lay down area, and the extension for the wharf in addition to civil works in the surrounding areas.

We contracted airborne magnetic, gravity and gamma ray prospecting over PPL236, PPL237 and PPL238. Five acquisition blocks were acquired for a total of 14,288.6 line kilometers of airborne data. A new airborne methane particulate detection tool was trialed over PPL238. Data processing of this airborne data is currently being undertaken.

Subsequent to the third quarter of 2011, a further phase of 50 kilometers of exploration seismic was ordered and is currently under way to further delineate identified leads, which will assist us in locating potential drilling locations in PPLs 236 and 238. We are required to drill a well on these licenses before the end of March 2013 in compliance with our license commitments.

InterOil's Upstream business realized a net loss of $15.1 million in the third quarter of 2011, compared with a net loss of $16.6 million in the comparable period a year ago. The positive variance was mainly due to the exclusion of an $8.8 million loss on extinguishment of IPI liability which was recorded in the comparable quarter of 2010 and a reduction in office and administration expenses in the current quarter. The improvements were largely offset by higher exploration costs for seismic activity and higher interest expense due to an increase in inter-company loan balances.

Midstream Refining - Total refinery throughput for the quarter ended September 30, 2011, was 23,797 barrels per operating day, compared with 23,496 barrels per operating day during quarter ended June 30, 2011 and 27,515 barrels per operating day during quarter ended September 30, 2010. Capacity utilization of the refinery for the quarter, based on 36,500 barrels per day operating capacity, was 56% compared with 63% in same quarter of 2010. The capacity utilization of the refinery in the same quarter of 2010 was maximized to stockpile products in anticipation of an extended maintenance shutdown toward the end of the quarter.

The Company's Midstream Refining operations generated a net loss of $1.2 million in the third quarter of 2011 versus a profit of $12.0 million in the prior year. The $13.2 million negative variance is largely due to decreased crack spreads over export products and a refined products write down of $3.4 million due to price decreases at the end of September 2011.

Midstream Liquefaction - On August 3, 2011, InterOil completed another milestone in the development of its Gulf LNG Project, signing a Heads of Agreement with Noble Clean Fuels Limited, a wholly owned subsidiary of Noble Group Limited, for the supply of one mtpa of LNG from the Gulf LNG Project for a ten year period. Definitive, binding agreements are currently being negotiated.

At the end of the quarter, InterOil retained Morgan Stanley & Co. LLC, Macquarie Capital (USA) Inc. and UBS AG as joint financial advisors to assist us with soliciting and evaluating proposals from potential strategic partners. We anticipate that these proposals will relate to obtaining an internationally recognized LNG operating partner for development of the Gulf LNG Project's gas liquefaction and associated facilities in the Gulf Province of Papua New Guinea, together with a sale of an interest in the Elk and Antelope fields, and in our other exploration tenements in Papua New Guinea.

The Company's Midstream Liquefaction business generated a loss of $4.0 million in the third quarter of 2011 compared with a loss of $5.0 million in the same period a year ago. The positive variance resulted from a decrease in office, administration and other expenses for the quarter.

Downstream - Total Downstream sales volumes for the quarter ended September 30, 2011, were 162.5 million liters, compared with 163.2 million liters for the quarter ended June 30, 2011 and 166.6 million liters for the quarter ended September 30, 2010. The volume of sales for this quarter was down compared with the same quarter of 2010 due to temporary mine closures for two of our mining customers during the third quarter of 2011. However, the Papua New Guinea economy continued to remain generally buoyant over this period, driven mainly by the resource sector with the various oil, natural gas and mining projects that are being pursued in various parts of the country, together with a general flow on increase in business activity.

InterOil's Downstream operations generated a profit of $1.1 million in the third quarter of 2011, an improvement of $1.4 million versus a loss of $0.3 million in the same period a year ago. Improved gross margins during the 2011 quarter were partially offset by increased office and administration and other expenses.

Corporate - The Corporate segment generated a net loss of $0.5 million in the quarter ended September 30, 2011 compared to a net loss of $5.4 million for the same period in 2010. Significant items in the two quarters were a $6.0 million loss recognized on the FLEX LNG investment in 2011 compared with a $12.0 million loss on litigation expense in 2010.

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    Summary of Consolidated Quarterly Financial Results for Past Eight
Quarters

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The following is a table containing the consolidated results for the eight quarters ended September 30, 2011 by business segment, and on a consolidated basis. Our IFRS transition date was January 1, 2010. The 2010 comparative information has been stated in accordance with IFRS while 2009 comparative information has not been restated and was prepared in accordance with Canadian GAAP in operation during that year.

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     Quarters ended
       ($ thousands
        except per
       share data)                                  2011                      
2010      2009
                      --------------
    >>

    <<
                        Sep-30      Jun-30      Mar-31      Dec-31    Sep-30  
Jun-30    Mar-31    Dec-31
                        ------      ------      ------      ------    ------  
------    ------    ------
      Upstream             2,645       4,638         668         245       714
1,349       998     1,027
      Midstream -
       Refining          231,455     262,111     217,743     158,092   173,379
194,016   152,093   173,438
      Midstream -
       Liquefaction            -           -           -           -         -
-         -         -
      Downstream         186,304     191,431     157,709     143,364   133,508
119,300   109,687   118,270
      Corporate           25,078      26,548      18,659      15,213    18,295
11,321    12,093    10,539
      Consolidation
       entries          (163,584)   (180,945)   (151,125)   (122,545)
(117,437) (100,637)  (96,052)  (93,971)
    Total revenues       281,898     303,783     243,654     194,369   208,459
225,349   178,819   209,303
    --------------       -------     -------     -------     -------   -------
-------   -------   -------
      Upstream            (6,169)        593     (10,957)    (41,681) 
(11,753)   (3,498)   (1,964)      574
      Midstream -
       Refining            3,461      27,967      26,632      13,780    15,785
16,962     4,402     8,492
      Midstream -
       Liquefaction       (3,602)     (4,035)     (2,375)     (1,959)  
(4,588)       (3)     (563)   (1,200)
      Downstream           3,570       5,777       8,744       4,709     1,674
7,060     4,492     4,391
      Corporate            1,548      13,940       5,223       4,566   
(4,510)    1,751     4,402     1,765
      Consolidation
       entries           (10,263)     (5,270)     (9,201)     (7,005)  
(5,229)   (7,384)   (5,910)   (4,884)
    EBITDA (1)           (11,455)     38,972      18,066     (27,590)  
(8,621)   14,888     4,859     9,138
    ---------------      -------      ------      ------     -------    ------
------     -----     -----
      Upstream           (15,080)     (6,703)    (17,949)    (47,845) 
(16,585)   (7,943)   (6,182)   (3,626)
      Midstream -
       Refining           (1,201)     17,314      14,894       8,531    11,998
12,056       (74)   18,070
      Midstream -
       Liquefaction       (3,980)     (4,309)     (2,604)     (2,114)  
(4,970)     (360)     (911)   (1,591)
      Downstream           1,146       2,306       4,491       2,642     
(325)    3,719       671     2,371
      Corporate             (473)     11,275       3,463       3,381   
(5,398)    1,796     3,544     3,036
      Consolidation
       entries              (190)      3,657      (1,597)       (403)      908
(1,435)     (193)    1,047
    Net
     (loss)/profit       (19,778)     23,540         698     (35,808) 
(14,372)    7,833    (3,145)   19,307
    --------------       -------      ------         ---     -------   -------
-----    ------    ------
    Net
     (loss)/profit
     per
     share
     (dollars)
    --------------
      Per Share -
       Basic               (0.41)       0.49        0.01       (0.78)   
(0.33)     0.18     (0.07)     0.45
      Per Share -
       Diluted             (0.41)       0.48        0.01       (0.78)   
(0.33)     0.17     (0.07)     0.43
      -----------          -----        ----        ----       -----     -----
----     -----      ----
    (1) EBITDA is a non-GAAP measure and is reconciled to IFRS
     in the section to this document entitled "Non-GAAP Measures
     and Reconciliation".



    Balance Sheet and Liquidity

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InterOil closed the third quarter of 2011 with cash, cash equivalents, and cash restricted of $144.4 million (September 2010 - $66.8 million), of which $30.1 million (September 2010 - $30.7 million) was restricted. In addition, we also had $11.3 million equivalent of PGK in short term treasury bills issued by the Bank of Papua New Guinea. We also had aggregate working capital facilities of $288.0 million, with $112.3 million available for use in our Midstream Refining operations, and $34.8 million available for use in Downstream operations.

As at September 30, 2011, our debt-to-capital ratio (being debt/[shareholders' equity + debt]) was 12.7% (10.0% as at September 30, 2010), well below our targeted maximum gearing level of 50%. The increase in gearing from 2010 was mainly due to the 2.75% convertible senior notes due 2015 issued in November of last year.

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    Summary of Debt Facilities
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Summarized below are the debt facilities available to us and the balances outstanding as at September 30, 2011.

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                                                     Balance
                                                   outstanding     Effective
                                                  September 30,    interest
    Organization                   Facility             2011          rate    
Maturity date
    ------------                   --------      --------------    ---------  
-------------
    OPIC
     secured
     loan                           $40,000,000      $40,000,000        6.89% 
December 2015
    --------                        -----------      -----------        ----  
-------------
    BNP
     Paribas
     working
     capital
     facility                   $230,000,000 (2)  $24,819,608 (1)       3.35% 
January 2012
    ---------                   ---------------   --------------        ----  
------------
     Westpac
     PGK
     working
     capital
     facility                       $35,720,000      $19,290,041        9.50% 
October 2011
     --------                       -----------      -----------        ----  
------------
    BSP
     PGK
     working
     capital
     facility                       $22,325,000       $3,975,600        9.31% 
August 2012
    ---------                       -----------       ----------        ----  
-----------
      2.75%
     convertible
     notes                          $70,000,000      $70,000,000    7.91%(4)  
November 2015
     -----------                    -----------      -----------    --------  
-------------
     Mitsui
     unsecured
     loan
     (3)                            $10,393,023      $10,393,023        6.20%
See detail below
     ---------                      -----------      -----------        ---- 
----------------
       (1) Excludes letters of credit totaling $92.9 million, which
        reduce the available balance of the facility to $112.3
        million at September 30, 2011.
       ------------------------------------------------------------
       (2) The facility was increased by $30.0 million during the
        quarter ended March 31, 2011 from $190.0 million to $220.0
        million, and was then increased by a further $10.0 million
        during the quarter ended June 30, 2011 to $230.0 million.
       -----------------------------------------------------------
       (3) Facility is to fund our share of the CS Project costs as
        they are incurred pursuant to the JVOA.
       ------------------------------------------------------------
       (4) Effective rate after bifurcating the equity and debt
        components of the $70 million principal amount of 2.75%
        convertible senior notes due 2015.
       --------------------------------------------------------




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    InterOil Corporation
    Consolidated Income Statements
    (Unaudited, Expressed in United States dollars)
    >>

    <<
                                                           Quarter ended      
Nine months ended
                                                           -------------      
-----------------
    >>

    <<
                                                     September       September
September       September
                                                         30,             30,  
30,             30,
                                                            2011           
2010          2011            2010
                                                               $              
$             $               $
                                                              --             
--            --              --
    >>

    <<
    Revenue
      Sales and operating revenues                   278,499,694    
207,476,650   819,484,250     608,695,372
      Interest                                           368,768         
29,701       952,421         105,367
      Other                                            3,029,088        
951,830     8,898,772       3,825,249
                                                     281,897,550    
208,458,181   829,335,443     612,625,988
                                                     -----------    
-----------   -----------     -----------
    >>

    <<
      Changes in inventories of
       finished goods and work in
       progress                                      (31,631,324)    
38,523,557    43,859,762      50,736,222
      Raw materials and consumables
       used                                         (238,480,416)  
(224,232,024) (787,256,505)   (586,476,636)
      Administrative and general
       expenses                                      (11,809,956)    
(9,923,150)  (33,119,377)    (27,524,377)
      Derivative gains/(losses)                        1,914,207        
541,728     1,498,275        (139,619)
      Legal and professional fees                     (1,538,559)    
(1,919,554)   (4,498,526)     (5,518,876)
      Exploration costs, excluding
       exploration impairment (note
       9)                                             (6,568,147)    
(1,058,762)  (16,636,215)     (3,372,325)
      Finance costs                                   (4,448,608)    
(3,111,294)  (13,185,060)     (7,769,610)
      Depreciation and amortization                   (5,168,473)    
(3,156,596)  (13,980,789)    (10,164,707)
      Gain on sale of oil and gas
       properties                                              -      
2,140,783             -       2,140,783
      Loss on extinguishment of IPI
       liability                                               -     
(8,795,059)            -      (8,795,059)
      Litigation settlement expense                            -    
(12,000,000)            -     (12,000,000)
      Loss on Flex LNG investment
       (note 10)                                      (6,048,537)             
-    (1,834,279)              -
      Foreign exchange gains/
       (losses)                                        1,918,158        
911,406    17,696,737      (7,549,927)
                                                    (301,861,655)  
(222,078,965) (807,455,977)   (616,434,131)
                                                    ------------   
------------  ------------    ------------
    (Loss)/profit before income
     taxes                                           (19,964,105)   
(13,620,784)   21,879,466      (3,808,143)
    >>

    <<
    Income taxes
      Current expense                                   (116,517)        
60,338    (4,488,623)     (3,155,988)
      Future expense                                     302,687       
(809,935)  (12,930,404)     (2,716,948)
      --------------
                                                         186,170       
(749,597)  (17,419,027)     (5,872,936)
                                                         -------       
--------   -----------      ----------
    >>

    <<
    (Loss)/profit for the period                     (19,777,935)   
(14,370,381)    4,460,439      (9,681,079)
    ----------------------------                     -----------    
-----------     ---------      ----------
    >>

    <<
    (Loss)/profit is attributable to:
    Owners of InterOil
     Corporation                                     (19,777,694)   
(14,372,780)    4,454,238      (9,685,874)
    Non-controlling interest                                (241)         
2,399         6,201           4,795
                                                     (19,777,935)   
(14,370,381)    4,460,439      (9,681,079)
                                                     -----------    
-----------     ---------      ----------
    >>

    <<
    Basic (loss)/profit per share                          (0.41)         
(0.33)         0.09           (0.22)
    Diluted (loss)/profit per
     share                                                 (0.41)         
(0.33)         0.09           (0.22)
    Weighted average number of common shares
     outstanding
     Basic (Expressed in number of
      common shares)                                  47,993,229     
43,963,555    47,936,721      43,764,733
     Diluted (Expressed in number
      of common shares)                               47,993,229     
43,963,555    48,857,182      43,764,733
     ----------------------------                     ----------     
----------    ----------      ----------
    >>

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    See accompanying notes to the condensed consolidated interim financial
     statements




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    <<
    InterOil Corporation
    Consolidated Balance Sheets
    (Unaudited, Expressed in United States dollars)
    >>

As at

    <<
                                                     September     December   
September
                                                         30,          31,     
30,
                                                            2011          2010
2010
                                                               $             $
$
                                                             ---           ---
---
    >>

    <<
      Assets
      Current assets:
          Cash and cash
           equivalents                               114,330,510   233,576,821
36,066,119
          Cash restricted                             23,543,921    40,664,995
24,266,163
          Short term
           treasury bills
           (note 6)                                   11,324,929             -
-
          Trade receivables                          105,377,991    48,047,496
54,035,914
          Derivative
           contracts
           receivables
           (note 7)                                      413,093             -
321,995
          Other assets                                   755,309       505,059
598,066
          Inventories (note
           8)                                        170,997,122   127,137,360
120,863,271
          Prepaid expenses                             2,361,925     3,593,574
1,253,048
      Total current
       assets                                        429,104,800   453,525,305
237,404,576
      -------------                                  -----------   -----------
-----------
      Non-current assets:
          Cash restricted                              6,530,817     6,613,074
6,457,867
          Goodwill                                     6,626,317     6,626,317
6,626,317
          Plant and
           equipment                                 237,330,322   225,205,427
219,143,322
          Oil and gas
           properties (note
           9)                                        330,346,730   255,294,738
241,773,361
          Deferred tax
           assets                                        742,379    14,098,128
14,779,583
          Investments (note
           10)                                         5,644,478             -
-
      Total non-
       current assets                                587,221,043   507,837,684
488,780,450
      Total assets                                 1,016,325,843   961,362,989
726,185,026
      ------------                                 -------------   -----------
-----------
      Liabilities and
       shareholders' equity
      Current liabilities:
          Accounts payable
           and accrued
           liabilities                                94,840,696    76,087,954
90,553,035
          Derivative
           contracts (note
           7)                                            318,736       178,578
66,090
          Working capital
           facilities (note
           11)                                        48,085,248    51,254,326
50,903,936
          Unsecured loan
           and current
           portion of
           secured loan
           (note 13)                                  19,393,023    14,456,757
36,060,624
          Current portion
           of Indirect
           participation
           interest (note
           14)                                           540,002       540,002
540,002
      Total current
       liabilities                                   163,177,705   142,517,617
178,123,687
      -------------                                  -----------   -----------
-----------
      Non-current liabilities:
          Secured loan
           (note 13)                                  30,481,180    34,813,222
39,257,236
          2.75% convertible
           notes liability
           (note 17)                                  54,816,599    52,425,489
-
          Deferred gain on
           contributions to
           LNG project                                 7,263,210     8,949,857
9,506,363
          Indirect
           participation
           interest (note
           14)                                        34,134,387    34,134,387
38,070,650
          Asset retirement
           obligations
           (note 15)                                   4,289,444             -
-
      Total non-
       current
       liabilities                                   130,984,820   130,322,955
86,834,249
      ------------                                   -----------   -----------
----------
      Total liabilities                              294,162,525   272,840,572
264,957,936
      -----------------                              -----------   -----------
-----------
      Equity:
      Equity attributable to
       owners of InterOil
       Corporation:
          Share capital
           (note 16)                                 902,114,261   895,651,052
639,066,307
              Authorized -unlimited
              Issued and outstanding -
               48,000,131
              (Dec 31, 2010 -47,800,552)
              (Sep 30, 2010 -44,100,535)
          2.75% convertible
           notes (note 17)                            14,298,036    14,298,036
-
          Contributed
           surplus                                    24,552,456    16,738,417
24,368,797
          Accumulated Other
           Comprehensive
           Income                                     24,164,391     9,261,177
8,612,891
          Conversion
           options (note
           14)                                        12,150,880    12,150,880
12,950,880
          Accumulated
           deficit                                  (255,143,006)
(259,597,244) (223,790,177)
      Total equity
       attributable to
       owners of
       InterOil
       Corporation                                   722,137,018   688,502,318
461,208,698
      Non-controlling
       interest                                           26,300        20,099
18,392
      ---------------                                     ------        ------
------
      Total equity                                   722,163,318   688,522,417
461,227,090
      Total liabilities
       and equity                                  1,016,325,843   961,362,989
726,185,026
      -----------------                            -------------   -----------
-----------
    See accompanying notes to the condensed
     consolidated interim financial statements




    >>

    <<
    InterOil Corporation
    Consolidated Statement of Cash Flows
    (Unaudited, Expressed in United States dollars)
    >>

    <<
                                                          Quarter ended       
Nine months ended
                                                          -------------       
-----------------
                                                     September      September 
September      September
                                                         30,            30,   
30,            30,
                                                            2011          
2010          2011           2010
                                                               $             
$             $              $
                                                              --            
--            --             --
    >>

Cash flows provided by (used in):

    <<
    Operating activities
        Net (loss)/profit                            (19,777,935)  
(14,370,381)    4,460,439     (9,681,079)
        Adjustments for non-cash and non-
         operating transactions
          Depreciation and amortization                5,168,473     
3,156,596    13,980,789     10,164,707
          Deferred tax assets                            (66,555)      
393,247    13,355,749      2,133,386
          Gain on sale of exploration
           assets                                              -    
(2,140,783)            -     (2,140,783)
          Accretion of convertible notes
           liability                                     808,915             
-     2,391,110              -
          Amortization of deferred
           financing costs                                55,986       
389,320       167,958        501,292
          Timing difference between derivatives
           recognized
             and settled                                 (89,857)       
90,791      (272,935)      (255,905)
          Stock compensation expense,
           including restricted stock                  4,029,821     
3,433,536    11,728,248      8,436,548
          Movement in net realizable
           value write down                           (3,255,318)      
(27,517)    3,417,882              -
          Accretion of asset retirement
           obligation liability                           79,678             
-        79,678              -
          Oil and gas properties
           expensed                                    6,568,147     
1,058,762    16,636,215      3,372,325
          Loss on extinguishment of IPI
           Liability                                           -     
8,795,059             -      8,795,059
          Non-cash litigation
           settlement expense                                  -    
12,000,000             -     12,000,000
          Loss on Flex LNG investment                  6,048,537             
-     1,834,279              -
          Unrealized foreign exchange
           (gain)/loss                                (3,763,825)   
(1,108,707)   (1,847,242)       959,476
        Change in operating working capital
          (Increase)/decrease in trade
           receivables                                 4,515,067    
27,044,253   (35,290,574)   (15,163,495)
          Decrease in other assets and
           prepaid expenses                              637,017     
1,598,128       981,399      5,753,482
          Decrease/(increase) in
           inventories                                35,072,018   
(35,585,073)  (37,484,446)   (50,316,870)
          Increase in accounts payable
           and accrued liabilities                    13,422,313     
7,611,475    23,754,298     12,237,391
          ----------------------------
        Net cash from/(used in)
         operating activities                         49,452,482    
12,338,706    17,892,847    (13,204,466)
        -----------------------                       ----------    
----------    ----------    -----------
    >>

    <<
    Investing activities
        Expenditure on oil and gas
         properties                                  (35,025,246)  
(27,461,204)  (98,420,370)   (88,959,186)
        Proceeds from IPI cash calls                      91,138       
367,521        91,138     15,538,441
        Expenditure on plant and
         equipment, net of disposals                 (10,442,871)   
(6,339,716)  (23,691,596)   (11,831,229)
        Proceeds received on sale of
         exploration assets                                    -             
-             -     13,903,682
        Investment in short term
         treasury bills                              (11,324,929)            
-   (11,324,929)             -
        Acquisition of Flex LNG Ltd
         shares, including transaction
         costs                                                 -             
-    (7,478,756)             -
        Decrease/(increase) in restricted cash
         held as security on
           borrowings                                  6,453,266    
(5,144,171)   17,203,331     (1,415,455)
        Change in non-operating working capital
          Increase in trade receivables              (10,000,000)            
-   (10,000,000)             -
          (Decrease)/increase in
           accounts payable and accrued
           liabilities                                  (916,001)    
5,988,666   (10,763,171)    10,330,770
          ----------------------
        Net cash used in investing
         activities                                  (61,164,643)  
(32,588,904) (144,384,353)   (62,432,977)
        --------------------------                   -----------   
-----------  ------------    -----------
    >>

    <<
    Financing activities
        Repayments of OPIC secured
         loan                                                  -             
-    (4,500,000)    (4,500,000)
        Proceeds from Mitsui for
         Condensate Stripping Plant                      551,562     
3,217,582     9,872,532      6,454,582
        Proceeds from/(repayments of) Clarion
         Finanz secured loan,
           net of transaction costs                            -    
24,000,000             -     24,000,000
        Proceeds from PNG LNG cash
         call                                                  -             
-             -        866,600
        Proceeds from Petromin for Elk
         and Antelope field
         development                                           -       
500,000             -      3,500,000
        (Repayments of)/proceeds from
         working capital facility                    (45,633,592)   
(6,728,746)   (3,169,078)    26,277,517
        Proceeds from issue of common shares/
         conversion of debt,
           net of transaction costs                      192,550     
3,662,229     2,549,000      8,655,044
      Net cash from financing
       activities                                    (44,889,480)   
24,651,065     4,752,454     65,253,743
      -----------------------                        -----------    
----------     ---------     ----------
    >>

    <<
    (Decrease)/increase in cash
     and cash equivalents                            (56,601,641)    
4,400,867  (121,739,052)   (10,383,700)
    Cash and cash equivalents,
     beginning of period                             168,439,410    
31,665,252   233,576,821     46,449,819
    Exchange gains/(losses) on
     cash and cash equivalents                         2,492,741             
-     2,492,741              -
    Cash and cash equivalents, end
     of period                                       114,330,510    
36,066,119   114,330,510     36,066,119
    ------------------------------                   -----------    
----------   -----------     ----------
    Comprising of:
    Cash on Deposit                                   23,684,485    
36,066,119    23,684,485     36,066,119
    Term Deposits                                     90,646,025             
-    90,646,025              -
    -------------                                     ----------           
---    ----------            ---
    Total cash and cash
     equivalents, end of period                      114,330,510    
36,066,119   114,330,510     36,066,119
    ===========================                      ===========    
==========   ===========     ==========
    >>

    <<
    See accompanying notes to the condensed consolidated interim financial
     statements







    NON-GAAP EBITDA Reconciliation

    >>

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 analyse operating performance. EBITDA does not have a standardized meaning prescribed by United States or Canadian GAAP 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 (i.e. IFRS) measure, to EBITDA, a non-GAAP measure for each of the last eight quarters.

    <<




    >>

    <<
           Quarters
             ended                        2011                                
2010      2009
              ($
          thousands)                    ----                              ----
----
          ----------
    >>

    <<
                     Sep-30   Jun-30   Mar-31   Dec-31   Sep-30   Jun-30   
Mar-31    Dec-31
                     ------   ------   ------   ------   ------   ------   
------    ------
      Upstream        (6,169)     593  (10,957) (41,681) (11,753)  (3,498)  
(1,964)      574
       Midstream
       -
       Refining        3,461   27,967   26,632   13,780   15,785   16,962    
4,402     8,492
       Midstream
       -
       Liquefaction   (3,602)  (4,035)  (2,375)  (1,959)  (4,588)      (3)    
(563)   (1,200)
      Downstream       3,570    5,777    8,744    4,709    1,674    7,060    
4,492     4,391
      Corporate        1,548   13,940    5,223    4,566   (4,510)   1,751    
4,402     1,765
       Consolidation
       Entries       (10,263)  (5,269)  (9,201)  (7,005)  (5,229)  (7,384)  
(5,910)   (4,884)
      -------------- -------   ------   ------   ------   ------   ------   
------    ------
     Earnings
     before
     interest,
     taxes,
     depreciation
     and
     amortization    (11,455)  38,973   18,066  (27,590)  (8,621)  14,888    
4,859     9,138
     --------------- -------   ------   ------  -------   ------   ------    
-----     -----
    Subtract:
    ---------
      Upstream        (7,806)  (7,142)  (6,352)  (5,481)  (4,600)  (4,367)  
(4,080)   (4,056)
       Midstream
       -
       Refining       (2,494)  (2,211)  (1,675)  (1,509)  (1,693)  (1,651)  
(1,731)   (1,973)
       Midstream
       -
       Liquefaction     (372)    (268)    (223)    (184)    (376)    (351)    
(342)     (379)
      Downstream      (1,233)  (1,116)    (826)    (835)    (938)  (1,167)    
(800)     (930)
      Corporate       (1,477)  (1,641)  (1,395)  (1,158)    (342)     (20)    
(20)      (27)
       Consolidation
       Entries        10,041    8,894    7,572    6,571    6,107    5,916    
5,687     5,905
       -------------  ------    -----    -----    -----    -----    -----    
-----     -----
       Interest
       expense        (3,341)  (3,484)  (2,899)  (2,596)  (1,842)  (1,640)  
(1,286)   (1,460)
      ---------       ------   ------   ------   ------   ------   ------   
------    ------
      Upstream             -        -        -        -        -        -     
-         -
       Midstream
       -
       Refining          678   (5,677)  (7,298)  (1,040)     101     (366)    
(173)   14,316
       Midstream
       -
       Liquefaction        0        -        -       36        -        -     
-        (8)
      Downstream        (297)  (1,449)  (2,623)    (495)    (322)  (1,524)  
(2,361)     (411)
      Corporate         (195)    (629)      71      (11)    (529)      97     
(797)    1,340
       Consolidation
       Entries             0        0        -       (2)      (2)      (2)    
-        (3)
       -------------     ---      ---      ---      ---      ---      ---     
---       ---
       Income
       taxes             186   (7,755)  (9,850)  (1,512)    (752)  (1,795)  
(3,331)   15,234
      -------            ---   ------   ------   ------     ----   ------   
------    ------
      Upstream        (1,105)    (154)    (641)    (683)    (232)     (78)    
(138)     (144)
       Midstream
       -
       Refining       (2,846)  (2,765)  (2,765)  (2,700)  (2,195)  (2,888)  
(2,572)   (2,765)
       Midstream
       -
       Liquefaction       (6)      (6)      (6)      (7)      (6)      (6)    
(6)       (7)
      Downstream        (894)    (906)    (804)    (737)    (739)    (651)    
(660)     (679)
      Corporate         (349)    (395)    (435)     (16)     (17)     (32)    
(41)      (43)
       Consolidation
       Entries            32       32       32       33       32       32     
32        33
       -------------     ---      ---      ---      ---      ---      ---     
---       ---
       Depreciation
       and
       amortisation   (5,168)  (4,194)  (4,619)  (4,110)  (3,157)  (3,623)  
(3,385)   (3,605)
      -------------   ------   ------   ------   ------   ------   ------   
------    ------
      Upstream       (15,080)  (6,703) (17,949) (47,845) (16,585)  (7,943)  
(6,182)   (3,626)
       Midstream
       -
       Refining       (1,201)  17,314   14,894    8,531   11,998   12,056     
(74)   18,071
       Midstream
       -
       Liquefaction   (3,980)  (4,309)  (2,604)  (2,114)  (4,970)    (360)    
(911)   (1,593)
      Downstream       1,146    2,306    4,491    2,642     (325)   3,718     
671     2,371
      Corporate         (473)  11,275    3,463    3,381   (5,398)   1,796    
3,544     3,034
       Consolidation
       Entries          (190)   3,657   (1,596)    (403)     908   (1,437)    
(191)    1,050
      --------------    ----    -----   ------     ----      ---   ------     
----     -----
     Net
     (loss)/profit
     per
     segment         (19,778)  23,540      699  (35,808) (14,372)   7,830   
(3,143)   19,307
    --------------   -------   ------      ---  -------  -------    -----   
------    ------





    About InterOil
    >>

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 in Papua New Guinea.

    <<

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


    >>

    <<
    INVESTOR CONTACTS FOR
     INTEROIL
    >>

    <<
    Wayne Andrews                  Meg Hunt LaSalle
    V. P. Capital Markets          Investor Relations Coordinator
    Wayne.Andrews@InterOil.com     Meg.LaSalle@InterOil.com
    The Woodlands, TX USA          The Woodlands, TX USA
    Phone: 281-292-1800            Phone: 281-292-1800



    Forward Looking Statements

    >>

This press release includes "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 soliciting and evaluating proposals from and transacting with potential LNG strategic partners, discussions with the PNG government, further seismic-related and other exploration activities, spudding of the Triceratops 2 well, the potential execution of definitive agreements with Noble Clean Fuels Ltd or other parties in relation to the proposed Gulf LNG Project and the condensate stripping, transmission and distribution projects, progress to and achievement of Final Investment Decisions in such projects, the construction and development of the proposed LNG plants and condensate stripping plant, anticipated financial conditions and performance, business prospects, strategies, regulatory developments, the ability to obtain financing on acceptable terms, and the ability to develop and monetize our resources and production through development and exploration activities. 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 on SEDAR, including but not limited to those in the Company's Annual Report for the year ended December 31, 2010 on Form 40-F and its Annual Information Form for the year ended December 31, 2010. 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.

    <<




    >>

SOURCE InterOil Corporation

For further information: Web Site: http://www.interoil.com

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