InterOil Announces Third Quarter Financial and Operating Results
</pre>
<p>CAIRNS, <span class="xn-location">Australia</span> and <span class="xn-location">HOUSTON</span>, <span class="xn-chron">Nov. 15, 2010</span> /CNW/ -- InterOil Corporation (NYSE: IOC) (POMSoX:IOC) today announced financial and operating results for the third quarter ended <span class="xn-chron">September 30, 2010</span>.</p>
<pre>
Third Quarter 2010 Highlights and Recent Developments
-- The Antelope 2 horizontal well confirmed a higher
condensate-to-natural
gas ratio of 24-27.7 barrels per million cubic feet of natural gas,
approximately 60% higher than observed at the top of the reservoir.
The horizontal well also demonstrated higher porosity deeper in the
reservoir than previously modeled.
-- On September 28, InterOil announced that InterOil and Liquid Niugini
Gas Ltd. had signed a binding Heads Of Agreement with Energy World
Corporation Ltd. (AX: EWC) to construct a two million tonne per annum
land-based LNG plant in the Gulf Province of Papua New Guinea.
-- Subsequent to the quarter, the first major maintenance turnaround at
the refinery since it was commissioned was completed on schedule with
no significant problems identified.
-- On November 10, 2010, InterOil completed public offerings of 2.8
million common shares at US$75 per share and US$70 million aggregate
principal amount of 2.75% Convertible Senior Notes due 2015. InterOil
has received total combined net proceeds from the offerings of
approximately $266 million, after deducting the underwriting
discounts,
commissions and estimated offering expenses.
</pre>
<p>InterOil Chief Executive Officer Phil Mulacek commented, "Our efforts to monetize our discovered resources have advanced significantly over the past several months. We are very pleased that we have been able to maintain our successful track record and continue to deliver on our commitments to our shareholders. Our delineation drilling results further demonstrate the value of our reservoir at Antelope 2, and the Heads of Agreement with Energy World Corporation, Ltd. is another step forward in our strategy to monetize our liquid resources at the Elk and Antelope fields. These achievements, combined with our strong balance sheet and the recently completed public offering, should support our continued growth and operational success."</p>
<pre>
Corporate Financial Results
</pre>
<p>InterOil recorded a net loss for the third quarter ended <span class="xn-chron">September 30, 2010</span> of <span class="xn-money">$14.4 million</span>, compared with a net loss of <span class="xn-money">$25.3 million</span> for the same period in 2009, a <span class="xn-money">$10.9 million</span> improvement compared to the equivalent quarter in the prior year. The improvement was primarily due to a smaller loss on extinguishment of indirect participating interest (IPI) liability which was partially offset by a <span class="xn-money">$12.0 million</span> settlement expense. Excluding this settlement, the Corporate, Midstream - Refining and Downstream operating segments collectively derived a net profit for the quarter of <span class="xn-money">$18.3 million</span>. Excluding the <span class="xn-money">$8.8 million</span> loss on extinguishment of IPI liability and <span class="xn-money">$2.1 million</span> gain on sale of oil and gas properties, the Upstream and Midstream Liquefaction development segments derived a net loss of <span class="xn-money">$14.9 million</span> primarily due to higher administrative expenses resulting from increased activity in the business segments. Excluding the non-operating expenses consolidated net earnings would have been a gain of <span class="xn-money">$4.3 million</span>.</p>
<p/>
<p>Inclusive of <span class="xn-money">$18.7 million</span> in non-operating expenses, InterOil's earnings before interest, taxes, depreciation and amortization ("EBITDA") for the quarter ended <span class="xn-chron">September 30, 2010</span> was a loss of <span class="xn-money">$8.6 million</span>, compared with a loss of <span class="xn-money">$18.6 million</span> in the same quarter of 2009, an improvement of <span class="xn-money">$10.0 million</span>. Total revenue increased by <span class="xn-money">$34.9 million</span> from <span class="xn-money">$173.6 million</span> in the quarter ended <span class="xn-chron">September 30, 2009</span> to <span class="xn-money">$208.5 million</span> in the quarter ended <span class="xn-chron">September 30, 2010</span>.</p>
<pre>
Business Segment Results
</pre>
<p>Upstream - During the third quarter of 2010, InterOil completed drilling and logging activities on the Antelope 2 well, having drilled a further horizontal section in order to test the condensate-to-natural gas ratio ("CGR") ratio in the deeper section of the reservoir. Drill Stem Test #7 produced a stabilized CGR of approximately 24.0 - 27.7 barrels of condensate per million cubic feet of natural gas. Subsequently, this well has been suspended as a producer pending start-up of the Condensate stripping/LNG project.</p>
<p/>
<p>Additionally, InterOil finalised the acquisition and processing of 40.8 km of 2D seismic over the Bwata gas field (petroleum prospecting licence (PPL) 237 with 20.8 km in 2 dip lines) and the Wolverine prospect (PPL 238 with 20 km in 2 dip lines). The seismic crew were released for 3 months while a review of the new seismic was conducted. Planning for resumption of seismic was completed late in the quarter and a resumption of seismic acquisition over Bwata and Wolverine is planned for the fourth quarter.</p>
<p/>
<p>During the quarter the Company signed a definitive Joint Venture Operating Agreement with Mitsui & Co., Ltd. in relation to the development and construction of a condensate stripping facility, and a heads of agreement with Energy World Corporation Ltd. to construct a two million tonnes per annum land based LNG plant in the Gulf Province of <span class="xn-location">Papua New Guinea</span>. Both agreements further the Company's efforts to monetize its discovered resources at the Elk and Antelope fields. The company has indicated its desire to reach final investment decisions on the condensate stripping plant by the end of <span class="xn-chron">March 2011</span> and on the LNG plant by the end of <span class="xn-chron">June 2011</span>.</p>
<p/>
<p>During the quarter, the Department of Petroleum and Energy in <span class="xn-location">Papua New Guinea</span> approved the divestment of our 15% non-operated interest in PPL 244. A gain of <span class="xn-money">$2.1 million</span> has been recognized during the quarter on conveyance accounting for the transaction.</p>
<p/>
<p>On <span class="xn-chron">July 19, 2010</span>, InterOil bought back a total of 0.4% of IPI interests held under the 2005 Amended and Restated Indirect Participation Agreement. In exchange for these interests, we issued 208,281 common shares which resulted in an <span class="xn-money">$8.8 million</span> non-operating expense.</p>
<p/>
<p>InterOil's Upstream business generated a net loss of <span class="xn-money">$16.6 million</span> in the third quarter of 2010 compared to a loss of <span class="xn-money">$31.4 million</span> in the comparable quarter a year ago. The narrowed loss was mainly due to reduced extinguishment of liability expenses resulting from IPI interest buybacks which was partially offset by higher office and administration expenses.</p>
<p/>
<p>Midstream Refining - Total refinery throughput for the quarter ended <span class="xn-chron">September 30, 2010</span> was 27,515 barrels per operating day, compared with 19,657 barrels per operating day for the same period of 2009. Capacity utilization for the quarter, based on 36,500 barrels per day operating capacity, was 63% compared with 50% in the same quarter of 2009.</p>
<p/>
<p>The refinery operating days were maximized to stockpile products in anticipation of the extended turnaround maintenance shutdown which commenced on <span class="xn-chron">September 29, 2010</span>.</p>
<p/>
<p>The Company's Midstream Refining operations generated a net profit of <span class="xn-money">$12.0 million</span> versus a profit of <span class="xn-money">$3.8 million</span> in the same quarter of the prior year. The <span class="xn-money">$8.2 million</span> positive variance is largely due to improved crack spreads and improved low sulphur waxy residual and Naphtha premiums, as well as an increase in foreign exchange gains caused by movements of the PNG Kina against the US Dollar.</p>
<p/>
<p>Midstream Liquefaction - InterOil advanced the process of monetizing its discovered natural gas resources with its first binding Heads of Agreement signed with Energy World Corporation to construct a two million tonnes per annum land based LNG plant in the Gulf Province of <span class="xn-location">Papua New Guinea</span>. In return for its commitment to fully fund the LNG plant, the HOA provides that Energy World Corporation Ltd. is to be entitled to a fee of 14.5% of the proceeds from the sale of LNG from the plant, less agreed deductions, and subject to adjustments based on timing and execution. The HOA sets out the major terms and conditions which the parties intend to include in the Train 1 Funding and Shareholder's Agreements, as well as a potential expansion of the plant's capacity. Definitive agreements are under negotiation with a view to being finalized by the end of <span class="xn-chron">December 2010</span>.</p>
<p/>
<p>The Company's Midstream Liquefaction business generated a loss of <span class="xn-money">$5.0 million</span> in the 2010 third quarter compared with a loss of <span class="xn-money">$2.5 million</span> in the same period a year ago. The variance is due to an increase in quarterly office, administration and other expenses due to higher management expenses and share compensation costs related to the LNG project development.</p>
<p/>
<p>Downstream - Total Downstream sales volumes for the third quarter 2010 were 166.6 million liters, compared with 154.9 million liters for the third quarter in 2009. During the quarter ended <span class="xn-chron">September 30, 2010</span>, InterOil finalized an agreement with Ramu Nickel Limited, and certain contractors for the PNG LNG project for an estimated volume of 70.0 million liters per annum. A new PNG Power Ltd. generation site in <span class="xn-location">Port Moresby</span> has also been signed up which is expected to contribute an additional 26.0 million litres per annum.</p>
<p/>
<p>InterOil's Downstream operations generated a net loss of <span class="xn-money">$0.3 million</span> in the 2010 third quarter, a reduction of <span class="xn-money">$3.1 million</span> versus a profit of <span class="xn-money">$3.4 million</span> in the third quarter of 2009. During the third quarter, the prices of the major products were in a declining trend leading to lower margins on inventories sold during the period.</p>
<p/>
<p>The Corporate segment generated a third quarter net loss of <span class="xn-money">$5.4 million</span> in 2010, compared to a gain of <span class="xn-money">$1.6 million</span> in the 2009 quarter, primarily caused by the <span class="xn-money">$12 million</span> litigation settlement expense which was partially offset by higher interest charges to other segments.</p>
<pre>
Summary of Consolidated Quarterly Financial Results for Past Eight
Quarters
</pre>
<p> </p>
<p> </p>
<pre>
Quarters ended 2010
($ thousands
except per share
data)
Sep-30 Jun-30 Mar-31
------ ------ ------
Upstream 714 1,349 998
Midstream -
Refining 173,379 194,016 152,093
Midstream -
Liquefaction 0 0 0
Downstream 133,508 119,300 109,687
Corporate 18,295 11,321 12,093
Consolidation
entries (117,437) (100,637) (96,052)
Total revenues 208,459 225,349 178,819
-------------- ------- ------- -------
Upstream (11,753) (3,498) (1,964)
Midstream -
Refining 15,785 16,962 4,402
Midstream -
Liquefaction (4,588) (3) (563)
Downstream 1,674 7,060 4,492
Corporate (4,510) 1,751 4,402
Consolidation
entries (5,229) (7,384) (5,910)
EBITDA (1) (8,621) 14,888 4,859
---------- ------ ------ -----
Upstream (16,585) (7,943) (6,182)
Midstream -
Refining 11,998 12,056 (74)
Midstream -
Liquefaction (4,970) (360) (911)
Downstream (325) 3,719 671
Corporate (5,398) 1,796 3,544
Consolidation
entries 908 (1,438) (191)
------------- --- ------ ----
Net profit/(loss) (14,372) 7,830 (3,143)
----------------- ------- ----- ------
Net profit/
(loss) per share
(dollars)
-----------------
Per Share - Basic (0.33) 0.18 (0.07)
Per Share -
Diluted (0.33) 0.17 (0.07)
----------- ----- ---- -----
</pre>
<p> </p>
<p> </p>
<pre>
Quarters ended 2009 2008
($ thousands
except per share
data)
Dec-31 Sep-30 Jun-30 Mar-31 Dec-31
------ ------ ------ ------ ------
Upstream 1,027 1,011 660 611 487
Midstream -
Refining 173,438 141,295 114,347 145,523 194,617
Midstream -
Liquefaction 0 1 2 4 23
Downstream 118,270 107,712 85,472 78,572 128,540
Corporate 10,539 10,087 8,640 7,753 9,591
Consolidation
entries (93,971) (86,509) (60,625) (70,801) (114,691)
Total revenues 209,303 173,597 148,496 161,662 218,567
-------------- ------- ------- ------- ------- -------
Upstream 574 (29,097) (669) (469) (2,483)
Midstream -
Refining 8,492 8,199 14,134 14,747 (13,976)
Midstream -
Liquefaction (1,200) (2,119) (1,379) (2,361) (2,501)
Downstream 4,391 6,542 4,150 3,241 (7,244)
Corporate 1,765 1,980 1,897 3,051 226
Consolidation
entries (4,884) (4,092) (278) (7,285) (2,865)
EBITDA (1) 9,138 (18,587) 17,855 10,924 (28,843)
---------- ----- ------- ------ ------ -------
Upstream (3,626) (31,392) (2,382) (2,133) (4,003)
Midstream -
Refining 18,070 3,762 9,624 10,350 (19,490)
Midstream -
Liquefaction (1,591) (2,481) (1,765) (2,552) (2,597)
Downstream 2,371 3,440 1,742 964 (5,901)
Corporate 3,036 1,602 (677) 349 (2,275)
Consolidation
entries 1,047 (237) 2,894 (4,332) 37
------------- ----- ---- ----- ------ ---
Net profit/(loss) 19,307 (25,306) 9,436 2,646 (34,229)
----------------- ------ ------- ----- ----- -------
Net profit/
(loss) per share
(dollars)
-----------------
Per Share - Basic 0.45 (0.60) 0.25 0.07 (0.96)
Per Share -
Diluted 0.43 (0.60) 0.24 0.07 (0.96)
----------- ---- ----- ---- ---- -----
</pre>
<p> </p>
<p> </p>
<pre>
(1) EBITDA is a non-GAAP measure, please note reconciliation below.
Balance Sheet and Liquidity
</pre>
<p>InterOil closed the third quarter of 2010 with cash, cash equivalents and cash restricted totalling <span class="xn-money">$66.8 million</span> as at <span class="xn-chron">September 30, 2010</span> (<span class="xn-chron">September 2009</span> - <span class="xn-money">$88.6 million</span>), of which <span class="xn-money">$30.7 million</span> is restricted (<span class="xn-chron">September 2009</span> - <span class="xn-money">$27.9 million</span>). We also had working capital facilities in the aggregate of <span class="xn-money">$238.8 million</span>, with <span class="xn-money">$111.5 million</span> available for use in our Midstream Refining operations, and <span class="xn-money">$44.0 million</span> available for use in our Downstream operations.</p>
<p/>
<p>Our debt-to-capital ratio (long term debt/(shareholders' equity + long term debt)) was reduced to 10% in <span class="xn-chron">September 2010</span> from 13% in <span class="xn-chron">September 2009</span>. This reduction in gearing was mainly due to principal payments of <span class="xn-money">$9.0 million</span> on the OPIC secured loan.</p>
<p/>
<p>Subsequent to the close of the third quarter, on <span class="xn-chron">November 10, 2010</span>, the Company closed a public offering of 2.8 million common shares at US$75 per share and US$70 million aggregate principal amount of 2.75% convertible senior notes due 2015. InterOil has received total combined net proceeds from the offerings of approximately <span class="xn-money">$266 million</span>, after deducting the underwriting discounts, commissions and estimated offering expenses.</p>
<p/>
<p>InterOil intends to use the net proceeds from this offering for the development and construction in <span class="xn-location">Papua New Guinea</span> of a proposed condensate stripping plant and related facilities, a LNG plant and related facilities, exploration and development activities in <span class="xn-location">Papua New Guinea</span>, the repayment of the <span class="xn-money">$25 million</span> loan with Clarion Finanz AG, which matures in <span class="xn-chron">January 2011</span>, and general corporate purposes.</p>
<pre>
Summary of Debt Facilities
</pre>
<p>Summarized below are the debt facilities available to us and the balances outstanding as at <span class="xn-chron">September 30, 2010</span>.</p>
<p/>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<pre>
Balance
Organization Facility outstanding Maturity date
------------ -------- Sep 30, 2010 -------------
------------
OPIC secured loan $49,000,000 $49,000,000 December 2015
----------------- ----------- ----------- -------------
BNP Paribas working
capital facility $190,000,000 $46,105,706 (1) December 2010
------------------- ------------ -------------- -------------
Westpac working capital
facility $30,000,000 $4,798,230 October 2011
----------------------- ----------- ---------- ------------
BSP working capital
facility $18,750,000 $0 October 2011
------------------- ----------- --- ------------
Clarion Finanz A.G. $25,000,000 $25,000,000 January 31, 2011
------------------- ----------- ----------- ----------------
Mitsui unsecured loan $2,727,291 (2) $2,727,291 Not Applicable
--------------------- ------------- ---------- --------------
</pre>
<p> </p>
<pre>
(1) Excludes letters of credit totaling $32.4 million.
(2) Facility is to fund our share of the CSP costs as they are
incurred pursuant to the JVOA.
</pre>
<p> </p>
<pre>
InterOil Corporation
Consolidated Balance Sheets
(Unaudited, Expressed in United States dollars)
</pre>
<p> </p>
<p> </p>
<pre>
As at
-----
September December September
30, 31, 30,
2010 2009 2009
$ $ $
--- --- ---
</pre>
<p> </p>
<pre>
Assets
Current assets:
Cash and cash
equivalents (note 5) 36,066,119 46,449,819 60,703,756
Cash restricted (note
7) 24,266,163 22,698,829 21,099,746
Trade receivables
(note 8) 54,035,914 61,194,136 59,462,710
Derivative contracts
receivables (note 7) 321,995 - 77,525
Other assets 598,066 639,646 2,359,039
Inventories (note 9) 120,863,271 70,127,049 102,297,174
Prepaid expenses 1,253,048 6,964,950 957,440
Total current assets 237,404,576 208,074,429 246,957,390
-------------------- ----------- ----------- -----------
Non-current assets:
Cash restricted (note
7) 6,457,867 6,609,746 6,778,828
Goodwill (note 14) 6,626,317 6,626,317 6,626,317
Plant and equipment
(note 10) 222,713,231 221,046,709 221,346,603
Oil and gas properties
(note 11) 241,773,361 172,483,562 153,435,684
Future income tax
benefit 14,779,583 16,912,969 2,063,623
Total non-current
assets 492,350,359 423,679,303 390,251,055
Total assets 729,754,935 631,753,732 637,208,445
------------ ----------- ----------- -----------
Liabilities and
shareholders' equity
Current liabilities:
Accounts payable and
accrued liabilities
(note 12) 90,553,035 59,372,354 132,085,898
Derivative contracts
(note 7) 66,090 - -
Working capital
facilities (note 15) 50,903,936 24,626,419 1,132,029
Current portion of
secured and unsecured
loans (note 18) 36,060,624 9,000,000 9,000,000
Current portion of
Indirect
participation
interest (note 19) 540,002 540,002 540,002
Total current
liabilities 178,123,687 93,538,775 142,757,929
------------- ----------- ---------- -----------
Non-current
liabilities:
Secured loan (note 18) 39,257,236 43,589,278 48,033,292
Deferred gain on
contributions to LNG
project (note 13) 13,076,272 13,076,272 13,076,272
Indirect participation
interest (note 19) 38,070,650 39,559,718 54,068,184
Total non-current
liabilities 90,404,158 96,225,268 115,177,748
----------------- ---------- ---------- -----------
Total liabilities 268,527,845 189,764,043 257,935,677
----------------- ----------- ----------- -----------
Non-controlling
interest (note 20) 18,392 13,596 9,982
------------------- ------ ------ -----
Shareholders' equity:
Share capital (note
21) 639,066,307 613,361,363 569,146,991
Authorised -unlimited
Issued and outstanding
-44,100,535
(Dec 31, 2009 -
43,545,654)
(Sep 30, 2009 -
42,850,924)
Contributed surplus 24,368,797 21,297,177 18,836,506
Warrants (note 24) - - 219,558
Accumulated Other
Comprehensive Income 8,612,891 8,150,976 10,800,232
Conversion options
(note 19) 12,950,880 13,270,880 13,670,880
Accumulated deficit (223,790,177) (214,104,303) (233,411,381)
Total shareholders'
equity 461,208,698 441,976,093 379,262,786
Total liabilities and
shareholders' equity 729,754,935 631,753,732 637,208,445
--------------------- ----------- ----------- -----------
</pre>
<p> </p>
<pre>
See accompanying notes to the consolidated financial statements.
Commitments and contingencies (note 26), Going Concern (note 2(b))
On behalf of the Board -Phil Mulacek, Director Christian Vinson,
Director
</pre>
<p> </p>
<pre>
InterOil Corporation
Consolidated Statement of Operations
(Unaudited, Expressed in United States dollars)
</pre>
<p> </p>
<p> </p>
<pre>
Quarter ended
-------------
September September
30, 30,
2010 2009
$ $
-- --
</pre>
<p> </p>
<pre>
Revenue
Sales and operating revenues 207,476,650 172,062,457
Interest 29,701 120,150
Other 951,830 1,414,065
-----
208,458,181 173,596,672
----------- -----------
</pre>
<p> </p>
<pre>
Expenses
Cost of sales and operating expenses 185,708,467 148,960,508
Administrative and general expenses 9,923,149 8,834,068
Derivative (gains)/losses (541,728) (77,525)
Legal and professional fees 1,919,554 2,823,102
Exploration costs, excluding
exploration impairment (note 11) 1,058,762 (12,149)
Short term borrowing costs 2,721,037 963,488
Long term borrowing costs 390,257 1,172,046
Depreciation and amortization 3,156,596 3,562,210
Gain on sale of oil and gas properties
(note 11) (2,140,783) -
Loss on extinguishment of IPI liability
(note 20) 8,795,059 28,561,989
Litigation settlement expense (note 26) 12,000,000 -
Foreign exchange (gains)/losses (911,406) 2,373,784
222,078,964 197,161,521
----------- -----------
Loss before income taxes and non-
controlling interest (13,620,783) (23,564,849)
</pre>
<p> </p>
<pre>
Income taxes
Current benefit/(expense) 60,338 (1,505,643)
Future (expense)/benefit (809,935) (234,757)
------------------------
(749,597) (1,740,400)
-------- ----------
</pre>
<p> </p>
<pre>
Loss before non-controlling interest (14,370,380) (25,305,249)
------------------------------------ ----------- -----------
</pre>
<p> </p>
<p>Non-controlling interest (note 20) (2,400) (752)</p>
<p> </p>
<pre>
Net loss (14,372,780) (25,306,001)
-------- ----------- -----------
</pre>
<p> </p>
<pre>
Basic income per share (note 25) (0.33) (0.60)
Diluted income per share (note 25) (0.33) (0.60)
Weighted average number of common
shares outstanding
Basic (Expressed in number of common
shares) 43,963,555 42,093,841
Diluted (Expressed in number of common
shares) 43,963,555 42,093,841
-------------------------------------- ---------- ----------
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
Nine months ended
-----------------
September September
30, 30,
2010 2009
$ $
-- --
</pre>
<p> </p>
<pre>
Revenue
Sales and operating revenues 608,695,372 480,473,685
Interest 105,367 285,269
Other 3,825,249 2,996,022
-----
612,625,988 483,754,976
----------- -----------
</pre>
<p> </p>
<pre>
Expenses
Cost of sales and operating expenses 535,740,414 411,378,346
Administrative and general expenses 27,524,376 23,451,133
Derivative (gains)/losses 139,619 (1,008,585)
Legal and professional fees 5,518,876 6,671,084
Exploration costs, excluding
exploration impairment (note 11) 3,372,325 234,972
Short term borrowing costs 4,893,177 2,810,839
Long term borrowing costs 2,876,433 7,605,011
Depreciation and amortization 10,164,707 10,716,557
Gain on sale of oil and gas properties
(note 11) (2,140,783) (1,087,483)
Loss on extinguishment of IPI liability
(note 20) 8,795,059 28,561,989
Litigation settlement expense (note 26) 12,000,000 -
Foreign exchange (gains)/losses 7,549,927 3,479,515
616,434,130 492,813,378
----------- -----------
Loss before income taxes and non-
controlling interest (3,808,142) (9,058,402)
</pre>
<p> </p>
<pre>
Income taxes
Current benefit/(expense) (3,155,988) (2,504,342)
Future (expense)/benefit (2,716,948) (1,656,960)
------------------------
(5,872,936) (4,161,302)
---------- ----------
</pre>
<p> </p>
<pre>
Loss before non-controlling interest (9,681,078) (13,219,704)
------------------------------------ ---------- -----------
</pre>
<p> </p>
<p>Non-controlling interest (note 20) (4,796) (4,747)</p>
<p> </p>
<pre>
Net loss (9,685,874) (13,224,451)
-------- ---------- -----------
</pre>
<p> </p>
<pre>
Basic income per share (note 25) (0.22) (0.34)
Diluted income per share (note 25) (0.22) (0.34)
Weighted average number of common
shares outstanding
Basic (Expressed in number of common
shares) 43,764,733 38,860,396
Diluted (Expressed in number of common
shares) 43,764,733 38,860,396
-------------------------------------- ---------- ----------
</pre>
<p> </p>
<pre>
See accompanying notes to the consolidated financial statements
</pre>
<p> </p>
<pre>
InterOil Corporation
Consolidated Statement of Cash Flows
(Unaudited, Expressed in United States dollars)
</pre>
<p> </p>
<p> </p>
<pre>
Quarter ended
-------------
September September
30, 30,
2010 2009
$ $
-- --
</pre>
<p> </p>
<p>Cash flows provided by (used in):</p>
<p> </p>
<pre>
Operating activities
Net income (14,372,780) (25,306,001)
Adjustments for non-cash and non-
operating transactions
Non-controlling interest 2,400 752
Depreciation and amortization 3,156,596 3,562,210
Future income tax asset 393,247 (6,325)
Gain on sale of exploration assets (2,140,783) -
Amortization of discount on
debentures liability - -
Amortization of deferred financing
costs 389,320 55,987
Gain on hedge contracts - (339,800)
Timing difference between
derivatives recognised
and settled 90,791 (77,525)
Stock compensation expense,
including restricted stock 3,433,536 2,316,479
Inventory revaluation (27,517) 1,140,339
Non-cash interest settlement on
debentures - -
Oil and gas properties expensed 1,058,762 (12,149)
Loss on extinguishment of IPI
Liability 8,795,059 28,561,989
Legal settlement expense accrued 12,000,000 -
Loss on proportionate consolidation
of LNG project - -
Unrealized foreign exchange
(gain)/loss (1,108,707) 3,390,463
Change in operating working capital
Decrease/(increase) in trade
receivables 27,044,253 (10,813,670)
(Decrease)/increase in unrealised
hedge gains - (3,717,375)
Decrease in other assets and
prepaid expenses 1,598,128 216,064
(Increase)/decrease in inventories (35,585,073) 6,256,940
Increase/(decrease) in accounts
payable and accrued liabilities 7,611,474 (32,730,523)
-------------------------------
Net cash from/(used in) operating
activities 12,338,706 (27,502,145)
--------------------------------- ---------- -----------
</pre>
<p> </p>
<pre>
Investing activities
Expenditure on oil and gas
properties (27,461,204) (17,470,568)
Proceeds from IPI cash calls 367,521 6,971,149
Expenditure on plant and equipment,
net of disposals (6,339,716) (3,614,077)
Proceeds received on sale of
exploration assets - -
Increase in restricted cash held as
security on
borrowings (5,144,171) (6,514,134)
Change in non-operating working
capital
Increase in accounts payable and
accrued liabilities 5,988,666 7,161,228
--------------------------------
Net cash used in investing
activities (32,588,904) (13,466,402)
-------------------------- ----------- -----------
</pre>
<p> </p>
<pre>
Financing activities
Repayments of OPIC secured loan - -
Proceeds from Mitsui for Condensate
Stripping Plant 3,217,582 -
Proceeds from Clarion Finanz
secured loan, net of transaction
costs 24,000,000 -
Proceeds from PNG LNG cash call - -
Proceeds from Clarion Finanz for
Elk option agreement - -
Proceeds from Petromin for Elk and
Antelope field development 500,000 1,000,000
(Repayments of)/proceeds from
working capital facility (6,728,746) (2,830,209)
Proceeds from issue of common
shares/conversion of debt,
net of transaction costs 3,662,229 7,151,622
Net cash from/(used in) financing
activities 24,651,065 5,321,413
--------------------------------- ---------- ---------
</pre>
<p> </p>
<pre>
Increase/(decrease) in cash and
cash equivalents 4,400,867 (35,647,134)
Cash and cash equivalents,
beginning of period 31,665,252 96,350,890
-------------------------- ---------- ----------
Cash and cash equivalents, end of
period (note 5) 36,066,119 60,703,756
--------------------------------- ---------- ----------
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
Nine months ended
-----------------
September September
30, 30,
2010 2009
$ $
-- --
</pre>
<p> </p>
<p>Cash flows provided by (used in):</p>
<p> </p>
<pre>
Operating activities
Net income (9,685,874) (13,224,451)
Adjustments for non-cash and non-
operating transactions
Non-controlling interest 4,796 4,747
Depreciation and amortization 10,164,707 10,716,557
Future income tax asset 2,133,386 1,006,559
Gain on sale of exploration assets (2,140,783) (1,087,483)
Amortization of discount on
debentures liability - 1,212,262
Amortization of deferred financing
costs 501,292 167,959
Gain on hedge contracts - (548,600)
Timing difference between
derivatives recognised
and settled (255,905) 14,996,525
Stock compensation expense,
including restricted stock 8,436,548 5,633,691
Inventory revaluation - 1,140,339
Non-cash interest settlement on
debentures - 2,352,084
Oil and gas properties expensed 3,372,325 234,972
Loss on extinguishment of IPI
Liability 8,795,059 28,561,989
Legal settlement expense accrued 12,000,000 -
Loss on proportionate consolidation
of LNG project - 724,357
Unrealized foreign exchange
(gain)/loss 959,476 (510,670)
Change in operating working capital
Decrease/(increase) in trade
receivables (15,163,495) (8,867,688)
(Decrease)/increase in unrealised
hedge gains - 2,551,575
Decrease in other assets and
prepaid expenses 5,753,482 1,340,980
(Increase)/decrease in inventories (50,316,870) (21,049,227)
Increase/(decrease) in accounts
payable and accrued liabilities 12,237,390 25,867,607
--------------------------------
Net cash from/(used in) operating
activities (13,204,466) 51,224,084
--------------------------------- ----------- ----------
</pre>
<p> </p>
<pre>
Investing activities
Expenditure on oil and gas
properties (88,959,186) (61,146,355)
Proceeds from IPI cash calls 15,538,441 12,546,683
Expenditure on plant and equipment,
net of disposals (11,831,229) (8,477,601)
Proceeds received on sale of
exploration assets 13,903,682 -
Increase in restricted cash held as
security on
borrowings (1,415,455) (1,593,534)
Change in non-operating working
capital
Increase in accounts payable and
accrued liabilities 10,330,770 1,270,871
--------------------------------
Net cash used in investing
activities (62,432,977) (57,399,936)
-------------------------- ----------- -----------
</pre>
<p> </p>
<pre>
Financing activities
Repayments of OPIC secured loan (4,500,000) (4,500,000)
Proceeds from Mitsui for Condensate
Stripping Plant 6,454,582 -
Proceeds from Clarion Finanz
secured loan, net of transaction
costs 24,000,000 -
Proceeds from PNG LNG cash call 866,600 -
Proceeds from Clarion Finanz for
Elk option agreement - 3,577,288
Proceeds from Petromin for Elk and
Antelope field development 3,500,000 5,435,000
(Repayments of)/proceeds from
working capital facility 26,277,517 (67,660,373)
Proceeds from issue of common
shares/conversion of debt,
net of transaction costs 8,655,044 81,057,121
Net cash from/(used in) financing
activities 65,253,743 17,909,036
--------------------------------- ---------- ----------
</pre>
<p> </p>
<pre>
Increase/(decrease) in cash and
cash equivalents (10,383,700) 11,733,184
Cash and cash equivalents,
beginning of period 46,449,819 48,970,572
-------------------------- ---------- ----------
Cash and cash equivalents, end of
period (note 5) 36,066,119 60,703,756
--------------------------------- ---------- ----------
</pre>
<p> </p>
<pre>
See accompanying notes to the consolidated financial statements
See note 6 for non cash financing and investing activities
NON-GAAP EBITDA Reconciliation
</pre>
<p>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 <span class="xn-location">United States</span> 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.</p>
<p/>
<p>The following table reconciles net income (loss), a GAAP measure, to EBITDA, a non-GAAP measure for each of the last eight quarters.</p>
<pre>
</pre>
<p> </p>
<p> </p>
<pre>
Quarters ended 2010
($ thousands)
Sep-30 Jun-30 Mar-31
------ ------ ------
Upstream (11,753) (3,498) (1,964)
Midstream - Refining 15,785 16,962 4,402
Midstream -
Liquefaction (4,588) (3) (563)
Downstream 1,674 7,060 4,492
Corporate (4,510) 1,751 4,402
Consolidation Entries (5,229) (7,384) (5,910)
Earnings before
interest, taxes,
depreciation and
amortization (8,621) 14,888 4,859
----------------- ------ ------ -----
Subtract:
---------
Upstream (4,600) (4,367) (4,080)
Midstream - Refining (1,693) (1,651) (1,731)
Midstream -
Liquefaction (376) (351) (342)
Downstream (938) (1,167) (800)
Corporate (342) (20) (20)
Consolidation Entries 6,107 5,916 5,687
Interest expense (1,842) (1,640) (1,286)
---------------- ------ ------ ------
Upstream - - -
Midstream - Refining 101 (366) (173)
Midstream -
Liquefaction 0 0 0
Downstream (322) (1,524) (2,361)
Corporate (529) 97 (797)
Consolidation Entries (2) (2) 0
Income taxes and non-
controlling interest (752) (1,795) (3,331)
--------------------- ---- ------ ------
Upstream (232) (78) (138)
Midstream - Refining (2,195) (2,888) (2,572)
Midstream -
Liquefaction (6) (6) (6)
Downstream (739) (651) (660)
Corporate (17) (32) (41)
Consolidation Entries 32 32 32
Depreciation and
amortisation (3,157) (3,623) (3,385)
---------------- ------ ------ ------
Upstream (16,585) (7,943) (6,182)
Midstream - Refining 11,998 12,056 (74)
Midstream -
Liquefaction (4,970) (360) (911)
Downstream (325) 3,718 671
Corporate (5,398) 1,796 3,544
Consolidation Entries 908 (1,437) (191)
--------------------- --- ------ ----
Net profit/(loss)
per segment (14,372) 7,830 (3,143)
----------------- ------- ----- ------
</pre>
<p> </p>
<p> </p>
<pre>
Quarters ended 2009 2008
($ thousands)
Dec-31 Sep-30 Jun-30 Mar-31 Dec-31
------ ------ ------ ------ ------
Upstream 574 (29,097) (669) (469) (2,483)
Midstream - Refining 8,492 8,199 14,134 14,747 (13,976)
Midstream -
Liquefaction (1,200) (2,119) (1,379) (2,361) (2,501)
Downstream 4,391 6,542 4,150 3,241 (7,244)
Corporate 1,765 1,980 1,897 3,051 226
Consolidation Entries (4,884) (4,092) (278) (7,285) (2,866)
Earnings before
interest, taxes,
depreciation and
amortization 9,138 (18,587) 17,855 10,924 -28,844
----------------- ----- ------- ------ ------ -------
Subtract:
---------
Upstream (4,056) (2,164) (1,563) (1,552) (1,345)
Midstream - Refining (1,973) (1,682) (1,709) (1,786) (2,771)
Midstream -
Liquefaction (379) (348) (333) (158) (65)
Downstream (930) (1,045) (1,013) (1,142) (2,232)
Corporate (27) - (1,600) (2,325) (2,320)
Consolidation Entries 5,905 3,823 3,141 2,923 2,866
Interest expense (1,460) (1,416) (3,077) (4,040) (5,867)
---------------- ------ ------ ------ ------ ------
Upstream - - - - -
Midstream - Refining 14,316 - - - -
Midstream -
Liquefaction (8) (3) (32) (12) (12)
Downstream (411) (1,398) (733) (485) 4,297
Corporate 1,340 (339) (800) (359) (163)
Consolidation Entries (3) (1) (2) (2) 4
Income taxes and non-
controlling interest 15,234 (1,741) (1,567) (858) 4,126
--------------------- ------ ------ ------ ---- -----
Upstream (144) (132) (150) (112) (175)
Midstream - Refining (2,765) (2,755) (2,801) (2,611) (2,742)
Midstream -
Liquefaction (7) (10) (20) (20) (19)
Downstream (679) (658) (662) (651) (722)
Corporate (43) (40) (174) (18) (19)
Consolidation Entries 33 33 32 32 33
Depreciation and
amortisation (3,605) (3,562) (3,775) (3,380) (3,644)
---------------- ------ ------ ------ ------ ------
Upstream (3,626) (31,392) (2,382) (2,134) (4,003)
Midstream - Refining 18,071 3,762 9,624 10,349 (19,490)
Midstream -
Liquefaction (1,593) (2,481) (1,764) (2,551) (2,596)
Downstream 2,371 3,440 1,742 964 (5,900)
Corporate 3,034 1,601 (677) 350 (2,276)
Consolidation Entries 1,050 (236) 2,893 (4,332) 38
--------------------- ----- ---- ----- ------ ---
Net profit/(loss)
per segment 19,307 (25,306) 9,436 2,646 (34,227)
----------------- ------ ------- ----- ----- -------
</pre>
<p>InterOil Corporation is developing a vertically integrated energy business whose primary focus is <span class="xn-location">Papua New Guinea</span> 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 <span class="xn-location">Papua New Guinea</span>. In addition, InterOil is a shareholder in a joint venture established to construct an LNG plant in <span class="xn-location">Papua New Guinea</span>.</p>
<pre>
InterOil's common shares trade on the NYSE in US dollars.
</pre>
<p> </p>
<p> </p>
<p>FOR INVESTOR RELATIONS ENQUIRIES:</p>
<p> </p>
<pre>
Wayne Andrews
V. P. Capital Markets
[email protected]
The Woodlands, TX USA
Phone: 281-292-1800
Cautionary Statements
Forward Looking Statements
</pre>
<p>This press release may include "forward-looking statements" as defined in <span class="xn-location">United States</span> 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 and/or Mitsui & Co. Ltd. in relation to the proposed LNG and condensate stripping 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, use of proceeds from the offering, anticipated financial conditions and performance, business prospects, strategies, regulatory developments, the ability to attract joint venture partners, future hydrocarbon commodity prices, the ability to obtain equipment in a timely manner to carry out development activities, the ability to market products successfully to current and new customers, the effects from increasing competition, the ability to obtain financing on acceptable terms, and the ability to develop reserves 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 SEDAR, including but not limited to those in the Company's Annual Report for the year ended <span class="xn-chron">December 31, 2009</span> on Form 40-F and its Annual Information Form for the year ended <span class="xn-chron">December 31, 2009</span>. In particular, there is no established market for natural gas or gas condensate in <span class="xn-location">Papua New Guinea</span> and no guarantee that gas or gas condensate from the Elk and Antelope fields will ultimately be able to be extracted and sold commercially.</p>
<p/>
<p>Investors are urged to consider closely the disclosure in the Company's Form 40-F, available from us at <a href="http://www.interoil.com">www.interoil.com</a> or from the SEC at <a href="http://www.sec.gov">www.sec.gov</a> and its and its Annual Information Form available on SEDAR at <a href="http://www.sedar.com">www.sedar.com</a>.</p>
<p/>
<p>The <span class="xn-location">United States</span> 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.</p>
<pre>
For further information: Wayne Andrews, V. P. Capital Markets of InterOil Corporation, +1-281-292-1800, [email protected] Web Site: http://www.interoil.com
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