InterOil Announces First Quarter 2011 Financial and Operating Results

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SINGAPORE and HOUSTON, May 11, 2011 /CNW/ -- InterOil Corporation (NYSE: IOC) (POMSoX:IOC) today announced financial and operating results for the first quarter ended March 31, 2011.

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    First Quarter 2011 Highlights and Recent Developments

    --  On February 2, 2011, we signed a Project Funding and Construction
        Agreement and Shareholder Agreement with Energy World Corporation
        Limited setting the framework parameters in respect of the
development,
        construction, financing and operation of a planned 3 million tonne per
        annum (mtpa) land based modular LNG plant in the Gulf Province of
Papua
        New Guinea.
    --  On March 22, 2011, InterOil announced the details of the independent
        engineering evaluation prepared by GLJ Petroleum Consultants Ltd.,
        which evaluated the contingent resources at Elk and Antelope fields in
        Papua New Guinea effective as at December 31, 2010.  The 2010 GLJ
        Petroleum Consultants report provides for a best case estimate of
gross
        contingent resources of 8.59 trillion cubic feet of natural gas and
        128.9 million barrels of condensate.
    --  On March 23, 2011 we signed a non-binding memorandum with EWC to
        negotiate taking an ownership interest and establish an associated
        downstream gas sale, purchase, transmission and distribution services
        company.  EWC has a permit to construct a LNG hub terminal and a 300
        Megawatt combined cycle gas turbine power plant located in the
        Philippines.
    --  InterOil recorded a consolidated net profit for the quarter ended
March
        31, 2011 of $0.7 million.  The operating segments of Corporate,
        Midstream Refining and Downstream collectively derived a net profit
for
        the quarter of $21.2 million, while the development segments of
        Upstream and Midstream Liquefaction had a net loss of $20.5 million.
    --  Subsequent to the quarter end, on April 11, 2011, InterOil together
        with Pac LNG executed initial framework agreements with Samsung Heavy
        Industries and FLEX LNG Inc., conditional upon FLEX LNG shareholder
        approval and final investment decision (FID), relating to the
        construction and operation of a proposed 2 mtpa floating LNG
processing
        vessel. Since the announcement, Flex LNG shareholders have approved
the
        transaction.


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InterOil Chief Executive Officer Phil Mulacek commented, "In the first quarter, our operating businesses of refining, distribution and corporate generated the best profit in our history, delivering EBITDA of $40.6 million and net profit of $21.2 million. We continued prioritizing our exploration prospect inventory by acquiring $7.3 million of additional seismic data which was expensed in the current quarter. Management believes the preliminary results of the seismic data demonstrate high prospectivity for our acreage position, with 3 to 4 additional reef prospects. The Elk and Antelope fields are most important to us and our experienced management team is focused on delivering LNG results. We continue to work diligently with our LNG partners and look forward to completing a positive FID."

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    Corporate Financial Results
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InterOil recorded a net profit for the quarter ended March 31, 2011 of $0.7 million, compared with a net loss of $3.1 million for the same period in 2010, an improvement of $3.8 million. The operating segments of Corporate, Midstream Refining and Downstream collectively returned a net profit for the quarter of $21.2 million. The development segments of Upstream and Midstream Liquefaction yielded a net loss of $20.5 million for an aggregate net profit of $0.7 million. This movement was mainly due to an improvement in gross margins achieved by our Refining and Downstream segments and higher foreign exchange gains compared to the same period of 2010 resulting from better rates achieved from banks on conversion of the PGK sales revenue into USD for repayment of our crude purchase working capital facility. These increases were partly offset by exploratory seismic costs expensed in relation to PPL 236, and an increase in future income tax expense relating to the Refinery as the tax holiday period ended on December 31, 2010.

InterOil's earnings before interest, taxes, depreciation and amortization ("EBITDA") for the quarter ended March 31, 2011 was a gain of $18.1 million, compared with a gain of $4.9 million in 2010, an increase of $13.2 million. Total revenue increased by $64.9 million from $178.8 million in 2010 to $243.7 million for the first quarter ended March 31, 2011.

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    Business Segment Results
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Upstream - The PPL 236 exploratory seismic acquisition program, which included seismic comprising 70 kilometers, with 6 dip lines which transect the Whale, Tuna, Barracuda, Wahoo, Mako and Shark leads, was completed during the first quarter of 2011. The results are currently being evaluated.

On March 22, 2011, we completed and submitted to the Department of Petroleum and Energy in Papua New Guinea an integrated development schedule in relation to the condensate stripping and associated facilities, the gas gathering and common facilities.

During the quarter, further engineering and planning work was undertaken to design the condensate facilities, and appropriate supporting infrastructure, including a jetty and loading facilities together with pipelines for both gas and condensate.

InterOil's Upstream business realized a net loss of $17.9 million in the first quarter of 2011 compared with a net loss of $6.2 million in the comparable period a year ago. The increase in the loss in 2011 was mainly due to a $7.3 million increase in exploration costs from seismic activity, $2.0 million increase in office and administration and other expenses mainly due to the newly created construction department, and $2.3 million in higher intercompany interest charges compared with the same period in 2010.

Midstream Refining - Total refinery throughput for the quarter ended March 31, 2011 was 27,643 barrels per operating day, compared with 25,971 barrels per operating day during the quarter ended March 31, 2010. Capacity utilization for the 2011 quarter, based on 36,500 barrels per day operating capacity, was 58% compared with 54% in 2010.

The Company's Midstream Refining operations generated a net profit of $14.9 million in the first quarter of 2011 versus a loss of $0.1 million in the prior year. The $15.0 million positive variance is largely due to improved diesel crack spreads, increased naphtha premium, better crude mix yielding increased distillates, and increased foreign exchange and inventory gains. The positive contributions were partially offset by a $7.1 million increase in income tax expense due to the increase in profits for the quarter and the expiry, on December 31, 2010, of the tax holiday awarded to the refinery under the Refinery Project Agreement.

Midstream Liquefaction - InterOil advanced the process of monetizing its natural gas resources by signing a conditional Project Funding and Construction Agreement and Shareholder Agreement with EWC setting the framework parameters in respect of the development, construction, financing and operation of the planned 3 MTPA land based modular LNG plant in the Gulf Province of Papua New Guinea. Following this agreement, on March 23, 2011 we signed a non-binding memorandum with EWC to negotiate taking an ownership interest and establish an associated downstream gas sale, purchase, transmission and distribution services company. EWC has a permit to construct a LNG Hub Terminal and a 300 Megawatt combined cycle gas turbine power plant located in the Philippines.

On April 11, 2011, InterOil together with Pac LNG executed framework agreements with Samsung Heavy Industries and FLEX LNG, conditional upon FLEX LNG shareholder approval and final FID, relating to the construction and operation of a 2 MTPA floating liquefied natural gas processing vessel. Further definitive agreements are contemplated for negotiation. The project is intended to integrate with and augment proposed infrastructure to liquefy natural gas from the onshore Elk and Antelope gas fields in the Gulf Province of Papua New Guinea pursuant to arrangements with EWC and Mitsui. Commencement of the floating LNG vessel's operations is targeted for mid 2014. Since the announcement, Flex LNG shareholders have approved the transaction.

The Company's Midstream Liquefaction business generated a loss of $2.6 million in the first quarter of 2011 compared with a loss of $0.9 million in the same period a year ago. The negative variance resulted from an increase in office, administration and other expenses for the quarter due to increased activity and higher management expenses.

Downstream - Total Downstream sales volumes for the quarter ended March 31, 2011 were 164.6 million liters, compared with 144.0 million liters in 2010. Volume growth in Papua New Guinea is mainly due to increased construction activity since the latter half of 2010 associated with an Exxon Mobil led LNG project, and strong mining related volumes relating to new mines and expansions of capacity being undertaken in the country.

InterOil's Downstream operations generated a profit of $4.5 million in the first quarter of 2011, an increase of $3.8 million versus a profit of $0.7 million in the same period a year ago. Higher volumes and prices were partially offset by increased office and administration and other expenses mainly relating to higher staff salary costs, higher recharges from Corporate, and higher lease and utility costs on relocation to new office premises in Port Moresby, Papua New Guinea.

Corporate - The Corporate segment generated a net profit of $3.5 million in the quarter ended March 31, 2011, compared to a net profit of $3.5 million for the same period in 2010. Reduced interest expenses and income taxes were offset by increased sales and office administration due to a strengthening of the AUD against the USD compared with the prior periods and the inclusion of the new InterOil Shipping entity in this stream.

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    Summary of Consolidated Quarterly Financial Results for Past Eight
Quarters

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    <<
      Quarters ended           2011
       ($ thousands
     except per share
           data)           Mar-31
     ----------------      ------
      Upstream                  668
      Midstream -
       Refining             217,743
      Midstream -
       Liquefaction               0
      Downstream            157,709
      Corporate              18,659
      Consolidation
       entries             (151,124)
    Total revenues          243,655
    ---------------         -------
      Upstream              (10,957)
      Midstream -
       Refining              26,632
      Midstream -
       Liquefaction          (2,375)
      Downstream              8,744
      Corporate               5,223
      Consolidation
       entries               (9,200)
    EBITDA (1)               18,067
    ----------               ------
      Upstream              (17,949)
      Midstream -
       Refining              14,894
      Midstream -
       Liquefaction          (2,604)
      Downstream              4,491
      Corporate               3,463
      Consolidation
       entries               (1,596)
      -------------          ------
    Net profit/(loss)           699
    -----------------           ---
    Net profit/(loss)
     per share
     (dollars)
    -----------------
      Per Share - Basic        0.01
      Per Share -
       Diluted                 0.01
      -----------              ----



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    <<
      Quarters ended                                              2010
       ($ thousands
     except per share
           data)           Dec-31      Sep-30      Jun-30     Mar-31
     ----------------      ------      ------      ------     ------
      Upstream                  245         714       1,349        998
      Midstream -
       Refining             158,092     173,379     194,016    152,093
      Midstream -
       Liquefaction               0           0           0          0
      Downstream            143,364     133,508     119,300    109,687
      Corporate              15,213      18,295      11,321     12,093
      Consolidation
       entries             (122,545)   (117,437)   (100,637)   (96,052)
    Total revenues          194,369     208,459     225,349    178,819
    --------------          -------     -------     -------    -------
      Upstream              (41,681)    (11,753)     (3,498)    (1,964)
      Midstream -
       Refining              13,780      15,785      16,962      4,402
      Midstream -
       Liquefaction          (1,959)     (4,588)         (3)      (563)
      Downstream              4,709       1,674       7,060      4,492
      Corporate               4,566      (4,510)      1,751      4,402
      Consolidation
       entries               (7,005)     (5,229)     (7,384)    (5,910)
    EBITDA (1)              (27,590)     (8,621)     14,888      4,859
    ----------              -------      ------      ------      -----
      Upstream              (47,845)    (16,585)     (7,943)    (6,182)
      Midstream -
       Refining               8,531      11,998      12,056        (74)
      Midstream -
       Liquefaction          (2,114)     (4,970)       (360)      (911)
      Downstream              2,642        (325)      3,719        671
      Corporate               3,381      (5,398)      1,796      3,544
      Consolidation
       entries                 (403)        908      (1,438)      (191)
      -------------            ----         ---      ------       ----
    Net profit/(loss)       (35,808)    (14,372)      7,830     (3,143)
    -----------------       -------     -------       -----     ------
    Net profit/(loss)
     per share
     (dollars)
    -----------------
      Per Share - Basic       (0.78)      (0.33)       0.18      (0.07)
      Per Share -
       Diluted                (0.78)      (0.33)       0.17      (0.07)
      -----------             -----       -----        ----      -----



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    <<
      Quarters ended                                2009
       ($ thousands
     except per share
           data)          Dec-31     Sep-30     Jun-30
     ----------------     ------     ------     ------
      Upstream               1,027      1,011        660
      Midstream -
       Refining            173,438    141,295    114,347
      Midstream -
       Liquefaction              0          1          2
      Downstream           118,270    107,712     85,472
      Corporate             10,539     10,087      8,640
      Consolidation
       entries             (93,971)   (86,509)   (60,625)
    Total revenues         209,303    173,597    148,496
    --------------         -------    -------    -------
      Upstream                 574    (29,097)      (669)
      Midstream -
       Refining              8,492      8,199     14,134
      Midstream -
       Liquefaction         (1,200)    (2,119)    (1,379)
      Downstream             4,391      6,542      4,150
      Corporate              1,765      1,980      1,897
      Consolidation
       entries              (4,884)    (4,092)      (278)
    EBITDA (1)               9,138    (18,587)    17,855
    ----------               -----    -------     ------
      Upstream              (3,626)   (31,392)    (2,382)
      Midstream -
       Refining             18,070      3,762      9,624
      Midstream -
       Liquefaction         (1,591)    (2,481)    (1,765)
      Downstream             2,371      3,440      1,742
      Corporate              3,036      1,602       (677)
      Consolidation
       entries               1,047       (237)     2,894
      -------------          -----       ----      -----
    Net profit/(loss)       19,307    (25,306)     9,436
    -----------------       ------    -------      -----
    Net profit/(loss)
     per share
     (dollars)
    -----------------
      Per Share - Basic       0.45      (0.60)      0.25
      Per Share -
       Diluted                0.43      (0.60)      0.24
      -----------             ----      -----       ----
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    (1) EBITDA is a non-GAAP measure, please refer to "Non-GAAP EBITDA
    Reconciliation" in this press release.



    Balance Sheet and Liquidity
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InterOil closed the first quarter of 2011 with cash, cash equivalents and cash restricted totalling $274.5 million (March 2010 - $75.8 million), of which $42.2 million is restricted (March 2010 - $34.6 million). We also had aggregate working capital facilities of $270.6 million, with $62.7 million available for use in our Midstream Refining operations, and $41.7 million available for use in our Downstream operations.

During the quarter ended March 31, 2011 our debt-to-capital ratio (being debt/[shareholders' equity + debt]) was 13% (11% as at March 31, 2010) which is well below our targeted maximum gearing level of 50%. This increase in gearing was mainly due to the 2.75% convertible senior notes issued in November of 2010.

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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 March 31, 2011.

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                                                     Balance
    Organization                   Facility        outstanding
    ------------                   --------          -----------
                                                 March 31, 2011
                                                 --------------
    OPIC secured loan               $44,500,000      $44,500,000
    BNP Paribas working
     capital facility           $220,000,000 (2)  $49,246,851 (1)
    Westpac PGK working
     capital facility               $31,160,000       $8,925,599
    BSP PGK working capital
     facility                       $19,475,000               $0
    2.75% convertible notes         $70,000,000      $70,000,000
    Mitsui unsecured loan (3)        $7,884,065       $7,884,065
    -------------------------        ----------       ----------



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                                Effective
                                interest
    Organization                   rate      Maturity date
    ------------                ---------    -------------
    OPIC secured loan                6.83%     December 2015
    BNP Paribas working
     capital facility                3.34%      January 2012
    Westpac PGK working
     capital facility                9.50%      October 2011
    BSP PGK working capital
     facility                        9.20%      October 2011
    2.75% convertible notes      7.91%(4)      November 2015
    Mitsui unsecured loan (3)        6.20%  See detail below
    -------------------------        ----   ----------------


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        Excludes letters of credit totaling $108.0 million, which reduce the
    (1) available balance of the facility to $62.7 million at March 31, 2011.
        The facility was been increased by $30.0 million during the quarter
    (2) ended March 31, 2011 from $190.0 million to $220.0 million.
        Facility is to fund our share of the CS Project costs as they are
    (3) incurred pursuant to the JVOA.
        Effective rate after bifurcating the equity and debt components of the
        principal amount $70 million 2.75% convertible senior notes issued on
    (4) November 10, 2010.





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

    <<
                                                 Quarter ended
                                                 -------------
                                          March 31,       March 31,
                                                  2011            2010
                                                     $               $
                                                   ---             ---
    >>

    <<
    Revenue
      Sales and operating revenues         242,450,889     177,450,435
      Interest                                 229,773          41,549
      Other                                    973,816       1,326,542
                                           243,654,478     178,818,526
                                           -----------     -----------
    >>

    <<
      Changes in inventories of finished
       goods and work in progress           52,651,183      15,460,073
      Raw materials and consumables used  (255,675,611)   (174,060,411)
      Administrative and general expenses  (15,485,158)     (8,725,137)
      Derivative gains/(losses)                172,259        (946,350)
      Legal and professional fees           (1,691,845)     (1,768,512)
      Exploration costs, excluding
       exploration impairment (note 8)      (7,334,952)         (5,276)
      Finance costs                         (3,945,098)     (2,122,051)
      Depreciation and amortization         (4,618,739)     (3,384,778)
      Foreign exchange gains/(losses)        2,822,310      (3,078,626)
                                          (233,105,651)   (178,631,068)
                                          ------------    ------------
    Profit before income taxes              10,548,827         187,458
    >>

    <<
    Income taxes
      Current expense                       (2,437,731)     (1,979,606)
      Future expense                        (7,412,568)     (1,351,270)
      --------------
                                            (9,850,299)     (3,330,876)
                                            ----------      ----------
    >>

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    Profit/(loss) for the period               698,528      (3,143,418)
    ----------------------------               -------      ----------
    >>

    <<
    Profit/(loss) is attributable to:
    Owners of InterOil Corporation             695,549      (3,143,403)
    Non-controlling interest                     2,979             (15)
                                               698,528      (3,143,418)
                                               -------      ----------
    >>

    <<
    Basic profit/(loss) per share                 0.01           (0.07)
    Diluted profit/(loss) per share               0.01           (0.07)
    Weighted average number of common
     shares outstanding
     Basic (Expressed in number of common
      shares)                               47,861,441      43,582,965
     Diluted (Expressed in number of
      common shares)                        48,855,771      43,582,965
     -------------------------------        ----------      ----------
    >>

    <<
    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
                                                    -----
                                                                 December
                                                  March 31,         31,
                                                         2011          2010
                                                            $             $
                                                          ---           ---
    >>

    <<
     Assets
     Current assets:
         Cash and cash equivalents                232,368,439   233,576,821
         Cash restricted                           35,451,370    40,664,995
         Trade receivables                         54,934,757    48,047,496
         Other assets                                 720,502       505,059
         Inventories (note 7)                     179,788,543   127,137,360
         Prepaid expenses                           3,585,127     3,593,574
     Total current assets                         506,848,738   453,525,305
     --------------------                         -----------   -----------
     Non-current assets:
         Cash restricted                            6,723,477     6,613,074
         Goodwill                                   6,626,317     6,626,317
         Plant and equipment                      224,772,732   225,205,427
         Oil and gas properties (note 8)          281,652,302   255,294,738
         Deferred tax assets                        6,869,822    14,098,128
     Total non-current assets                     526,644,650   507,837,684
     Total assets                               1,033,493,388   961,362,989
     ------------                               -------------   -----------
     Liabilities and shareholders'
      equity
     Current liabilities:
         Accounts payable and accrued
          liabilities                             129,670,237    76,087,954
         Derivative contracts (note 6)                136,791       178,578
         Working capital facilities (note 9)       58,172,450    51,254,326
         Current portion of secured and
          unsecured loans (note 11)                16,884,065    14,456,757
         Current portion of Indirect
          participation interest (note 12)            540,002       540,002
     Total current liabilities                    205,403,545   142,517,617
     -------------------------                    -----------   -----------
     Non-current liabilities:
         Secured loan (note 11)                    34,869,208    34,813,222
         2.75% convertible notes liability
          (note 14)                                53,210,706    52,425,489
         Deferred gain on contributions to
          LNG project                               8,612,751     8,949,857
         Indirect participation interest
          (note 12)                                34,134,387    34,134,387
     Total non-current liabilities                130,827,052   130,322,955
     -----------------------------                -----------   -----------
     Total liabilities                            336,230,597   272,840,572
     -----------------                            -----------   -----------
     Equity:
     Equity attributable to owners of
      InterOil Corporation:
         Share capital (note 13)                  898,641,290   895,651,052
             Authorized - unlimited
             Issued and outstanding -47,920,552
             (Dec 31, 2010 -47,800,552)
             (Mar 31, 2010 -43,705,654)
         2.75% convertible notes (note 14)         14,298,036    14,298,036
         Contributed surplus                       19,430,690    16,738,417
         Accumulated Other Comprehensive
          Income                                   11,620,512     9,261,177
         Conversion options (note 12)              12,150,880    12,150,880
         Accumulated deficit                     (258,901,695) (259,597,244)
     Total equity attributable to owners
      of InterOil Corporation                     697,239,713   688,502,318
     Non-controlling interest                          23,078        20,099
     ------------------------                          ------        ------
     Total equity                                 697,262,791   688,522,417
     Total liabilities and equity               1,033,493,388   961,362,989
     ----------------------------               -------------   -----------



    >>

    <<
                                                   As at
                                                   -----
                                                March 31,     January 1,
                                                        2010          2010
                                                           $             $
                                                         ---           ---
    >>

    <<
     Assets
     Current assets:
         Cash and cash equivalents                41,227,706    46,449,819
         Cash restricted                          28,000,507    22,698,829
         Trade receivables                        73,230,376    61,194,136
         Other assets                                640,262       639,646
         Inventories (note 7)                     85,587,122    70,127,049
         Prepaid expenses                          2,918,532     6,964,950
     Total current assets                        231,604,505   208,074,429
     --------------------                        -----------   -----------
     Non-current assets:
         Cash restricted                           6,614,444     6,609,746
         Goodwill                                  6,626,317     6,626,317
         Plant and equipment                     218,010,927   218,794,649
         Oil and gas properties (note 8)         194,671,330   172,483,562
         Deferred tax assets                      15,694,630    16,912,969
     Total non-current assets                    441,617,648   421,427,243
     Total assets                                673,222,153   629,501,672
     ------------                                -----------   -----------
     Liabilities and shareholders' equity
     Current liabilities:
         Accounts payable and accrued
          liabilities                            100,911,605    59,372,354
         Derivative contracts (note 6)               534,000             -
         Working capital facilities (note 9)      25,164,539    24,626,419
         Current portion of secured and
          unsecured loans (note 11)                9,000,000     9,000,000
         Current portion of Indirect
          participation interest (note 12)           540,002       540,002
     Total current liabilities                   136,150,146    93,538,775
     -------------------------                   -----------    ----------
     Non-current liabilities:
         Secured loan (note 11)                   43,645,264    43,589,278
         2.75% convertible notes liability
          (note 14)                                        -             -
         Deferred gain on contributions to
          LNG project                             10,284,772    10,824,212
         Indirect participation interest
          (note 12)                               39,640,622    39,559,718
     Total non-current liabilities                93,570,658    93,973,208
     -----------------------------                ----------    ----------
     Total liabilities                           229,720,804   187,511,983
     -----------------                           -----------   -----------
     Equity:
     Equity attributable to owners of
      InterOil Corporation:
         Share capital (note 13)                 619,565,842   613,361,363
             Authorized - unlimited
             Issued and outstanding -47,920,552
             (Dec 31, 2010 -47,800,552)
             (Mar 31, 2010 -43,705,654)
         2.75% convertible notes (note 14)                 -             -
         Contributed surplus                      20,639,744    21,297,177
         Accumulated Other Comprehensive
          Income                                   7,259,007     8,150,976
         Conversion options (note 12)             13,270,880    13,270,880
         Accumulated deficit                    (217,247,706) (214,104,303)
     Total equity attributable to owners
      of InterOil Corporation                    443,487,767   441,976,093
     Non-controlling interest                         13,582        13,596
     ------------------------                         ------        ------
     Total equity                                443,501,349   441,989,689
     Total liabilities and equity                673,222,153   629,501,672
     ----------------------------                -----------   -----------
    >>

    <<
    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
                                                    -------------
                                              March 31,      March 31,
                                                     2011           2010
                                                        $              $
                                                       --             --
    >>

Cash flows provided by (used in):

    <<
    Operating activities
        Net profit/(loss)                         698,528     (3,143,418)
        Adjustments for non-cash and non-
         operating transactions
          Depreciation and amortization         4,618,739      3,384,778
          Deferred tax assets                   7,228,306      1,218,339
          Accretion of convertible notes/
           debentures liability                   785,217              -
          Amortization of deferred financing
           costs                                   55,986         55,986
          Timing difference between
           derivatives recognized
             and settled                          (41,787)       534,000
          Stock compensation expense,
           including restricted stock           3,768,511      1,465,630
          Inventory revaluation                         -         27,517
          Oil and gas properties expensed       7,334,952          5,276
          Unrealized foreign exchange gain      1,134,814        (50,284)
        Change in operating working capital
          Increase in trade receivables        (5,580,997)   (36,652,056)
          (Increase)/decrease in other assets
           and prepaid expenses                  (206,996)     4,045,802
          Increase in inventories             (49,768,359)   (16,171,989)
          Increase in accounts payable and
           accrued liabilities                 51,846,250     49,320,104
          --------------------------------
        Net cash from operating activities     21,873,164      4,039,685
        ----------------------------------     ----------      ---------
    >>

    <<
    Investing activities
        Expenditure on oil and gas
         properties                           (34,505,232)   (29,370,236)
        Proceeds from IPI cash calls                    -     14,199,331
        Expenditure on plant and equipment,
         net of disposals                      (4,523,150)    (3,140,496)
        Proceeds received on sale of
         exploration assets                             -     13,903,682
        Decrease/(increase) in restricted
         cash held as security on
           borrowings                           5,103,222     (5,306,376)
        Change in non-operating working
         capital
          Decrease in accounts payable and
           accrued liabilities                 (2,843,126)    (5,167,239)
          --------------------------------
        Net cash used in investing
         activities                           (36,768,286)   (14,881,334)
        --------------------------            -----------    -----------
    >>

    <<
    Financing activities
        Proceeds from Mitsui for Condensate
         Stripping Plant                        4,854,616              -
        Proceeds from Petromin for Elk and
         Antelope field development                     -      1,000,000
        Proceeds from/(repayments of)
         working capital facility               6,918,124        538,120
        Proceeds from issue of common
         shares/conversion of debt,
           net of transaction costs             1,914,000      4,081,416
      Net cash from financing activities       13,686,740      5,619,536
      ----------------------------------       ----------      ---------
    >>

    <<
    Increase/(decrease) in cash and
     cash equivalents                          (1,208,382)    (5,222,113)
    Cash and cash equivalents,
     beginning of period                      233,576,821     46,449,819
    Cash and cash equivalents, end of
     period                                   232,368,439     41,227,706
    ---------------------------------         -----------     ----------
    Comprising of:
    Cash on Deposit                            83,278,689     41,227,706
    Term Deposits                             149,089,750              -
    -------------                             -----------            ---
    Total cash and cash equivalents,
     end of period                            232,368,439     41,227,706
    ================================          ===========     ==========
    >>

    <<
    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 analyze operating performance. EBITDA does not have a standardized meaning prescribed by United States or Canadian generally accepted accounting principles 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 measure, to EBITDA, a non-GAAP measure for each of the last eight quarters.

    <<


    >>

    <<
         Quarters ended           2011
         ($ thousands)        Mar-31
         -------------        ------
      Upstream                 (10,957)
      Midstream - Refining      26,632
      Midstream -
       Liquefaction             (2,375)
      Downstream                 8,744
      Corporate                  5,223
      Consolidation Entries     (9,200)
    Earnings before
     interest, taxes,
     depreciation and
     amortization               18,067
    -----------------           ------
    Subtract:
    ---------
      Upstream                  (6,352)
      Midstream - Refining      (1,675)
      Midstream -
       Liquefaction               (223)
      Downstream                  (826)
      Corporate                 (1,395)
      Consolidation Entries      7,572
      Interest expense          (2,899)
      ----------------          ------
      Upstream                       -
      Midstream - Refining      (7,298)
      Midstream -
       Liquefaction                  -
      Downstream                (2,623)
      Corporate                     71
      Consolidation Entries          -
      Income taxes              (9,850)
      ------------              ------
      Upstream                    (641)
      Midstream - Refining      (2,765)
      Midstream -
       Liquefaction                 (6)
      Downstream                  (804)
      Corporate                   (435)
      Consolidation Entries         32
      Depreciation and
       amortisation             (4,619)
      ----------------          ------
      Upstream                 (17,949)
      Midstream - Refining      14,894
      Midstream -
       Liquefaction             (2,604)
      Downstream                 4,491
      Corporate                  3,463
      Consolidation Entries     (1,596)
      ---------------------     ------
    Net profit/(loss)
     per segment                   699
    -----------------              ---



    >>

    <<
         Quarters ended                                          2010
         ($ thousands)        Dec-31     Sep-30     Jun-30    Mar-31
         -------------        ------     ------     ------    ------
      Upstream                 (41,681)   (11,753)   (3,498)   (1,964)
      Midstream - Refining      13,780     15,785    16,962     4,402
      Midstream -
       Liquefaction             (1,959)    (4,588)       (3)     (563)
      Downstream                 4,709      1,674     7,060     4,492
      Corporate                  4,566     (4,510)    1,751     4,402
      Consolidation Entries     (7,005)    (5,229)   (7,384)   (5,910)
    Earnings before
     interest, taxes,
     depreciation and
     amortization              (27,590)    (8,621)   14,888     4,859
    -----------------          -------     ------    ------     -----
    Subtract:
    ---------
      Upstream                  (5,481)    (4,600)   (4,367)   (4,080)
      Midstream - Refining      (1,509)    (1,693)   (1,651)   (1,731)
      Midstream -
       Liquefaction               (184)      (376)     (351)     (342)
      Downstream                  (835)      (938)   (1,167)     (800)
      Corporate                 (1,158)      (342)      (20)      (20)
      Consolidation Entries      6,571      6,107     5,916     5,687
      Interest expense          (2,596)    (1,842)   (1,640)   (1,286)
      ----------------          ------     ------    ------    ------
      Upstream                       -          -         -         -
      Midstream - Refining      (1,040)       101      (366)     (173)
      Midstream -
       Liquefaction                 36          -         -         -
      Downstream                  (495)      (322)   (1,524)   (2,361)
      Corporate                    (11)      (529)       97      (797)
      Consolidation Entries         (2)        (2)       (2)        -
      Income taxes              (1,512)      (752)   (1,795)   (3,331)
      ------------              ------       ----    ------    ------
      Upstream                    (683)      (232)      (78)     (138)
      Midstream - Refining      (2,700)    (2,195)   (2,888)   (2,572)
      Midstream -
       Liquefaction                 (7)        (6)       (6)       (6)
      Downstream                  (737)      (739)     (651)     (660)
      Corporate                    (16)       (17)      (32)      (41)
      Consolidation Entries         33         32        32        32
      Depreciation and
       amortisation             (4,110)    (3,157)   (3,623)   (3,385)
      ----------------          ------     ------    ------    ------
      Upstream                 (47,845)   (16,585)   (7,943)   (6,182)
      Midstream - Refining       8,531     11,998    12,056       (74)
      Midstream -
       Liquefaction             (2,114)    (4,970)     (360)     (911)
      Downstream                 2,642       (325)    3,718       671
      Corporate                  3,381     (5,398)    1,796     3,544
      Consolidation Entries       (403)       908    (1,437)     (191)
      ---------------------       ----        ---    ------      ----
    Net profit/(loss)
     per segment               (35,808)   (14,372)    7,830    (3,143)
    -----------------          -------    -------     -----    ------



    >>

    <<
         Quarters ended                               2009
         ($ thousands)        Dec-31    Sep-30     Jun-30
         -------------        ------    ------     ------
      Upstream                    574    (29,097)     (669)
      Midstream - Refining      8,492      8,199    14,134
      Midstream -
       Liquefaction            (1,200)    (2,119)   (1,379)
      Downstream                4,391      6,542     4,150
      Corporate                 1,765      1,980     1,897
      Consolidation Entries    (4,884)    (4,092)     (278)
    Earnings before
     interest, taxes,
     depreciation and
     amortization               9,138    (18,587)   17,855
    -----------------           -----    -------    ------
    Subtract:
    ---------
      Upstream                 (4,056)    (2,164)   (1,563)
      Midstream - Refining     (1,973)    (1,682)   (1,709)
      Midstream -
       Liquefaction              (379)      (348)     (333)
      Downstream                 (930)    (1,045)   (1,013)
      Corporate                   (27)         -    (1,600)
      Consolidation Entries     5,905      3,823     3,141
      Interest expense         (1,460)    (1,416)   (3,077)
      ----------------         ------     ------    ------
      Upstream                      -          -         -
      Midstream - Refining     14,316          -         -
      Midstream -
       Liquefaction                (8)        (3)      (32)
      Downstream                 (411)    (1,398)     (733)
      Corporate                 1,340       (339)     (800)
      Consolidation Entries        (3)        (1)       (2)
      Income taxes             15,234     (1,741)   (1,567)
      ------------             ------     ------    ------
      Upstream                   (144)      (132)     (150)
      Midstream - Refining     (2,765)    (2,755)   (2,801)
      Midstream -
       Liquefaction                (7)       (10)      (20)
      Downstream                 (679)      (658)     (662)
      Corporate                   (43)       (40)     (174)
      Consolidation Entries        33         33        32
      Depreciation and
       amortisation            (3,605)    (3,562)   (3,775)
      ----------------         ------     ------    ------
      Upstream                 (3,626)   (31,392)   (2,382)
      Midstream - Refining     18,071      3,762     9,624
      Midstream -
       Liquefaction            (1,593)    (2,481)   (1,764)
      Downstream                2,371      3,440     1,742
      Corporate                 3,034      1,601      (677)
      Consolidation Entries     1,050       (236)    2,893
      ---------------------     -----       ----     -----
    Net profit/(loss)
     per segment               19,307    (25,306)    9,436
    -----------------          ------    -------     -----



    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 further seismic-related exploration activities, the potential execution of definitive agreements with Energy World Corporation, FLEX LNG and/or Mitsui & Co. Ltd in relation to the proposed LNG, condensate stripping and downstream sale, transmission and distribution projects, respectively, progress to and achievement of Final Investment Decisions in such projects, the construction and development of the proposed LNG plant 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. Statements relating to 'resources' are forward looking, as they involve the applied assessment, based on certain estimates and assumptions, that the resources described exist in the quantities estimated. These statements are based on certain assumptions made by the Company based on its experience and perception of current conditions, expected future developments and other factors it believes are appropriate in the circumstances. 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.

    <<

    Oil and Gas Disclosure

    >>

Contingent resources are those quantities of natural gas and condensate estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. The economic status of the resources is undetermined and there is no certainty that it will be commercially viable to produce any portion of the resources. The following contingencies must be met before the resources can be classified as reserves: (i) sanctioning of the facilities required to process and transport marketable natural gas to market, (ii) confirmation of a market for the marketable natural gas and condensate, and (iii) determination of economic viability.

The "best" estimate is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. With the probabilistic methods used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.

The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves. We include in this press release resource estimates other than proved reserves, that the SEC's guidelines strictly prohibit us from including in filings with the SEC.

    <<



    >>

SOURCE InterOil Corporation

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

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