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IOC 2012 AnnualReport

IOC 2012 AnnualReport

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2012

ANNUAL REPORT
NYSE: IOC

An Energy Development Company With Significant Exploration Potential

Contents
Board of Directors Executive Management Team Message From The Chairman of The Board Upstream Midstream Downstream The Environment and Community Relations Management Discussion and Analysis Operational Highlights Management’s Report Independent Auditor’s Report Consolidated Financial Statements Glossary of Terms Corporate Directory Corporate Contact Information 03 03 04 06 14 19 22 24 30 59 60 62 112 115 116

02 .

Board of Directors Listed Left to Right Ford Nicholson. Mulacek Chief Executive Officer and Founding Director William J. services and standards reflect the values we hold true to. Phil E. Roger Lewis and Sir Rabbie Namaliu Executive Management Team Our Senior Management team is responsible for ensuring that our operations. Jasper lll President and Chief Operating Officer Christian Vinson Executive Vice President of Corporate Development and Government Affairs Collin Visaggio Chief Financial Officer Wayne Andrews Vice President Capital Markets 03 . Christian Vinson. Gaylen Byker. Samuel Delcamp. Roger Grundy. Phil Mulacek.

The development segments of Upstream and Midstream Liquefaction yielded a net loss of $59. issued a report effective as of December 31. 2012 indicating a 10% year-over-year increase to 10. Midstream Refining and Downstream collectively returned a net profit for the year of $61. we were notified that the National Executive Committee had conditionally approved our LNG development project in the Gulf Province. former Executive Director and Chief Investment Officer of the Fuller Foundation. continue to support our development plans. our Board added two independent directors: Sir Rabbie Namaliu. During 2012. important steps forward in our plan to develop the country’s second LNG project. InterOil drilled both the Triceratops-2 and Antelope-3 wells to total depth and completed initial logging and testing. Additionally. the timing of LNG project sanctioning requires more than finding a resource. The Antelope-3 well results compare favorably with the Antelope-1 and Antelope-2 wells. We believe that the elements are in place for InterOil to bring its Gulf LNG project to fruition and we see significant opportunity on the horizon. the government of PNG also took significant steps to support its domestic LNG industry.Message From The Chairman of The Board Dr. The host country must be in a position to support the development and the LNG market must be ready to absorb the additional supply. 04 . Our year-end total assets rose to $1. Importantly.3 trillion cubic feet of gas equivalents (Tcfe) in the gross contingent best case resource estimate. We made excellent progress last year toward expanding our world-class resource on our licenses in PNG. PNG formed the strongest coalition government in the country’s history and embarked on a bold initiative to develop the critical infrastructure needed to promote long term economic stability. and Samuel Delcamp. this means that the fifth annual resource evaluation of the Elk and Antelope fields. The operating segments of Corporate. As we are witnessing throughout the LNG industry.6 million. This initiative includes a focus on further development of the country’s energy sector. all of which support the opportunity for value creation that I believe exists in the assets and management team of InterOil. the former Prime Minister of Papua New Guinea (PNG). To position the Company for this transformational event. In keeping with good corporate governance practices. the Senior Management and the Board of Directors of InterOil have focused on corporate leadership and resource delineation. 2012 was $1. our CEO Phil Mulacek announced his retirement effective April 30. and our balance sheet retains considerable financial flexibility with a debt-to-capital ratio of 19%. Net profit for the year-ended December 31. The Triceratops-2 well established the Triceratops field as the third significant discovery to date.3 billion. GLJ. InterOil has also continued to grow the Midstream Refining and Downstream distribution businesses that support our exploration efforts. Gaylen Byker To Our Shareholders We saw a number of critical elements come into alignment during 2012. our Board formally separated the roles of Chairman and Chief Executive Officer in 2012.2 million. Under the O’Neill administration.6 million primarily from investment expenditures. our independent qualified reserves evaluator. Subsequent to year-end 2012. along with our first estimate at the Triceratops field. This decision cleared the way for us to complete the LNG partnering process and sell an interest in the Elk and Antelope fields. 2013 and a search for his successor is under way. While the Company made substantial progress last year. In November of 2012.

The PNG government has permitted deferral of exploration well commitments on PPL 236 and PPL 238 which will allow us to further delineate our core Elk. our exploration portfolio continues to generate industry interest as evidenced by the farm-in with Pacific Rubiales Energy (PRE) announced in April of 2012. health and business development for Wabo and the surrounding villages. Sincerely. the LNG industry faced headwinds from cost over-runs at the plant under construction. as well as delays or abandonment of several proposed projects. favorable geography and attractive fiscal policy of PNG have driven our project to a prominent position in the queue. We genuinely appreciate our shareholders’ continued support. we have had discussions with the Department of Petroleum and Energy on our future focus and priorities. Our business objectives remain: to generate value for our shareholders. During our search for a project partner.000 PNG citizens. and to be a good partner to all those with whom we do business. We are proud to report that InterOil employs approximately 1. the promising gas supply. this advantage was at work as we have now received bids from potential partners. We have now worked over 8.At the same time. Antelope and Triceratops fields. All of this is possible due to the vision of our founder Phil Mulacek. multi-well exploration program. Safety has always been a priority for InterOil.1 million man hours without a lost time injury at the refinery. As our Gulf LNG project progresses. and we expect to announce a decision on the matter in the near future. The PPL 237 JV Operating Committee established with PRE has approved the forward work program. and we are committed to improving the lives of the people in the communities in which we conduct our business. Our prospect inventory is maturing. and we anticipate that it will support our goal of a multi-year. and we are excited about the Company’s future. We are grateful to Phil for his many years of dedication and hard work. I am also pleased that he will continue to advise the Company and serve as an InterOil director through to the completion of our LNG partnership arrangements. 05 . InterOil has built a modern office and accommodation complex to foster local and provincial government functions in education. As developers continue to focus on viable projects capable of generating economic returns. Given the success of the Triceratops-2 well and the better-than-expected results of the Antelope-3 well. As Phil enters retirement. We look forward to reporting our progress and achievements to you. The Board has been meeting with our advisors to make a final selection. InterOil continues to be active in promoting women’s health in the Purari community. and submitted an application for a Petroleum Retention License over the Triceratops discovery with the Department of Petroleum and Energy. This remarkable achievement is a testament to the culture of safety that pervades the InterOil organization. In the past year. The farm-in transaction with PRE was completed in March of 2013. to help develop the resources of PNG. to support safe and efficient operations for our employees. and we are a primary sponsor of education throughout the region.

2010. Blocks Covered 53 25 9 94 9 190 Acreage Gross 1. PRL 15 allows us to evaluate the technical and commercial feasibility of condensate and/or gas production from the Elk and Antelope fields.2081% 68.453 gross acres (3.776 3.565 189. This PRL unifies the Elk and Antelope fields into a single license and separates the fields from our exploration acreage.1114% 65. PPLs 236.996.996.720 06 . 237 and 238 and PRL 15 are located onshore in the Eastern Papuan Basin. covering a total of nine graticular blocks including and surrounding the Elk and Antelope fields and extracted from PPLs 237 and 238. PPL 237 and PPL 238.00% 100.978.00% 100. pending development and submission of an application for a Petroleum Development License in respect of those fields.545.464 525.871 1. we are obligated to apply for and obtain a Petroleum Development License covering the acreage surrounding the fields and on which to locate facilities and pipeline rights of way.6114% InterOil Net Beneficial Interest Owned 78.030. On November 30.485 143.6114% Total 1. 2012. we were granted PRL 15.453 Acreage Net 868.00% 75. The following table summarizes our interests and on acreage currently held by us as at December 31.Upstream Exploration and Production As at December 31. The PRL has a separate minimum work program and expenditure commitment and is valid for five years to November 30. See Petroleum License Details – Net Working Interest on PPL 236.961 342. all of which were operated by us.492 3.911 129.872 189.00% 100.030.4339% 78. 2015.112.776 1. we had gross interests in three PPLs and one PRL in Papua New Guinea covering 3.1114% 75. In order to develop and commercialize the Elk and Antelope fields in PRL 15.720 net acres). 2012: License Numbers PPL 236 PPL 237 PPL 237 PPL 238 PRL 151 Discovery None None Triceratops Location Onshore Onshore Onshore Onshore Onshore Operator InterOil InterOil InterOil InterOil InterOil InterOil Registered License Interest 100. northwest of Port Moresby.

not including the portion of costs met by our partners). 2014 November 29. 3.1 Operated License Commitments. We have met all other commitments under our licenses as of December 31.2 $152.2 $166.9 Exploration Net (US $ Million) $13. The State approved this request on May 17. as further broken down by well type.0 Commitment Years 3 to 5 ($ Millions) $10. Commitment total is for the first 5 years only.0 $34. In January 2011.0 $94. the State approved our work program and expenditure proposals for all three licenses.0 (2) $74. we applied for a variation of license conditions on PPL 238 to defer the commitment to drill a well from first two year term to the second term which ends in March 2013. 07 . 2012.0 (3) $53. during the year ended December 31.9 $152. 2011.0 $73.Costs incurred in relation to Exploration and Development activities The following table outlines costs incurred by us during the year ended December 31. 2011. 2012. 2010 Term 5 years 5 years 5 years 5 years Totals License Expiry March 27.9 $13. 237 and 238 were extended for 5 years. 2009 March 6.0 $32. 2012. 2012.1 $166. Nature of Cost Property acquisition costs Exploration costs Development costs Total Amount (US $ Million) $13. 2015 1.0 License PPL 236 PPL 237 PPL 238 PRL15 License Issue/Extension March 27.9 $13. The application for variation of 236 and 238 were submitted on December 5.0 (1) $168.9 Gross (US $ Million) $198.2 Development Net (US $ Million) $152. exploration and development activities. with an initial term of 2 years followed by an intermediate term of 2 years and a final term of 1 year. Expiry and Re-Application In March 2009. Commitment Years 1 to 2 ( $ Millions) $5.0 Total License Commitment ($ Millions) $15.1 $198. 2012 for property.0 $20. Additionally the following table summarizes the results of exploration and development activities on a gross and net basis (with net costs reflecting the cost to us.1 Total Net (US $ Million) $166. acquisitions.2 Gross (US $ Million) $13.0 $2.0 $48. The first 2 year term of the license anniversaries occurred in March 2011.2 $184. 2014 March 27.0 $30. 2014 March 6. On May 17. 2009 March 27. PPLs 236. 2.0 $14. The application for variation of PRL15 was granted on November 28. The PPL license renewals require that we meet our work program and expenditure commitments for each term. The variation allowed us to defer the drilling of an obligation well into the second term of the license.1 Wells Gross (US $ Million) Gas Oil Service Dry Total $184. Terms. The applications are still pending approval. 2009 November 30. Following are our applicable expenditure commitments for each PPL and PRL.

5363% 11. Working interests in licenses Petroleum Prospecting License 236 Working Interests (before State Participation) 78. All of such other parties are obligated to make payments to us to cover continuing field development costs and.Petroleum License Details The table below sets forth the working interests in our licenses in the event that the State and all other possible holders.2313% 20.7500% 100. exercise their rights to acquire their beneficial interests.5000% 2.1386% 6.0000% 100. their interests in the fields may be reduced accordingly.1114% 15.0000% Working Interests (after State Participation) 60. if they do not make the required payments.7324% 5.0000% Participant InterOil IPI Holders (6) PNGDV (2) State (5) Landowners Total PPL 236 08 .

000 acres. In July 2012.500. the investors are required to continue to fund their share of ongoing appraisal drilling and all subsequent work that may be required to bring the field into production. over and above the 22. The JVOA’s cover the Triceratops Gas Condensate field and the remainder of PPL237. 237 and 238.500% after State participation).5520% 12. PNGDV also has the right to participate in the next 16 wells that follow the first eight mentioned above up to an interest of 5. In August 2009.0000% 20.5000% 100.1608% 4.1114% 15.1386% of each of these existing and future wells. we entered into a Drilling Participation agreement with PNGDV.0 million and we agreed to drill eight exploration wells in Papua New Guinea on PPLs 236.5% equity interest in the Elk and Antelope fields. 5. IPI Holders currently hold interests totaling 15.25% interest in 16 wells commencing from exploration wells numbered 9 to 24. In PPL 237XT. We will apply for a separate PRL covering this discovery and it is expected that this PRL will cover an area of nine graticular blocks. Each IPI Holder has the right to acquire an interest in field development operations following the drilling of an exploration well in which the holder owns an IPI.5000% 2. 8.5988% 11.3028% 10. 2.9033% 100.7324% 5.0000% Working Interests (after State Participation) 50.0000% Net Working Interests (after State Participation) 60.5363% 11.5% direct working interest in gas and condensate in the Elk and Antelope fields.7324% 5.0000% Participant InterOil (7) IPI Holders (6) PNGDV (2) PRE (7) State (5) Landowners Total Participant InterOil (7) IPI Holders (6) PNGDV (2) PRE (7) State (5) Landowners Total Petroleum Prospecting License 238 Working Interests (before State Participation) 78. if an exploration well is successful. by paying their share of field development costs. We have drilled four of these eight wells to date.1386% 6. As such. PLOL transferred its interest in PRL15 to Pac LNG Investments Limited.0000% 100. 09 .1108% 5. we entered into an agreement with the IPI Holders pursuant to which the IPI Holders paid us an aggregate of US$125.500 meters and the cost exceeds US$8. Limited (PLOL) whereby PLOL acquired a 2.2313% 10.6114% 15. 2013.500 per 1% plus actual costs over US$1.5% interest to which it (and the affected landowners) is entitled under the Oil and Gas Act. This is coincidentally the same size as PRL15.0000% 100.7500% 12.5000% 2.Petroleum Prospecting License 237 (Excluding Triceratops Gas Condensate Field) Working Interests (before State Participation) 65.9375% 20.9033% before State participation) directly from InterOil.1386% 6.0000% Petroleum Prospecting License 237Triceratops Gas Condensate Field Working Interests (before State Participation) 68. As of March 31. So. on terms to be negotiated with us. pursuant to which PRE will acquire a 10. we have drilled six exploration wells since the inception of our exploration program within PPL 236.7500% 100.2313% 1. the IPI Holders will have the right to participate in the development of the fields discovered by that well. In July 2003.7500% 2. in November 2012 the State made clear that it continues to approve of the LNG Project. US$112. excluding the Triceratops Gas Condensate field (PPL 237XT).7324% 5. Following various buybacks and conversions. Pac LNG and its affiliates are participating on a 25% beneficial equity basis in the portion of the PRE farm-in transaction relating to the Triceratops Gas Condensate field on PPL 237. The Triceratops Gas Condensate Field is currently part of License PPL 237.75% at a cost of US$112.75% interest in eight exploration wells.2258% lower interest in PPL237XT than our interest in the Triceratops Gas Condensate field.9033% 100. 7.4339% 13. approximately 189.0000% PPL 237 PPL 238 Participant InterOil IPI Holders (6) PNGDV (2) State (5) Landowners Total Petroleum Prospecting License 15 Working Interests (before State Participation) 75. PNGDV transferred its interest in PRL15 to Pac LNG Assets Limited. PNGEI would be required to contribute.0% Net Revenue Interest after State participation (12. PRE acquired its 10. If a PDL is granted over the Elk Antelope Gas condensate field (currently owned under PRL15). (2.2258%. for each exploration well.2313% 20.5000% 2. In February 2005. Pac LNG Group did not participate in the sale of its Indirect interest in PPL 237XT.0000% Net Revenue Interest after State participation (12. with modifications to be agreed upon. Following statements from the State questioning the continuing validly of our 2009 LNG Project Agreement.2081% 15.500 for each 1% per well (with higher amounts to be paid if the depth exceeds 3. In June 2012.5363% 11. In order to maintain their right to earn revenues from the field. 237 and 238.0364% 10.9% before State participation) in PPL 237. we now have 3.0 million charged pro rate for each 1%.0000% Working Interests (after State Participation) 58. thereby reducing the Pac LNG Group’s indirect participating interest in the Triceratops structure by 3. IPI’s do not have a direct interest in any PPL but they are entitled to convert their interest following grant of a PRL. We have drilled six of these exploration wells to date. 6. 3. In June 2012.000).1386% 6. we entered into a Sale and Purchase Agreement with Pacific LNG Operations. 4.0000% Working Interests (after State Participation) 53. In order to participate.5% interest.0000% 100.0000% 100.2258% participating interest before State participation. PNGEI has the right to participate up to a 4. whereby PNGDV has a 6. by selling PRE a 3. investors in our IPI programs set out above will have the right to become registered direct working interest owners by having their interests registered on the PDL. The State also indicated that it was interested in acquiring an additional 27. we entered into a Farm-in Agreement with PRE and in November 2012 we executed JVOAs with PRE and related documents associated with our Farm-In Agreement. We are currently negotiating with the State regarding this additional 27.0000% 20.0000% Participant InterOil IPI Holders (1) Pac LNG Assets Limited (2) Pac LNG Investment Limited (3) State (4) Landowners Total PPL 15 1.5000% 2.

The following are the work commitments for PPL 237 for the remaining two-year term of the PPL ending in March 2013: • • • Minimum expenditure of $10. and Complete a thorough petroleum system and basin study in PPL 236. On November 30. ending in March 2013: • • • A minimum expenditure of $ 9. process and interpret new seismic data fo cused on selecting a drilling location. The following are the work commitments for PPL 236 for the remaining two-year term of the PPL. As required under the Oil & Gas Act. As at February 27. We are still awaiting confirmation of the approval of the variations from the DPE. Acquire. 10 . and Complete a thorough petroleum system and basin study in PPL 237.112.0 million. 2010. As at February 27 2013. We are still awaiting confirmation of the approval of the variations from the DPE.Petroleum Prospecting Licenses PPL 236 PPL 237 PPL 236 consists of 53 graticular blocks covering an area of 4.464 acres.85 million. we have submitted to the DPE a request for a variation of the drilling commitment under PPL 236 by deferring it into year five of the second term. we have submitted a work program and expenditure proposal for year five of PPL237. PPL 237 consists of 34 graticular blocks covering an area of 3. we submitted a work program and expenditure proposal for year five.502 square kilometers or 1. We intend to apply for a PRL over an area of PPL 237 surrounding the Triceratops gas and condensate discovery totaling 9 graticular blocks. a total of four graticular blocks were excised from PPL 237 and incorporated into PRL 15. Drill an exploration well at a location acceptable to the State. 2013.648 acres.238 square kilometers or 715.

Conduct social mapping and social and economic impact studies. Acquire. In August 2009.922 square kilometers or 1. After the successful mobilization and spudding of the Antelope-3 on September 8. Complete a thorough petroleum system and basin study in PPL 238 and Drill a well at a location acceptable to the State. including the blocks in which the Elk-1. ending in November 2012. Elk-4 and Elk-4A gas /condensate discovery wells were drilled.565 acres. On June 27. 2010. The total financial commitment over the first five year term of PRL 15 amounts to $73. process and interpret new seismic data focused on selecting a drilling location. 2010. Petroleum retention licenses may be granted to licensees of PPLs in which petroleum fields or parts of petroleum fields have been discovered to permit time for the licensee to develop the means for commercialization of the gas discoveries. On November 30. We also submitted a work program and expenditure proposal for year five. we applied for a PRL over the declared location and on November 30. we submitted an application for a variation of the PRL15 License commitment to extend the well commitments into years three and four of the License. PRL 15 was granted by the State and was excised from of PPL 237 and PPL 238.Petroleum Retention Licenses PPL 238 PRL 15 PPL 238 consists of 94 graticular blocks covering an area of 7. 11 . and Conduct surface and subsurface engineering studies • Static and dynamic reservoir modeling • Base case depletion plan • Surface facilities On December 5.0 million.0 million Acquire. Following are the work commitments for PRL15 for the first two years of this term. process and interpret 100 kilometers of two dimensional seismic acquisition and complete geoscience studies. 2012. 2012. The variation was granted by the DPE on November 27. 2012 we submitted a request to modify this variation to the extension of 1 well obligation into Years 3 and 4. • • • • • Drill 2 wells in the Elk and Antelope fields. 2012. The initial period of a petroleum retention license is for five years and further extensions of two 5-year terms may be granted at the discretion of the State. The following are the work commitments for PPL 238 for the remaining two-year term of the PPL ending in March 2013: • • • • Minimum expenditure of $10. Conduct commercial and marketing studies. we submitted a request for a variation of the drilling commitment to be replaced by the Airborne Gravity and Magnetics and Seismic that had been acquired in 2011 and 2012. a total of five graticular blocks.978. were excised from PPL 238 and incorporated into PRL 15.

The transaction contemplates staged initial cash payments totaling $116. Additionally. we signed a binding HOA with PRE for PRE to be able to earn a 10. 2012.5% of cash payments made by PRI (other than carried costs).0 million initial cash payment (which does not include carried costs) out of future upstream production proceeds. establishment and operation of all facilities and services for and incidental to the recovery. Following its review. Set forth below is the current development status of each of our licenses: License PPL 236 Current Development Status Our Wahoo prospect. PRE’s gross participating interest will be subject to the State’s back-in rights provided for in relevant legislation. The forum requires that the State co-ordinate a meeting for all affected stakeholders including the provincial. Our Tuna prospect. As at December 31. have matured to the drill-ready stage and preparations to facilitate access to the proposed drilling location are underway. 2012. We are now planning the development of infrastructure for the Elk and Antelope fields. Assuming that a PDL is issued. We have begun the process of farming out portions of our interest in PPL 237 to industry partners in order to reduce our costs of delineating the bounds of the Triceratops field. Environmental approvals will be necessary and we will also be obliged to submit comprehensive social mapping and landowner identifications studies of those customary landowners within the PDL area. it will replace PRL 15 and include the Elk and Antelope fields and additional acreage required for in-field facilities and gathering systems. PRE has the option to terminate the Farm-In Agreement at various stages of the work program and to be reimbursed up to $96. the State shall take steps to conduct a ‘forum’ as set out under the Oil & Gas Act. Collectively these will constitute the Development Plan.5% net and 3.0 million of the $116. 12 . 2012. On July 27. processing. Pac LNG and its affiliates will receive credits (to be offset against cash call receivable from Pac LNG and its affiliates for their IPI interest) for 25% of the payments PRE makes under the farm-in transaction relating to the Triceratops structure. The Triceratops-2 well has been suspended as a discovery for recompletion at a later date as a future production well. Upon application. As a result. We will also need to apply for and be granted a Petroleum Processing Facilities License (“PPFL”) for the LNG Project and Pipeline Licenses (“PLs”) for the dry gas and condensate pipelines. including execution of a JVOA.9% gross) participating interest in the PPL 237.0% net (12. the State may grant the PDL. which is expected to include gas gathering pipelines. the Antelope-3 appraisal well in PRL 15 penetrated the top of the reservoir. Ministerial recognition of landowner groups is customarily based on such reports. has matured to the drill-ready stage and preparations to facilitate access to the proposed drilling location are underway. Pac LNG and its affiliates are participating on a 25% beneficial equity basis in the portion of the farm-in transaction relating to the Triceratops structure (2.0 million. PRE has paid $40million of the staged cash payments. an additional carry of 25% of the costs of an agreed exploration work program. and (ii) the license holders continuing to meet commitments associated with the license grant. Should the licenses be issued. including the Triceratops structure located within that license. PPL 237 PPL 238 PRL 15 JVOA and Farm-In Agreement with PRE On April 18. targeting seismically defined indications in PPL 236. and a final resource payment. the Condensate Stripping Project and pipelines to deliver natural gas to the LNG Project and condensate to the Midstream Refining segment. We had previously drilled the Elk-1. Elk-2 and Elk-4 wells on PRL 15. The application for a PDL is made to the DPE and must be accompanied by detailed proposals for the financing.2% gross participating interest). Pac LNG and its affiliates will also receive credits for a commission fee of 2. Once all formalities are completed and the State is satisfied. the PPFL and the PLs. storage and transportation of gas from the PDL area. construction. the acreage would be held subject to. by reducing Pac LNG’s IPI interest in the Triceratops structure. Antelope and Triceratops fields. In November 2012. we will need to apply for and obtain a PDL from the State. 2012. the State will undertake a comprehensive review of the Development Plan and any other incidental agreement or approval required before granting the PDL application. we executed Farm-In Agreement with PRE relating to the Triceratops structure and the participating interest in the PPL 237 license materially in line with the HOA signed on April 18. In addition. Following successful flow from a drill stem test. We have commenced preparation of an application for a PDL. certain agreements and approvals from the State will need to be in place prior to the grant of the PDL including a gas agreement defining the fiscal regime applicable to the development and providing for the State’s equity participation in the fields. local level governments and customary landowners with a view towards establishing a regime for the distribution of royalties and other benefits that will arise from the commercialization of the fields. 2012. We believe that the Antelope-3 well further confirms the continuity of a highly productive reservoir into which the Antelope-1 and Antelope-2 wells were drilled. The Triceratops field is located on PPL 237. Completion of the farm-in transaction remains subject to satisfaction of additional conditions within 18 months. targeting seismically defined indications in PPL 238. the Triceratops-2 well was declared a discovery by the State on June 14. (i) periodic review provided for in PNG’s Oil & Gas Act. Certain other indirect participating interest holders may also participate in the farm-in transaction. and State approval.Petroleum Development License (“PDL”) In order to progress the proposed development and commercialization of the Elk.

Mitsui will make a final investment decision (FID) and elect whether to continue with the development of the Condensate Stripping Project and take a 50% share in the facility. agreement was reached with Mitsui to extend the dates in the CSP agreements to provide flexibility for FID. 13 . Hepea and the Bluff have been established as operational bases for pipeline contractor activities. We have also brought in a soils specialist to assist in optimizing the site location and prepared a report recommending that condensate stripping plant be built on the site. the FEED work was carried out. Herd Base. the dry gas is treated and cooled. This process is generally undertaken close to the fields producing the gas/condensate/water stream. Completion of the required LNG Project by us and ou r joint venture partners and related construction w ill take a number of years to complete. we entered into a joint venture agreement (the CSP JV) with Mitsui in connection with the Condensate Stripping Project to develop a condensate stripping facility to extract condensate from the raw gas produced by the Elk and Antelope fields. A condensate-stripping plant is used to process well-stream production fluids (which generally include natural gas. Following the completion of engineering design work. The FEED phase generated deliverables to technically and commercially define the project and prepare it for execution (detailed engineering. 2010. Negotiations for pipeline material procurement and pipeline installation contracts have been put on hold pending finalization of agreements with the State. financing agreements and further regulatory approvals.0 million. the recovered water is re-injected into the field. fabrication. We are continuing the planning and preparation efforts for the execution of the Condensate Stripping Project. finalized plot dimensions and layout for the facility and conducted geotechnical site selection investigations. with approximately $32. and hand-over to operations). On August 4. gas condensate and water) by separating the condensate and water from the gas so that each can be most efficiently utilized or disposed of. During 2011.0 million of this to be expended for FEED. In the event Mitsui elects to continue with the development of the facility. We can provide no assurance we will reach FID by the target date or at all. execution scheduling and risk assessment work. because water left in solution is corrosive to pipelines and leaving condensate in with gas impedes the flow of both. Condensate Stripping Project base. construction. The capital cost for the Condensate Stripping Project was initially estimated at $550. procurement. No assurances can be given that we will be able to construct the proposed LNG facilities or as to the timing of such construction. If Mitsui elects not to continue with the development of the facility. We have selected the site for the condensate stripping plant. We are currently developing site logistics plans. we will be required to refund their capital expenditures. A geo-hazard seismological survey of the pipeline route has been completed. before both the gas and condensates are pumped to the LNG facility through separate pipelines. commissioning. which efforts include detailed project execution planning. and the condensates are stabilized and cooled. Pipeline route center line surveying has been completed. Gas gathering system design has been initiated. All social and economic impact statements for the pipeline license areas and social mapping and land investigation studies for the pipeline route are complete. it will be responsible for funding all of the capital cost to build the facility and will have the option to acquire up to a 5% interest in the Elk and Antelope fields. At the end of 2012. and proposals were solicited from potential EPC contractors.Condensate Stripping Project The Condensate Stripping Project will be designed to work in tandem with the LNG Project and will be located on the Elk and Antelope fields. During this process. that this date will be further extended or that we will enter into unconditional or definitive agreements with Mitsui.

Midstream 14 .

diesel and gasoline are the primary products that we produce for the domestic market. Facilities and Major Subcontractors Our refinery includes a jetty with two berths for loading and discharging vessels and a road tanker loading system (gantry). power generation facilities that meet all of our electricity needs. The refining process also results in the production of two Naphtha grades and low sulfur waxy residue. To the extent that we do not convert the Naphtha to gasoline. which is basically the price that would be paid in Papua New Guinea for a refined product that had been imported. We have a reverse osmosis desalination unit that produces all of the water used by our refinery. Jet fuel. The potential to replace imports and avoid transportation costs provided an opportunity for a “niche” refinery sized to supply Papua New Guinea and nearby markets. camp and office facilities. Our refinery is located across the harbor from Port Moresby. staff accommodation and a fire station. Our smaller berth can accommodate ships with a capacity of up to 22. local bunker fuel sales with the majority exported for use in other complex refineries as cracker feedstock or supply to other end users.000 dwt. which are predominately used as petrochemical feedstock.000 dwt. Our larger berth has deep water access of 56 feet (17 meters) and has been designed to accommodate crude and product tankers with capacity up to 130. We import crude oil for processing at our refinery and resell the refined products primarily within Papua New Guinea at IPP. light Naphtha and mixed Naphtha. LSWR can be and is being sold as fuel for power generation domestically. we export it to the local and Asian markets in two grades. 2005.000 barrels of crude feedstock and approximately 1.In the 1990s we identified the fact that.1 million barrels of refined products. and other site infrastructure and support facilities. Practical completion means construction of the refinery has been completed and that the refinery has satisfactorily completed the reliability and performance tests which were conducted as part of the acceptance and handover process. We also distribute a large portion of the production from our refinery through our retail distribution network. including power generators. We are currently the sole refiner of hydrocarbons in Papua New Guinea. Our tank farm has the ability to store approximately 750. since becoming a major oil producer in 1992. including a laboratory. the capital city of Papua New Guinea. We believed that an installation whose capacity matched that “niche” market would be economically attractive. a waste water treatment plant. our refinery achieved practical completion. 15 . We began implementing a business plan to capture that opportunity by sourcing an existing refinery and by working with the State to further enhance the project economics. Refining On January 31. Papua New Guinea was one of the few oil producing countries in the world with no domestic oil refinery.

With the installation of the LSWR firing generators. we entered into an agreement with BP Singapore for the supply of crude feedstock to our refinery. other than Naphtha and LSWR. was entered into providing for export sales of Naphtha. Our geographical position and limited storage capacity inhibits our ability to compete with the regional refining center in Singapore for sales of large cargo sizes. the State has agreed to ensure that all domestic distributors purchase their refined petroleum product needs from our refinery. we entered into a 12 month term contract with Glencore Singapore for the sale of export Naphtha which expires in June 2013. (and from any other refinery which may be constructed in Papua New Guinea). heaters and boilers. Excess diesel. This contract provides us with a reliable mechanism to access and ship the majority of the regional crudes suitable for our refinery. Following this. We were a net consumer of LPG until the conversion of the main process furnaces and commissioning of the Hyundai generators which burn LSWR in 2006. Sales Papua New Guinea is our principal market for the products our refinery produces. we do not envision any new entrants into the refining business within Papua New Guinea under the current market conditions. domestic distributors have not sourced all of their requirements from the refinery since 2009. we are not always able to secure our first choice crudes for our refinery and are required to obtain alternate crudes that are available. Supply under the agreement commenced when our refinery began operations in June 2004 and continued for 5 years until June 2009. Since this time the agreement has been renewed annually. 2012. Australia. 2011 until June 30. However. the IPP was modified. BP Singapore is one of the largest marketers and shippers of crude oil in the Asia Pacific region. while independent certification of quantities loaded and discharged at the refinery are also provided by the laboratory. Competition Due to their favorable properties. We will continue to review this arrangement and other options for sources of feedstock supply for our refinery and have been successful in securing other crude supply agreements for specific regional crudes. The lab is staffed and operated by an internationally recognized independent inspection and testing company. which operates a petrochemical plant in China. While not restricted under any agreement we have with the State. This contract ran for an 18 month period from January 1. there is significant competition to secure cargoes of these crude types. In general.Our refinery’s on-site laboratory is accredited by National Association of Testing Authorities. we are now a net producer of LPG. these same factors may also provide competitive advantages if we expand our exports of refined products to the small and fragmented South Pacific markets. The major export product from our refinery is the two grades of Naphtha. We also distribute a large portion of the production from our refinery through our retail distribution network. All crude imports and finished products are tested and certified on-site to contractual specifications. However. to MOPS which is the current benchmark price for refined products in the region in which we operate. In late 2007. Due to the limited supply of light sweet crudes and the strong competition. Our refinery is fully certified to manufacture and market Jet A-1 fuel to international specifications and markets this product to both domestic Papua New Guinea and overseas airlines. plus improved facilities for recovering LPG from the reformer off-gas and increased percentages of sweet crudes containing LPG. at IPP. most significantly by changing the Singapore benchmark price from the ”Singapore Posted Prices” which was no longer being updated. 16 . 2010 a 12 month term agreement with Dalian Fujia Dahua Petrochemicals (“Dalian”). We own the only refinery in Papua New Guinea. Under our 30 year agreement with the State. gasoline. Naphtha and LSWR that are exported are sold subject to prevailing commodity market conditions. Crude Supply In December 2001. On January 1. The Project Agreement governing our relationship with the State is yet to be formally amended to reflect the revised formula which has been in use for the last four years. the IPP is the price that would be paid in Papua New Guinea for a refined product that is being imported. light sweet crudes from the Southeast Asian and Northwest Australian region are highly sought after by refiners for use as feedstock. Therefore.

17 . can affect the profitability of our refinery. we sold crack spread swaps.Customers Domestically in Papua New Guinea we sell Jet A-1 fuel. weather conditions. Our main domestic customer is our downstream distribution business segment. the swaps market generally provides sufficient liquidity for our hedging and risk management activities. such as selling MOPS naphtha swaps. However. which can be used to manage our price risk. due to the fluctuation in prices during the time period. which results from the time lag between crude purchases and product sales. Swap transactions are executed between the counterparties in the derivatives swaps market. The derivative instruments which we generally use are over-the-counter swaps. The derivative swap instrument covers commodities or products such as jet. this means that if the difference between our sales price of the refined products and our acquisition price of crude feedstock expands or increases. 2. diesel. however we also distribute fuel products to Niugini Oil Company. we participated in a number of hedges to reduce our risks. To manage the flat price risks. Naphtha. we transferred crude purchases to the months of product sales by utilizing Dated Brent time spread. During the past 3 years. Due to the wide usage of such derivative tools in the Asia Pacific region. gasoline and small parcels of LSWR to domestic distributors. diesel. we actively engage in hedging activities to manage margins. This timing difference can lead to differences between the cost of our crude feedstock and the revenue from the proceeds of the sale of products. even when pricing of crude purchases and that of product sales fall into the same month. Dated Brent swaps. To manage the crack spread risk. Dated Brent swaps and MOPS Gasoil 0. we also directly sold product swaps for the months of product sales. can effectively enable us to manage the refinery margin. Flat price (or timing) risk. Generally. Trading and Risk Management Our revenues are derived from the sale of refined petroleum products. Islands Petroleum and Exxon Mobil. By using these tools. then the benefits are limited to the margin range we have established. Crack spread (or margin) risk. there is always a time difference between the purchase of a crude feedstock and its arrival at the refinery and the supply of finished products to customers. At the same time. and also crudes such as Dated Brent and Dubai. These derivatives. whereas the domestic supply or export of finished products takes place after the crude feedstock is discharged and processed. we can use various derivative instruments to assist us to reduce or hedge away the risks of changes in the relative prices of our crude feedstock and refined products. such as MOPS naphtha vs. Our refinery faces mainly two types of market risk: 1.5% vs. and government actions. kerosene. Prices for refined products and crude feedstock are volatile and sometimes experience large fluctuations over short periods of time as a result of relatively small changes in supplies. It is commonplace among major refiners and trading companies in Asia Pacific to use derivative swaps as a tool to hedge their price exposures and margins. Due to the nature of our business. we are required to purchase crude feedstock approximately one to two months in advance of processing. Month to month changes of crack spreads.

water and condensates must be “stripped”. together with our partners.8 million tonnes per annum. In line with this revised approach. 2007”). to give effect to the NEC decision. The NEC further approved the establishment of a State negotiating team to discuss and agree to the necessary amendments to the 2009 LNG Project Agreement between the State and Liquid Niugini Gas Limited.Liquefaction Liquefaction is the process by which gas is cooled and compressed so that it can be easily transported from its source to another location. During 2010. the only practical solution for the monetization of our gas resource is to transport it using specially configured ships after it has been processed into the form of LNG. with a condensate stripping facility capacity of 1. or that we will have sufficient gas resources to support the potential expansion stage. and to explore locating this plant in the Gulf Province rather than near our existing refinery outside of Port Moresby. Affected landowners are able to take an additional 2% stake bringing the total to 22. 2009 of the LNG Project Agreement. At present. No assurances can be given that we will be able to construct the proposed LNG facilities or as to the timing of such construction. we and Pac LNG pursuing the development of the LNG Project by exploring the use of a modular plant able to be expanded incrementally from an initial position of 2 mtpa. on terms to be negotiated with us. it must be gathered from the source wells using a piping system. the LNG Project is being pursued by us in joint venture with Pac LNG. The regulatory and taxation regime with the State was established with the execution on December 23. The wells and the processed gas pipeline running from the Condensate Stripping Project to the coast in the Gulf Province will be the responsibility of the owners of the Elk and Antelope fields. A pipeline can be used to transport natural gas from where it has been extracted to another location where it is used.5% interest in the Elk and Antelope gas fields. and Stage 3 – Potential Expansion of Production: The potential final ramp up will be to 11 mtpa with condensate stripping facilities reaching 1. from the “dry” gas and it must be transported through a pipeline to a liquefaction facility (which is usually located adjacent to a shipping terminal). In the event that this search is successful it is likely that our interests in the LNG Project. will be reduced.350 mmcf/d capacity. 18 . We are currently seeking an internationally recognized LNG operating and equity partner for the co-development of the LNG Project. The NEC decision confirms that the basis of the acquisition will be on commercial market terms. or separated. PNG LNG which in turn wholly owns those entities formed in Papua New Guinea to pursue the L NG Project (see “Material Contracts – LNG Project Shareholders Agreement dated July 30.800 mmcf/d capacity. over and above the 22. As presently planned the LNG Project is a staged project currently planned to be built in three stages (subject to PNG approvals) namely: Stage 1 – Start up production: an initial capacity of 3. 2012. Before gas can be processed into LNG. allowing it to take up to a 20. Construction of the proposed LNG Project and related infrastructure by us and our joint venture partners would take a number of years to complete. We can provide no assurances that we will obtain the financing and approvals necessary to proceed with the LNG Project in this manner. The infrastructure required for the LNG Project as currently envisaged includes a jetty and breakwater for an onshore LNG loading facility with expansion potential and approximately 70 miles (115 kilometers) of pipeline from the Elk and Antelope fields to the coast. which may include the acquisition of an interest in the Elk and Antelope fields. and those of our partners. including us and our upstream partners. we were notified by the Prime Minister of Papua New Guinea Hon. certain initial conditional agreements were entered into with EWC for development of the LNG Project. Stage 2 – Build Additional Production Capacity: Target ramp-up of capacity up to 8 mtpa LNG production. Advantages perceived with this approach included the potential acceleration of first production and reduced operational risks. LNG is a term that describes the result of a process of cooling natural gas to a temperature of -162°C and compressing it into a volume approximately 1/600th of its original volume. We. This agreement also provides for the participation by the State in the LNG Project. The decision also approves an option for the State to acquire an additional 27. This decision clears the way to proceed with our plans for the development of an LNG plant in the Gulf Province with initial planned output of a minimum of 3. The agreements remain conditional and the parties may elect not to proceed with the LNG Project on the terms specified in those agreements or at all. Peter O’Neill that the NEC had conditionally approved our LNG development project in the Gulf Province.5%. On November 16. and to agree on the terms on which the State could acquire the additional interest.5% ownership stake. As there is essentially no domestic market for gas in Papua New Guinea. Initial engineering design was undertaken in relation to the LNG Project.5% interest to which it is entitled under the Oil & Gas Act. are planning the development of an LNG Project involving the construction of liquefaction facilities to be built on the coast in the Gulf Province of PNG.8mtpa of LNG with a condensate stripping unit with a capacity of 600 to 900 mmcf/d. Our interests in th e project are held through an incorporated joint vent ure entity. The NEC decision also includes as a condition of its approval that the LNG plant operator must be an internationally recognized operator of the planned LNG facilities.

transportation distribution and aviation. This business includes bulk storage. 19 . wholesale and retail facilities for refined petroleum products.Downstream Wholesale and Retail Distribution We have the largest wholesale and retail petroleum product distribution base in Papua New Guinea. Our downstream business supplies petroleum products nationally in Papua New Guinea through a portfolio of retail service stations and commercial customers. after acquiring the fuel distribution assets of BP and Shell several years ago.

One of our major strengths is our spread of storage and distribution facilities throughout Papua New Guinea. 20 . We also service eleven airfields throughout the country although we are not represented at the main international airfield at Jacksons. we provided petroleum products to 53 retail service stations with 43 operating under the InterOil brand name and the remaining ten operating under their own independent brands. We supply retail service stations and commercial customers with petroleum products using trucks or. avgas and fuel oil. We and our competitors may charge less than the maximum margin set by the ICCC in order to maintain competitiveness. We currently operate one InterOil branded service station in Port Moresby directly. Supply of Products Our retail and wholesale distribution business distributes diesel. aviation facilities and commercial customers. such as engine and hydraulic oils. Wewak. avgas. Lae (2). Of the 53 service stations that we supply. This enables us to offer national deals to customers spread over various geographical locations. Our terminal and depot network distributes refined petroleum products to retail service stations. we may consider operating more of our own retail service stations in the future. 16 are either owned by or head-leased to us with a sublease to company approved operators. kerosene and fuel oil as well as branded commercial and industrial lubricants. We schedule all of our own movements and deliveries on our chartered vessels. we have to date not been represented on the field. The remaining 37 service stations we supply are independently owned and operated. with a view to capturing the additional margin available on the retail sale of petroleum products. The only area we are not represented in is Oro Province (Popondetta). Alotau. Mt Hagen (2). Kimbe (2) and Kavieng. We do not own any of these shipping or trucking distribution assets. Retail Distribution As of December 31. 2012. While we supply the only provider at this airfield with Jet A1. jet fuel. If this venture proves successful. We also provide fuel pumps and related infrastructure to the operators of the majority of these retail service stations that are not owned or leased by us. Goroka. We import the commercial and industrial lubricants. all of the refined products sold pursuant to our wholesale and retail distribution business are purchased from our refinery. Madang. gasoline. coastal ships. We deliver refined products from our refinery to two tanker vessels we charter. We do not own these vessels but rather lease them on a full time charter basis. In general. Rabaul. Our inland depots are supplied by road tankers which are owned and operated by third party independent transport contractors.Sales The ICCC regulates the maximum prices and margins that may be charged by the wholesale and retail hydrocarbon distribution industry in Papua New Guinea. Margins were last reviewed by the ICCC in 2010 and will be further reviewed in 2014. We have terminal facilities in POM (2). which constitute a small percentage of our volumes. which are operated by a separate corporate division. in the case of some commercial customers. We supply products to each of these service stations pursuant to distribution supply agreements. We pass transportation costs through to our customers.

We entered into an additional supply agreement with a major mine in January 2010 for a two plus two year period. Major Customers In 2012. We also compete with smaller local distributors of petroleum products. Our major competitive advantage is the large widespread distribution network we maintain with largely adequate storage capacity that services most areas of PNG. at least in the short term. the loss of this customer. logging and similar commercial clients to supply their petroleum product needs. However. Pursuant to many of these agreements. major-integrated oil and gas companies such as ExxonMobil have greater resources than we do and could if they decided to do so. these product sales are at a lower margin due to the volume rebates offered to our larger customers as a direct result of competition in this sector. Our competitors source small quantities from our refinery from both the refinery gantry for the Port Moresby market and by tanker vessel for the markets outside Port Moresby. More than two-thirds of the volume of petroleum products that we sold during 2011 was supplied to commercial customers. it is difficult to accurately gauge our market share. These volumes were contracted with narrow margins in order to provide volumes for the Midstream Refinery operations and as such.Wholesale Distribution We supply petroleum products as a wholesaler to commercial clients and operate aviation refueling facilities throughout Papua New Guinea. With the decision of our competitors early in 2010 to partly import directly from overseas refineries and the consequent cessation of the joint industry shipping arrangements.` 21 . We enter into commercial supply agreements with mining. we supply and maintain company owned above ground storage tanks and pumps that are used by these customers. We also believe that our commitment to the distribution business in Papua New Guinea at a time when major-integrated oil and gas companies exited the Papua New Guinea fuel distribution market provides us with a competitive advantage. expand much more rapidly in this market than we can. Competition Our main competitor in the wholesale and retail distribution business in Papua New Guinea is ExxonMobil. We own and operate six large terminals and five smaller terminals and two inland bulk fuel depots that we use to supply product throughout Papua New Guinea. Aviation customers represented a significant proportion of our total business by volume. would not adversely affect the profitability of our retail and wholesale distribution business. Although the volume of sales to commercial customers is far larger than through our retail distribution network. During 2012. we sold approximately 10% of our refined petroleum products to Pacific Energy Aviation (PNG) Ltd for aviation refueling at Papua New Guinea’s international airport in Port Moresby. fishing. we sold approximately 13% of our refined petroleum products to a major mining project in Papua New Guinea pursuant to a wholesale distribution contract. agricultural.

absent the occurrence of an extraordinary event. This regulates the environmental impact of development activities in order to promote sustainable development of the environment and the economic. or on the health or safety of workers in the host country. the Oil & Gas Act 1998. the Dumping of Wastes at Sea Act (Ch. Although no assurances can be made. Up until November 2012 we had outstanding loans with OPIC.362). hazardous substances and dangerous goods. OPIC is required by statute to conduct an environmental assessment of every project proposed for financing and to decline support for projects that. maintained. having been served. storage. the protection of threatened and endangered flora and fauna and the health and safety of people. 22 . handling. earnings or competitive position with respect to our existing assets and operations. b. social and physical well-being of people and imposes a duty to take all reasonable and practicable measures to prevent or minimize environmental harm. abandoned and reclaimed to standards set out in the relevant legislation. within the time permitted. submitted to the jurisdiction of the Papua New Guinea court. 369). and pollution and contamination of. in OPIC’s judgment. the defendant to such proceedings has not. the Conservation Areas Act (Ch. we believe that. waters and land. continued compliance with existing Papua New Guinea laws regulating the release of materials into the environment or otherwise relating to the protection of the environment will not have a material effect upon our capital expenditures. These environmental laws require that our sites be operated. A breach of this Act can result in significant fines or penalties. a.391). an agency of the United States Government supporting the development of our refinery. the atmosphere. The significant Papua New Guinea laws applicable to our operations include the Environment Act 2000. additional remedial actions or increased capital expenditures and operating costs that cannot be assessed with certainty at this time. Under the Compensation (Prohibition of Foreign Legal Proceedings) Act 1995. use. no legal proceedings for compensation claims arising from petroleum projects in Papua New Guinea may be taken up or pursued in any foreign court unless proceedings were first brought in a Papua New Guinea court for or in pursuance of the same or substantially the same compensation claim and. transportation and disposal of waste. The Environment Act 2000 is the single most significant legislation affecting our operations.The Environment and Community Relations Our operations in Papua New Guinea are subject to an environmental law regime which includes laws concerning emissions of substances into. Compliance with Papua New Guinea’s environmental legislation can require significant expenditures. production. would have an unreasonable or major adverse impact on the environment. Future legislative action and regulatory initiatives could result in changes to operating permits. or a final judgement has been given or a final determination has been made in relation to those proceedings in a Papua New Guinea court or a Papua New Guinea tribunal and the judgement or determination remains unsettled. and the International Trade (Flora and Fauna) Act (Ch. as has been the case during 2012. The environmental legislation regime is complex and subject to different interpretations. conservation of natural resources.

We also develop project specific “Environmental Management. we will strive to minimize impacts on the physical environment. benefit sharing models and other related base line studies. the quality of life of the people inhabiting the areas in which we work. Regulatory initiatives could adversely affect the marketability of the refined products we produce and any oil and natural gas we may produce in the future. we are committed to working closely with the communities we operate in and to complying with all laws and governmental regulations applicable to our activities. socio economic impact statements. minimize negative social impacts and we accept the community desire to protect the natural environment from the material adverse effects of resource development. However. We have not adopted any specific social policies that are fundamental to our operations. the department works closely with government. The impact of such future programs cannot be predicted. Generally. in compliance with the PNG environmental protection legislation in order to monitor our ongoing compliance and performance. These studies are a pre-requisite to the grant of a PDL and will allow us to advance the necessary planning to formulate our proposals as to the nature and distribution of project benefits. We are currently undertaking the work required under PNG’s Oil & Gas Act and Environment Act to support an application for a PDL for the Elk and Antelope fields and other related licenses which will be required for pipelines and processing facilities associated with our LNG Project. and will assist the State in convening a forum of all interested stakeholders at landowner. These include land owner identification studies. and generally improve. land investigations. the department has developed a long-term community development assistance program that benefits the villages in the vicinity of the refinery. OPIC systematically monitors compliance with environmental representations and non-compliance may constitute a default under loan agreements. We have engaged expert consultants to assist us with the preparation of a detailed environmental impact statement and other baseline environmental and health studies. we have a team of officers associated with our upstream business who operate in the field and perform a wide variety of tasks. In relation to our midstream refining business. In addition. social mapping management. health and safety standards. and investigated. OPIC expects projects to meet the more stringent of the World Bank or host-country environmental. local recruitment. Our Community Relations department oversees the management of community assistance programs and manages land acquisition related compensation claims and payments. liaising with landowners. We have established corporate level controls in which all “near miss and real incidents” are reported. Our development philosophy is based on “bottom-up planning” thus ensuring that all planning and development takes the local community into account. Environmental and Social Policies We have implemented an environmental policy which acknowledges that the principles of sustainable development are integral to responsible resource management. including maintaining a safe and healthy work environment and conducting our activities in full compliance with all applicable environmental laws. Monitoring & Reporting Plans”. recording compensation payments to land owners and assisting in the provision of health and medical services in the areas in which our exploration activities are conducted. Under the policy. We routinely conduct “Environmental Risk Analysis” for major projects in which hazards to the environment are identified. landowners and the community in order to ensure that all our activities have a minimum environmental impact and to at least maintain.For most industrial sectors. More stringent laws and regulations relating to climate change and greenhouse gases may be adopted in the future and could cause us to incur material expenses in complying with them. with mitigating controls implemented and a “Hazard Register” developed to monitor any residual risks. local and provincial government level for the purpose of procuring a development agreement on benefit sharing.These studies cover social mapping and landowner identification studies. 23 .

operating costs.” “anticipates. included in or incorporated by reference in this MD&A are forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. the timing and cost of such development. plans for our exploration (including drilling plans) and other business activities and results therefrom. contingent liabilities. the timing. maturity and amount of future capital and other expenditures. All statements. the construction of the LNG Project and the Condensate Stripping Project in Papua New Guinea. whether sufficient resources will be established.” “intends. the commercialization and monetization of any resources. Such statements are generally identifiable by the terminology used such as “may.S. characteristics of our properties. without limitation.” “forecasts. cash flows from operations. 24 .” “budgets. sources of capital and its sufficiency.” “targets” or other similar wording suggesting future outcomes or statements regarding an outlook.” “plans.” “believes. environmental matters. the development of the LNG Project and the Condensate Stripping Project. the likelihood of successful exploration for gas and gas condensate or other hydrocarbons.” “estimates. re-commissioning of our CRU. other than statements of historical fact. federal and Canadian securities laws.” “expects. and plans and objectives for future operations.Management Discussion and Analysis Forward-Looking Statements This MD&A contains “forward-looking statements” as defined in U. statements regarding our business strategies and plans. Forward-looking statements include. entering into definitive agreements with joint venture partners.

25 .

Although we believe that the assumptions underlying our forward-looking statements are reasonable. the effects from increasing competition. The forward-looking information contained in this report is expressly qualified by this cautionary statement. compliance with and changes in Papua New Guinean laws and regulations. Oil and Gas Disclosures We are required to comply with Canadian Securities Administrators’ NI 51-101. strategies. The SEC permits oil and gas companies. the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. fluctuations in currency exchange rates. and the ability to develop reserves and production through development and exploration activities. the ability to obtain financing on acceptable terms. Forward-looking statements and information are based on our current beliefs as well as assumptions made by. the margins for our products and adverse effects on the value of our refinery. future hydrocarbon commodity prices. our ability to negotiate definitive agreements following conditional agreements or heads of agreement relating to the development of the LNG Project and the Condensate Stripping Project. We do not have any production or reserves. they may prove to be incorrect.com. 2012. exposure to certain uninsured risks stemming from our operations. the uncertainty associated with the availability. landowner claims and disruption. interest rate risk. any of the assumptions could be inaccurate. an independent qualified reserve evaluator based in Calgary. us concerning anticipated financial conditions and performance. business prospects. the impact of our current debt on our ability to obtain further financing. our ability to construct and commission the LNG Project and the Condensate Stripping Project together with the construction of the common facilities and pipelines. which prescribes disclosure of oil and gas reserves and resources. contractual defaults. has evaluated our resources data as at December 31. Although we consider these assumptions to be reasonable based on information currently available to us. the adverse effects from importation of competing products contrary to our legal rights. and law enforcement difficulties. terms and deployment of capital. to disclose only proved. the inherent uncertainty of oil and gas exploration activities. the ability to market products successfully to current and new customers. the uncertainty associated with the regulated prices at which our products may be sold. the availability of credit the European sovereign debt credit crisis and the downgrading of United States government debt. or to otherwise negotiate and secure arrangements with other entities for such development and the associated financing thereof. in their filings with the SEC. risk of legal action against us. the ability to attract joint venture partners. the ability to obtain equipment in a timely manner to carry out development activities.. the ability to secure adequate capital funding. 2012 in accordance with NI 51-101. on time and within budget. Furthermore. including environmental laws. weather conditions and unforeseen operating hazards. except as required by applicable law. inherent limitations in all control systems. and. legal and economic risks in Papua New Guinea. and information currently available to. as at December 31. we cannot assure you that the forward-looking statements will eventuate. we will not update publicly or to revise any of this forward-looking information. which evaluation is summarized in our 2012 Annual Information Form available at www. regulatory developments. the availability of crude feedstock at economic rates. including any further economic downturn. therefore. GLJ Petroleum Consultants Ltd.sedar. and misstatements due to errors that may occur and not be detected. the inability of our refinery to operate at full capacity. licenses and approvals from relevant State authorities to develop our gas and condensate resources and to develop the LNG Project and the Condensate Stripping Project within reasonable time periods and upon reasonable terms. Canada. political. concessions. difficulties with the recruitment and retention of qualified personnel. the impact of competition.Many risks and uncertainties may affect the matters addressed in these forward-looking statements. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described under the heading “Risk Factors” in our 2012 Annual Information Form. our ability to obtain and maintain necessary permits. general economic conditions. the forward-looking information contained in this MD&A is made as of the date hereof and. including proved reserves. possible and probable reserves that a 26 . including but not limited to: • • • • • • • • • • • • • • • • • • • • • • • • • • • our ability to finance the construction and development of the LNG Project and the Condensate Stripping Project. as defined under NI 51-101 or as per the guidelines set by the SEC. In light of the significant uncertainties inherent in our forward-looking statements. losses from our hedging activities.

The GLJ Report was prepared by GLJ. 27 . Papua New Guinea for the domestic market and for export. This segment also conducts appraisal drilling of the Triceratops field and manages our construction business which services our development projects underway in Papua New Guinea. effective as of December 31. Refining – Produces refined petroleum products at Napa Napa in Port Moresby. Enhancing our existing refining and distribution businesses. Liquefaction – Developing liquefaction and associated facilities in Papua New Guinea for the export of LNG. Barrels of oil equivalent may be misleading. Consistent with our treatment with Elk and Antelope fields. condensate stripping facilities and pipelines for the proposed delivery of natural gas to the Midstream Liquefaction segment and condensate to the Midstream Refining segment. the resources estimates for the Triceratops field are classified separately in the GLJ Report as either contingent resources – economic status undetermined or prospective resources. all of which are located onshore in Papua New Guinea. A barrel of oil equivalent conversion ratio of six thousand cubic feet of natural gas to one barrel of crude oil equivalent is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. an independent qualified reserves evaluator. appraises and develops crude oil and natural gas structures in Papua New Guinea. • • Maximizing the value of our exploration assets. Wholesale and Retail Distribution – Markets and distributes refined products domestically in Papua New Guinea on a wholesale and retail basis. At this early stage of appraisal. We plan to achieve this strategy by: • • • Developing our position as a prudent and responsible business operator. Monetizing our discovered resources. We include in this MD&A information that the SEC’s guidelines generally prohibit U. Resources We currently have no production or reserves as defined in NI 51-101 or under the definitions established by the United States Securities and Exchange Commission. All resources estimated for the Elk and Antelope fields are classified as contingent resources – economic status undetermined. providing a quality working environment and contributing positively to the communities in which we operate. Midstream Downstream Corporate Business Strategy Our strategy is to develop a vertically integrated energy company in Papua New Guinea and the surrounding region. focusing on niche market opportunities which provide financial rewards for our shareholders.com.S registrants from including in filings with the SEC. gas gathering pipelines. This segment also manages our shipping business which currently operates two vessels transporting petroleum products for our Downstream segment and external customers. General and administrative and integrated costs are recovered from business segments on an equitable basis. A significant element of that strategy is to develop gas liquefaction and condensate stripping facilities in Papua New Guinea and to establish gas and gas condensate reserves. Our operations are organized into four major segments: Segments Upstream Operations Exploration and Production – Explores. Developing infrastructure for the Elk and Antelope fields which includes wells. and was prepared in accordance with the definitions and guidelines in the COGE Handbook and NI 51-101. Provides support to our other business segments by engaging in business development and improvement activities and providing general and administrative services and management. while being environmentally responsible.company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. The GLJ Report is an evaluation of the resources of gas and condensate for the Elk and Antelope fields and the Triceratops field. Our Corporate segment results also include consolidation adjustments. undertakes financing and treasury activities. and is responsible for government and investor relations. Further details of our business strategy can be found under the heading “Business Strategy” in our 2012 Annual Information Form available at www. 2012. the Triceratops prospective resources are not included. both within PNG and for export in the South Pacific region. Introduction We are developing a fully integrated energy company operating in Papua New Guinea and the surrounding Southwest Pacific region. All calculations converting natural gas to crude oil equivalent have been made using a ratio of six thousand cubic feet of natural gas to one barrel of crude equivalent.sedar. particularly if used in isolation. and Positioning for long term success.

of highly fractured deep water limestone and has been penetrated by the Elk-1 and Elk-2 wells.5988% working interest in the Elk and Antelope fields. including to participate fully and directly in the PDL.07 135.5 Case Best 5. as of a given date.250. These represent quantities of petroleum which are estimated. Prospective resources differ from contingent resources in that they are estimated volumes associated with undiscovered accumulations. With the probabilistic methods used. which assumes that: (i) the State and landowners elect to participate in the Elk and Antelope fields to the full extent provided under applicable PNG oil and gas legislation after a PDL has been granted in relation to the Elk/Antelope field and (ii) all elections are made to participate in the Field by all investors pursuant to relevant indirect participation interest agreements with us.85 156. The “high” estimate is considered to be an optimistic estimate of the quantity that will actually be recovered. Although a final project has not yet been sanctioned. With the probabilistic methods used. or over thrust. 2012 High 10.151. Antelope-1.4 1. Prospective resources have both an associated chance of discovery and a chance of development. to be potentially recoverable from undiscovered accumulations by application of future development projects.4 Elk/Antelope Contingent Initial Recoverable Sales Gas (Tcf) Initial Recoverable Condensate (MMbbls) Initial Recoverable (MMboe) Low 4. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate.59 1. 3 As at December 31. pre-FEED studies are ongoing for the LNG Project and FEED studies conducted for the Condensate Stripping Project as options for potential monetization of the gas and condensate. Elk and Antelope Fields The Elk and Antelope fields located in Papua New Guinea and contained within PRL 15 are gas fields reservoired in a composite trap comprising structural and stratigraphic elements consisting of a Late Oligocene to Late Miocene limestone and carbonate. there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. It is likely that the actual remaining quantities recovered will exceed the low estimate. as of a given date. Antelope-2 and Antelope-3 wells and the reservoir consists of a dominantly shallow water reef/platform complex with a dolomite cap with well developed secondary porosity and permeability. The Antelope field has been penetrated by the Elk-4. The Elk field overlies the northern end of the Antelope field and comprises a tectonic wedge.31 79.34 732. 2012 Elk/Antelope Contingent Initial Recoverable Sales Gas (Tcf) Initial Recoverable Condensate (MMbbls) Initial Recoverable (MMboe) 1. there should be at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate.3 3.3 1. as of a given date.00 65. 2.646. The “low” estimate is considered to be a conservative estimate of the quantity that will actually be recovered. The following tables set forth GLJ’s estimates of total contingent resources estimate for gas and condensate at the Elk and Antelope Fields and our the net contingent resources estimate for gas and condensate at the Elk and Antelope Fields as set forth in the GLJ Report: Total Contingent Resources Estimate for Gas and Condensate for the Elk and Antelope Fields 1. to be potentially recoverable from known accumulations using established technology or technology under development. These estimates are based upon our holding a 58. The “best” estimate is considered to be the best estimate of the quantity that will actually be recovered.7 High 6.5 1.1 Best 9. but which are not currently considered to be commercially recoverable due to one or more contingencies.7 Case Low 6. 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.34 964. there should be at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate.Contingent resources are those quantities of natural gas and condensate estimated. Prospective Resources are those quantities of petroleum estimated.36 91. This class represents a higher risk than contingent resources since the risk of discovery is also added.965. to be potentially recoverable from oil and gas deposits identified on the basis of indirect evidence but which have not yet been drilled. Contingent Resource Estimate for Gas and Condensate at the Elk and Antelope Fields – Net to InterOil 2. 28 . With the probabilistic methods used.83 111. Prospective Resources are further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development and may be sub classified based on project maturity. 2 As at December 31. These estimates represent 100% of the Elk and Antelope fields.

potentially in a material amount. With the probabilistic methods used. With the probabilistic methods used. Accuracy of Resource Estimates The accuracy of resource estimates is in part a function of the quality and quantity of the available data and of engineering and geological interpretation and judgment. The following tables present only the portion of the reservoir classified as contingent resources in the GLJ Report: Total Contingent Resources Estimate for Gas and Condensate for the Triceratops Field 1. there should be at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. reservoir quality and/or the thickness of the reservoir are less than what is currently estimated based on the interpretation of the seismic and well data.43 12. The Triceratops gas field has been delineated by 140 kilometers of 2-D seismic and currently the western closure of the field remains outside the acquired seismic coverage. The size of the resource estimate could be negatively impacted. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. located in Papua New Guinea and contained within PPL 237 is reservoired in a composite trap comprising structural and stratigraphic elements consisting of a Late Oligocene to Late Miocene limestone and carbonate. if additional delineation wells determined that the aerial extent. 2 As at December 31.2 Best 0. if additional delineation wells determined that the aerial extent.33 38.32 89. 3 As at December 31. 2012 High 0. there should be at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate These estimates are based upon InterOil holding a 53.12 2. With the probabilistic methods used.07 1. reservoir quality and/or the thickness of the reservoir is larger than what is currently estimated based on the interpretation of the seismic and well data. The following contingencies must be met before the Elk and Antelope (or Triceratops) contingent resources can be classified as reserves: • • • • Sanctioning and financing for the facilities required to process and transport marketable natural gas to market. potentially in a material amount. The “low” estimate is considered to be a conservative estimate of the quantity that will actually be recovered.20 4.8 Triceratops Contingent Initial Recoverable Sales Gas (Tcf) Initial Recoverable Condensate (MMbbls) Initial Recoverable (MMboe) Low 0. there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate. Triceratops-1 (2005) and the Triceratops-2 wells 2012. 29 . The “best” estimate is considered to be the best estimate of the quantity that will actually be recovered. The Triceratops field has been renamed from the old Bwata gas field and has been penetrated by the Bwata-1 (1959). The Triceratops-2 well was declared a discovery well by the DPE in June of 2012. 2012 Triceratops Contingent Initial Recoverable Sales Gas (Tcf) Initial Recoverable Condensate (MMbbls) Initial Recoverable (MMboe) 1. It is likely that the actual remaining quantities recovered will exceed the low estimate. Confirmation of a market for the marketable natural gas and condensate.Triceratops Field The Triceratops gas and gas condensate field (see “Description of Our Business”).38 8.5 Case Low 0. including to participate fully and directly in the PDL. 2.9 3.1 High 0. Determination of economic viability. These estimates represent 100% of the Triceratops field. Contingent Resource Estimate for Gas and Condensate – Net to InterOil 2.16 71.69 23. The size of the resource estimate could be positively impacted. The “high” estimate is considered to be an optimistic estimate of the quantity that will actually be recovered. which assumes that: (i) the State and landowners elect to participate in the Triceratops field to the full extent provided under applicable PNG oil and gas legislation after a PDL has been granted in relation to the Triceratops field and (ii) all elections are made to participate in the Field by all investors pursuant to relevant indirect participation interest agreements with InterOil. Other factors in the classification as a resource include a requirement for more delineation wells.0364% working interest in the PPL-237.90 19.48 10. detailed design estimates and near term development plans.45 168.3 Case Best 0. Approval from regulatory authorities to develop the resources.

we executed the PRE JVOA and related documents associated with the Farm-In Agreement with PRE. On July 27.481 meters) and the well was opened to increasing choke settings before being closed for final buildup. and a final resource payment.5 meters) marl and argillaceous limestone interval from 4.0% net (12. • • • • 30 . PRE has paid $40. the Triceratops-2 well was declared a discovery on June 14. 2012. Triceratops seismic data indicates there is a large attic in terms of height and areal extent to the south. 2012.454 feet (1. The DPE granted approval to remove Rig#2 from the Triceratops-2 well on August 13. Pac LNG will also receive a commission fee of 2. Subsequent to year end. Between June 14.336 feet (2. by reducing Pac LNG’s indirect participating interest in the Triceratops structure. The Triceratops-2 well has been suspended as a new discovery for recompletion at a later date as a future production well. and will be finalized once the remapping is complete. for each of the segments is as follows: Upstream Triceratops field appraisal program • On January 15. The Triceratops-2 well is located approximately 3. The corresponding wellhead pressure was recorded as 1. The transaction contemplates staged initial cash payments totaling $116. 2012. routine core analysis and special core analysis to help determine the hydrocarbon saturation in the reservoir.869 feet (1. and remapping of this seismic data is ongoing.0 million of the staged cash payments and subsequent to year end.253 meters) to 4.Operational Highlights A summary of the key operational matters and events for the year.5% net and 3. which is set forth in the 2012 Annual Information Form.5 kilometers west of the Bwata-1 discovery well and 4. This gas flow rate compared favorably with results from equivalent DST intervals at the Antelope-1 and Antelope-2 wells which were a rate of 12.0 million of the staged cash payment was received.382 psig. Following successful flow from DST #9 of 27 Mmscfpd on June 6.3 barrels per million standard cubic feet of gas.6 and 16.4 to 18 Mmscfpd and a rate of 11. 2012. Although in the early stages of appraisal. Pac LNG are participating on a 25% beneficial equity basis in the portion of the farm-in transaction relating to the Triceratops structure (2.133 feet (1. respectively. We drilled the entire reservoir interval with a total depth of 7. During the year. we spudded the Triceratops-2 appraisal well in PPL 237 in PNG.4 Mmscfpd. complete the well as a future production well.9% gross) participating interest in the PPL 237 onshore PNG. 2013. we signed a binding HOA with PRE for PRE to be able to earn a 10. On November 29. Planning of new seismic and drilling location is in progress. Pac LNG will receive credits (to be offset against cash call receivable for them for their IPI interest) for 25% of the payments PRE makes under the farm-in transaction relating to the Triceratops structure. The well flowed natural gas and condensate at a rate of 17. which is an important input into the resource estimates. test for the presence of reefal carbonate reservoir. including the Triceratops structure located within that license.236 meters) on April 6. 2012.0 million. west and northwest of the Triceratops-2 well.2% gross participating interest). Completion of vertical seismic profile processing of the Triceratops field reaffirmed the connection between the well and seismic data. Under this agreement. an additional carry of 25% of the costs of an agreed exploration work program.859 feet (1. 2012.484 meters) to 5.0 million initial cash payment (which does not include carried costs) out of future upstream production proceeds. on January 24. and. in the event of success. 2012 and August 13. the well was cased and cased hole logging and testing was completed.111 feet (1. 2012 by the DPE. Demobilization of the rig began immediately for relocation to the Antelope-3 well. Completion of the farm-in transaction is subject to satisfaction of additional conditions within 18 months. On May 14.6 Mmscfpd through a 48/64 inch choke with an observed CGR at separator conditions of between 13.967 meters) in this deeper section and this data indicates a separate pressure system in this interval from the upper reservoir interval. which will be our focus during forward seismic acquisition and well programs on this field. A number of rotary side wall cores were also taken. The DST #8 was conducted in the open hole interval from 4. 2012 and the acquisition of wireline logs was completed on April 14.5% of cash payments made by PRE (other than carried costs). we successfully drill stem tested the upper reservoir section in the Triceratops-2 well.2 to 17. we executed a Farm-In Agreement with PRE relating to the Triceratops structure and the participating interest in the PPL 237 license materially in line with the HOA signed. an initial resource estimate of the Triceratops field has been included in our 2012 year end resource estimate. The primary objectives of the Triceratops-2 well were to confirm the presence of gas and condensate. DST #10 established gas in the lower limestone and production logs established a gas water contact. 2012.0 million of the $116.358 feet (1. The Triceratops-2 well logs and DST pressure data indicated two stratigraphically separate carbonate reservoir intervals with separate pressure systems and potentially separate or stacked hydrocarbon pay. The upper reservoir interval contains gas and condensate which preliminary pressure data (DST #7) indicates is on the same pressure trend as the gas and condensate tested 3. the DPE approved and registered the transfer of interest in PPL 237 to PRE. 2012.938 meters) and 6. and underwent petrophysical analysis. 2012.5 kilometers away in the Bwata-1 well.7 kilometers southwest from the Triceratops-1 well. Certain other indirect participating interest holders may also participate in the farm-in transaction.564 meters) a potential intraformational seal. DST #2 tested the interval between 6. PRE has the option to terminate the HOA at various stages of the work program and to be reimbursed up to $96. The deeper zone is separated from the upper reservoir interval by a 264 feet (80. • • • • • • Pacific Rubiales Farm-In Agreement • On April 18. in January 2013 a further $20.

9 barrels of condensate per million cubic feet through a 64/64 .800 meters) DST #1 in the Antelope-3 well showed natural gas and condensate. Indications are of additional leads within PPL 236 and PPL 237 licenses. and once this is complete. 2012. with the success of the Triceratops gas discovery and the better than expected results of the Antelope-3 well. we spudded the Antelope-3 appraisal well in PRL 15. equivalent to a true vertical depth of 5. On November 30. we completed the logging program and as in the previous wells. On November 27. The independent formation evaluation indicates an average porosity in the pay interval of 10. 2013. The Antelope-3 well is located approximately 1 kilometer south of the Antelope-1 well and 2. • • • • • Elk field appraisal program • • On October 26. This compares favorably with the results from the Antelope-1 and Antelope-2 wells with average porosities of 8. processing and mapping. This represents the tallest vertical column encountered in the Antelope field to date. With the top of the reservoir encountered at 5.228 meters) below sea level.328 feet (1. satisfy work program obligations for PRL 15 and complete the well as a future production well.328 feet (1. we were notified by the DPE that it had been granted an approval of license variation to PRL 15. composition. character and continuity. resistivity and sonic) were acquired in addition to formation imaging. conventional wireline logs (porosity.554 meters) was attained on December 25. providing further understanding of the previously named Tuna and Wahoo prospects. The primary objectives in drilling the Antelope-3 well were to confirm reservoir depth.1% respectively. The analyzed gas composition is similar to the Antleope-1 and Antelope-2 wells. the top of the reservoir at the Antelope-3 well was penetrated at a depth of 5. Antelope field appraisal program • On September 30. Total depth of 8.527 meters) below sea level. The well flowed at a maximum rate of 44.624 meters). 2012. on January 24. and submit an application for a PRL over the Triceratops discovery. we have applied for variations to modify the well commitments for PPL 236 and PPL 238.009 feet (1. Preliminary interpretation indicated that the Antelope-3 well shares the same water contact with these wells at 7. Subsequent to year end. 2012.310 feet (2. our Rig#3 commenced mobilization to the Elk-3 well drill site following completion of the roadway from the Hou Creek supply base. 2012. the well will be suspended for future completion as a production well. the results of our initial DST #1. Proposed well locations have currently been selected for Tuna and Wahoo prospects. The formation character is consistent with.8% and 13.• The PPL 237 JV Operating Committee (“JVOC”) established with PRE will review and approve the forward work program. Airborne gravity acquired in the second quarter of 2012 for PPL 236 and PPL 237 continues to be analyzed and added to previous airborne gravity data. We believe these results indicate that the reservoir quality at the Antelope-3 well location is of similar quality to the Antelope-1 and -2 wells. allowing us to defer the required drilling of a second commitment well from the first two year work program into the second two year work program. However. • • 31 . Seismic and exploration program • Kwalaha Phase 3 Seismic Data on PPL 236 and PPL 238 was acquired and analyzed during the second quarter of 2012.906 feet (1.8 Mmscfpd with 10.2% and a net to gross ratio of 66%.379 feet (2.inch choke.624 meters) measured depth in the well. and these leads will be assessed for further seismic acquisition. On December 10. Production logging is in progress. To progress development of our core assets. 2012.6 kilometers north of the Antelope-2 well. provide samples for analysis to further assist in development well planning. at a depth of 5. The preliminary independent analysis of the wireline log results demonstrated a carbonate reservoir (limestone and dolomite) with similar reefal reservoir character and quality as the offset Antelope-1 and Antelope-2 wells. We believe that a clear mutual objective is focus on progressing the LNG Project. We are awaiting formal variations in relation our commitments.4 to 14. we have had discussions with the DPE on our forward focus and priorities. 2012. and fully support our reservoir model. Potential exploration well locations for future lease obligation wells were selected following completion of seismic acquisition.301 feet (701 meters). and supplements. Drilling of the Elk-3 development well is the final well required to satisfy the first two year work commitment on PRL 15. this equates to a hydrocarbon column height of approximately 2. This was 217 feet (66 meters) above the pre-drill estimate and 92 feet (28 meters) higher than the Antelope-1 well. vertical well bore seismic and rotary sidewall coring conducted while under pressure.

2012. 2012.0 million to accommodate increasing volumes and crude prices. • • • Liquefaction Asset sell down process • • Throughout the year.5%. 2012. Capacity utilization of the refinery for the year ended December 31. on January 24. was 58% compared with 54% for 2011 and 53% for 2010. Our Board of Directors intends to meet our advisors during March 2013 for the purpose of evaluating bids received and selecting our partner(s) for the development of the LNG Project utilizing gas from the Elk and Antelope fields. The decision also approves an option for the State to acquire an additional 27. we announced that we have advised bidders with whom we have been in discussions that the final binding bid solicitation period for the partnering process currently being undertaken will close on February 28.5% interest to which it is entitled under the Oil & Gas Act. we entered into a five year amortizing $100. The loan is secured over the fixed assets of our refinery and bears interest at LIBOR plus 6. we were notified by the Prime Minister of Papua New Guinea Hon. 2012. based on 36. On October 16. We have made significant progress with pre-FEED and FEED engineering studies. The NEC further approved the establishment of a State negotiating team to discuss and agree to the necessary amendments to the 2009 LNG Project Agreement between the State and Liquid Niugini Gas Limited. The conditional framework agreement with Samsung Heavy Industries and FLEX LNG related to the construction and operation of a planned 2 million tonnes per annum floating LNG processing vessel was not renewed. social mapping and genealogical studies.682 barrels per operating day during 2010. investment bankers led by Morgan Stanley & Company LLC. • • • • LNG Project Agreement • On November 16. our refinery was shut down for 51 days. 82 days and 81 days. 2012. The CRU. During the year. on terms to be negotiated with us. During the year ended December 31. and ANZ).Midstream Refining • • • Total refinery throughput for the year ended December 31. which allows the refinery to produce reformate for gasoline has been shutdown since August 3. During the year. During the years ended December 31. Subsequent to year end. 2012. construction of roads and camps. BSP. Peter O’Neill that the NEC had conditionally approved our LNG development project in the Gulf Province. 2011 and 2010. The drawdown of the loan was completed on November 9. • 32 . the LNG Project and certain exploration licenses.5% interest in the Elk and Antelope gas fields. the BNP working capital facility was renewed for another year with a $10. respectively. During the year. 2012. which will assist in the final partnering and project execution.500 barrels per day operating capacity. The NEC decision also includes as a condition of its approval that the LNG plant operator must be an internationally recognized operator of the planned LNG facilities.0 million secured term loan facility with BNP.483 barrels per operating day. we have extended the dates in the CSP agreements with Mitsui to provide flexibility for FID. to give effect to the NEC decision. for general maintenance activities. 2012 was 24. 2013. part of the borrowings under the new term loan facility were used to repay all outstanding amounts under the term loan granted by OPIC. On November 9. we produced gasoline for an interrupted period of 4 months. 2013. and 24. bringing the total facility limit to $240. This decision clears the way to proceed with our plans for the development of an LNG plant in the Gulf Province with initial planned output of a minimum of 3. Macquarie Capital (USA) Inc. The PNG Cabinet also approved the establishment of the Ministerial Gas Committee comprised of key economic ministers to fast track commercialization of the LNG Project. 2011. compared with 24. and to agree on the terms on which the State could acquire the additional interest. 2012. and UBS AG continued working on the bid process to seek a strategic partner to acquire an interest in the Elk and Antelope fields. we extended the dates in the contingent LNG Project agreements with EWC to provide flexibility for partner selection and FID. We expect the CRU to be restarted in the second quarter of 2013 following the installation of a new catalyst.856 barrels per operating day during the year ended December 31.0 million increase in the limit. which was then supplemented by imports whilst the CRU was shutdown. The NEC decision confirms that the basis of the acquisition will be on commercial market terms.8 million tonnes per annum. over and above the 22.

15%).569) (12.0% is reflected in these revised margins. which has also led to growth in our aviation and retail businesses within our Downstream segments.4% per annum.141 (30.932) (52.650) (1.058 1.864 (36.5 years with an interest rate of LIBOR plus 4.019 50.320.106.072 85.065) (16.166) (9. 2012.0 million) bringing the total Downstream working capital facility to $66.762 190.364) (38. One existing retail site was purchased to secure tenure.219.410) (44.308.299.275) (7.258 1. and additional land was purchased for a future retail site.006 (18.711 1.470 806. 2011 and 2010 Consolidated – Operating results ($ thousands.543) 33 .020.355 328.333) 16.777) (16.841 130.00) (1.088.420) 25.817 (30.557) (52.374 151 4. During the year.435) 0 0 (3. • • • Corporate • In March 2011.902) 4.052 248 12.00) 975.323 100.029) Year ended December 31. this entity has taken over the operation of the Napa Napa camp and all costs associated with the operation of the camp are now captured in this entity. These increases apply to unleaded gasoline. In addition. 2013. All costs incurred by this entity will be recharged to relevant InterOil entities based on an equitable driver basis.948 (1. as a 100% subsidiary of InterOil Corporation to employ all corporate staff in PNG and to capture their associated costs.36 1. Total sales volumes for year ended December 31.995 (701.659 0.5 million litres).838 88.03 1.393 (20.982) 2.743 272. one new retail site was opened as well as a truck stop commercial site. the Westpac working capital facility was increased by $4.534 1.863) (23.819 523.793) 2.6 million (PGK 140. Our retail business accounted for approximately 15% of our total downstream sales in 2012 (2011 – 13%.513) (1.0 million was provided by Westpac which is repayable in equal installments over 3.922 (21.103) (6.923 736 17.0 million litres.418 (43) 35.602 44. the ICCC advised that margins for wholesale will increase in line with the ICCC mandated formula for a five year period. This entity began transacting in October 2012.Downstream • The PNG economy continued to grow strongly throughout 2012 largely due to resource development projects. Selected Financial Information and Highlights Consolidated Results for the Years Ended December 31. 2011 1. In addition.8 million (PGK 10. December 2010 – 626.229) (13. a secured loan of $15.464) (14. except per share data) Sales and operating revenues Interest revenue Other non-allocated revenue Total revenue Cost of sales and operating expenses Office and administration and other expenses Derivative (loss)/gain Exploration costs Gain on conveyance of oil and gas properties Loss on extinguishment of IPI liability Litigation settlement expense Loss on Flex LNG Investment Foreign exchange (loss)/gain EBITDA (1) Depreciation and amortization Interest expense (Loss)/profit before income taxes Income tax benefit/(expense) Net profit/(loss) Net profit/(loss) per share (basic) Net profit/(loss) per share (diluted) Total assets Total liabilities Total long-term liabilities Gross margin (2) Cash flows (used in)/generated from operating activities (3) 2012 1. 2012 were 752.0% over the same period in 2011.692) (4.5 million litres. A consumer price index increase of 2.5 million litres (December 2011 – 678.558 (1.464 128. an increase of 74.0 million). InterOil Corporate PNG Limited was incorporated under the laws of PNG.235 2010 802. 2012. During 2012.188) (51. On December 14.137) (13.107) 10.37 0.604 0.000) (10. diesel and kerosene and are effective for the fiscal year ending December 31. or 11. 2010 .356 11.03 0.118. Investments have been made over the last three years in new electronic systems for both pumps and the forecourt control units to support the further development of this business.

7 million. 2011 and $272. from December 31.7 million on higher joint venture billings to upstream partners. 2011 and 2010 Quarterly Comparative Our net profit for the quarter ended December 31. while the investments in development segments of Upstream and Midstream Liquefaction resulted in a net loss of $13. These increases however have been partially offset by the decrease of deferred gain on contribution to LNG project by $5.8 million as this has now been fully offset against the capitalized project costs held within Midstream – Liquefaction segment.1 million in accounts payable and accrued liabilities.0 million staged cash payment under the advance payment facility from PRE held as a liability due to their option to exit the Farm-In Agreement. future cash needs for development.8 million increase in working capital facilities payable (including trade receivables discounted with recourse). 2012.8 million.2 million associated with the appraisal and development of the Elk and Antelope fields including the drilling of Antelope-3 well. BSP and BNP syndicated secured loan facility of $95.9 million increase in income tax payable on increased profits in our Downstream segment. and restricted cash of $9.3 million. These increases were partially offset by the net decreases in our cash. Comparing December 31. and a $9. and a $7. and a $3.7 million or 12% was primarily due to further capitalization of expenditure on our oil and gas properties of $107. 2010. the increase of $55. 2011 was primarily due to a $77. or 20%. 2011. compared with $328. and are assessed regularly. a receipt of the $20. Gearing targets are based on a number of factors including operating cash flows. which measures our ability to meet short-term obligations.8 million increase in inventory balances due to the timing of shipments.0 million. was primarily due to an increase in accounts payable and accrued liabilities of $84. 2011 and 2. Analysis of Consolidated Financial Results Comparing Quarters ended December 31. These ratios were below our internal targets of above 1. a $27.5 million and Westpac’s secured loan principal repayment of $2. 2010 to December 31. Herd Base and Hou Creek infrastructure construction and continued development of the LNG Project.8 million primarily due to expenditure on the development of oil and gas properties.7 million as at December 31.9 million (net of transaction costs) and drawdown of Westpac secured facility of $15. 2010). 2010.3 times as at December 31. 2013) and the closing of the transactions to sell down interests in the Elk and Antelope fields and the LNG Project. 2012 (1. As at December 31.2 times as at December 31. 2012 was $18.4 million in secured loans payable on drawdown of the ANZ. 2011 and 2010 During the year ended December 31. 2012 (2. our total liabilities amounted to $523. 2010). The operating segments of Corporate. a $23. The quick ratio (or acid test ratio (being [current assets less inventories] divided by current liabilities)). an increase of $20.1 million made during the year. cash equivalents. and continued development of the LNG Project.1. Napa Napa camp. preparation and drilling of the Triceratops-2 well.0 million reduction in IPI liability mainly attributed to the waiver or forfeiture of 1.8 million. 2011 and $975. 2010).8 million in the working capital facility which is mainly a function of timing of crude purchases for the refining operation.8 million at December 31. 2011 was primarily due to further capitalization of expenditure on our oil and gas properties of $152.7 times as at December 31.3 million. 2012. preparation for drilling the Triceratops-2 well. Midstream Refining and Downstream collectively derived a net profit for the quarter of $32. the increase in total assets of $112. or 59%. or 19%. 2011 and 2010. economic conditions.5 million at December 31. This increase of $211. capital market conditions. mainly related to timing of payments on certain crude cargo purchases.2 million for the same quarter of 2011. our debt-to-capital ratio (being debt divided by [shareholders’ equity plus debt]) was 19% (12% as at December 31.4 million.4 million as at December 31.1 times as at December 31. 2012. Our current ratio (being current assets divided by current liabilities). an increase of $5.5 times for the current ratio and 1. and Years ended December 31.6 million increase in deferred tax benefits mainly related to the increase in refinery’s carried forward tax losses as at December 31. Refer to “Liquidity and Capital Resources – Summary of Cash Flows” for detailed cash flow analysis.2 million and short term treasury bills of $11. compared with $1. and certain revisions made to the comparative period balances for the years ended December 31.5 million compared with a net profit of $13. Analysis of Financial Condition Comparing Years Ended December 31. As at December 31.7 million. The completion of the PRE farm-in transaction (expected to be completed during quarter ended March 31. The improvement in net profit for the fourth quarter in 2012 as compared to 2011 was mainly due to a $26. Comparing December 31. was 0. 2012 and 2011.3 times as at December 31. EBITDA is a non-GAAP measure and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”. 3.5% IPI interest conversion rights into common shares during the year. are expected to bring these ratios well within our internal targets. office building works and tank works.088. offset in part by a reduction of $34. 2011 and 13% as at December 31.0 million increase in plant and equipment (after depreciation) from Downstream infrastructure upgrades across locations. 2011.299. 2010 to December 31. was 1.5 million.6 million associated with the appraisal and development of the Elk and Antelope fields. The increase of $195. 2012.0 million increase in gross 34 . 2. an increase in our trade and other receivables balance of $11. and a net increase of $75. 2012. which is a more conservative measure of our ability to meet short term obligations.0 times for the quick ratio.3 times as at December 31. 2011 and 3. OPIC loan repayment of $35. Gross margin is a non-GAAP measure and is “sales and operating revenues” less “cost of sales and operating expenses” and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”. 2012.0 million. resulting from current year results and interest deductibility recognized subsequent to the payment of interest withholding tax in November 2012 on certain intercompany loan interest accrued from January 2007 to October 2012. our total assets amounted to $1. well below our targeted maximum gearing level of 50%. from December 31.

5 million for 2010. and 7. a $9.8 million in 2012 (2011 – loss of $49. Total revenues increased by $66. while a net loss for the same period of 2010 was $44.4755) compared to 2011 (foreign exchange rate increased from 0. Midstream Refining and Downstream collectively derived a net profit for the year ended December 31.6 million increase in gain on conveyance of oil and gas properties recognized due to the waiver or forfeiture of 1.3 million decrease in foreign exchange gain. primarily due to higher volumes and export prices during the period.2 million barrels in 2010. 2011 was $17.320. and the waiver or forfeiture of 1.4755) compared to fourth quarter of 2011 (foreign exchange rate increased from 0.4 million from 2011) from negative crude and product price movements particularly during the quarter ended June 30.7 million from 2011 was mainly due to an increase of $13. The increase in the loss in 2012 by $7. which was recognized on sale of interest in PPL 237 to PRE and the waiver or forfeiture of 1.2 million. 2011 to $1.6 million in the quarter ended December 31.7 million withholding tax paid in November 2012 for intercompany loan interests incurred from January 2007 to October 2012.9 million in the year ended December 31.5 million reduction in exploration costs incurred for seismic activity on PPL 236.3 million barrels for quarter ended December 31. a $4.6 million and a $12. a $1. 2011. 2012 (foreign exchange rate increased from 0. there has also been an increase in office and administration expenses of $6. mainly due to the PGK being relatively stable in the year ended December 31. Net profit for the year ended December 31.118. Total revenues increased by $201.5% IPI interest conversion rights into common shares.6 million decrease in the loss on available-for-sale investment in the shares in FLEX LNG.8 million as a result of increased operating expenses associated with the operation of the construction and logistics departments. and a $6. 2012. 2010 were $807. due to the PGK being relatively stable in the year ended December 31.4665 to 0. and a $4.4665).6 million compared with $17.5 million) mainly due to lower gross margins (a decrease of $17. Annual Comparative Our net profit for the year ended December 31. 2010 – profit of $33. The operating segments of Corporate.6 million.4805 to 0. 2012. a $34.9 million in 2012 (2011 – profit of $46. mainly resulting from the $9.5 million reduction in exploration costs incurred for seismic activity for PPL 236. increases in premiums and freight paid on crude purchases and lower distillate yields on available crude cargoes.5% IPI interest conversion rights into common shares.4 million barrels in the same period of 2011. and lower premium and freight paid for the purchased crudes during the quarter. an improvement of $62. higher margins from export cargos.5% IPI interest conversion rights into common shares.4665 to 0.4 million from 2010 was mainly due to one-time events in 2010 of $30.6 million). 2012 of $61. an improvement of $3. These increases in profit was partly offset by a $11. and a $1.5 million barrels for year ended December 31. 2012.4755) compared to same period in 2011 when it strengthened significantly (foreign exchange rate increased from 0.4 million reduction in foreign exchange gain. and increasing Downstream domestic sales volumes resulting from various development projects being undertaken in Papua New Guinea has further lessened the unfavorable movement in current year profit.0 million increase in income tax benefits resulting mainly from current year results and interest deductibility recognized subsequent to the payment of interest withholding tax in November 2012 on certain intercompany loan interest accrued from January 2007 to October 2012.3785 to 0. Foreign exchange gains also increased in 2011 by $35.7 million compared with a net loss of $44.3785 at the start of the year to 0.4 million increase in gain on conveyance of oil and gas properties.8 million increase in interest expense.margin attributable to the improved crude and product price movements.0 million expense relating to settlement of certain long-standing litigation. The total volume of all products sold by us was 2. primarily from the losses incurred for the commodity contracts settled in September 2012. The Midstream Refining segment generated a net loss of $2.6 million reduction of exploration costs incurred for seismic activity for PPL 236.4465 to 0. a $4.4665 as at December 31.0 million decrease in income tax benefit resulting from the taxable temporary differences. During 2012. a $8.7 million interest withholding tax paid in 35 .5 million.2 million.1 million was mainly due to a $25. 2012 was $1.7 million interest withholding tax paid in November 2012 for certain intercompany loan interests accrued from January 2007 to October 2012 and settled in November 2012. a $9.1 million gain on conveyance of oil and gas properties. 2012. The decrease in net profit for the year 2012 compared to the year 2011 of $16.1 million decrease in foreign exchange gain. 2012. Total revenues in the year ended December 31. compared with 1.0 million.8 million from $289. and a $6. These decreases in profit have been partly offset by a $10.9 million barrels in the same quarter of 2011.1 million.4665). primarily due to higher sales volumes made during the year.1 million on intercompany interest charges due to higher loan balances from the parent entity (Corporate segment) to fund the exploration and development activities.4 million increase in gain on conveyance of oil and gas properties recognized on sale of interest in PPL 237 to PRE.1 million. The main items contributing towards the loss in 2010 were one time charges including a loss on extinguishment of IPI liability of $30. a $2. 2012 (foreign exchange rate increased from 0.2 million increase in interest expense. compared with 7.3785 to 0.4665). a decrease of $16. 2010 – loss of $78.6 million in the year ended December 31.5 million increase in borrowing costs relates primarily to the $9.6 million from $1. which in the prior year was mainly arising from the translation of the non-monetary assets of the refinery operation using period end rates (strengthening of PGK against USD was higher in prior year quarter). while the investments in development segments of Upstream and Midstream Liquefaction resulted in a net loss of $59. In addition.8 million compared to 2010 due to the PGK strengthening against the USD from 0. 2011 to $356. The reduction in the loss in 2011 by $29. The total volume of all products sold by us was 8.3 million in gross margin on account of the increased pricing due to ICCC price revisions in fourth quarter of 2011.3 million decrease in derivative gain. mainly due to the weakening of PGK against USD (foreign exchange rate decreased from 0. These increases have been offset by a $4.4 million in the quarter ended December 31. The Upstream segment realized a net loss of $56.6 million loss on extinguishment of IPI liability and offset partly by a $2. resulting from the $9.7 million.7 million for the same period of 2011.

November 2012 for certain intercompany loan interests accrued from January 2007 to October 2012 and settled in November 2012; and a $6.3 million decrease in derivative gain, primarily from the losses incurred for the commodity contracts settled in September 2012. These decreases have been partly offset by a $18.8 million increase in income tax benefits resulting mainly from current year results and interest deductibility recognized subsequent to the payment of interest withholding tax in November 2012 on certain intercompany loan interest accrued from January 2007 to October 2012. The net profit in 2011 increased from 2010 mainly on account of a $34.0 million increase in foreign exchange gains as a result of rising PGK against USD during 2011, which were partially offset by lower gross margins on decreases in export product crack spreads on increased crude costs and reduced demand for export products. The Midstream Liquefaction segment had a net loss of $2.8 million during the 2012 year (2011 – loss of $15.5 million, 2010 – loss of $8.4 million) resulting from lower management expenses and share compensation costs related to the midstream facilities of the LNG Project development which are not capitalized. The decrease in expenses from prior year is in line with reduced expenditure being approved till the sell down process is completed, to seek a strategic partner to acquire an interest in the Elk and Antelope fields, the LNG Project and well exploration licenses, is completed. The Downstream segment generated a net profit of $32.6 million in 2012 (2011 – profit of $11.6 million, 2010 – profit of $6.7 million). The increased profit was mainly due to a $23.1 million improvement in gross margins on increased domestic sales volumes resulting from various development projects being undertaken in Papua New Guinea, and a $8.5 million increase in foreign exchange gain mainly due to the required transfer of exchange gain on translation of loan balances from other comprehensive income in equity to profit and loss upon repayment of intercompany loans during the quarter ended March 31, 2012. This improvement in profit has been partly offset by an $8.6 million increase in income tax expense on account of higher operating profits for the year. The increased profit in 2011 compared to 2010 was mainly due to a $5.6 million improvement in gross margins due to an increase in domestic volumes and the positive impact from the revised pricing formula that came into effect in late 2010 following the ICCC’s review of wholesale, distribution and retail margins set by the PNG State for the petroleum industry, and the impact of the increasing price environment during the period leading to higher margins on inventories sold. The Corporate segment generated a net profit of $33.1 million in 2012 (2011 – profit of $21.9 million, 2010 – profit of $3.3 million). The increased profit was mainly on account of a $10.7 million increase in interest charges to other business segments on increased loan balances and due to a $3.4 million impairment loss recognized in 2011 on our investment in shares in Flex LNG held by us as part of the framework agreements entered into with FLEX LNG and Samsung Heavy Industries in April 2011. The 2010 results included a $12.0 million one time litigation settlement expense on account of the agreed settlement of the Todd Peters et al litigation for which we issued 199,677 common shares to the plaintiffs. Variance Analysis A complete discussion of each of our business segments’ results can be found under the section “Quarter and Year in Review”. The following analysis outlines the key variances, the net of which are the primary explanations for the changes in the consolidated results between the quarters and years ended December 31, 2012 and 2011.

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Yearly Variance ($ millions) $5.3 $26.0

Quarterly Variance ($ millions) ($16.1) $3.3 Net profit/(loss) variance for the comparative period primarily due to: Increase in gross margin for the year ended December 31, 2012 was mainly due to the following contributing factors: • Higher Downstream domestic sales volumes resulting from various development projects being undertaken in Papua New Guinea • Increased margins on export cargos – light and heavy Naphtha • Increased pricing due to ICCC yearly price revisions in fourth quarter of 2011 - Losses due to negative crude and product price movements between periods, particular during quarter ended June 30, 2012 when we had a high inventory due to certain weather or supply factors, resulting in higher net realizable value write downs - Increases in premiums and freight paid on purchased crudes Increase in gross margin for the current quarter ended December 31, 2012 was mainly due to the following contributing factors: • Gains due to decreases in premiums and freight paid on purchased crudes • Gains due to improved crude and product price movements during the current quarter compared to the same period in 2011 • Increased margins on export cargos Lower office and administration and other expenses were primarily resulted from lower management expenses and share compensation costs related to the midstream facilities of the LNG Project development which were not capitalized. Higher derivative losses for the year attributed to the losses on commodity contracts settled in September 2012. Lower exploration costs incurred for seismic activity for PPL 236 during the periods. The seismic costs were in relation to the Kwalaha and Tuna seismic acquisition programs. The increase in gain on conveyance of oil and gas properties for the year was attributable to the gain recognized on sale of interest in PPL 237 to PRE, and the waiver or forfeiture of 1.5% IPI interest conversion rights into common shares. Decrease in loss on available-for-sale investment due to the impairment losses recognized in prior periods for the reduction in fair value of the FLEX LNG investment. Decrease in foreign exchange gains for the year was mainly due to the PGK being relatively stable in the year ended December 31, 2012 (foreign exchange rate increased from 0.4665 to 0.4755) compared to same period in 2011 (foreign exchange rate increased from 0.3785 to 0.4665) and a reduction in exchange gains held on PGK cash balances with the maturity of various term deposits since second quarter of 2011. Decrease in foreign exchange gains for the quarter was primarily resulted by the weakening of PGK against USD (foreign exchange rate decreased from 0.4805 to 0.4755) compared to fourth quarter of 2011 (foreign exchange rate increased from 0.4465 to 0.4665).

$1.3 ($0.0) $2.6 $1.5 $1.6 ($11.4)

$1.1 ($6.2) $4.5 $4.4 $3.4 ($25.1)

($9.5) ($6.0)

($9.8) $10.0

Increase in interest expense for both periods was mainly due to $9.7 million interest withholding tax paid in November 2012 for certain intercompany loan interest accrued from January 2007 to October 2012 and settled in November 2012. Increase in income tax benefits for the year primarily attributable to the increased refinery carried forward tax losses, and interest deductibility recognized subsequent to the payment of interest withholding tax in November 2012 on certain intercompany loan interest accrued from January 2007 to October 2012. Decrease in income tax benefits for the quarter primarily resulting from the impact of unfavorable foreign exchange movements impacting temporary differences on translation of the nonmonetary assets of the refinery operation using period end rates.

Analysis of Consolidated Cash Flows Comparing Quarters Ended December 31, 2012 and 2011, and Years Ended December 31, 2012, 2011 and 2010 As at December 31, 2012, we had cash, cash equivalents, and restricted cash of $98.9 million (December 31, 2011 – $108.1 million, December 31, 2010 - $280.9 million), of which $49.0 million (December 31, 2011 - $39.3 million, December 31, 2010 - $47.3 million) was restricted. Of the total restricted cash of $49.0 million, $37.3 million (December 31, 2011 - $33.0 million, December 31, 2010 - $40.7 million) was restricted pursuant to the BNP Paribas working capital facility utilization requirements, $11.3 million (December 31, 2011 – $5.9 million, December 31, 2010 - $6.3 million) was restricted as a cash deposit on the secured loans (ANZ, BSP and BNP syndicated secured loan facility as at December 31, 2012, and OPIC facility as at December 31, 2011 and 2010), and the balance was made up of a cash deposit on office premises together with term deposits on our PPLs. A revision of the prior period comparatives for the years ended December 31, 2011 and 2010 and the respective interim periods for those years have been made to the Statement of Cash Flows for revising the classification of oil and gas properties expensed (exploration costs, excluding exploration impairment) to an operating activity in the Statement of Cash Flows, as opposed to our earlier classification of this item as an investing activity. This revision was made as we had failed to consider the specific IFRIC clarification to IAS 7, effective January 1, 2010 that confirmed that only expenditures that result in a recognized asset in the balance sheet being eligible for classification as investing activities. Please refer to “Liquidity and Capital Resources – Summary of Cash Flows” section for further details.
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Cash flows from operations Our cash outflows from operations for the quarter ended December 31, 2012 were $27.7 million compared with an inflow of $26.3 million for the quarter ended December 31, 2011, a net increase in cash outflows of $54.0 million. This increase in cash outflows was mainly due to a $65.6 million net increase in working capital outflows associated with trade and other receivables, inventories and accounts payables and a $11.6 million increase in net cash inflow used in operations prior to changes in operating working capital, related to the net profit generated by the operations less any non-cash expenses for the quarter ended December 31, 2012. Our cash outflows from operations for the year ended December 31, 2012 were $36.0 million compared with an inflow of $44.2 million for the year ended December 31, 2011, a net increase in cash outflows of $80.2 million. This increase in cash outflows was mainly due to a $31.4 million net increase in working capital outflows associated with trade and other receivables, inventories and accounts payables and a $48.8 million decrease in net cash inflow generated from operations prior to changes in operating working capital, related to the lower profits generated by the operations less any non-cash expenses for the year ended December 31, 2012. Our cash inflows from operations for the year ended December 31, 2011 were $44.2 million compared with outflows of $30.5 million for the year ended December 31, 2010, a net increase in cash inflows of $74.7 million. This increase in cash inflows is mainly due to a $24.6 million change in cash generated by operations prior to changes in operating working capital, related to higher profits generated from operations less any non-cash expenses for the year. There was also a $50.1 million decrease in working capital associated with trade receivables, inventories and accounts payables. Cash flows from investing activities Cash outflows for investing activities for the quarter ended December 31, 2012 were $52.3 million compared with $41.4 million for the quarter ended December 31, 2011. These outflows mainly relate to the net cash expenditures on exploration, appraisal and development activities (net of IPI cash calls) of $34.9 million, expenditures on plant and equipment of $10.6 million and a $9.4 million increase in restricted cash held as security under BNP Paribas working capital facility and ANZ, BSP and BNP syndicated secured loan facility. These outflows were partly offset by a $2.6 million decrease in working capital requirements of development segments relating to the timing of payments. Cash outflows for investing activities for the year ended December 31, 2012 were $169.7 million compared with $185.8 million for the year ended December 31, 2011. These outflows mainly relate to the net cash expenditures on exploration, appraisal and development activities (net of IPI cash calls) of $180.7 million, expenditures on plant and equipment of $36.7 million and a $9.8 million increase in restricted cash held as security under BNP Paribas working capital facility and ANZ, BSP and BNP syndicated secured loan facility. These outflows were partly offset by the receipt of $20.0 million non-refundable initial staged cash proceeds from PRE for the sell down of a net 10.0% (12.9% gross) participating interest in PPL 237; maturity of short term PGK treasury bills of $11.8 million during the year; and a $25.5 million increase in working capital requirements of development segments relating to the timing of payments. Cash outflows for investing activities for the year ended December 31, 2011 were $185.8 million compared with $94.2 million for the year ended December 31, 2010. These outflows mainly relate to the net cash expenditure on exploration, appraisal and development activities (net of IPI cash calls) of $115.7 million, expenditure on plant and equipment of $42.1 million, acquisition of FLEX LNG shares net of transaction costs of $7.5 million, investments in short term PGK treasury bills of $11.8 million, a $10.0 million increase in trade receivables and a $6.7 million decrease in working capital requirements of development segments relating to the timing of receipts and payments. These outflows were partly offset by a decrease of $8.0 million in the restricted cash balance under the BNP Paribas working capital facility. Cash flows from financing activities Cash inflows from financing activities for the quarter ended December 31, 2012 amounted to $72.5 million, compared with outflows of $31.9 million for the quarter ended December 31, 2011. The increase in these cash inflows are primarily due to the $95.9 million drawdown of ANZ, BSP and BNP syndicated secured loan facility (net of transaction costs); a $7.2 million increase in proceeds from the Westpac, BSP and BNP working capital facilities; and a $0.4 million increase in receipts of cash from the exercise of stock options by employees under our stock incentive plan. These increases have been partially offset by the repayment of OPIC secured loan of $31.0 million. Cash inflows from financing activities for the year ended December 31, 2012 amounted to $185.7 million, compared with outflows of $27.2 million for the year ended December 31, 2011. The increase in these cash inflows are primarily due to the $95.9 million drawdown of ANZ, BSP and BNP syndicated secured loan facility (net of transaction costs); a $77.8 million increase in proceeds from the Westpac, BSP and BNP Paribas working capital facilities; the receipt of $20.0 million advance payment facilities received from PRE for the sell down of a net 10.0% (12.9% gross) participating interest in PPL 237 in accordance with the Farm-In Agreement; a $15.0 million increase from the drawdown of the Westpac secured loan facility; a $11.0 million increase in receipts of cash from the exercise of stock options by employees under our stock incentive plan; and an increase of $3.6 million receipts of cash contribution from Mitsui for the Condensate Stripping Project. These increases have been partially offset by the full repayment of OPIC secured loan of $35.5 million and semi-annual Westpac secured loan principal repayment of $2.1 million. Cash outflows from financing activities for the year ended December 31, 2011 amounted to $27.2 million, compared with $311.8 million inflows for the year ended December 31, 2010. These cash outflows include two repayments of the OPIC secured loan of $9.0 million and $34.8 million repayments of the working capital facility. These outflows have been partly offset by receipts of cash contributions from Mitsui for the Condensate Stripping Project of $9.9 million, receipts from PNG LNG cash call of $2.2 million, and receipts of cash from the exercise
38

974 24.703) 17.880 (178.552 (207.406) 21.659 (151.01 0.41) (0.402) 15.66) (0.436 0.980) 1.495) (15.686) 356.263) (11.134 (11.503) 18.358 (573) 5.375) 8.428) 289.445 2.532) (32.38 Sept 30 2.336 0. and on a consolidated basis.640 209.512 37.146 (473) (190) (19.280) 4.27 0.11 0.548 (180.545 0.626 7.933 (1.540 0.414 9.652) 326.894 (2.969) 93 6.891 237.461 (3.570 1.11 June 30 1.125) 243.136 301.080) (1.067 (17.969) 13.808 10.275 3.548 (10.136) 9.957) 26.216 274.417 11 9.133 (12.730) (42.645 231.997 (10.742 (186. 2012 by business segment.006 223.684 (4. The inflows from financing activities in the prior year relate primarily to the receipt of cash from the concurrent common share and 2. Summary of Consolidated Quarterly Financial Results for Past Eight Quarters The following is a table containing the consolidated results for the eight quarters ended December 31.258 14.975 (9.945) 303.647) 676 11.49 0.777 13.081) 13.778) (0.of stock options of $4.519 384 18.709 18.169) 3.27 Sept 30 2011 June 30 4.174) 338.306 11.616 252 13.401 (394) 7.991) 299.284 302.370 192 12.244) 11.151 (6. 39 . 2012 Dec 31 4.973 (6.831 (181.216) 27.757 (210.539 (17.657 23.716 10.275 9.75% convertible note public offerings in November 2010.309) 2.881 (13.925 220.743 157.111 191.223 (9.463 (1.035) 5.199) 25.936) 5.864 956 13.602) 3.744 5.713) (0.374) 18.197 0.638 262.38 0. The cash inflows/outflows associated with the working capital facility drawdown/repayments are due to the timing of cash flows and the use of working capital.01 2.439 (873) 12.584) 281.304 25.66) March 31 2.48 March 31 668 217.431 26.654 (10.205 (31.078 (163.940 (5.574) 3. Quarters ended ($ thousands except per share data) Upstream Midstream – Refining Midstream – Liquefaction Downstream Corporate Consolidation entries Total revenues Upstream Midstream – Refining Midstream – Liquefaction Downstream Corporate Consolidation entries EBITDA (1) Upstream Midstream – Refining Midstream – Liquefaction Downstream Corporate Consolidation entries Net profit/(loss) Net profit/(loss) per share (dollars) Per Share – Basic Per Share – Diluted 1.269) 38.749 26.41) EBITDA is a non-GAAP measure and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”.188 (14.849 (1.104 (5.310 218.455) (15.604) 4.988) 5.201) (3.612 665 2.898 (6.19 Dec 31 1.620 24.808 (9.195 6.727 236.200) 18.045 8.491 3.783 593 27.671 201.102 9.320 (1.455 186.604 (4.871) (36.123) 6.678 21.949) 14.841 (14.596) 699 0.632 (2.270 (2.20 0.967 (4.314 (4.621 7.5 million.

Analysis of Upstream Financial Results Comparing the Quarters and Years Ended December 31.555 (1.137) EBITDA is a non-GAAP measure and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”.891 1.Quarter and Year In Review The following section provides a review of the quarter and year ended December 31.418 (930) (12.7) $2.081) 2011 1.136 4.081) (13. 2012 4. Yearly Variance ($ millions) ($3. 2012 and 2011. The seismic costs were in relation to the Kwalaha and Tuna seismic acquisition programs.4665).799) (982) 665 (1.153) (15.970) (13. Recoveries in relation to our percentage interest of the development projects are offset against the relevant expenses.274) 758 1. including civil works and related infrastructure development associated with the LNG Project.5 Net loss variance for the comparative period primarily due to: Other non-allocated revenue relates to the utilization of construction and drilling related activities performed internally.4665 to 0.255) (30.363 10.841 9. The increase in gain on conveyance of oil and gas properties for the quarter was attributable to the gain recognized on the waiver or forfeiture of 1.Quarter and Year In Review Upstream – Operating results ($ Thousands) Other non-allocated revenue Total revenue Office and administration and other expenses Exploration costs Gain on conveyance of oil and gas properties Foreign exchange loss EBITDA (1) Depreciation and amortization Interest expense Loss before income taxes Income tax expense Net loss 1.5% IPI interest conversion rights as noted above.5 $4. Quarter ended December 31.793) 2011 9.902) 4.523 (16) (873) (474) (11. Reduction in exploration costs incurred for seismic activity for PPL 236 during the 2012 periods. while the recoveries of the portion relating to external party interests in the development projects are classified under other non-allocated revenue.675) (43. The increase in gain on conveyance of oil and gas properties for the year was attributable to the gain recognized on sale of interest in PPL 237 to PRE. the net of which primarily explains the variance in the results between the quarters and years ended December 31.021) (1.5% IPI interest conversion rights into common shares.8) $4.734) (13. 2012 (foreign exchange rate increased from 0.793) (56. 2012 for each of our business segments.402) Year ended December 31.869) (3.137) (49. Upstream .2 Quarterly Variance ($ millions) ($7.355) (8.3785 to 0. which had led to lesser foreign exchange losses incurred for PGK payments made during the year and PGK denominated liabilities recorded as at year end.891 1.435) (2. 2012 10. Higher interest expense due to an increase in inter-company loan balances provided to fund exploration and development activities.4755) compared to same period in 2011 (foreign exchange rate increased from 0. and the waiver or forfeiture of 1.097) (56.013) (49.136 (7.4 ($3.712) (9.5 ($6. 2012 and 2011 The following analysis outlines the key movements.0) ($13. ($8.1) 40 .363 (11.122) (18. PGK had been relatively stable in the year ended December 31. Increase in office and administration expenses for the periods was mainly due to increased operating expenses associated with the operation of the construction and logistics departments.2 Foreign exchange movements during the year mainly due to currency fluctuations between the PGK and the USD.7) $0. $1.402) (9.0 $1.841 (5.6 $1.8) $2.

2012 445.615) 25.Refining .690 41. Gross margin is a non-GAAP measure and is “external sales” and “inter-segment revenue – sales” less “cost of sales and operating expenses” and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”.Midstream .453 EBITDA is a non-GAAP measure and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”.735) 201 5.114.913 (1.285) (3.768 169.071.Recharges Interest and other revenue Total segment revenue Cost of sales and operating expenses Office and administration and other expenses Derivative gain/(loss) Foreign exchange (loss)/gain EBITDA (1) Depreciation and amortization Interest expense (Loss)/profit before income taxes Income tax benefit Net profit/(loss) Gross Margin (2) 1.458 60.4% 2011 24. the r efinery was shut down for 51 days and 82 days.803 185 1.58 $0.798) 12.254) (9.073 2011 362.893) 24. During year 2012 and 2011. 2012 131.069 (12.939) 2.640 (235.432) (2. Key Refining Metrics Throughput (barrels per day) (1) Capacity utilization (based on 36.574 13.825) (18.483 58% $4. Quarter ended December 31. 2012 26.Sales Inter-segment revenue .500 barrels per day operating capacity) Cost of production per barrel Working capital financing cost per barrel of production Distillates as percentage of production 1.243 15.662 (11.519 2011 77.841 831 948.722 (2.805 18.825) (28.684 (880) Year ended December 31.183 967 7 301.644 50% $5.664) 39.859) (17.559) 19.120 650.744 6.837 2. 2.868 2.824) 2.241) (7.73 $0.339) (5.370 (4.153) (11.57 47.5% Throughput per day has been calculated excludin g shut down days.76 57.173) 16.927) (4.591 156.811) 486 (3. 2012 24.401 17.672 8.1% 2011 24.18 $0.606 576.018 26.878) (3.438 58% $3.950 (897.67 55.40 $0.946 46.73 57.925 (283.1% Year ended December 31.852) (28.390) (3. Quarter ended December 31.856 54% $4.826 355 237.604 (2.Quarter and Year In Review Midstream Refining – Operating results ($ Thousands) External sales Inter-segment revenue . respectively 41 .

Increase in income tax benefits for the year primarily attributed to the increased refinery’s carried forward tax losses.3 ($9.2) Increase in depreciation and amortization was primarily due to the depreciation charge for the capital additions. upgraded Napa Napa camp and building works. reduced distillate yield) • Gains due to positive crude and product price movements during the quarter • Increased margins on export cargos $0. and interest deductibility recognized subsequent to the payment of interest withholding tax in November 2012 on certain intercompany loan interest accrued from January 2007 to October 2012. Decrease in foreign exchange gains for the quarter was primarily resulted by the weakening of PGK against USD (foreign exchange rate decreased from 0. 2012 and 2011 The following analysis outlines the key movements.7 million interest withholding tax paid in November 2012 for certain intercompany loan interest accrued from January 2007 to October 2012 and settled in November 2012.3) ($8.6) ($8.3785 to 0. • Increased margins on export cargos – light and heavy Naphtha Increase in gross margin for the quarter was mainly due to the following contributing factors: • Gains due to decreases in premiums and freight paid on purchased crudes. Decrease in foreign exchange gains for the year was mainly due to the PGK being relatively stable in the year ended December 31. particularly during quarter ended June 30.Analysis of Midstream .4665 to 0.3) ($34.4755) compared to same period in 2011 (foreign exchange rate increased from 0. Yearly Variance ($ millions) ($2. which impacted temporary differences on translation of the non-monetary assets of the refinery operation using period end rates. 2012 (foreign exchange rate increased from 0.7) $18.6) ($17.4805 to 0. ($1. Increase in interest expense for both periods was mainly attributable to the $9. 2012 • Increases in premiums and freight paid on purchased crudes.4) Net profit/(loss) variance for the comparative period primarily due to: Decrease in gross margin for the year was mainly due to the following contributing factors: • Losses due to negative crude and product price movements. including insurance.4755) compared to fourth quarter of 2011 (foreign exchange rate increased from 0.3) Increase in derivative loss for the year was mainly resulting from the losses incurred for the commodity contracts settled in September 2012. 2012 and 2011. which is partially offset by lower yield structure (i.4 Quarterly Variance ($ millions) ($49.Refining Financial Results Comparing the Quarters and Years ended December 31.e.8 42 .3) $18.g.6) ($6. while yield was marginally lower • Increased direct cost of sale expenses. the net of which primarily explains the variance in the results between the quarters and years ended December 31.4665) and a reduction in exchange gains held on PGK cash and treasury bill balances which matured in the second quarter of 2011. repair and maintenance and labour costs. ($2. e.4465 to 0. Decrease in income tax benefits for the quarter was mainly due to the impact of unfavorable foreign exchange movement for PGK against USD in fourth quarter of 2012 as compared to the favorable foreign exchange movement for PGK against USD in fourth quarter of 2011.1) ($1.4665).

Liquefaction Financial Results Comparing the Quarters and Year ended December 31. 2.263 745.227 54.716 16. Quarter ended December 31.867) (4.098 (13.647 EBITDA is a non-GAAP measure and is reconciled to under the heading “Non-GAAP Measures and Reconciliation”.962) 11.082) (2.780) (229) 24.736 222 1.308) (15.sales” less “cost of sales and operating expenses” and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”.898 864.540 Year ended December 31.892 59 561 220.856 (800.051 (5.6 Net loss variance for the comparative period primarily due to: Decrease in office.665) 1.871) 46. We currently have an economic interest of 84.123 (704.663 197 1.3 Quarterly Variance ($ millions) $12. Downstream .170) 4.070) 7.346) 16.808 (1.662 6.389 18 271 209.121) (13) (14.422) (1.586 62.897) (155) 12.844) (2.574) Year ended December 31.Midstream . administration and other expenses was due to lower management expenses and share compensation costs related to the midstream facilities of the LNG Project development which are not capitalized.Quarter and Year In Review Midstream Liquefaction – Operating results ($ Thousands) Interest and other revenue Total segment revenue Office and administration and other expenses Foreign exchange gain/(loss) EBITDA (1) Depreciation and amortization Interest expense Loss before income taxes Income tax expense Net loss 1.123) (6) (445) (4.6 $13. The development of these facilities is being progressed in joint venture with Pac LNG through PNG LNG.574) (4.901 (4. The following analysis outlines the key movements.135) (337) 10.202) (4.468) (15.217) (18.582% in PNG LNG.815) 8. 2012 and 2011. Gross margin is a non-GAAP measure and is “external sales” and “inter-segment revenue .128) 5 (4.678 (199.258 (1. Quarter ended December 31.741 2011 743.468) EBITDA is a non-GAAP measure and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”. the net of which primarily explains the variance in the results between the quarters and years ended December 31.216 (595) 3. 2012 192 192 (586) (394) (394) 2011 (4.512 (203. 2012 (525) (3) (528) (8) (2. 2012 219. 43 . 2012 862.134) (26) (1.749 2011 209.567 39.621 9.512) 32.2 $4. Analysis of Midstream .Liquefaction .Sales Interest and other revenue Total segment revenue Cost of sales and operating expenses Office and administration and other expenses Foreign exchange (loss)/gain EBITDA (1) Depreciation and amortization Interest expense Profit before income taxes Income tax expense Net profit Gross Margin (2) 1. Yearly Variance ($ millions) $4.026) (4.213) (15.Quarter and Year In Review Downstream – Operating results ($ Thousands) External sales Inter-segment revenue .529 (4.786 (3. 2012 and 2011 This segment’s results include the proportionate consolidation of our interest in the joint venture development of the proposed midstream facilities of the LNG Project.308) (2.844) 2011 (14.

630 4.503 38.248) 21.383) 11 486 43.6) Corporate .8 ($2. 44 . 2012 188.4465 to 0.5 $2.838 12.217) (18.0) $8.512 (23) 92.8 $2. Increase in foreign exchange gain for the year was mainly due to the transfer of exchange gain on translation of loan balances from other comprehensive income in equity to profit and loss upon repayment of intercompany loans during the quarter ended March 31.1 ($3. $0.43 Year ended December 31.371) (11) 954 (3.1 $7.3 ($1.185) 34.2) ($1. the net of which primarily explains the variance in the results between the quarters and years ended December 31.Quarter and Year In Review Corporate – Operating results ($ Thousands) External sales Inter-segment revenue .5 Net profit variance for the comparative period primarily due to: Gross margins increased compared to the prior year periods mainly due to an increase in domestic sales volumes resulting from various development projects being undertaken in Papua New Guinea.650 41.37 2011 187.5) $1.586) 10.498) 8. 2012.585 (1.4665).Sales Inter-segment revenue .4805 to 0. Quarterly Variance ($ millions) $4. Quarter ended December 31. Decrease in interest expense for the year was mainly due to the repayment of intercompany loans and lower utilization of working capital facilities during the year.706) (6.567 4 37.0 $2.133 (683) (1.169) 307 801 (1. Increase in office and administration expenses was primarily due to higher salaries.Recharges Interest revenue Other non-allocated revenue Total revenue Cost of sales and operating expenses Office and administration and other expenses Derivative gain Foreign exchange (loss)/gain Loss on Flex LNG investment EBITDA (1) Depreciation and amortization Interest expense Profit before income taxes Income tax expense Net profit Gross Margin (2) 1. 2012 and 2011.130 (1.420) 30.109 (493) 7.941 2011 266 13.0 $23.087 18. Gross margin is a non-GAAP measure and is “external sales” and “inter-segment revenue .7 $2.931 (18. Reduction in foreign exchange gain for the quarter was a result of the weakening of PGK against USD in fourth quarter of 2012 (foreign exchange rate decreased from 0.849 (1.882 2. 2012 196 22.134 (527) (1.4755) compared to fourth quarter of 2011 (foreign exchange rate increased from 0.32 2011 678.519 926 2011 69 5.5 ($8.370) (6.1) Increase in depreciation and amortization for the year was mainly due to the depreciation charge for capital additions.55 Analysis of Downstream Financial Results Comparing the Quarters and Year ended December 31. which primarily related to office refurbishment and upgrade projects across various terminals and depots.087 3.848 (1.859 39.117 (11. Increase in income tax expense mainly due to the higher profit before tax earned during the periods.547 21.905 49.601) 11. 2012 and 2011 The following analysis outlines the key movements.421) (47.050) (6.704 EBITDA is a non-GAAP measure and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”.552 (5. $0. 2012 56 6.585 11.831 (5.138) (64) 14.140 (2.2 ($0.8) Yearly Variance ($ millions) $21.905) (52. 2012 752.012) 23.sales” less “cost of sales and operating expenses” and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”.616 649 Year ended December 31.Downstream Operating Review Key Downstream Metrics Sales volumes (millions of liters) Average sales price per liter Quarter ended December 31. wages and corporate recharges on increased headcount. 2.498) 33.330) 10.176 4 113.

Decrease in loss on available-for-sale investment was due to the impairment losses recognized in prior periods for the reduction in fair value of the FLEX LNG investment as of the period ends.0 ($12. Increase in income tax expense was mainly due to higher profit before tax earned during the periods. 2012. 2012.344) (38.279) 32 11. The corporate costs incurred from January 2012 to September 2012 were captured within the Midstream Refining segment and then recharged to other segments. Higher interest income for both periods was due to an increase in inter-company loan balances.Sales Inter-segment revenue .Refining segment. 6.786 60.125 2.199) 31 12. the net of which primarily explains the variance in the results between the quarters and years ended December 31.539) (1.515) (7. These costs were previously captured within the Midstream .125 1.500 253 253 206 Year ended December 31.865 (12. Quarterly Variance ($ millions) $2.410) (11.121) (783. 45 .Analysis of Corporate Financial Results Comparing the Quarters and Year ended December 31.527 48. In addition. 2.0) $1.789) 130 49.010 2.930 (50.0) $10. 2012 (673. This measure is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”.539) (1.083) 592.721 7.6 $3.2 $1.4 Net loss variance for the comparative period primarily due to: Increase in external sales and inter-segment sales less cost of sales was mainly due to higher profit margin earned by shipping business during the financial periods.729) (48. Increase in inter-segment recharges for the year was mainly due to the following: • In March 2011. Gross margin is a non-GAAP measure and is “inter-segment revenue elimination” less “cost of sales and operating expenses” and represents elimination upon consolidation of our refinery sales to other segments.4 ($0. 5.7 ($5. 2012 (175.120 (1.552 384 384 293 2011 (162. Represents the amortization of a portion of costs capitalized to assets on consolidation.707) (49.329) (19. $1.798 Includes the elimination of interest accrued between segments. and • Finalize and true up of full year recharges in the quarter ended December 31.3 Yearly Variance ($ millions) $11.Recharges Interest revenue (1) Total revenue Cost of sales and operating expenses (2) Office and administration and other expenses (3) EBITDA (4) Depreciation and amortization (5) Interest expense (1) Profit/(loss) before income taxes Income tax expense Net profit/(loss) Gross Margin (6) 1. This entity began transacting in October 2012.9) ($0.010) (677.2 $2.3 $14.505) 671.622 19. All costs incurred by this entity are recharged to relevant InterOil entities based on an equitable basis. Includes the elimination of inter-segment administration service fees. 4. EBITDA is a non-GAAP measure and is reconciled to IFRS under the heading “Non-GAAP Measures and Reconciliation”.3) Consolidation Adjustments . Quarter ended December 31. InterOil Corporate PNG Limited was incorporated to employ all corporate staff in PNG and to capture their associated costs. 2012 and 2011.Quarter and Year In Review Consolidation Adjustments – Operating results ($ Thousands) Inter-segment revenue . The FLEX LNG investment is held as part of the framework agreements entered into with FLEX LNG and Samsung Heavy Industries in April 2011. Increase in office and administrative expense mainly due to the costs associated with corporate employees in PNG and the operation of the Napa Napa camp now being captured in the Corporate segment since October 1.891) 2011 (590. 2012 and 2011 The following analysis outlines the key movements.686) 175.552) (207.427) 162.541 (36.427 (11.9 $0.502) (181.015) 130 38. Represents the elimination upon consolidation of our refinery sales to other segments and other minor inter-company product sales. 3. this entity has taken over the operation of the Napa Napa camp and all costs associated with the operation of the camp are now captured in this entity.805) (12.677) (60.

2012 was $100. During the year ended December 31. 2013 and interest payments on the syndicated secured loan facility. the total facility is split into two components. Organization ANZ. The interest payments are to be made either in quarterly or half yearly payments.5 million. The balance outstanding under the loan facility as at December 31. at our election which has to be made in advance of the interest period. or. The first four half yearly installments are for an amount of $8. BSP and BNP Syndicated Secured Loan (Midstream.290. the net of which primarily explains the variance in the results between the quarters and years ended December 31. In accordance with the agreement with BNP Paribas. BNP Paribas Working Capital Facility (Midstream . As at December 31.67% 4.0 million each. 2012. Also. BSP.0 million each due for payment on this secured loan on May 9. While cash flows from operations are expected to be sufficient to cover our operating commitments.025. We can provide no assurances that we will be able to obtain such additional capital or that our lenders will agree to refinance these debt facilities.75% convertible notes Mitsui unsecured loan (2) 1. As a result.7) ($3. 4. and ANZ. In October 2012.81%.000 was amended so that the facility was made evergreen and the annual renewal requirement removed.1 $0.857. The interest rate on the loan is equal to LIBOR plus 6. 2012 to secure our principal installment due on May 9. BSP and BNP syndicated secured loan facility BNP working capital facility Westpac PGK working capital facility BSP PGK working capital facility Westpac secured loan 2.0 million each. 2012. planned development of the LNG Project and Condensate Stripping Project require funding beyond our operational cash flows and the cash balances we currently hold.Analysis of Consolidation Adjustments Comparing the Quarter and Year ended December 31. which are renewable annually and were renewed in February 2012 for another year. Quarterly Variance ($ millions) $0. Facility $100.000 $240.Refinery) On October 16.2 million at December 31. Effective rate after bifurcating the equity and debt components of the $70 million principal amount of 2. 3.000 $12. and the final four installments are for an amount of $12. The loan is secured over the fixed assets of the refinery.912. we have two installment payments of $8. The principal of the syndicated secured loan facility is repayable in ten half yearly installments over the period of five years.81% 2.000 $11.000.5%.000. 2012. we will be required to raise additional capital and/or refinance these facilities in the future. 2012 $100. Liquidity and Capital Resources Summary of Debt Facilities Summarized below are the debt facilities available to us and the balances outstanding as at December 31. 2012.000. should there be a major long term deterioration in refining or wholesale and retail margins. our operations may not generate sufficient cash flows to cover all of the interest and principal payments under our debt facilities noted above.Refinery) This working capital facility is used to finance purchases of crude feedstock for our refinery. the weighted average interest rate under the facility was 6. 2013 and November 9. which reduces the available borrowings under the facility to $6.73% 7.479(1) $12. 2012.000 $70. the next two installments are for an amount of $10. 2012 and 2011.3 million was held on deposit as at December 31. if available. 2012 and 2011 The following table outlines the key movements. we entered into a five year amortizing $100.0 million.0 million was amended so that the facility was made evergreen and the annual renewal requirement removed. the working capital facility agreement with a maximum availability of $240. that the terms of any such capital raising or refinancing will be acceptable to us.000 $24. 2.000.7) Net profit/(loss) variance for the comparative period primarily due to: Variance in net income due to changes in intra-group profit eliminated on consolidation between Midstream Refining and Downstream segments in the prior periods relating to the Midstream Refining segment’s profit component of inventory on hand in the Downstream segment at period ends.24% Maturity date November 2017 See detail below(4) November 2014 August 2013 September 2015 November 2015 See detail below Excludes letters of credit totaling $139.91%(3) 6.000.000.0 million syndicated secured term loan facility with BNP.0 million each. ANZ. Facility 1 and Facility 2.297 Balance outstanding December 31.1 Yearly Variance ($ millions) ($3.857.000 $94.000 $43.245. our exploration and development activities. In October 2012.000 $11.75% convertible senior notes due 2015. Facility is to fund our share of the Condensate Stripping Project costs as they are incurred pursuant to the CSP JVOA with Mitsui. the BNP Paribas working capital facility agreement with a maximum availability of $240.297 Effective interest rate 6. A cash restricted balance of $ 11. Facility 1 had a limit of 46 .912. 2013. 2012.000 $70. At December 31.

000 principal amount. The weighted average interest rate under the Westpac facility was 10. freight loans.9 million).0 million (approximately $66. and the weighted average interest rate under the BSP facility was 9.4575 common shares per $1.8 million). The loan is secured by a fixed and floating charge over the assets of Downstream operations. we entered into preliminary joint venture and financing agreements with Mitsui relating to the Condensate Stripping Project. Facility 2 allows borrowings of up to $60. 2012. certain cash accounts associated with the refinery.0% for the year ended December 31. The initial conversion price is subject to standard anti-dilution provisions designed to maintain the value of the conversion option in the event we take certain actions with respect to our common shares. 2010.0 million unsecured 2. with the final repayment to be made in August 2015. The loan agreement stipulates semi-annual principal payments of $2. The notes are convertible into cash or common shares. $6.5 million.4% per annum. plus accrued and unpaid interest. The BSP facility limit is PGK 50.0 million (approximately $42. During the year ended December 31. trade payables and lease obligations.0 million (approximately $23. the BSP and Westpac working capital facilities. Westpac Secured Loan (Downstream) During the quarter ended March 31. the Westpac secured loan facility. common shares or a combination thereof.75% convertible notes with a maturity of five years. Upon conversion.0 million (approximately $4.625 per common share. short term advances.96% for the same period of 2011).53 per share) of the conversion price for at least 15 trading days during any 20 consecutive trading day period. 2012 (compared with 2. 2012. We pay interest on the notes semi-annually on May 15 and November 15.0 million from Westpac which is repayable in equal installments over 3. 2012. stock dividends and cash dividends.1 million. 2010. we completed the issuance of $70.75% Convertible Notes (Corporate) On November 10. we entered into the Condensate Stripping Project Joint Venture with Mitsui for the condensate stripping facilities. 2012 the weighted average interest rate was 6. The facility bears interest at LIBOR plus 3. 2.8 million). the Mitsui preliminary financing agreement. holders may require us to repurchase their convertible notes for cash at a purchase price equal to the principal amount of the notes to be repurchased. As at December 31. Bank South Pacific and Westpac Working Capital Facility (Downstream) On October 24. 47 . we secured a combined revolving working capital facility for our Downstream wholesale and retail petroleum products distribution business from BSP and Westpac. This facility was for an initial term of three years and was renewed in November 2011 for a further three years to November 2014.24%.95% for the year ended December 31. Upon a fundamental change. The convertible notes rank junior to any secured indebtedness and to all existing and future liabilities of us and our subsidiaries.0 million (after a temporary reallocation of $10. we obtained a secured loan of $15. funded by Mitsui.6 million). BSP and BNP syndicated secured loan facility. The convertible notes are redeemable at our option if our share price has been at least 125% ($119. 2012.67% for the year ended December 31. The Westpac facility limit is PGK 90. is held in current liabilities as the agreement requires refund of all funds advanced by Mitsui under the preliminary financing agreement if a positive FID is not reached. based on an initial conversion rate of 10. none of this combined facility had been drawn down. 2012 was $12. The portion of funding that relates to Mitsui’s share of the Condensate Stripping Project as at December 31. 2012 due to temporary reallocation to Facility 1) and can be used for partly cash-secured short term advances and for discounting of any monetary receivables acceptable to BNP Paribas in order to reduce Facility 1 balances. after including the reduction in interest due to the deposit amounts (restricted cash) maintained as security. such as stock splits. The facility is secured by sales contracts. is classed as an unsecured loan and interest accrues daily based on LIBOR plus a margin of 6%.9 million. The balance outstanding under the loan as at December 31. 2008. amounting to approximately $13. the ANZ. The portion of funding that relates to our share of the Condensate Stripping Project (amounting to $11. 2012. Mitsui is to be responsible for arranging or providing financing for the capital costs of the condensate stripping facility. As of December 31.8 million).2 million remained available for use under the facility. 2012 was PGK 140. The weighted average interest rate under the working capital facility was 2.5% on short term advances. 2012.0 million (reduced to $50. Mitsui Unsecured Loan (Upstream) On April 15. purchase contracts. reverse stock splits. including the BNP Paribas working capital facility. which would include a change of control.$190. which represents an initial conversion price of approximately $95. On August 4. The facility limit as at December 31.0 million or the USD equivalent for hedging transactions. 2010. holders will receive cash.0 million limit from Facility 2 to Facility 1) and finances the purchases of crude and hydrocarbon products through the issuance of documentary letters of credit and standby letters of credit. and has a sublimit of Euro 18. at our option. The Westpac facility was increased in February 2012 by PGK 10. that affect all of the holders of our common shares equally and that could have a dilutive effect on the value of the conversion rights of the holders of the notes or that confer a benefit upon our current shareholders not otherwise available to the convertible notes. Mitsui and InterOil hold equal interest in the joint venture. and was renewed in November 2012 for another year ending in August 2013. all crude and refined products of the refinery and trade receivables.5 years with an interest rate of LIBOR plus 4. advances on merchandise.0 million at December 31.

0 million of the staged cash payments. On November 29. On July 27.0 million was paid in accordance with the HOA and became non-refundable on execution of the Farm-In Agreement. Summary of Cash Flows ($ Thousands) Net cash inflows/(outflows) from: Operations Investing Financing Net cash movement Opening cash Exchange gains on cash and cash equivalents Closing cash (36. 50% of the funding is for Mitsui’s share of the project and the other 50% is funding by Mitsui of our share of the project.450 233. In the event that a positive FID is not reached or made within the time specified. therefore leaving the total contributions at $25. The first $20.Other Sources of Capital Currently our share of expenditures on exploration wells. As at December 31. 48 .805) (27. and a final resource payment.0 million of the $116. Cash calls are made on IPI holders.165) (168.543) (94. we signed a binding HOA with PRE for PRE to be able to earn a 10. 2012 and 2011. Refer to Note 3 of the audited annual consolidated financial statements for the year ended December 31.0 million.846 187. an additional carry of 25% of the costs of an agreed exploration work program. PRE has the option to terminate the Farm-In Agreement at various stages of the work program and to be reimbursed up to $96. There were $3.005 68. for our share and Mitsui’s) within a specified period.029) (169.846 (30.0 million of the staged cash payment was received from PRE.9% gross) participating interest in the PPL 237 onshore Papua New Guinea. Subsequent to year end.0% net (12. including the Triceratops structure located within that license. operational cash flows. the note also details the revisions made to the interim Consolidated Statement of Cash Flows in our first and subsequent IFRS quarterly financial statements for the periods three months ended March 31. PNGDV.0 million initial cash payment (which does not include carried costs) out of future upstream production proceeds. appraisal wells and extended well programs is funded by a combination of contributions made by capital raising activities. 2012 for further information in relation to the revisions made to the Consolidated Statement of Cash Flows for the years ended December 31.577 Year ended December 31. in January 2013 a further $20. joint venture partners and asset sales. we had adopted the accounting policy of treating oil and gas properties expensed (exploration costs. The transaction contemplates staged initial cash payments totaling $116. 2012 and 2011. excluding exploration impairment) as an investing activity in the statement of cash flows as they represented the extent to which expenditures have been made for resources intended to generate future income and cash flows. In addition. 2012. that confirmed that only expenditures that result in a recognized asset in the balance sheet being eligible for classification as investing activities.5% direct interest in the Elk and Antelope fields acquired during 2009) for their share of amounts spent on certain appraisal wells and extended well programs where they participate in such wells and programs pursuant to the relevant agreements in place with them. we executed the PRE JVOA and related documents associated with the Farm-In Agreement. 2012.58 million contributions from Mitsui during the year ended December 31. The second cash payment of $20. The preliminary financing agreement entered into with Mitsui provides for funding by Mitsui of all the costs relating to the Condensate Stripping Project. PNGDV and Pac LNG (for its 2.176) 311. The revision has no impact on basic or diluted earnings per share and is a Cash Flow Statement reclassification only. 2012 for either Mitsui’s or our share. 2012.698 (20.e. 2010.860 44. PRE has paid $40. and nine months and quarters ended September 30.0 million was paid in accordance with the Farm-In Agreement under the advance payment facility. we will be required to refund all of Mitsui’s contributions (i.846 1. 2012.713) 185. 2011 and 2010 to reflect the correct classification of exploration costs. Cash calls will also be made on PRE for exploration activities in PPL 237 and appraisal activities in the Triceratops field.235 (185. which was not in line with the specific IFRIC clarification to IAS 7. We continued to treat these expenses as an investing activity in its first and subsequent sets of IFRS financial statements.4 million.058 49. 2012 2011 2010 Revision to Consolidated Statement of Cash Flows of 2011 and 2010 Under Canadian GAAP. six months and quarters ended June 30.735) 233. IPI holders. we executed a Farm-In Agreement with PRE relating to the Triceratops structure and the participating interest in the PPL 237 license materially in line with the HOA signed on April 18.577 4. On April 18. effective January 1.044) 68. 2012. 2012 and 2011.127 46.

9 ($2.7) $2. ($31. 2012 and 2011 The following table outlines the key variances in the cash (outflows)/inflows from operating activities between the years ended December 31. The movements in cash generated by operations relating to changes in operating working capital were due primarily to a $51. rather than appraisal drilling and subsequent work program activities. Higher cash calls and related inflows from IPI holders and PNGDV relating to the Triceratops-2 well.0 $112. Proceeds received from Pac LNG in year 2011 for its share of costs incurred in developing the LNG Project.9) Variance for the comparative period primarily due to: Increase in cash employed by operations prior to changes in operating working capital for the year.0 $23. The expenditures in the prior year were mainly associated with refurbishment of retail sites.5) ($6.7 Variance for the comparative period primarily due to: Higher cash outflows on exploration and development program expenditures related to drilling costs associated with the Triceratops-2 and Antelope-3 appraisal wells.3 Analysis of Cash Flows Used In Investing Activities Comparing the Years ended December 31. tank upgrades and camp and office refurbishments.6 million decrease in the movement of trade receivables. Maturity of short term PGK Treasury bills in 2012 as compared with the investment in the PGK Treasury Bills in 2011. Movement in utilization of the BNP. 2012 and 2011 The following table outlines the key variances in the cash (outflows)/inflows from investing activities between the years ended December 31. 2012 and 2011: Yearly Variance ($ millions) $16. 2012 and 2011: Yearly Variance ($ millions) $212. a $0.9% gross) participating interest in PPL 237 in accordance with HOA. Acquisition of FLEX LNG shares net transaction costs in prior year.9 ($26. BSP and BNP syndicated secured loan facility as at December 31. 49 .1 ($67.0 million initial staged cash payment received from PRE for the sell down of a net 10.9 $6.3) ($48. Movement in Westpac secured loan was attributable to the $15.1 million. for which no contribution is required. lower stock compensation and decrease in loss on the FLEX LNG investment. Higher cash outflows due to increase in our cash restricted balance held under BNP working capital facility and ANZ. 2012 and 2011: Yearly Variance ($ millions) ($80.1 million semi-annual principal loan repayment to Westpac in third quarter of 2012. BSP and BNP syndicated secured loan facility was attributable to the $100.7 $7. Higher expenditure on plant and equipment in the Downstream and Refinery segments in the prior year.8) $42. Receipt of $20.0 million drawdown of loan made in first quarter of 2012 and $2.0 million drawdown of loan made in November 2012.Analysis of Cash Flows (Used In)/Generated From Operating Activities Comparing the Years ended December 31. mainly due to the decrease in net profit from operations adjusted for higher future income tax benefits. Increase in receipts of cash from the exercise of stock options.4 $20.6 $95. partially offset by the transaction costs of $4.0 million second staged cash payment under advance payment facility from PRE for the sell down of a net 10.9 million increase in the movement of inventories due to timing of crude and export shipments.3) $20. There were minimal cash calls received in the same period of 2011 due to activity being focused on seismic activities.4 million decrease in the movement of accounts payable and accrued liabilities for the year. Movement in ANZ. accounts payable and accruals in our Upstream and Midstream Liquefaction operations. Westpac and BSP working capital facilities is due to movement in working capital requirements.9% gross) participating interest in PPL 237.3) $12. Movements in non-operating working capital relating to accounts receivable.0% (12.5 ($17. 2012.4) Analysis of Cash Flows Used In Investing Activities Comparing the Years ended December 31.0% (12.8 million increase in the movement of other current assets and prepaid expenses. $5. a $21. 2012 and 2011 The following table outlines the key variances in the cash (outflows)/inflows from investing activities between the years ended December 31. and a $0. Lower funding received from Mitsui relating to the Condensate Stripping Project.6 Variance for the comparative period primarily due to: Higher repayment of OPIC loan as full repayment of the facility was made in November 2012. Receipt of $20.

spud works and drilling works. Costs incurred for the purchase of Rig#3. including equipment purchases and drilling inventory. office building works and tank works.7 million for the year ended December 31. No assurance can be given that we will be successful in obtaining new capital on terms that are acceptable to us. 2012. including costs incurred for pipeline works.5 $2. 2012 primarily due to: Drilling and testing costs for the Triceratops-2 well (net of the $11. particularly given current market volatility.3 Midstream – Refining Capital Expenditures Capital expenditures totaled $12.3 Expenditures in the year ended December 31. compared with $107. These expenditures mainly related to a number of upgrade projects across various terminals and depots.Refining segment for the year ended December 31. The availability and cost of such capital is highly dependent on market conditions at the time we raise such capital. management estimates that satisfying these license commitments with the expenditure of $49. 50 . mainly associated with project management teams’ costs and sub-contractors costs incurred for the LNG Project.6 million during the same period of 2011. Antelope. Costs incurred for Antelope-3 well site preparation and spud works. 2012: Yearly Variance ($ millions) $147. As at December 31.0 $9. centerline survey and field to coast pipeline FEED. Costs incurred for Herd Base to Antelope field road construction.4 $26. Costs for works at Hou Creek. 2012. which mainly consists of work done by Cronus on geotechnical survey. 2012.4 $19. we are committed under the terms of our exploration licenses or PPL’s to spend a further $49. As at December 31.8 $26.0 million IPI Agreement of 2005 to drill eight exploration wells. refining and liquefaction industries are capital intensive and our business plans necessitate raising of additional capital. the LNG Project or the Condensate Stripping Project. 2012 were $147. camp. Other expenditures. mainly associated with camp. and costs for works in respect of the Condensate Stripping Project. net of Pac LNG’s interest. The complex includes facilities such as wharf. The road is to connect the Hou Creek complex to the Antelope-2 well and to the south road which commences at Herd Base. which mainly includes the costs incurred for submittal and evaluation of the revised tender.2 million. Downstream Capital Expenditures Capital expenditures for the Downstream segment totaled $12. warehouse and related earth works. which includes the construction of a road and a complex in the north of the Elk and Antelope fields. Costs incurred for Elk-3 well site preparation. commission and stamp duty. Capital Requirements The oil and gas exploration and development. against the cost base of the Triceratops field included within oil and gas properties on the balance sheet upon the execution of Farm-in Agreement). Upstream We are required under our $125.5 million allocation of Triceratops share of HOA cash payment received from PRE. The actual gross costs of drilling final exploration four wells in relation to the IPI Agreement may cost more than what is required to satisfy our license commitments. The following table outlines the key expenditures in the year ended December 31. 2012 were $10. Project management teams’ costs and sub-contractors costs incurred for LNG Project. We have drilled four wells to date. and Triceratops fields in PNG. and also included amounts spent on our first retail site.Capital Expenditures Upstream Capital Expenditures Capital expenditures for our Upstream segment in Papua New Guinea for the year ended December 31. Midstream – Liquefaction Capital Expenditures Capital expenditures for our LNG segment in Papua New Guinea for the year ended December 31.3 million through 2014.3 million would also satisfy our commitments to the IPI investors in relation to drilling the final four wells and satisfy the commitments in relation to the IPI Agreement. The majority of our “net cash from operating activities” adjusted for “proceeds from/(repayments of) working capital facilities” is used in our appraisal and development programs for the Elk.2 million in our Midstream .5 $12. Our net cash from operating activities is not sufficient to fund those appraisal and development programs. $26.4 $25.8 million. 2012.

As a result. amongst other things. we would be required to fund our share of certain common facilities of the development. our refinery may not generate sufficient cash flows to cover all of the interest and principal payments under our secured loan agreements. gas gathering.Liquefaction Completion of the LNG Project will require substantial amounts of financing and construction will take a number of years to complete. we retained Morgan Stanley & Company LLC. successfully construct such a facility. Downstream We believe on the basis of current market conditions and the status of our business that our cash flows from operations will be sufficient to meet our estimated capital expenditures for our wholesale and retail distribution business segment for 2013. it will provide a further source of funds for exploration and development activities. No assurances can be given that we will be able to source sufficient gas. We also believe cash flows from operations will be sufficient to cover the costs of operating our refinery and the financing charges incurred under our crude import facility. It should be read in conjunction with our audited consolidated financial statements for year ended December 31. operate and help finance the development of the LNG Project. FEED for wells. Should there be long term deterioration in refining margins.0 million on PRL 15 which includes seismic. the terms of grant of PRL 15 require us to spend $73. and it will take a number of years to complete these projects. We will also be required to obtain substantial amounts of financing for the development of the Elk. following which we expect to choose a partner in March 2013. if the project is completed. Midstream . we may be required to raise additional capital and/or refinance these facilities in the future. We have spent $268. The solicitation process is now under way and we believe if successful. and UBS AG to help solicit and evaluate proposals from potential strategic partners to. and we cannot advise at this time as to how such an agreement will affect our current LNG Project plans or whether such a partner will be acceptable to the PNG government. Midstream . or at all. in addition to a second well prior to license renewal date in 2014. are complete.0 million commitment. Herd Base/Hou Creek wharf and camps. Macquarie Capital (USA) Inc. The availability and cost of various sources of financing is highly dependent on market conditions and our condition at the time we raise such capital and we can provide no assurances that we will be able to obtain such financing or conduct such sales on terms that are acceptable. All work program commitments with the exception of two wells. LNG Project and exploration licenses. we retained financial advisors to help solicit and evaluate proposals from potential strategic partners to acquire interests in our Elk and Antelope fields. No assurances can be given that we will be able to attract a strategic partner on terms acceptable to us. Antelope and Triceratops fields. we must extend or secure sufficient funding through renewed borrowings. condensate stripping and associated facilities. Should there be a major long term deterioration in wholesale or retail margins. In September 2011. As a joint venture partner in development. We have received conforming and non-conforming bids for the LNG partnering and sell down of an interest in the Elk and Antelope fields that we believe would be accretive to shareholders. In the event that positive FID is reached in respect of these projects. Contractual Obligations and Commitments The following table contains information on payments required to meet contracted exploration and debt obligations due for each of the next five years and thereafter. We do not have sufficient funds to complete planned exploration and development activities and we will need to raise additional funds in order for us to complete the programs and meet our exploration commitments. As a result. or as to the timing of such construction. equity raising and/or asset sales to enable the availability of sufficient cash to meet these obligations over time and complete these long term plans. Therefore. obtain an interest in. we seek to be in a position to access the capital markets and/or sell an interest in our upstream properties in order to raise adequate capital. meet our well commitment requirements under the license. Final bids are due by February 28. we may be required to raise additional capital and/or refinance these facilities in the future.0 million of the expenditures to date relates to the $73. The end result of the partnering process is expected to fully satisfy all the terms of the 2009 LNG Project Agreement. No assurances can be given that we will be successful in obtaining new capital on terms acceptable to us. 2013.Refining We believe that we will have sufficient funds from our operating cash flows to pay our estimated capital expenditures associated with our Midstream Refining segment in 2013. In September 2011. condensate stripping. roads.In addition. our downstream business operations may not generate sufficient cash flows to cover all of the interest and principal payments under our loan agreements.0 million on the development of the Elk and Antelope fields by the end of 2014. No assurances can be given that we will be able to attract strategic partners on terms acceptable to us. $56. pipelines and LNG export terminal facilities. 2012 and the notes thereto: 51 . particularly given recent market volatility. and pipelines. Expenditure on the drilling of the Elk-3 well will. The availability and cost of capital is highly dependent on market conditions and our circumstances at the time we raise such capital.

560 2.PNGDV Total a. Transactions with Related Parties During the year ended December 31. The swap transactions are concluded between counterparties in the derivatives swaps market.Contractual obligations ($ thousands) Petroleum prospecting and retention licenses (a) Secured and unsecured loans 2.273 Off Balance Sheet Arrangements Neither during the year ended.545 1. IPI conversion rights to 140.250 27. 2012.257 8.219.952 159.556 1 . The 52 .381 2011 6.702 39. we purchase crude feedstock two months in advance. The following table contains information on payments required to meet our operating lease commitments. These derivatives. Due to the wide usage of derivatives tools in the Asia Pacific region. The potential dilutive instruments outstanding as at December 31. we did not have any transactions with any related parties. Payments Due by Period Total 69.035.551 common shares. It should be read in conjunction with our audited financial statements for the year ended December 31.615 1. Conversely.554 series A preferred shares are authorized (none of which are outstanding). which we use to manage our price risk. there is always a time difference between the purchase of a crude feedstock and its arrival at the refinery and the supply of finished products to the various markets. the swaps market generally provides sufficient liquidity for the hedging and risk management activities. unlike futures which are transacted on the Intercontinental Exchange and NYMEX Exchanges.200 71.589 2 . nor as at December 31. 2012.558 458 15.75% convertible senior notes due November 15.252 8. 2012.3 years 31.0 million principal amount 2. We are committed to spend a further $49. Due to the fluctuation in prices during this period. Share Capital Our authorized share capital consists of an unlimited number of common shares and unlimited number of preferred shares.006 3. management estimates that satisfying this license commitment with the expenditure of $49.810 30.925 1. Prices for refined products and crude feedstocks can be volatile and sometimes experience large fluctuations over periods of time as a result of relatively small changes in supplies.454 common shares on a fully diluted basis) and no preferred shares issued and outstanding. effectively enable us to lock-in the refinery margin such that we are protected in the event that the difference between our sale price of the refined products and the acquisition price of our crude feedstocks contracts is reduced.925 54. we had 48. 2012. whereas the supply/export of finished products will take place after the crude feedstock is discharged and processed.7 million on the development of the Elk and Antelope fields by the end of 2014.2 years 25.480 common shares and 732. 2015. As at December 31. of which 1.398 common shares (50. requires us to spend a further $20.414 1.779 75.3 million would also satisfy our commitments to the IPI investors in relation to drilling the final four wells and satisfy the commitments in relation to the IPI agreement.765 102. It is common place among refiners and trading companies in the Asia Pacific market to use derivatives swaps as a tool to hedge their price exposures and margins. We believe these hedge counterparties to be credit worthy.384 306. The derivative instruments which we generally use are the over-the-counter swaps. we use various derivative instruments as a tool to reduce the risks of changes in the relative prices of our crude feedstocks and refined products. Generally.384 87.3 million as a condition of renewal of our petroleum prospecting licenses through 2014 under our exploration licenses.75% Convertible notes obligations Indirect participation interest . then the benefits would be limited to the locked-in margin.810 More than 5 years - The amount pertaining to the petroleum prospecting and retention licenses represents the amount we have committed as a condition on renewal of these licenses.123 27. economic conditions and government actions.899. when we have locked-in the refinery margin and if the difference between our sales price of the refined products and our acquisition price of crude feedstocks expands or increases. Derivative Instruments Our revenues are derived from the sale of refined products. In addition. 2012 16.810 30.5 years 30.958 16. did we have any off balance sheet arrangements or any relationships with unconsolidated entities or financial partnerships.983 6. the terms of grant of PRL 15. 2012 included employee stock options and restricted stock in respect of 1.730 Less than 1 year 44. Due to the nature of our business. As of December 31. 2012 and the notes thereto: ($ Thousands) Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years Total Year ended December 31.965 3 .025 common shares relating to the $70.607.501 2010 6.4 years 30.810 4 . weather conditions.

(debt divided by (shareholders’ equity plus debt)) at 50% or less. 2011 – receivable of $0. the IPP is calculated by adding the costs that would typically be incurred to import such product to MOPS. 2012. The superior resources that these competitors have available for deployment could allow them to compete successfully against our LNG businesses. major-integrated oil and gas companies such as ExxonMobil have greater resources than we do and could if they decided to do so. and the swaps that have been priced out as of December 31. We are also a significant participant in the retail and wholesale distribution business in Papua New Guinea. Our aim is to maintain our debt-to-capital ratio. which could lead to lower prices and reduced margins. Margins were last reviewed by the ICCC in quarter ended December 31. buy/sell dated Brent swaps. The IPP is monitored by the ICCC. Our proposed LNG Project faces competition. financial condition. 2012 and will be further reviewed in quarter ended December 31. competitors have developed or reopened additional liquefaction facilities in other international markets. Financing Arrangements We continue to monitor liquidity risk by setting of acceptable gearing levels and ensuring they are monitored.derivatives swap instrument covers commodities or products such as jet and kerosene. Our major competitive advantage is the large widespread distribution network we maintain with adequate storage capacity that services most areas of PNG. which may also compete with our LNG Project. 2012.800. and may be better positioned to withstand periods of depressed refining margins or feedstock shortages. Competitors that have their own production or extensive distribution networks are at times able to offset losses from refining operations with profits from producing or retailing operations.2 million (December 31.0 million aggregate principal amount of 2. raising gross proceeds of $280. or any other refinery which is constructed in Papua New Guinea. which is the benchmark price for refined products in the region in which we operate.00 per share for proceeds of $210. 2012 and will be settled in future. liquidity and prospects. expand much more rapidly in this market than we can. liquefaction facilities to serve the same markets we intend to target. Gearing levels were 19% in December 2012. including competing liquefaction facilities and related infrastructure. BSP and ANZ. and sell Naphtha crack swaps for which hedge accounting has not been applied. In our refining business. In addition. more development experience.000 common shares at a price of $75. we had a net receivable of $0. which could have a material adverse effect on our business.0 million. 2013. naphtha. Our competitors source small quantities from our refinery from both the refinery gantry for the Port Moresby market and by tanker vessel for the markets outside Port Moresby.75% convertible senior notes due 2015 and 2. results of operations. Industry Trends and Key Events Competitive Environment and Regulated Pricing We are currently the sole refiner of hydrocarbons in Papua New Guinea although there is no legal restraint upon other refineries being established. The high cost of transporting goods to and from Papua New Guinea reduces the availability of alternate fuel sources and retail outlets for our refined products. Occasionally. or are pursuing development or acquisition of.0 million from the combined offerings. Many of our competitors obtain a significant portion of their feedstocks from company-owned production. we actively engage in hedging activities to lock in margins. at an Import Parity Price (“IPP”). We cannot be certain that we will be able to implement new technologies in a timely basis or at a cost that is acceptable to us. new technology is making refining more efficient. By using these tools. greater name recognition. unleaded petrol. 53 . the IPP is the price that would be paid in Papua New Guinea for a refined product being imported. and also bench-mark crudes such as Tapis and Dubai. The ICCC regulates the maximum prices and margins that may be charged by the wholesale and retail hydrocarbon distribution industry in Papua New Guinea. technical and marketing resources and access to natural gas and LNG supplies than we do. We and our competitors may charge less than the maximum margin set by the ICCC in order to maintain competitiveness. Many competing companies have secured access to. we compete with several companies for available supplies of crude oil and other feedstocks and for outlets for our refined products. We also compete with smaller local distributors of petroleum products. This was achieved throughout 2012 and 2011. For all price controlled products (diesel. larger staffs and substantially greater financial. or gearing levels. we completed concurrent public offerings of $70. which may enable them to obtain feedstocks at a lower cost. In general.6 million) relating to open contracts to sell gasoil crack swaps. In addition. Almost all of these competitors have longer operating histories. On November 10. kerosene and aviation fuel) produced and sold locally in Papua New Guinea. 12% in December 2011 and 13% in December 2010. However. The borrowings under the facility were used to repay all outstanding amounts under the term loan granted by OPIC. from competitors with far greater resources. there is insufficient liquidity in the crude swaps market and we then use other derivative instruments such as Brent futures on the ICE to hedge our crude costs. During the year ended December 31. 2010. We also believe that our commitment to the distribution business in Papua New Guinea at a time when major-integrated oil and gas companies exited the Papua New Guinea fuel distribution market provides us with a competitive advantage. including major international energy companies. At December 31. The PNG Government has agreed to ensure that all domestic distributors purchase their refined petroleum products from our refinery. diesel. we entered into a five year amortizing $100 million syndicated secured term loan facility with BNP. Our main competitor in the wholesale and retail distribution business in Papua New Guinea is ExxonMobil.

5 million barrels for fiscal year 2012 compared with 7.649 barrels per day in 2011 and 11. While the Singapore Tapis hydroskimming margin is a useful indicator of the general margin available for hydroskimming refineries in the region in which we operate. Naphtha crack spreads were negative for all of 2012. The PGK has weakened against the USD in the second half of the financial year ended December 31. 2012. At year end. Distillate margins to Dated Brent strengthened during 2012 compared with historical levels due to increasing demand.4755).3 million barrels in 2010.and the remaining funds will be used for general corporate purposes. See “Liquidity and Capital Resources – Summary of Debt Facilities”. Dated Brent peaked in March 2012 at $128 per barrel and was at its lowest in June 2012 at $88 per barrel. The LIBOR USD overnight rate remained constant between 0. Any rate increases would add additional cost to financing our crude cargoes and vice versa as our BNP Paribas working capital facility is linked to LIBOR rates. We have entered into AUD to USD foreign currency forward contracts to manage the foreign exchange risk in relation to the expenses to be incurred in AUD. and related interest and financing charges on the utilized amounts. and the foreign exchange rate used to convert the subsequent receipt of PGK proceeds to USD to repay our crude cargo borrowings. Exchange Rates Changes in the PGK to USD exchange rate can affect our Midstream Refinery results as there is a timing difference between the foreign exchange rates utilized when setting the monthly IPP.2 million barrels in 2010.2 million of the combined BNP working capital facility available for use in our Midstream – Refining operations.978 barrels per day of refined petroleum products to the domestic market during fiscal year 2011 compared with 12. With regard to our cash and cash equivalents. the total volume of all products sold by us was 8. We had cash. and $66. which is set in PGK.0 million was restricted (as governed by BNP working capital facility utilization requirements and ANZ. The average price for Dated Brent for 2012 was $112 per barrel compared with $111 per barrel for Dated Brent for 2011 and $81 per barrel for Dated Brent for 2010. Refining Margin The distillation process used by our refinery to convert crude feedstocks into refined products is commonly referred to as hydroskimming. Interest Rates The LIBOR USD overnight rate is the benchmark floating rate used in our midstream working capital facility and therefore accounts for a significant proportion of our interest rate exposure. see “Liquidity and Capital Resources – Summary of Debt Facilities”. Crude Prices Crude prices fluctuated throughout 2012.2 million barrels in 2011 and 7.9 million as at December 31. Any increase in prices will have an impact on the utilization of our working capital facilities. However.6 million barrels in 2011 and 4. Domestic Demand Sales results for our refinery for 2012 indicate that Papua New Guinea’s domestic demand for middle distillates (which includes diesel and jet fuels) from the refinery has increased by approximately 10. which negatively affects our gross margin for the period.780 barrels per day in 2010. Changes in the AUD and SGD to USD exchange rate can affect our Corporate results as the expenses of the Corporate offices in Australia and Singapore are incurred in the respective local currencies. we had $6. 54 . we are exposed to translation risks resulting from AUD and SGD fluctuations as in country costs are being incurred in AUD and SGD and reporting for those costs being in USD.3 million barrels as compared with 4. transportation costs and IPP pricing work so that our realized margin generally differs to some extent. We also had $6. we invest in bankers acceptances and money market instruments with major financial institutions that we believe are creditworthy.6 million of the Westpac/BSP combined working capital facility available for use in our Downstream operations. For details of other financial arrangements in place.2 million relating to open contracts to sell gasoil crack swaps and Naphtha crack swaps and buy/sell Dated Brent swaps for which hedge accounting has not been applied. it should be noted that the differences in our approach to crude selection. The refinery on average sold 13. of which $49. No material balances are held in AUD or SGD. BSP and BNP syndicated secured loan facility). However. cash equivalents and cash restricted of $98. Any volatility of crude prices means that we face significant timing and margin risk on our crude cargos. and approximately $66. There was a net receivable of $0. 2012 (from 0.15% and 0. A significant portion of this timing and margin risk is managed by us through short and long term hedges.6 million of the Westpac/BSP combined working capital facility available for use in our Downstream operations. The AUD and SGD exposures are minimal currently as funds are transferred to AUD and SGD from USD as required.20% for the majority of 2012.2 million of the combined BNP working capital facility available for use in our Midstream – Refining operations.4840 to 0. Total volume of PNG domestic sales only for 2012 was 5.8% compared with 2011. with the price of Dated Brent crude oil (as quoted by Platts) starting the year at $111 per barrel and closing the year at $110 per barrel.

current legal requirements and current technology. We currently do not have any amounts accrued for environmental remediation obligations as current legislation does not require it. The provision will be accreted over the remaining useful life of the refinery to bring the provision to the estimated expenditure required at the time of decommissioning.com. Ongoing environmental compliance costs. a reduction in our deferred tax assets will result in a corresponding increase in deferred tax expenses. a reduction in our oil and gas properties asset will result in a corresponding increase in the amount of our exploration expenses.com which summarizes our significant accounting policies. Provisions are determined on an assessment of current costs. The amount recognized is the net present value of the estimated costs of future dismantlement. Asset Retirement Obligations A liability is recognized for future legal or constructive retirement obligations associated with the Company’s property.sedar. We test long-lived assets for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable by the future discounted cash flows. are expensed as incurred. plant and equipment. it may result in increased capital expenditures and a corresponding increase in liabilities.735 was recognized for the present value of the estimated expenditure required to complete this obligation. Management received the results of an independent assessment of the potential asset retirement obligations of the refinery at the time of decommissioning and a provision of $4. If our plans change or we adjust our estimates in future periods. Geological and geophysical costs are expensed as incurred. Environmental Remediation Remediation costs are accrued based on estimates of known environmental remediation exposure. Capitalized costs for producing wells will be subject to depletion using the units-of-production method. If we adjust the estimates in future periods. including the carrying value of oil and gas assets. We continue to carry as an asset the cost of drilling exploratory wells if the required capital expenditure is made and drilling of additional exploratory wells is underway or firmly planned for the near future. In considering the recoverability of deferred tax assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment. plant and equipment. If actual results differ from the estimates or we adjust the estimates in future periods. The following accounting policies involve estimates that are considered critical due to the level of sensitivity and judgment involved. available at www. Changes in estimates are dealt with on a prospective basis. 2012. 2012 was $4. Under the asset and liability method. A summary of the key risks that may impact upon the matters addressed in this document have been included under section “Forward Looking Statements” above. Oil and Gas Properties We use the successful-efforts method to account for our oil and gas exploration and development activities. and goodwill for potential impairment. deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. we consider a number of factors. Actual results could differ from those estimates.sedar. During the quarter ended June 30. Income Taxes We use the asset and liability method of accounting for income taxes. Critical Accounting Estimates The preparation of financial statements in accordance with IFRS requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.100.978. or when exploration and evaluation activities have not yet reached a stage to allow reasonable assessment regarding the existence of economical reserves. etc. as well as the impact on our consolidated financial position and results of operations. These costs have been capitalized as part of the cost of the refinery and are depreciated over the life of the asset. Future legislative action and regulatory initiatives could result in changes to our operating permits which may result in increased capital expenditures and operating costs. including the consistency of profits generated from the refinery.334. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 2011.Risk Factors Our business operations and financial position are subject to a range of risks. likelihood of production from Upstream operations to utilize the carried forward exploration costs. Detailed risk factors can be found under the heading “Risk Factors” in our 2012 Annual Information Form available at www. The asset retirement obligation as at December 31. including maintenance and monitoring costs. Impairment of Long-Lived Assets We are required to review the carrying value of all property. site restoration and abandonment of properties based upon current regulations and economic circumstances at period end. The effect of changes in estimates on future periods have not been disclosed in the consolidated financial statements as estimating it is impracticable. Under this method. costs are accumulated on a field-by-field basis with certain exploratory expenditures and exploratory dry holes being expensed as incurred. Due to the significant subjectivity of the assumptions used to 55 . The information about our critical accounting estimates should be read in conjunction with Note 2 of the notes to our consolidated financial statements for the year ended December 31.

2012 The following new standards have been issued but are not yet effective for the financial year beginning January 1. there may be some additional disclosure requirements in our financial statements. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. revenue and expenses. The Company is yet to assess IFRS 9’s full impact. 2013): This aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. This new standard will have no impact on our financial statements. The Company has not yet decided to early adopt IFRS 9. 2013): This includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. 2013): This provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement. We will reassess the impact of this standard taking into consideration the final outcome of the ongoing sell down process in relation to the Elk and Antelope fields. IFRS 11 ‘Joint Arrangements’ (effective from January 1. IFRS 10 ‘Consolidated Financial Statements’ (effective from January 1. 2013): This now includes the requirements for joint ventures.test for recoverability and to determine fair value. This new standard will have no impact on the entities that we currently consolidate as subsidiaries. When the amount of a contingent loss is determined it is charged to earnings. associates. Under IFRS 11. As a result of this standard. The standard provides additional guidance to assist in determining control where this is difficult to assess. thus affecting our earnings. rather than its legal form. Proportional consolidation of joint ventures is no longer allowed. 2013): This is a new standard on disclosure requirements for all forms of interests in other entities. The standard is not applicable until January 1. 2015 but is available for early adoption. • • • • • • 56 . we will have to equity account for its interest in the LNG Project in accordance with IAS 28. IFRS 12 ‘Disclosure of Interests in Other Entities’ (effective from January 1. changes in market conditions could result in significant impairment charges in the future. New Accounting Standards New accounting standards not yet applicable as at December 31. Legal and Other Contingent Matters We are required to determine whether a loss is probable based on judgment and interpretation of laws and regulations and whether the loss can reasonably be estimated. including joint arrangements. 2013): This builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. the LNG Project will be classified as a joint venture and we will therefore equity account for its interest in the LNG Project as compared to the current treatment of proportional consolidation. As a result of this standard. special purpose vehicles and other off balance sheet vehicles. liabilities. but do not expect any material changes due to this standard. IAS 27 ‘Separate Financial Statements’ (effective from January 1. IAS 28 ‘Investments in Associates and Joint Ventures’ (effective from January 1. As a result of the LNG Project being classified as a joint venture under IFRS 11. Our impairment evaluations are based on assumptions that are consistent with our business plans. IFRS 13 ‘Fair Value Measurement’ (effective from January 1. There are two types of joint arrangements: joint operations and joint ventures. We will reassess the impact of this standard taking into consideration the final outcome of the ongoing sell down transaction process in relation to the Elk and Antelope fields. we will have increased disclosure around the LNG Project joint venture. Our management continually monitors known and potential contingent matters and makes appropriate provisions by charges to earnings when warranted by circumstances. 2015): This addresses the classification and measurement of financial assets. as well as associates. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets. 2012 and have not been early adopted: • IFRS 9 ‘Financial Instruments’ (effective from January 1. to be equity accounted following the issue of IFRS 11.

602 2010 674.e.846 (673.941 (1.891) 88. EBITDA does not have a standardized meaning prescribed by GAAP (i. included in this MD&A are not defined nor have a standardized meaning prescribed by IFRS or our previous GAAP.453 39. therefore.603) (470.852) (800.534 (897. net cash provided from operating activities and other measures of financial performance prepared in accordance with IFRS.677) 1. Therefore.557) 68.864 2011 939. EBITDA is not a measure of cash flow under IFRS and should not be considered as such.932) 41. operating profit.071.278 743. a GAAP measure.125 (590.188) 24. depreciation and amortization expense.817 Corporate expenses are classified below the gross margin line and mainly relates to ‘Office and admin and other expenses’ and ‘Interest expense’. income tax expense. Further.951) 802.106.958 22.020.818 (701.Non-GAAP Measures and Reconciliation Non-GAAP measures. accordingly.798 85. The following table reconciles sales and operating revenues.052 (1. The items excluded from EBITDA are significant in assessing our operating results.217) (18. 57 . including gross margin and EBITDA.772) 374.308. they may not be comparable to similar measures provided by other issuers. EBITDA is used by us to analyze operating performance. Year ended December 31.133) 100.786 402 (376.729) 1.860 14.095.014 402 (2. to gross margin: Consolidated . EBITDA should not be considered in isolation or as an alternative to net earnings.374 (605. Gross margin is a non-GAAP measure and is “sales and operating revenues” less “cost of sales and operating expenses”.073 62.647 2.741 3.925 862. EBITDA represents our net income/(loss) plus total interest expense (excluding amortization of debt issuance costs).219.534 34.137 504.704 1. 2012 1.527 (1.825) (704.213) (11.Operating Results ($ Thousands) Midstream – Refining Downstream Corporate Consolidation Entries Sales and operating revenues Midstream – Refining Downstream Corporate (1) Consolidation Entries Cost of sales and operating expenses Midstream – Refining Downstream Corporate (1) Consolidation Entries Gross Margin 1.421) 592.905) 671. IFRS) and.786 (1. may not be comparable with the calculation of similar measures for other companies.

355) (2. depreciation and amortization Subtract: Upstream Midstream – Refining Midstream – Liquefaction Downstream Corporate Consolidation Entries Interest expense Upstream Midstream – Refining Midstream – Liquefaction Downstream Corporate Consolidation Entries Income taxes Upstream Midstream – Refining Midstream – Liquefaction Downstream Corporate Consolidation Entries Depreciation and amortisation Upstream Midstream – Refining Midstream – Liquefaction Downstream Corporate Consolidation Entries Net profit/(loss) per segment (11.sedar.280) 4.128) (3.195 6.241) (530) 32 (3.134 (11.849 (1.510) 12.677) (1.270 (2.969) 93 6.352) (1.808 10.570 1.270) 38.972 March 31 (10.894) (4) (1.244) 11.548 (10.541 Dec 31 665 2.654) (584) (394) (1. a GAAP measure.375) 8.808 Sept 30 (6.657 23.gov. Securities and Exchange Commission at www.899) (7.712) (3.081) 13.491 3.155 (1. to EBITDA.507) 14.494) (372) (1.967 (4.414 9.153) 0 (1.632 (2.370 192 12.552 (13.894 (3.484) (1.462) (2.730) (42. a non-GAAP measure for each of the last eight quarters: Quarters ended ($ thousands) Upstream Midstream – Refining Midstream – Liquefaction Downstream Corporate Consolidation Entries Earnings before interest.461 (3.169) 3.601) 12.771) (559) (1.957) 26.449) (629) (7.675) (223) (826) (1.948) (5.233) (1.233) (1.975 (9.436 (8.200) 18.623) 71 (9.314 (4.716 10.045 8.777 13.574) (1.188 (14.684 (4.764) (6) (906) (395) 32 (4.778) (7.116) (1.102 9.596) 699 2012 Dec 31 (873) 12.933 (1.374) 18.The following table reconciles net income (loss).395) 7.545 (11.765) (6) (804) (435) 32 (4.330) 12.580 (2.401 (394) 7.275 9.969) 13.713) (9.336 (10. including our 2012 Annual Information Form.035) 5.734) (11.445 2.com.402) 15.500 (3.070) (1.574) 3.390) (586) (337) (1.S. and in documents.298) (2.174 (474) (4.133 (12.123) 6.041 (3.616 252 13.243 (595) (493) 18.105) (2.878) (6) (1.320 (1.080) (1.045 (3.408) (2.422) (527) 32 (6.197 (7.142) (2.572 (2.746) (880) (8. including our Form 40-F.263) (11.435) (10.com.919) (15.096) 16.464) (629) 33 (5.438) (1.891) (4) (1.495) March 31 (6.602) 3.sec.940 (5.214) 27.846) (6) (894) (349) 32 (5.463 (1.540) 12.841 (14.135) (683) 31 (6. filed with the U.477) 10.921) 0 (1.540 (6. Additional information is also available on our website www.193) (6.980) 1.067 Public Securities Filings You may access additional information about us.306 11.806) (2.881 Sept 30 956 13.641) 8.574 (3.275 3.604 (4.406) 21.621 7. in documents filed with the Canadian Securities Administrators at www.519 384 18.414) (13.949) 14.997 June 30 (5.146 (473) (190) (19.535) 12.498) 11.358 (573) 5.044 (3.791) 177 (5. taxes.647) 676 11.417 11 9.503) 18.482 (3.240) (528) 33 (6.484) (5.871) (36.168) (15.604) 4.755) (154) (2.205 (31.211) (268) (1.341) 678 (297) (195) 186 (1.098) (454) (2.interoil.988) 5.850) (641) (2.309) 2.011) (579) (909) (1.436) (1.936) 5.626 7. 58 .170) (1.201) (3.907) 535 12.455) 2011 June 30 593 27.199) 25.532) (32.136) 9.223 (9.619) (17.156) (9.517) (2.744 5.703) 17.285) (445) (1.208 715 (2.095) (17.894 (2.258 14.610) 19.

Phil E. Visaggio Chief Financial Officer 59 . The Committee meets regularly with management. the independent auditors. The Committee reviews the annual consolidated financial statements with both management and the independent auditors and reports its findings to the Board of Directors before such statements are approved by the Board. Financial information presented elsewhere in this Annual Report has been prepared on a basis consistent with that in the consolidated financial statements. When alternative accounting methods exist.Management’s Report The management of InterOil Corporation is responsible for the financial information and operating data presented in this Annual Report. The 2012 consolidated financial statements have been audited by PricewaterhouseCoopers. to discuss auditing. reliable and accurate and that the Company’s assets are properly accounted for and adequately safeguarded. on behalf of the shareholders. The Audit Committee. The consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards. Mulacek Chief Executive Officer Collin F. internal controls. InterOil Corporation maintains systems of internal accounting and administrative controls. management has chosen those it deems most appropriate in the circumstances. Financial statements are not precise as they include certain amounts based on estimates and judgments. in all material respects. as well as the independent auditors. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly. PricewaterhouseCoopers has full and free access to the Audit Committee. is composed of independent non-management directors. These systems are designed to provide reasonable assurance that the financial information is relevant. appointed by the Board of Directors. accounting policy and financial reporting matters. in accordance with Canadian generally accepted auditing standards and auditing standards issued by the Public Company Accounting Oversight Board.

about the amounts and disclosures in the consolidated financial statements. and an audit of their 2010 consolidated financial statements. the auditor considers internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. whether due to fraud or error. which comprise the Consolidated Balance Sheets as at December 31. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management. Statements of Changes in Equity and Statements of Cash Flows for the years ended December 31. in all material respects. including the assessment of the risks of material misstatement of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements. 2013 To the Shareholders of InterOil Corporation We have completed an integrated audit of InterOil Corporation and its subsidiaries’ 2012 and 2011 consolidated financial statements and their internal control over financial reporting as at 31 December 2012. and the related notes. whether due to fraud or error. Statements of Comprehensive Income. 2011 and December 31. 2010. GPO BOX 2650. 2012. which comprise a summary of significant accounting policies and other explanatory information. 2011 and December 31. F +61 2 8266 9999. as well as evaluating the overall presentation of the consolidated financial statements. are presented below. 201 Sussex Street. Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of InterOil Corporation and its subsidiaries. 2012.au 60 . Canadian generally accepted auditing standards also require that we comply with ethical requirements. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). based on our audits. 31 2012.com. www.Independent Auditor’s Report February 27. the consolidated financial statements present fairly. Management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement. SYDNEY NSW1171 T +61 2 8266 0000. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. Report on internal control over financial reporting We have also audited InterOil Corporation and its subsidiaries’ internal control over financial reporting as at December 31. ABN 52 780 433 757 Darling Park Tower 2. on a test basis. the financial position of InterOil Corporation and its subsidiaries as at December. December 31. 2010 and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. 2011 and December 31. Those standards require that we plan and perform the audit to obtain reason able assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence. PricewaterhouseCoopers. December 31. Opinion In our opinion. 2012. The procedures selected depend on the auditor’s judgment.pwc. Our opinions. 2010 and the Consolidated Income Statements. December 31. In makin g those risk assessments.

Management’s responsibility for internal control over financial reporting Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’s Report on Internal Control over Financial Reporting. effective internal control over financial reporting as at December 31. accurately and fairly reflect the transactions and dispositions of the assets of the company. We believe that our audit provides a reasonable basis for our audit opinion on the company’s internal control over financial reporting.Integrated Framework issued by COSO. based on the assessed risk. 2012.based on criteria established in Internal Control . Definition of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 201 Sussex Street. GPO BOX 2650. testing and evaluating the design and operating effectiveness of internal control. or disposition of the company’s assets that could have a material effect on the financial statements.pwc.com. projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. in reasonable detail. SYDNEY NSW1171 T +61 2 8266 0000. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maint enance of records that. issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). F +61 2 8266 9999. Charterd Accountants PricewaterhouseCoopers Sydney. Australia PricewaterhouseCoopers. use. internal control over financial reporting may not prevent or detect misstatements.Integrated Framework. assessing the risk that a material weakness exists. Auditor’s responsibility Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. in all material respects. and that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company. Opinion In our opinion. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).au 61 . www. ABN 52 780 433 757 Darling Park Tower 2. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting. InterOil Corporation and its subsidiaries maintained. Inherent limitations Because of its inherent limitations. and performing such other procedures as we consider necessary in the circumstances. and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition. (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles. Also. based on criteria established in Internal Control .

006.661 (1.163.603.367) 4.558) (28.461 6.071) 1.263 57.00) (15.910 23.922) 2.922.064.670 44.513.201 17.248.981.662 0.603.257.118.866.995.03 17.209 1.961) (41.065. excluding exploration impairment (note 14) Finance costs Depreciation and amortization Gain on conveyance of oil and gas properties (note 14) Loss on extinguishment of liability Litigation settlement expense Loss on available-for-sale investment Foreign exchange (losses)/gains (Loss)/profit before income taxes Income taxes Current tax expense (note 16) Deferred tax benefit/(expense) (note 16) Profit/(loss) for the period Profit/(loss) is attributable to: Owners of InterOil Corporation Non-controlling interest Basic profit/(loss) per share Diluted profit/(loss) per share Weighted average number of common shares outstanding Basic (Expressed in number of common shares) Diluted (Expressed in number of common shares) 48.256 47.533.709 0.709 1.833 1.311 (758.439 (1.409.769) (20.977.799.140.816 4.929) (12.102.150) (18.051.058.470.274.723) (44.188) (6.594.649) (3.190 44. 2012 $ Revenue Sales and operating revenues Interest Other Changes in inventories of finished goods and work in progress Raw materials and consumables used Administrative and general expenses Derivative (losses)/gains (note 9) Legal and professional fees Exploration costs.018.853 1.320.352.825.420.469) 26.568.987.047.934.603.124 11.776.308.902.901.670 1.329.190) (5.261 12.000.067) (2.361) (41.418.098.981) (21.667 17.170 (43.822 49.824) 2.356.071) (1.863.982) (14.658.064.334) (18.823) (845.406) 25.37 0.566.612) (4.509 735.710) (12.418.573) 6.478 49.519.067 43.010.107.500) 1.611) (38.054) (40.678 10.512.883.025.048 806.709 (5.160.090 1.410) (9.072) 16.148) (1.00) (1.842) 6.557.540 (1.399 150.614.348) 2011 $ 2010 $ See accompanying notes to the consolidated financial statements 62 .329.241) (16.816 248.662 (3.656) (6.357.711.229.03 0.106.210) (13.658.214.513.801.435.502 (44.995 802.242.321 (6.36 (44.948.374.898.665.Consolidated Financial Statements (Expressed in United States dollars) Year ended December 31.511.000) (10.136.103.329.783 (30.652.949) (1.

502 (43.390 (4.565) 20.270 (407. net of tax Gain/(loss) on available-for-sale financial assets.744.772. net of tax Other comprehensive (loss)/income for the period.Consolidated Statements of Comprehensive Income (Expressed in United States dollars) Year ended December 31.603.201 37.409.744.929) (2.513.709 2011 $ 17.119.367 (43.110.201 1. net of tax Total comprehensive (loss)/income for the period Total comprehensive (loss)/income for the period is attributable to: Owners of InterOil Corporation Non-controlling interests (2.870) 1.220) (2.870) (5.402.778. 2012 $ Profit/(loss) for the period Other comprehensive income: Exchange gain/loss on translation of foreign operations.705 37.166 6.201 (43.372) 6.071) See accompanying notes to the consolidated financial statements 63 .367 1.220) 20.744.110.778.319) 653.001.402.220) 37.527.662 2010 $ (44.347.658.

227 233.613.806 233.525.880 (225.496 505.326 14.268.572 928.517.489 8.217.766 35.055.762 6.738.137 59.596 426.857 34.457 16.037.948 362.134.074 178.446.417 9.246 975.756 905.552) 2.75% convertible notes liability (note 26) Deferred gain on contributions to LNG project (note 21) Indirect participation interest (note 20) Other non-current liabilities (note 22) Asset retirement obligations (note 23) Deferred tax liabilities (note 16) Total non-current liabilities Total liabilities Equity: Equity attributable to owners of InterOil Corporation: Share capital (note 25) Authorized .176 861.047.370 75.949.381 11.407.464.47.288 63.166 55.659.955 272.631 146.001 11.046.961.334 190.512) 14.Consolidated Balance Sheets (Expressed in United States dollars) Year ended December 31.393 20.214.946.775 34.458 5.026.852.held-to-maturity (note 8) Trade and other receivables (note 10) Derivative financial instruments (note 9) Other current assets Inventories (note 11) Prepaid expenses Total current assets Non-current assets: Cash restricted (note 9) Goodwill (note 12) Plant and equipment (note 13) Oil and gas properties (note 14) Deferred tax assets (note 16) Other non-current receivables (note 22) Available-for-sale investments (note 15) Total non-current assets Total assets Liabilities and shareholders' equity Current liabilities: Trade and other payables (note 17) Income tax payable Derivative financial instruments (note 9) Working capital facilities (note 18) Unsecured loan and current portion of secured loans (note 19) Current portion of Indirect participation interest (note 20) Total current liabilities Non-current liabilities: Secured loans (note 19) 2.088.562.852 1.071) (Dec 31.924.299.059 127.317 225.581 16.526.742.036 21.853 25.137.948.551 180.578 51.786 661.813.607.380 4.880 955.unlimited Issued and outstanding .630 5.664.860.002 142.273 3.340 438.298.441 32.023 540.48.871.799 5.339 8.825 523.574 453.456.290.882 12.002 200.387 130.397 332.340.427 255.503 19.644.425.405.071 328.981.965.294.317 246.818.222 52.882.757 540.846.380.821 40.000 4.878 159.977.477.085.840.889.593. 2011 .576.48.134.651.354.961.150.205.477.810.761.052 14.650.978.392.246.217.074 6.398 (Dec 31.517.137 11.036 25.880 (245.463 6.036 16.670.614 895.298.953 12.690 522.682) .600 595.269 1.150.150.031.298.844 68.261.967 171.383.245 29.800.121.322.738 28.936 194.221) 14.626.071.440 867.565.305 6.391 128.604.439 11. 2012 $ Assets Current assets: Cash and cash equivalents (note 6) Cash restricted (note 9) Short term treasury bills .681 94.115 15.982.304.617 34.044 37.995 48.053 89.837. 2010 .317 255.405 1.393.177 12.703 515.876.840 4.75% convertible notes (note 26) Contributed surplus (note 27) Accumulated Other Comprehensive Income Conversion options (note 20) Accumulated deficit 64 2011 $ 2010 $ 49.132.480.254.626.000.360 3.626.479 31.177 4.032.110 135.299 26.922 832.043.072.273.637.832.954 6.880 (227.

297.110.036 14.652.880 (1.880 (407.150.142 928.565) 653.890.738.300) 759. 2012 Transactions with owners as owners: Share Capital At beginning of period Issue of capital stock (note 25) At end of period 2.088.436 13.598.890.644.644.738.979 975.261.804.261.245 (11.890. net of tax Gain/(loss) on available-for-sale financial assets at end of period Accumulated other comprehensive income at end of period Conversion options At beginning of period Movement for the period (note 20) At end of period Accumulated deficit At beginning of period Net profit/(loss) for the period At end of period Total InterOil Corporation shareholders' equity at end of period Transactions with non-controlling interest At beginning of period Net profit for the period Buyback of non-controlling interest (note 24) At end of period Total equity at end of period 776.908.880 20.880 12.512) 776.758) 11.032.099 702.056.880 12.882.390 245.270.002) 16.614 22.742.298.436 1.177 25.056.880 12.709 (225.380.551 See accompanying notes to the consolidated financial statements Consolidated Statements of Changes in Equity (Expressed in United States dollars) Year ended December 31.901.150.788.651.454.876.682) 702.966 776.036 14.901.067 21.519.881.056.649.890.330.354.270 29.573) (245.150.721. net of tax Foreign currency translation reserve at end of period Gain/(loss) on available-for-sale financial assets At beginning of period Gain/(loss) on available-for-sale financial assets.000 (7.245 21.682) 17.120.565) (407.417 (5.562 905.597 6.461 (227.056.953 (407.361.221) 1.177 (8.363 282.036 14.217.298.299.678.150.099 6.825 25.Total equity attributable to owners of InterOil Corporation Non-controlling interest (note 24) Total equity Total liabilities and equity 776.689 895.527.177 20.000) 12.565.976 1.099 702.881.289.298.052 $ 2011 $ 2010 $ See accompanying notes to the consolidated financial statements 65 .447 (5.436 (200.698.603.651.417 14.459) 7.298.298.979 (227.806 702.387 (217.565) 29.659.75% convertible notes At beginning of period Issue of convertible notes (note 26) At end of period Contributed surplus At beginning of period Fair value of options and restricted stocktransferred to share capital (note 27) Stock compensation expense (note 27) Loss on extinguishment of IPI conversion options (note 20) Loss on buyback of non-controlling interest (note 24) At end of period Accumulated Other Comprehensive Income Foreign currency translation reserve At beginning of period Foreign currency translation movement for the period.177 29.614 613.844 759.319) 24.447 8.880 13.550) 25.221) 759.201 (26.217.756 895.109) (44.036 14.853 16.966 (245.565.009) 14.502 20.787.436 759.201 9.150.981.036 905.981.052 10.128 9.150.261.001.818.966 1.966 20.298.880 12.788.036 14.882 9.961.

331) 5.565 66.050.406 (555.028.305) (2.897) 20.000.000) 20. 2012 $ Cash flows generated from (used in): Operating activities Net profit/(loss) for the period Adjustments for non-cash and non-operating transactions Depreciation and amortization Deferred tax Gain on conveyance of exploration assets Accretion of convertible notes liability Amortization of deferred financing costs Timing difference between derivatives recognized and settled Stock compensation expense.809.000) 11.551) 749.637) 5.479 187.924.217) (44.147.509 (169.494) 3.500.003.863.533 (34.514 (1.055) 15. net of transaction costs Net cash generated from/(used in) financing activities (Decrease)/increase in cash and cash equivalents 66 2011 $ (revised) 2010 $ (revised) 1.223.064.783) 432.044.756) 8.568.356 3.234.823) 4.542 (36.658.212.140.239 (20.951 598.944 178.976 95.406 159.846.603. including restricted stock Inventory write down Accretion of asset retirement obligation liability Loss on extinguishment of IPI Liability Non-cash litigation settlement expense Loss on Flex LNG investment Gain on proportionate consolidation of LNG project Unrealized foreign exchange gain Change in operating working capital Increase in trade and other receivables (Increase)/decrease in other current assets and prepaid expenses Increase in inventories Increase in trade and other payables Net cash (used in)/generated from operating activities Investing activities Expenditure on oil and gas properties Proceeds from IPI cash calls Expenditure on plant and equipment Proceeds received on sale of exploration assets Proceeds from Pacific Rubiales Energy (conveyance accounted portion) Maturity of/(investment in) short term treasury bills Acquisition of Flex LNG Ltd shares.543 (30.000 26.141 223.017) 17.710 12.136.760.456) (9.713) (28.274.489 15.712) (9.963 (56.662 20.000) 866.232.004.290) (9. net of transaction costs Proceeds from issue of convertible notes.804.110 (9.070.170) 3.578.408.127.115.165. net of transaction costs Proceeds from Westpac secured loan Repayments of Westpac secured loan Proceeds from PNG LNG cash call Proceeds from Pacific Rubiales Energy for interest in PPL237 Proceeds from Petromin for Elk and Antelope field development Proceeds from/(repayments of) working capital facility Proceeds from ANZ.550 (116.247.698.545.804.721.513.420.734 (36.000 (72.484) 77. BSP & BNP syndicated loan (net of transaction costs) Proceeds from issue of common shares.096 (1.576) (4.000 77.915 44.067 322.029 (94.698 350.291.187) (96.091 11.969.246.832.029.632 1.000) 3.661.752 (22.535 331.960) (185.814) (53.000.071) 14.488.930) (28.110) (7.872.000 (2.912.478.987) 23.882.000.618.578 11.143.435) (11.497.000.543.002 .027.061 7.703 (27.841.269) (31.000 30.000.649 (5.030) (2.600 5.146.893 311.560.544.944 (762.886.176.641) 25.000.465 (17.000) (6. including transaction costs (Increase)/decrease in restricted cash held as security on borrowings Change in non-operating working capital Decrease/(increase) in trade and other receivables Increase/(decrease) in trade and other payables Net cash used in investing activities Financing activities Repayments of OPIC secured loan Proceeds from Mitsui for Condensate Stripping Plant Proceeds from/(repayments of) Clarion Finanz secured loan.532 2.000.165.773.418.561) 14.Consolidated Statements of Cash Flows (Expressed in United States dollars) Year ended December 31.306 (10.000.692.000.712.450.505.000) 9.492.794 (42.683 185.832.922 1.387 259.735.722) 3.723.727.907 211.055) (168.224.627.192) 3.005) 3.000 20.789) (35.367 (29.467) (184.000.598.290.000 11.709 21.473 (2.913.472.316) (3.

including expectations of future events that are believed to be reasonable under the circumstances. integrated oil and gas company operating in Papua New Guinea (“PNG”).717 634. the IPP pricing from January 2013 is considered (IPP is based on December MOPS product pricing) along with estimated Naphtha.441 18.821 See accompanying notes to the consolidated financial statements Notes to Consolidated Financial Statements (Expressed in United States dollars) 1. The estimates are based on the most reliable evidence available at the time the estimates are made. Yukon.576. of the amounts that are expected to be realized. Whitehorse.225.821 233. These policies have been consistently applied to all the years presented. 2012 have been prepared under the historical cost convention. as issued by the IASB. providing management. end of period Comprising of: Cash on Deposit Term Deposits Total cash and cash equivalents. Upstream currently includes the development of infrastructure for the Elk and Antelope fields which includes wells.837 68.288 50. 2013. condensate stripping facilities and pipelines to deliver natural gas to the Midstream Liquefaction segment and condensate to the Midstream Refining segment. LSWR and LPG pricing based on the expected date of sale. 2.860. Upstream includes exploration.846.004. continued under the Business Corporations Act (Yukon Territory) on August 24.327 49.441 1. end of period 68. gas gathering pipelines. appraisal and development operations for crude oil and natural gas structures in PNG. beginning of period Exchange gains on cash and cash equivalents Cash and cash equivalents. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.576. seldom equal the related actual results. The Company is incorporated and domiciled in Canada. To determine the net realizable value of finished goods inventory. PNG for the domestic market and for export.Cash and cash equivalents.758. These consolidated financial statements were approved by the Directors for issue on February 27. The consolidated financial statements for the year ended December 31. general and administrative services. Downstream segment markets and distributes refined products domestically in PNG on a wholesale and retail basis.576.821 4. Midstream consists of both Midstream Refining and Midstream Liquefaction. The address of its registered office is 300-204 Black Street.620 49. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. Management has organized the Company’s operations into four major segments . • Net realizable value of inventory: Inventory is recorded at the lower of cost or net realizable value. Corporate segment provides support to our other business segments by engaging in business development and improvement activities. The Company is a Yukon Territory corporation.846. Estimates and judgments are continually evaluated and are based on historical experience and other factors. 2007. (a) Basis of preparation The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Convertible notes: The convertible notes are assessed based on the substance of the contractual arrangement in determining 67 • . and Midstream Liquefaction includes the work being undertaken to develop liquefaction and associated facilities in PNG for the export of liquefied natural gas.860. Downstream and Corporate. This segment also manages our shipping business which currently operates two vessels transporting petroleum products for our Downstream segment and external customers.449.044 49. The Company makes estimates and assumptions concerning the future.821 233.Upstream. The Directors have the power to amend and reissue the financial report.057. Canada. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the end of the period to the extent that such events confirm conditions existing at the end of the reporting period. unless otherwise stated.153 68.846. Significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.441 46. Midstream. except for derivative financial instruments which are measured at fair value. undertakes financing and treasury activities. both within PNG and for export in the South Pacific region.819 233. The resulting accounting estimates will.044 233. and is responsible for government and investor relations. Midstream Refining includes production of refined petroleum products at Napa Napa in Port Moresby. The preparation of financial statements requires the use of certain critical accounting estimates. This segment is also conducting appraisal drilling of the Triceratops field and manages our construction business which services our development projects underway in PNG.576. General information InterOil Corporation (the “Company” or “InterOil”) is a publicly traded.088. by definition.

exhibits the fundamental characteristic of a financial liability or equity. Management has assessed that the note instrument mainly exhibits characteristics that are liability in nature, however, the embedded conversion feature is equity in nature and needs to be bifurcated and disclosed separately within equity. Management valued the liability component first and assigned the residual value to the equity component. Management fair valued the liability component by deducting the premium paid by holders specifically for the conversion feature. The conversion price of $95.625 per share includes a premium of 27.5% to the issue price of the concurrent common shares offering of $75 per share. Therefore, the $70,000,000 total issue represents 127.5% of the liability portion. Deferred gain on contributions to LNG project: The Company has a recognized deferred gain on its contributions to the Joint Venture based on the share of other joint venture partners in the project. As InterOil’s shareholding within the Joint Venture Company as at December 31, 2012 is 84.582%, the gain on contribution of non cash assets to the project by InterOil relating to other joint venture partners’ shareholding (15.418% - amounting to $15,113,190) has been recognized by InterOil in its balance sheet as a deferred gain. This deferred gain will increase/decrease as the other Joint Venture partners decrease/increase their shareholding in the project. This amount has been recorded as a reduction of deferred LNG project costs by $15,113,190 at December 31, 2012 which has reduced the LNG project costs to $4,385,857 at December 31, 2012. The deferred gain will be recognized in the consolidated income statement when the risks and rewards have considered to be passed.

Asset retirement obligation: A liability is recognized for future legal or constructive retirement obligations associated with the Company’s property, plant and equipment. The amount recognized is the net present value of the estimated costs of future dismantlement, site restoration and abandonment of properties based upon current regulations and economic circumstances at period end. As a result of an independent assessment of the potential asset retirement obligations of the refinery, Management has recognized an asset retirement obligation at December 31, 2012 of $4,978,334. The inflation factor used in the independent assessment of the retirement obligation is 2.6% and the fair value of the best estimate was derived based on discounting the obligation to the current period end using a discount rate of 7.78%. Environmental remediation: Remediation costs are accrued based on estimates of known environmental remediation exposure. Ongoing environmental compliance costs, including maintenance and monitoring costs, are expensed as incurred. Provisions are determined on an assessment of current costs, current legal requirements and current technology. Changes in estimates are dealt with on a prospective basis. The Company currently does not have any amounts accrued for environmental remediation obligations as current legislation does not require it. Future legislative action and regulatory initiatives could result in changes to the Company’s operating permits which may result in increased capital expenditures and operating costs. Share-based payments: The fair value of stock options at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the terms of the option, the vesting criteria, the share price at grant date, expected price volatility of the underlying share, the expected yield and risk-free interest rate for the term of the option. Upon exercise of options, the balance of the contributed surplus relating to those options is transferred to share capital. The fair value of restricted stock on grant date is the market value of the stock. The Company uses the fair value based method to account for employee stock based compensation benefits. Under the fair value based method, compensation expense is measured at fair value at the date of grant and is expensed over the award’s vesting period. Income taxes: The company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment. In considering the recoverability of deferred tax assets and liabilities, the Company considers a number of factors, including the consistency of profits generated from the refinery, likelihood of production from Upstream operations to utilize the carried forward exploration costs, etc. If actual results differ from the estimates or if the Company adjusts the estimates in future periods, a reduction in the Company’s deferred tax assets will result in a corresponding increase in deferred tax expenses. Oil and gas properties: The Company uses the successful-efforts method to account for its oil and gas exploration and development activities. Under this method, costs are accumulated on a field-by-field basis with certain exploratory expenditures and exploratory dry holes being expensed as incurred. The Company continues to carry as an asset the cost of drilling exploratory wells if the required capital expenditure is made and drilling of additional exploratory wells is underway or firmly planned for the near future, or when exploration and evaluation activities have not yet reached a stage to allow reasonable assessment regarding the existence of economical reserves. Capitalized costs for producing wells will be subject to depletion using the units-of-production method. Geological and geophysical costs are expensed as incurred. If the Company’s plans change or the Company adjusts the estimates in future periods, a reduction in the Company’s oil and gas properties asset will result in a corresponding increase in the amount of our exploration expenses. Impairment of Long-Lived Assets: The Company is required to review the carrying value of all property, plant and equipment, including the carrying value of oil and gas assets, and goodwill for potential impairment. The Company tests long-lived assets for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable by the future discounted cash flows. Due to the significant subjectivity of the assumptions used to test for recoverability and to determine fair value, changes in market conditions could result in significant impairment charges in the future, thus affecting the Company’s earnings. The Company’s impairment evaluations are based on assumptions that are consistent with the Company’s business plans.

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Rate regulation InterOil is currently the sole refiner of hydrocarbons in PNG. The Company’s 30 year project agreement with the Independent State of Papua New Guinea (“the State”) expires in 2035. The State has undertaken to ensure that all domestic distributors purchase their refined petroleum products from the Company’s refinery, or any other refinery which is constructed in PNG, at an Import Parity Price (”IPP”). The IPP is monitored by the Papua New Guinea Independent Consumer and Competition Commission (”ICCC”). In general, the IPP is the price that would be paid in PNG for a refined product being imported. For all price controlled products (diesel, unleaded petrol, kerosene and aviation fuel) produced and sold locally in PNG, the IPP is calculated by adding the costs that would typically be incurred to import such product to ‘Mean of Platts Singapore’ (“MOPS”) which is the benchmark price for refined products in the region in which the Company operates. InterOil is also a significant participant in the retail and wholesale distribution business in PNG. The ICCC regulates the maximum prices that may be charged by the wholesale and retail hydrocarbon distribution industry in PNG. The Downstream business may charge less than the maximum margin set by the ICCC in order to maintain its competitiveness with other participants in the market. In November 2010, the ICCC released its review report which will govern the pricing arrangements for petroleum products in PNG until the end of 2014, taking effect from November 1, 2010. The purpose of the review was to consider the extent to which the existing regulation of price setting arrangements at both wholesale and retail levels should continue or be revised for the next five year period. The report recommended an increase in margins for wholesale business and certain other activities, while the retail margin is to remain the same. It also recommended some increases in monitoring industry activity in PNG mainly, relating to import of products by distributors and in relation to aviation fuel pricing. No rate regulated assets or liabilities have been recognized. (b) Statement on liquidity, capital resources and capital requirements These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they become due. The net current assets as at December 31, 2012 amounted to $105.7 million compared to $226.6 million as at December 31, 2011 and $311.0 million as at December 31, 2010. The Company has cash, cash equivalents and cash restricted of $98.9 million as at December 31, 2012 (December 2011 - $108.1 million, December 2010 - $280.9 million), of which $49.0 million is restricted (December 2011 - $39.3 million, December 2010 - $47.3 million). The Company’s primary use of capital resources has been the exploration and development activities in the Upstream operations. The Company has no obligation to execute exploration activities within a set timeframe and therefore has the ability to select the timing of these activities as long as the minimum license commitments in relation to the Company’s Petroleum Prospecting Licenses (“PPL”) and Petroleum Retention Licenses (“PRL”) are met. Refer note 30 for further information on these commitments. Accordingly, the Company’s actual capital expenditure can be accelerated or decelerated at its discretion. The Company has a short term total working capital facility of $240.0 million for its Midstream – Refining operation that was renewable annually with BNP Paribas. In October 2012, the working capital facility agreement with BNP Paribas was amended so that the facility was made evergreen and the annual renewal requirement removed. This facility is secured by the charge over the assets it is drawn down against. As at December 31, 2012, $233.8 million of the combined facility has been utilized, and the remaining facility of $6.2 million remains available for use. The Company has an approximate $66.6 million (Papua New Guinea Kina (“PGK”) 140.0 million) revolving working capital facility for its Downstream operations in PNG from Bank of South Pacific Limited (“BSP”) and Westpac Bank PNG Limited (“Westpac”). As at December 31, 2012, none of this combined facility has been utilized, and the entire facility remains available for use. The Westpac facility was for an initial term of three years and was renewed in November 2011 through to November 2014. The facility was increased in February 2012 by $4.8 million (PGK 10.0 million). In addition, a secured loan of $15.0 million was provided as part of this increased facility which is repayable in equal installments over 3.5 years with an interest rate of LIBOR + 4.4% per annum. The BSP facility is renewable annually and was renewed in October 2012 through to October 2013. On October 16, 2012, the Company entered into a five year amortizing $100.0 million secured term loan facility with BNP Paribas Singapore, Bank South Pacific Limited, and Australia and New Zealand Banking Group (PNG) Limited. Borrowings under the facility have been used for repayment of all outstanding amounts under the term loan granted by OPIC and will also be used for general corporate purposes. The loan is secured over the fixed assets of the refinery and bears interest at LIBOR plus 6.5%. The Company believes that it has sufficient funds for the Midstream Refinery and Downstream operations; however, existing cash balances and ongoing cash generated from these operations will not be sufficient to facilitate further necessary development of the Elk and Antelope fields, appraisal of Triceratops field, condensate stripping and liquefaction facilities. Therefore the Company must extend or secure sufficient funding through renewed or additional borrowings, equity raising and or asset sales to enable sufficient cash to be available to further its development plans. Management expects that the Company will be able to secure the necessary financing through one, or a combination of, the aforementioned alternatives. Accordingly, these consolidated financial statements have been prepared on a going concern basis in the belief that the Company will realize its assets and settle its liabilities and commitments in the normal course of business and for at least
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the amounts stated, for a period not less than one year from the date of signing the financial report. (c) New standards issued but not yet effective The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not yet effective for the financial year beginning January 1, 2012 and have not been early adopted: • IFRS 9 ‘Financial Instruments’ (effective from January 1, 2015): This addresses the classification and measurement of financial assets. The standard is not applicable until January 1, 2015 but is available for early adoption. The Company is yet to assess IFRS 9’s full impact, but do not expect any material changes due to this standard. The Company has not yet decided to early adopt IFRS 9. IFRS 10 ‘Consolidated Financial Statements’ (effective from January 1, 2013): This builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in determining control where this is difficult to assess. This new standard will have no impact on the entities that the Company currently consolidates as its subsidiaries. IFRS 11 ‘Joint Arrangements’ (effective from January 1, 2013): This provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. Under IFRS 11, the LNG Project will be classified as a joint venture and the Company will therefore equity account for its interest in the LNG Project as compared to the current treatment of proportional consolidation. The Company will reassess the impact of this standard taking into consideration the final outcome of the ongoing sell down process in relation to the Elk and Antelope fields. IFRS 12 ‘Disclosure of Interests in Other Entities’ (effective from January 1, 2013): This is a new standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. As a result of this standard, the Company will have increased disclosure around the LNG Project joint venture. IFRS 13 ‘Fair Value Measurement’ (effective from January 1, 2013): This aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. As a result of this standard, there may be some additional disclosure requirements that may impact on the Company’s financial statements. IAS 27 ‘Separate Financial Statements’ (effective from January 1, 2013): This includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. This new standard will have no impact on the Company. IAS 28 ‘Investments in Associates and Joint Ventures’ (effective from January 1, 2013): This now includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. As a result of the LNG Project being classified as a joint venture under IFRS 11, the Company will have to equity account for its interest in the LNG Project in accordance with IAS 28. The Company will reassess the impact of this standard taking into consideration the final outcome of the ongoing sell down process in relation to the Elk and Antelope fields.

• •

(d) Principles of consolidation • Business combinations: The Company applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Company recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the Company is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. The Company measures goodwill at the acquisition date as the fair value of the consideration transferred including the recognized amount of any non-controlling interests in the acquiree, less the fair value of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred. Subsidiaries: The consolidated financial statements of the Company incorporates the assets, liabilities and results of InterOil Corporation and of all subsidiaries as at December 31, 2012, December 31, 2011 and December 31, 2010, and for the periods then

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is governed by a Shareholders’ Agreement signed on July 30. The consolidated results of InterOil’s proportionate shareholding in the LNG Project has been disclosed separately within the segment notes under Midstream .2 Limited was incorporated in PNG as a 100% subsidiary of SPI (208) Limited to hold an interest in PRL15. InterOil Corporate PNG Limited (100%) and their subsidiaries. refer to note 5. 2007 between the Joint Ventures’. condensate storage and associated facilities being progressed in joint venture with Mitsui & Co. balance sheets and statement of changes in equity. • (e) Segment reporting An operating segment is a component of an enterprise: • • • that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other segments of the same enterprise). 2012. InterOil Shipping Pte Ltd (100%). 2012. In May 2010. 50 Limited was incorporated in PNG as a 100% subsidiary of Liquid Niugini Gas Limited. Champion No. There have been no transactions in this entity as of December 31. 2012 included South Pacific Refining Limited (100%).1 Limited was incorporated in PNG as a 100% subsidiary of SPI (208) Limited to hold an interest in PRL15. InterOil Singapore Pte Ltd (100%). 2012. Intercompany transactions. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. InterOil Shipping Pte Ltd was incorporated in Singapore as a 100% subsidiary of InterOil Corporation to provide shipping services to domestic customers within PNG and also to export customers from PNG. Guidance under IAS 31 – ‘Interest in Joint Ventures’ is followed and the entity has been proportionately consolidated in InterOil’s consolidated financial statements. There have been no transactions in this entity as of December 31. In June 2010. Subsidiaries of InterOil Corporation as at December 31. Refer to note 1 for the management’s organization of the Company by reporting segment. The purpose of LNGL Train 1 Limited was to be the owner and operator of a modular LNG plant to be acquired from Energy World Corporation. InterOil Finance Inc. (f) Foreign currency 71 . All costs incurred by this entity will be recharged to relevant InterOil entities based on an equitable driver basis. statements of comprehensive income. There have been no transactions in this entity as of December 31. Segment capital expenditure is the total cost incurred during the period to acquire property. There have been no transactions in this entity as of December 31. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statements. SPI Holdings No. SPI Holdings No. plant and equipment. 2013. In May 2010. There have been no transactions in this entity as of December 31. They are de-consolidated from the date that control ceases. (100%). This company underwent a change of name. (“CS Project”).Liquefaction. In March 2011. 2012. In January 2011.ended. (100%). SPI Holdings No. In May 2011.3 Limited was incorporated in PNG as a 100% subsidiary of SPI (220) Limited to hold an interest in Triceratops field. this entity has taken over the operation of the Napa Napa camp and all costs associated with the operation of the camp are now captured in this entity. InterOil LNG Holdings Inc. Champion No. 2012. InterOil Australia Pty Ltd (100%). In March 2012. InterOil Corporation and its subsidiaries together are referred to in these consolidated financial statements as the Company or the consolidated entity. Proportionate consolidation of Joint Venture interests: The Company’s interests in PNG LNG Inc. Subsidiaries are all those entities over which the Company has the power to determine strategic operating. Ltd. whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. and for which discrete financial information is available. InterOil Corporate PNG Limited was incorporated in PNG as a 100% subsidiary of InterOil Corporation to employ all corporate staff in PNG and to capture their associated costs. this company underwent a change of name to LNG Train 1 Limited and then a further name change in February 2011 to LNGL Train 1 Limited. In May 2010. and is currently registered as InterOil Partners Limited. Direct Employment Services Company (100%). including gathering condensate pipeline. This company underwent a change of name. 57 Limited was incorporated in PNG as a 100% subsidiary of SPI (220) Limited to hold an interest in the Triceratops field. and intangible assets other than goodwill. and is currently registered as SPI Security Holdings Limited. SPI CSP Holdings Limited was incorporated in PNG as a 100% subsidiary of SPI Exploration & Production Corporation to hold InterOil’s interest in the proposed condensate stripping facilities. In April 2010. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. investing and financing policies without the cooperation of others. In addition. The Company will assess the impact of this revised standard taking into consideration the final outcome of the ongoing sell down process in relation to the Elk and Antelope fields. The Company is currently reviewing the revised guidance under IFRS 11 – ‘Joint Arrangements’ which is effective from January 1. SPI Distribution Limited (100%). SPI Exploration and Production Corporation (100%). balances and unrealized gains on transactions between companies are eliminated on consolidation. This entity began transacting in October 2012.

Such assets are recognized initially at fair value plus any directly attributable transaction costs. The Company classifies non-derivative financial liabilities into the other financial liabilities category. Financial liabilities not designated at fair value through profit or loss are recognized initially at fair value plus any directly attributable transaction costs. Foreign exchange gains or losses are recognized and presented in other comprehensive income and in the foreign currency translation reserve in equity. and the amortized cost in foreign currency translated at the exchange rate at the end of the period. The Company classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. are recognized in other comprehensive income. Subsequent to initial recognition. except for those with maturities less than 12 months from the end of the reporting period. adjusted for effective interest and payments during the period. • • (ii) Non-derivative financial liabilities The Company initially recognizes debt securities issued and subordinated liabilities on the date that they originated. These amounts are unsecured and are usually paid within 30 days of recognition. Held-to-maturity: Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company’s management has the positive intention and ability to hold to maturity. less any impairment losses. Financial assets and liabilities are offset and the net amount presented in the balance sheet when. Foreign currency differences arising on retranslation are recognized in profit or loss. and only when.• • Functional and presentation currency: These consolidated financial statements are presented in United States Dollars (“USD”) which is InterOil’s functional and presentation currency. and only when. Trades and other payables represent liabilities for goods and services provided to the Company prior to the end of financial period which are unpaid. loans or receivables. the gain or loss accumulated in equity is reclassified to profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Available-for-sale: Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the other categories. All other financial assets (including assets designated at fair value through profit or loss) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. Other financial liabilities comprise secured and unsecured loans. or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. and trade and other payables. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are offset and the net amount presented in the balance sheet when. less any impairment losses. the whole category would be tainted and reclassified as available-for-sale. held to maturity financial assets and available-for-sale financial assets. Held-to-maturity financial assets are recognized initially at fair value plus any directly attributable transaction costs. Foreign operations: For subsidiaries considered to be foreign operations. Foreign currency transactions: Transactions in foreign currencies are translated to the respective functional currencies of Company entities at exchange rates at the dates of the transactions. held-to-maturity financial assets are measured at amortized cost using the effective interest method. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. which are classified as current assets. Subsequent to initial recognition. Loans and receivables comprise of trade and other receivables. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. • Loans and receivables: Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition. the Company has a legal right to offset the amounts and intends to either settle on a net basis or to realize the asset and settle the liability simultaneously. bank overdrafts. 72 . The Company’s investments in equity securities are classified as available-for-sale financial assets. When an investment is derecognized. they are measured at fair value and changes therein. the Company has a legal right to offset the amounts and intends to either settle on a net basis or to realize the asset and settle the liability simultaneously. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method. other than impairment losses. all assets and liabilities denominated in foreign currency are translated to USD at exchange rates in effect at the balance sheet date and all revenue and expense items are translated at the rates of exchange in effect at the time of the transactions. If the Company were to sell other than an insignificant amount of held-to-maturity financial assets. these financial liabilities are measured at amortized cost using the effective interest method. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. Held-to-maturity financial assets are included in non-current assets. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period. • (g) Financial instruments (i) Non-derivative financial assets The Company initially recognizes loans and receivables and deposits on the date that they are originated. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire.

how the hedging instruments’ effectiveness in offsetting the hedged risk will be assessed and a description of the method for measuring effectiveness. deposits held at call with financial institutions.(iii) Derivative financial instruments Derivative financial instruments are utilized by the Company in the management of its crude purchase cost exposures. On conversion. the financial liability is reclassified to equity and no gain or loss is recognized on conversion. (h) Cash and cash equivalents Cash and cash equivalents includes cash on hand. The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in cash flows of the hedged item. Interest and losses and gains relating to the financial liability are recognized in profit or loss. the derivative is no longer designated as a hedging instrument because it is unlikely that a forecasted transaction will occur. prospective gains or losses on the derivative are recognized in earnings. first-out basis and the net realizable value test for crude oil and refined petroleum products are performed separately. at the inception of the hedge. The cost of Downstream petroleum products includes the cost of the product plus related freight. labor. the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. The Company may choose to designate derivative financial instruments as hedges. Costs comprise direct materials. Subsequent to initial recognition. Cash restricted is carried at cost and any accrued interest is classified under other assets. The Company’s policy is not to utilize derivative financial instruments for trading or speculative purposes. direct overheads and transportation costs. The cost of Midstream Refining petroleum products consist of raw material. (j) Inventory • Raw materials and parts inventory: Raw materials and parts inventory are stated at the lower of costs and net realizable value. (i) Cash restricted Cash restricted consists of cash on deposit which is restricted from being used in daily operations. The equity component is recognized initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. its finished products sales price exposures and its foreign exchange management. highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Crude oil and refined petroleum products: Crude oil and refined petroleum products are recorded on a first-in. as well as its risk management objective and strategy for undertaking various hedge transactions. the nature of the risk being hedged. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or anticipated transactions. Net realizable value is the estimated selling price in the ordinary course of the business less the estimated costs of completion and the estimated costs necessary to make the sale. terminated or exercised. when the number of shares to be issued does not vary with changes in their fair value. other short-term. the derivative expires or is sold. wharfage and insurance. • 73 . the entire gain or loss in accumulated other comprehensive income related to this transaction is immediately reclassified to earnings. the Company formally documents all relationships between hedging instruments and the hedged items. The Company also assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items at inception and on an ongoing basis. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded as a component of Other Comprehensive Income until earnings are affected by the variability in cash flows of the designated hedged item. (iv) Compound financial instruments Compound financial instruments issued by the Company comprise convertible notes that can be converted to share capital at the option of the holder. a hedged firm commitment no longer meets the definition of a firm commitment or management determines that designation of the derivative as a hedging instrument is no longer appropriate. If the likelihood of the original hedged transaction occurring is no longer probable. direct labor and an appropriate proportion of variable and fixed overhead expenditure. For cash flow hedges that have been terminated or cease to be effective. The liability component of a compound financial instrument is recognized initially at fair value of a similar liability that does not have an equity conversion option. Any gain or loss that has been included in accumulated other comprehensive income at the time the hedge is discontinued continues to be deferred in accumulated other comprehensive income until the original hedged transaction is recognized in earnings. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. When applicable.

As there are no production wells. The amount recognized is the net present value of the estimated costs of future dismantlement. Land is not depreciated. which amounted to a balance of $4. plant and equipment. incurred during the pre-operating stage were capitalized as part of plant and equipment. Amortization is provided on an effective yield basis over the term of the related debt and is included in expenses for the period. Leased assets (accounting as lessor): Assets are leased out under an operating lease. Environmental remediation: Remediation costs are accrued based on best estimates of known environmental remediation exposure. other than major turnaround costs. 2097. In relation to Upstream operations. Repairs and maintenance costs. hence no asset retirement obligation has been recognized in relation to Downstream operations. Major turnaround costs will be capitalized when incurred and amortized over the estimated period of time to the next scheduled turnaround. Improvements that increase the capacity or prolong the service life of an asset are capitalized. Each lease payment is allocated between the liability and the finance charges so as to achieve a constant rate on the finance balance outstanding. The asset is included in the balance sheet based on the nature of the asset. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts. The Company is not aware of any material environmental contamination issues. Finance leases are classified at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. The refinery is built on land leased from the State. The lease expires on July 26.334 as at December 31. 2012 (December 2011 . current legal requirements and current technology. Asset retirement obligations: A liability is recognized for future legal or constructive retirement obligations associated with the Company’s property. Other assets: Property. Provisions are determined on an assessment of current costs. • • • • • 74 . The interest element of the finance cost is charged to the comprehensive income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Refinery related assets are depreciated on straight line basis over their useful lives. are expensed as incurred. plant and equipment are recorded at amortized cost. Interest costs relating to the construction and pre-operating stage of the development project prior to commencement of commercial operations were capitalized as part of the cost of such plant and equipment. at an average rate of 4% per annum. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. net of any recoveries. However. including maintenance and monitoring costs. are expensed as incurred.978. The Midstream Liquefaction segment is currently at its early development stage with front-end engineering and design work being progressed. Lease income is recognized over the term of the lease on a straight-line basis. a liability was recognized for asset retirement obligation. net of finance charges. Depreciation of assets begins when the asset is in place and ready for its intended use. the current environmental law regime in Papua New Guinea does not impose remediation obligations on an operator specifically in relation to remediation and/or rehabilitation requirements upon the closure of a site in PNG. Depreciation of plant and equipment is calculated using the straight line method. plant and equipment where the Company has substantially all the risks and rewards of ownership are classified as finance leases. site restoration and abandonment of properties based upon current regulations and economic circumstances at period end. 2005. The refinery assets are recorded at cost less accumulated depreciation and accumulated impairment losses.(k) Deferred financing costs Deferred financing costs represent the unamortized financing costs paid to secure borrowings. based on the estimated service life of the asset. The property. the Company has a common law duty not to cause damage to land. 2012. Operating lease payments are representative of the pattern of benefit derived from the leased asset and accordingly are included in expenses on a straight line basis over the period of the lease. No major turnaround costs have been incurred in the year ended December 31. As a result of an independent assessment of the potential asset retirement obligations of the refinery. if any. plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term. Development costs and the costs of acquiring or constructing support facilities and equipment are also capitalized. (l) Plant and equipment • Refinery assets: The Company’s most significant item of plant and equipment is the oil refinery in PNG which is included within Midstream Refining assets. In relation to Downstream operations. there is minimal rectification required of the footprint created by the activities at this stage. are included in other long term payables.$nil). net of their residual values. over their estimated useful lives as follows: Leasehold land improvements Shorter of 100 years or lease period Refinery 4 – 25 years Buildings 20 – 40 years Plant and equipment 3 – 15 years Motor vehicles 4 – 5 years Leased assets (accounting as lessee): Leases of property. Assets under construction and deferred project costs are not depreciated. the Company’s activities are still largely in the exploration and appraisal phase. Changes in estimates are dealt with on a prospective basis. The pre-operating stage of the refinery ceased on January 1. Ongoing environmental compliance costs. Unamortized deferred financing costs are offset against the respective liability accounts. Maintenance and repair costs are expensed as incurred. The corresponding rental obligations. Project costs.

shall be accounted for as the sale of an asset. it concludes that sufficient risks and benefits of ownership has passed to the transferee. Costs capitalized include external direct costs of materials and service. where applying judgment to the facts presented. except when they have been incurred to facilitate production techniques. An impairment loss.• • Disposal of property. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. (m) Oil and gas properties The Company uses the successful-efforts method to account for its oil and gas exploration and development activities. Geological and geophysical costs capitalized would be included as part of the cost of producing wells and be subject to depletion using the units of production method. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount. If the sales price exceeds the carrying amount of a property. Under this method. 75 . is reversed through profit and loss if the reversal can be related objectively to an event occurring after the impairment loss was recognized. Individually significant financial assets are tested for impairment on an individual basis. All impairment losses are recognized in the consolidated income statement. or sufficient risks and benefits of ownership to the transferee. direct payroll and payroll related costs of employees’ time spent on the project. a part of which was sold. Geological and geophysical costs are expensed as incurred. and a gain or loss shall be recognized. the carrying values of the assets are written off along with accumulated depreciation and any resulting gain or loss is included in the income statement. Conveyance accounting is triggered by the Company on the sale of a property. If a part of the interest in an unproved property is sold. Capitalized costs for producing wells will be subject to depletion using the units-of-production method. or of an entire proved property. gain shall be recognized in the amount of such excess. plant and equipment in the Corporate segment. other than relating to available for-sale equity instruments. such as an obligation to drill a well or to operate the property without proportional reimbursement for that portion of the drilling or operating costs applicable to the interest sold. the amount received shall be treated as a recovery of cost. Amortization is calculated on a straight line basis over periods generally ranging from 3 to 5 years. A part of an interest owned is sold and the Company has a substantial obligation for future performance. shall be apportioned to the interest sold and the interest retained on the basis of the fair values of those interests. In the following types of conveyances. (n) Impairment • Non-derivative financial assets: A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. or exceeds the original cost of a property. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. The sale of a part of a proved property. The Company continues to carry as an asset the cost of drilling exploratory wells if the required capital expenditure is made and drilling of additional exploratory wells is underway or firmly planned for the near future or when exploration and evaluation activities have not yet reached a stage to allow reasonable assessment regarding the existence of economic reserves. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. These amounts are capitalized as part of property. The reversal of an impairment loss relating to available-for-sale equity instruments is through other comprehensive income. to increase total recoverability and to determine the desirability of drilling additional development wells within a proved area. costs are accumulated on a field-by-field basis with certain exploratory expenditures and exploratory dry holes being expensed as incurred. and the present value of the estimated future cash flows discounted at the original effective interest rate. IT Development and software: Costs incurred in development products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalized. Conveyances of mineral interests in properties may involve the transfer of all or a part of the rights and responsibilities of operating a property. IT development costs include only those costs directly attributable to the development phase and are only recognized following completion of technical feasibility and where the Company has an intention and ability to use the asset. plant and equipment: At the time of disposal of plant and equipment. gain shall not be recognized at the time of the conveyance: • • A part of an interest owned is sold and substantial uncertainty exists about recovery of the costs applicable to the retained interest. The unamortized cost of the property or group of properties. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value.

Value in use is determined as the net present value of the estimated future cash flows expected to arise from the continued use of the asset in its present form and its eventual disposal. Non-financial assets: The carrying amounts of the Company’s non-financial assets. are reviewed at each reporting date to determine whether there is any indication of impairment. collection of the relevant receivable is probable and when the amount of revenue can be reliably measured. the recoverable amount is estimated each period at the same time. it is written off against the allowance account. probability that the debtor will enter bankruptcy or financial reorganization. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. The recoverable amount of an asset is the greater of its value in use or its fair value less costs to sell and is determined for an individual asset. discounted at the risk free rate of interest plus a risk premium. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. which is the smallest identifiable group of assets. The amount of the impairment loss is recognized in the income statement. Significant financial difficulties of the debtor. have been applied. For goodwill. (o) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. and intangible assets that have indefinite useful lives or that are not yet available for use. The following particular accounting policies. liabilities and associated goodwill that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its recoverable amount. Interest revenue: Interest revenue is recognized as the interest accrues using the effective interest rate. discounted at the original effective interest rate. Impairment losses are recognized in profit or loss. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. When a trade receivable for which an impairment allowance had been recognized becomes uncollectible in a subsequent period. other than inventories and deferred tax assets. the customer takes ownership and assumes risk of loss. Subsequent recoveries of amounts previously written off are credited against the income statement. and default or delinquency in payments are considered indicators that the trade receivable is impaired. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. willing parties who are under no compulsion to act. collection of the receivable is probable. The Company sells certain trade receivables with recourse to BNP Paribas under its working capital facility. There has been no impairment of assets or goodwill based on the assessments performed during the period. the assets are tested as part of a cash-generating unit (“CGU”). which significantly affect the measurement of results. and when the amount of revenue can be reliably measured. trade allowances and duties and taxes paid. Fair value is the amount of the consideration that would be agreed upon in an arm’s length transaction between knowledgeable. Sales between the operating segments of the Company have been eliminated from sales and operating revenues and cost of sales. net of depreciation or amortization. if no impairment loss had been recognized. The receivables are retained on the balance sheet as the Company retains the credit risk and control over these receivables. Revenue from Upstream operations: Revenue from rig and constructions services are recognized in the accounting period in with the services are rendered.Trade receivables The collectability of trade receivables is assessed on an ongoing basis. If an impairment loss is recognized. It is not the Company’s policy to sell products with a right of return. If any such indication exists then the asset’s recoverable amount is estimated. Amounts disclosed as revenue are net of returns. • Revenue from Midstream Refining operations: Revenue from sales of products is recognized when products are shipped and the customer takes ownership and assumes risk of loss. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of the receivables. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows. • • • • 76 . In that situation. unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Revenue from Downstream operations: Sales of goods are recognized when the Company has delivered products to the customer. the adjusted carrying amount becomes the new cost basis. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined.

the vesting criteria. Australia. Deferred tax assets and liabilities are recognized for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled. experience of employee departures. The Company currently issues stock options and restricted stock units as part of its stock-based compensation plan. Excise Duty and other taxes in PNG. Singapore and Canada. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. January 1. and annual leave: Liabilities for wages and salaries. Contributions to the defined contribution fund are recognized as an expense as they become payable. 77 . Deferred income tax assets and liabilities are presented as non-current. Consideration is given to expected future wage and salary levels. based on those tax rates which are enacted or substantively enacted for each jurisdiction.(p) Income tax Income tax comprises current and deferred tax. The fair value of stock options at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Deferred tax assets are recognized for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses. The Company uses the fair value based method to account for employee stock based compensation benefits. • • • (r) Earnings per share • • Basic earnings per share: Basic common shares outstanding are the weighted average number of common shares outstanding for each period. adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements and to unused tax losses. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis. The consolidated financial statements are prepared on a net of Goods and Services Tax basis. The fair value of restricted stock units on grant date is the market value of the stock. the terms of the option. the share price at grant date and expected price volatility of the underlying share. 2005 and ended December 31. the balance of the contributed surplus relating to those options is transferred to share capital. including annual leave expected to be settled within 12 months of the reporting date are recognized in accounts payable and accrued liabilities in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when liabilities are settled. Under the fair value based method. The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction. or to realize the asset and settle the liability simultaneously. which comprise convertible notes and share options granted to employees. (q) Employee entitlements • • Wages and salaries. Profit-sharing and bonus plans: The Company recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation. 2010. Share-based payments: Stock-based compensation benefits are provided to employees and directors pursuant to the 2009 Stock Incentive Plan (with options still in existence having been granted under the now superseded 2006 Stock Incentive Plan). Basic earnings per share is calculated by dividing the profit or loss attributable to shareholders of the Company by the weighted average number of common shares outstanding during the period. Upon exercise of options. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Long service leave: The liability for long service leave is recognized in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Post-employment obligations: The Company contributed to a defined contribution plan and the Company’s legal or constructive obligation is limited to these contributions. Diluted earnings per share: Diluted earnings per share is determined by adjusting the profit or loss attributable to shareholders and the weighted average number of common shares outstanding. periods of service and statutory obligations. compensation expense is measured at fair value at the date of grant and is expensed over the award’s vesting period. In addition to income taxes. The Refinery Project Agreement gave “pioneer” status to InterOil Limited (”IOL”). in which case the income tax is also recognized directly in other comprehensive income or equity respectively. the expected yield and risk-free interest rate for the term of the option. for the effects of all dilutive potential ordinary shares. InterOil is subject to Goods and Services Tax. This status gave IOL a tax holiday beginning upon the date of the commencement of commercial production. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly in other comprehensive income or directly in equity. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation.

768.165.239.018) (7.559.Revised Net impact to the Consolidated Statement of Cash Flows 5.109.363. The revision has no impact on basic or diluted earnings per share. the Company reviewed IAS 7 “Statement of Cash Flows” and. Year ended December 31.733.524.684 (81.603.007) (94.981.435.603. the interim Consolidated Statement of Cash Flows in the Company’s first and subsequent IFRS quarterly financial statements have also been revised as follows: Quarter ended June 30.3. 2011 $ (revised) Quarter ended March 31. Under Canadian GAAP.634. Revision to Consolidated Statement of Cash Flows Prior to IFRS becoming effective from the transition date of January 1.286) (17.116 (43.107.234.669.862) (16.804.635) (20.946.323) (31.929 (94.164 June 30. 2010.(as per orignal filed financial statements) Revision: Reclass exploration costs expensed from original classification as investing activity to operating activity Investing activities .401 (33.424) (12.290) (18.116) (56.158. The Company continued to treat these expenses as an investing activity in its first and subsequent sets of IFRS financial statements.068 (73.Revised Investing activities .561.550.(as per orignal filed financial statements) Revision: Reclass exploration costs expensed from original classification as investing activity to operating activity Investing activities .219) 62.869. 2011 and 2010 to reflect the correct classification of exploration costs. As part of the transition project.068.710) (7.785.334.283) (22.068.998.873. which was not in line with the specific IFRIC clarification to IAS 7.642) 7.401) (27.550 (204. effective January 1. The following table shows the revisions made to the Consolidated Statement of Cash Flows for the years ended December 31.334) (5.308) 12.Revised Investing activities .462) (53. 2012 $ (revised) Cash flows (used in)/provided by: Operating activities (as per orignal filed financial statements) Revision: Reclass exploration costs expensed from original classification as investing activity to operating activity Operating activities .712) 16.433.617) 7.952 (29.684) (50. the Company had adopted the accounting policy of treating oil and gas properties expensed (exploration costs.422.717) (10.627. 2012 $ (revised) June 30.929) (30. 2010.150) 44.538.033) 10.435.151. excluding exploration impairment) as an investing activity in the statement of cash flows as they represented the extent to which expenditures have been made for resources intended to generate future income and cash flows.416) 2.700 (13.283 (47. 2011 $ (revised) Cash flows provided by /(used in): Operating activities (as per orignal filed financial statements) Revision: Reclass exploration costs expensed from original classification as investing activity to operating activity Operating activities .219.703) (83.981.915) (46.699) (2.212 (36. at that time did not note any differences between the then Canadian GAAP and IFRS in relation to this standard.733. the Company undertook a transition project to ensure that the accounting policies being maintained by the Company were in compliance with IFRS.150 (185.258) December 31.187) (111.504.179) (53.952) 14.764.240. that confirmed that only expenditures that result in a recognized asset in the balance sheet are eligible for classification as investing activities.334.543.363.451.545) (40.799) (37.240.Revised Net impact to the Consolidated Statement of Cash Flows 18.144) 21. 2011 $ (revised) 78 . 2010 $ (revised) In addition to the annual revisions shown above.068) (41.432. 2012 $ (revised) March 31.718.176. 2011 $ (revised) Six months ended June 30.

and is also impacted by seasonality based farm produce exports from PNG.215 (127.Revised Investing activities .544.884.345.4755) and also strengthened during the year ended December 31. such as use of derivative financial instruments.312.632 (144.256.674) 6. The financial instruments denominated in PGK and translated to USD as at December 31.636. The Company operates internationally and is exposed to foreign exchange risk arising from currency exposures to the USD.(as per orignal filed financial statements) Revision: Reclass exploration costs expensed from original classification as investing activity to operating activity Investing activities . 2012 are as follows: 79 . The Finance Department identifies.452.138) - 4.197) (117.164.568.147 (54.601.146) September 30.056.660.707) - 16.147) 42. credit risk. evaluates and hedges financial risks in close cooperation with the Company’s operating units. The foreign exchange movement also impacts equity as translation gains/losses of the Company’s Downstream operations from PGK to USD is included in other comprehensive income. 2011 (from 0.758) (16.660.005.051) (23. The rates achieved fluctuate significantly based on other exporters/ importers looking to convert their USD into PGK.636. Most of the Company’s transactions are undertaken in USD.335 (61. 2011 $ (revised) Nine months ended September 30.748. The product pricing risks are managed by the Supply and Trading Department under the guidance of the Risk Management Committee.643) 29.419.482 September 30.759.255.596. The Board provides written principles for overall risk management. Changes in the PGK to USD exchange rate can affect the Company’s Midstream Refining results as there is a timing difference between the foreign exchange rates utilized when setting the monthly PGK IPP price and the foreign exchange rate used to convert the subsequent receipt of PGK proceeds to USD to repay the Company’s crude cargo borrowings. The Company is unable to do any hedging due to PGK illiquidity and small size of the market. market risk. The consolidated financial statements are presented in USD which is the Company’s functional and reporting currency.496) (2.810 (43. The PGK exposures mainly relate to the exchange rates achieved from the banks on transfer of PGK sale proceeds to USD to repay the Company’s crude cargo borrowings under the working capital facility. as well as written policies covering specific areas. PGK.4665 to 0.Revised Net impact to the Consolidated Statement of Cash Flows 2. 2012 (from 0.Quarter ended September 30. (a) Market risk (i) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the Company’s functional currency. The translation of PGK denominated balances in the Company’s operating entities into USD at period ends can also result in material impact on the foreign exchange gains/losses on consolidation. 2011 $ (revised) 17. The Company’s overall risk management program seeks to minimize potential adverse effects on the Company’s financial performance. The Company’s overall risk management program focuses on the unpredictability of markets and seeks to minimize potential adverse effects on the financial performance of the Company. Financial Risk Management The Company’s activities expose it to a variety of financial risks. liquidity risk and geographic risk. 2012 $ (revised) Cash flows provided by /(used in): Operating activities (as per orignal filed financial statements) Revision: Reclass exploration costs expensed from original classification as investing activity to operating activity Operating activities .177 49.056.215) 1.367 (41.384.367) 27.353) 14.568.4665). The Company uses derivative financial instruments to hedge certain price risk exposures. 2012 $ (revised) (8.3785 to 0. The PGK strengthened against the USD during the year ended December 31.892.051 (102. Risk Management is carried out under policies approved by the Board of Directors. Australian Dollars (“AUD”) and Singapore Dollars (“SGD”).041) (6.847 (14.

909 1.December 31.074 Impact on equity excluding profit impact $ December 31. it will result in a gain/(loss) as per the table below. with all other variables held constant.486 42. This results in an accounting exposure to exchange gains and losses as the financial assets and liabilities are translated into the functional currency of the subsidiary that accounts for those assets and liabilities.474. The Company has entered into some AUD to USD foreign currency forward contracts to partially manage the foreign exchange risk in relation to the expenses to be incurred in AUD.789. 2012 $ Impact on profit $ Post-tax gain/(loss) Effect of 5% appreciation of PGK 2.980.721 December 31.0. All derivative contracts entered into are reviewed by the Risk Management Committee as part of the meetings of the Committee.866 16. Certain USD debt and other financial assets and liabilities are not held in the functional currency of the relevant subsidiary. 80 .504 1.931 130.669.033. If PGK appreciates/(depreciates) by 5% against the USD.0 movement in benchmark pricing.281 1. These exchange gains and losses are recorded in the consolidated income statement except to the extent that they can be taken to equity under the Company’s accounting policy.796 2.291 6.866. The Company actively tries to manage the price risk by entering into derivative contracts to buy and sell crude and finished products. the Company is exposed to translation risks resulting from AUD and SGD fluctuations as in country costs are being incurred in AUD and SGD and reporting for those costs being in USD.322. 2010 $ 11. However.450.386.200 3.391 32.832. it will result in a (loss)/gain as per the table below.676 61.006.662.083. 2012 $ Financial assets Cash and cash equivalents Cash restricted Short term treasury bills Receivables Other financial assets Financial liabilities Payables Working capital facility 30.767 The following table summarizes the sensitivity of financial instruments held at balance sheet date to movement in the exchange rate of the USD to the PGK.279.289.230.925 3.738 173. 2011 $ 42.493.533 3. If the pricing increases/(declines) by $10.791 30.110 96.679 212.079. The AUD and SGD exposures are minimal currently as funds are transferred to AUD and SGD from USD as required. Year ended December 31.762 161. No material balances are held in AUD or SGD. The derivative contracts are entered into by Management based on documented risk management strategies which have been approved by the Risk Management Committee. (ii) Price risk Product Price Risk: The Midstream Refining operations of the Company are largely exposed to price fluctuations during the period between the crude purchases and the refined products leaving the refinery when sold to Downstream operations and other distributors. 2011 $ Impact on profit $ Impact on equity excluding profit impact $ December 31.372 December 31.801 11. The following table summarizes the sensitivity of derivative financial instruments held at balance sheet date to $10. 2010 $ Impact on profit $ Impact on equity excluding profit impact $ The changes in AUD and SGD to USD exchange rate can affect the Company’s Corporate results as the expenses of the Corporate offices in Australia and Singapore are incurred in the respective local currencies.465.771. with all other variables held constant.351 1.

2011 $ Impact on profit $ Impact on equity excluding profit impact $ December 31.Year ended December 31. The Company’s equity investments are publicly traded and are quoted on the Oslo stock exchange Axess. 2012 $ Impact on profit $ Post-tax gain/(loss) $10 increase in benchmark pricing of derivative contracts (1. The following table summarizes the sensitivity of these investments held at balance sheet date to 10% movement in benchmark pricing.441) 430. Deposits/borrowings at fixed rates expose the Company to fair value interest-rate risk. borrowings and working capital financing facilities.079) 365. 2010 $ Impact on profit $ Impact on equity excluding profit impact $ Securities Price Risk: The Company is also exposed to equity securities price risk.550.970. with all other variables held constant. The Company is actively seeking to manage its cash flow interest-rate risks by holding some cash. 2011 $ Impact on profit $ Impact on equity excluding profit impact $ December 31. 81 . If the pricing increases/(declines) by 10%. the Company’s income and operating cash flows are substantially independent of changes in market interest rates. it will result in a (loss)/gain as per the table below.000) Impact on equity excluding profit impact $ December 31. Year ended December 31. 2012 $ Impact on profit $ Post-tax gain/(loss) 10% increase in benchmark pricing of equity investments 10% decrease in benchmark pricing of equity investments (226.000) (540. 2010 $ Impact on profit $ Impact on equity excluding profit impact $ (iii) Interest rate risk Interest rate risk is the risk that the Company’s financial position will be adversely affected by movements in interest rates that will increase the cost of floating rate debt or opportunity losses that may arise on fixed rate borrowings in a falling interest rate environment. The Company’s interest-rate risk arises from cash and cash equivalent balances.079 Impact on equity excluding profit impact $ December 31. This arises from investments held by the Company and classified in the balance sheet as available-for-sale. Deposits/borrowings at variable rates expose the Company to cash flow interest-rate risk.000) (6. As the Company has no significant interest-bearing assets other than cash and cash equivalents.418 (203. cash equivalents and borrowings in fixed rate instruments and others in variable rate instruments.977) (365. Refer to note 15 for further details of this investment.

023.290. Prudent liquidity risk management therefore implies that.479 70. with all other variables held constant.281 38. or availability of.304 232.482 11.030. Management endeavors to manage the product risk by actively reviewing the market for demand and supply.517 309. Increase in LIBOR rates will result in a higher expense for the Company. funding through an adequate amount of committed credit facilities.460 381.The financial instruments exposed to cash flow and fair value interest rate risk are as follows: December 31.832.297 94. and by maintaining flexibility in funding including ensuring that surplus funds are generally only invested in instruments that are tradable in highly liquid markets or that can be relinquished with minimal risk of loss. Dec 2010 – 58%).998 37.75% convertible notes 100.205.254 365.584 49.230.000 10. 2010 $ Impact on profit $ Impact on equity excluding profit impact $ (iv) Product risk The composition of the crude feedstock will vary the refinery output of products. BSP & BNP syndicated secured loan Westpac secured loan Mitsui unsecured loan BNP working capital facility Westpac working capital facility 2. The product yields obtained will vary based on the type of crude feedstock used. and naphtha and low sulphur waxy residue 38% (Dec 2011 – 37%.000 12.371.110 1.000 fair value interest rate risk cash flow interest rate risk cash flow interest rate risk cash flow interest rate risk cash flow interest rate risk cash flow interest rate risk fair value interest rate risk 259.767 70. Dec 2010 – 42%).000 5.023 10. (b) Liquidity risk Liquidity risk is the risk that InterOil will not meet its financial obligations as they fall due.000.757 50.955. 2012 $ Impact on profit $ Post-tax loss/(gain) LIBOR Increase by 1% 821.891. 2012 $ Financial assets Cash and cash equivalents Cash and cash equivalents Cash restricted Cash restricted Short term treasury bills Financial liabilities OPIC secured loan ANZ.500. The 2012 year to date output achieved includes gasoline and distillates fuels (which includes diesel and jet fuels) 57% (Dec 2011 – 58%.000. 2011 $ Impact on profit $ Impact on equity excluding profit impact $ December 31. access to.393. The Company manages liquidity risk by continuously monitoring forecast and actual cash flows. 2010 $ Cash flow/fair value interest rate risk The following table summarizes the sensitivity of the cash flow interest-rate risk of financial instruments held at balance date.000. (i) Financing arrangements The Company had the following established undrawn borrowing facilities at the reporting date: 82 .600.629.372 70.268 507. Year ended December 31.143 fair value interest rate risk cash flow interest rate risk fair value interest rate risk cash flow interest rate risk fair value interest rate risk December 31.000 11.000 35.131 6. trying to maximize the production of the higher margin products and also renegotiating the selling prices for the lower margin products. 2011 $ December 31.926 46.968.000 44. and the ability to close-out any open market positions.500.666 338.291 Impact on equity excluding profit impact $ December 31. the Company maintains: • • • sufficient cash and marketable securities.450.857.187 30.885. matching maturity profiles of financial assets and liabilities.912.456. following a movement to LIBOR. under both normal and stressed conditions.000.559 1.096 48.

000 50.177 75.690.240 Between 1 and 5 years More than 5 years Total contractual cash flow The ageing of trade and other payables are as follows: Payable ageing between Trade and other payables December 31.844 2.064 30-60 days $ 3.75% convertible notes (note 26) Other financial liabilities (note 22) Total non-derivatives Derivatives Derivative financial instruments (note 9) Total derivatives 315.912.795.520 (ii) Maturities of financial liabilities The tables below analyses the Company’s financial liabilities.000 23.880 <30 days $ 172. 2012. 2010 Total $ 180.462 (c) Credit risk Credit risk is the risk that a contracting entity will not complete its obligation under a financial instrument that will result in a financial loss to the Company.728 1. Undrawn Amount December 31.339.605 70. BSP & BNP syndicated secured loan Westpac secured loan Mitsui unsecured loan 2.Total Facility $ Facility ANZ.788.795.479 39.369.493 979.143.775. net and gross settled derivative financial instruments into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date.000 1.285 157.234.297 * Includes temporary reallocation approval of $10.000. 2012 were not dependent on a single customer or geographic region within PNG.000 42. The receivables from these customers are current as at December 31.514.603 1.000 501.$211.380 214.026.75% convertible notes BNP Paribas working capital facility 1* BNP Paribas working capital facility 2* Westpac working capital facility (PGK denominated) BSP working capital facility (PGK denominated) 100.000 23.026. 2012 December 31.910.000 190.885.545. Less than 1 year Non-derivatives Trade and other payables (note 17) Working capital facility (note 18) Secured and unsecured loans (note 19) 2.000 73.290.961.381 159.885. The Company’s credit risk is limited to the carrying value of its financial assets.290.860 214.737 (Dec 2011 .000 315.775.912.000 20.615.000.860 120.$260.479 159.000 72.354 >60 days $ 3.779. 2011 December 31. The amounts disclosed in the table are the contractual undiscounted cash flows. 2012 $ 3.925.000. The Company actively manages credit risk by routinely monitoring the credit ratings of the Company’s export customers and by monitoring the ageing of trade receivables of the Company’s domestic customers.026.578.672 42.380 530.000 20. Dec 2010 – 26%) of total sales in the year ended December 31.000. The carrying amount of financial assets represents the maximum credit exposure.864. The credit terms provided to customers are revised if any changes 83 .000.290) or 23% (Dec 2011 – 24%.857. The export sales to three customers is not considered a key risk as there is a ready market for InterOil export products and the prices are quoted on active markets.240 180.824.786.468.848 2.381 94.672.779.672.380 180. The Company’s domestic sales for the year ended December 31.380 530.758. A significant amount of the Company’s export sales are made to three customers which represented $302.786.961.381 94.746.000 12. Dec 2010 .000 limit from Facility 2 to Facility 1. 2012.000 75.297 70.132.000 11.766.882.296.

239.003 2.441 32.962 20.197) 240.631 146.344.455) (487. net of reversals made Closing balance 1.955.623 (1.428.$23.948.020.842 25.603.982.300.957 Overdue (not impaired) $ 51.626. 2011 $ December 31.961 20.273.Impairment provisions Opening balance Foreign exchange impact on opening balance Amounts written off during the period Movement in provisions.522.268.401 1.026.125 7.198.505.832.995 48.954 (Dec 2011 . 2012 December 31.239.576.467 19.860.047.713 51.000. 2012 $ Trade receivables .435 Current $ 61.366 (1.505.966) 1.277. (e) Financing facilities As at December 31.761. 2010 $ (d) Geographic risk The operations of InterOil are concentrated in PNG. 2010 Total $ 112.$2.846.300.505.466 13. The movement in impaired trade receivables for the year ended December 31.342 82. An impairment provision is taken for all receivables where objective evidence of impairment exists. 2011 $ December 31.061) were not impaired.619.344. based on customer ratings and payment cycles of the customers.522.are noted to customer ratings or payment cycles. Dec 2010 .922 68.522.779 (666. The maximum exposure to credit risk at the reporting date was as follows: December 31.930.600 595.212.000 6.664.440 233.110 135.134.145 29.026. 2012 of $34. 2012 $ Current Cash and cash equivalents Cash restricted Short term treasury bills Trade and other receivables Commodity derivative contracts Non-current Cash restricted Other non-current receivables 11.969 40.875.948 47.083.934.145 2.144) 2.378 Current $ 61.713 51.957 <30 days $ 36. the Company had drawn down against the following financing facilities: 84 .821 40.645.561.273 112. 2012 December 31.145 3.033.560 61.913) (33.762 6.078.950 The impairment of trade receivables at the reporting date was as follows: Gross trade receivables December 31. Credit risk on cash. Other receivables as at December 31.803 45. cash equivalents and short term treasury bills held directly by the Company are minimized as all cash amounts. 2011 December 31.674 113.613.373 30-60 days $ 12.321. The movement in impairment is also influenced by the translation rates used to convert these amounts from local currency to USD. 2012 was as follows: December 31.401 2.034) (514.340.943 582.670. 2011 December 31.797.044 37.496 December 31.261. 2012.943 December 31.155 >60 days $ 1. 2010 Total $ 112.076. certificates of deposit and treasury bills are held with banks which have acceptable credit ratings.371 3.463 5.227 233.074 49. 2010 $ The ageing of trade receivables at the reporting date was as follows (the ageing days relates to balances past due): Receivable ageing Net trade receivables December 31.943 Impairment is assessed by the Company on an individual customer basis.001 11.478 Overdue (impaired) $ 240.

965.096 640.873.751.000.059.526 9.500.000 289.062 219.91% 48.803 2.961.488.776 20.059.004.060.584 49.380 502.000 24.000.• • • • • BNP working capital facility (refer note 18) Westpac secured loan facility (refer note 19) ANZ.000. BSP and BNP syndicated secured loan facility (refer note 19) Mitsui unsecured loan facility (refer note 19) 2.711.000.218 6.004.14% 1 year or less $ More 1-2 $ 2-3 $ 3-4 $ 4-5 $ than 5 years $ Non-interest bearing $ Total $ Effective interest rate % 85 .000 171. 2010 $ (f) Effective interest rates and maturity profile Fixed interest maturing between Floating December 31.442 192.75% convertible notes (refer note 26) Repayment obligations in respect of the amount of the facilities utilized are as follows: December 31.044 0.000 78.600.286.000.000 78.000 9.998 98.304.000.003.961.460 259.176 8.526 65.227 4.304.874.011.230.776 219.176 8.000 192.776 35.64% 7. 2012 $ Due: No later than one year Later than one year but not later than two years Later than two years but not later than three years Later than three years but not later than four years Later than four years but not later than five years Later than five years 126.062 20.776 70.373.000 20.000 94.000.286.000.000.059.68% 49.380 212.211.262 165.948.860.227 4.776 70.500.665 49.458 381.751.000 9.948.000 70.025.000 9.083 December 31.094 151.262 263. 2011 $ December 31.083 9.680 151.000 132. 2012 interest rate $ Financial assets Cash and cash equivalents Cash restricted Receivables Investments Other financial assets Financial liabilities Payables Interest bearing liabilities Convertible notes liability Other financial liabilities 219.000.629.000 24.

Fixed interest maturing between Floating December 31.526 70.926 1.634 68.821 47.736 26.160 0.371.574 51.339.000.000 70.441 39.000 9.711.304 233.477.496 3.882.574 332.955.000 8.21% 1 year or less $ More 1-2 $ 2-3 $ 3-4 $ 4-5 $ than 5 years $ Non-interest bearing $ Total $ Effective interest rate % 86 .000 76.000.578 9.532 76.000.036 144.000 9.000.266.373.832.23% 2.000 9.088.143 279.660 309.278.000.036 264.211.000 9.422 159.205.80% 7.891.087.736 159.073.593.000 8.177 62.000 9.954 101.000 9.600 3.482 69.000 Non-interest bearing $ Total $ Effective interest rate % 30.000 - - 135.786 6.000.846.526 37.000 78.650.047.047.786 6.926.641.267.500.230 48.93% 7.578 76.86% 4.873.711.495.000.000 11.517 46.576.110 135.954 178.000.840.000 9.91% 232.593.000.254 38.500.650.457 292.600 3. 2011 interest rate $ Financial assets Cash and cash equivalents Cash restricted Short term treasury bills Receivables Investments Other financial assets Financial liabilities Payables Interest bearing liabilities Convertible notes liability Other financial liabilities 1 year or less $ More 1-2 $ 2-3 $ 3-4 $ 4-5 $ than 5 years $ 9.110 50.000.968.070 1.000.083 70.000 9.000.526 26.273.89% 0.500.893. 2010 interest rate $ Financial assets Cash and cash equivalents Cash restricted Receivables Other financial assets Financial liabilities Payables Interest bearing liabilities Convertible notes liability Other financial liabilities 56.000 9.457 159.000.000 9.000 9.500.083 56.000 70.281 11.000.91% - Fixed interest maturing between Floating December 31.873.069 48.32% - 6.083 9.073.000.763 11.832.000.273.882.515.177 11.000 178.578 247.000.496 3.087.997.250.000 78.885.187 365.000.615 6.960 2.

quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 .650. designation under the fair value hierarchy is not required. are estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Company for similar financial instruments.069 48.087.000.961.911.757 76.860.(g) Fair values December 31.983 583.503 19.278.222 52.441 39.948. either directly (i.763 11. 2012 Carrying Amount $ Financial instruments Financial assets Loans and receivables Cash and cash equivalents (note 6) Cash restricted (note 9) Short term treasury bills (note 8) Receivables (note 10) Other non-current receivable (note 22) Available-for-sale Investments (note 15) Held for trading Derivative contracts (note 9) Financial liabilities Current liabilities: Accounts payable and accrued liabilities (note 17) Working capital facility (note 18) Current portion of secured and unsecured loans (note 19) Non-current liabilities Secured loans (note 19) 2.037.479 31.821 47.922 233. (i) Investments classified as being available-for-sale are fair valued by using quoted prices on Oslo stock exchange Axess. derived from prices).763 11.576.480.227 5.011.069 48.879.922 583.278.600 233.576. All the remaining financial assets and financial liabilities are measured at a fair value on a non-recurring basis and are maintained at historical amortized cost.inputs for the asset or liability that are not based on observable market data (unobservable inputs).496 Amortized Cost Amortized Cost Amortized Cost Amortized Cost Amortized Cost December 31.846.581 20.860.026.578) Level 2 Fair Value . The net fair value of cash and cash equivalents and non-interest bearing financial assets and financial liabilities of the Company approximates their carrying amounts.273.846. The Company has classified the fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.882.047.110 135.227 5. as prices) or indirectly (i.813.578) (178.948.441 39.250.046.273.254.425.630 28.026.See (ii) below 4.000.380 89.047.. Commodity derivative contracts’ and available-for-sale investments are the only items from the above table that are measured at fair value on a recurring basis.250.583.381 94.821 47.581 20.650.503 19.290.326 14.023 159.383. and Level 3 .393.426 52.326 14.087.496 233.786 Level 1 Fair Value .e.094 146.166 55.177 16.786 3.254. The fair value hierarchy shall have the following levels: Level 1 .011.176 3. The carrying value of financial liabilities approximates their fair values which. 2010 Carrying Amount $ Fair value hierarchy level (as required)* Fair Value $ Fair Value $ Fair Value $ Method of measurement * Where fair value of financial assets or liabilities is approximated by its carrying value.446.480.832. The carrying values (less impairment provision if provided) of trade receivables and payables are assumed to approximate their fair values due to their short-term nature.961.046.479 31.115 180.637.094 146.177 16.456.882.75% Convertible notes liability (note 26) Other non-current liability (note 22) 89.137 59.304.600 68.044 49.380 26.983 (178.489 38.115 159.630 34.832.000 68. The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes..110 135.e.383.446.290.667 55.954 51.922 Amortized Cost Amortized Cost Amortized cost See (iii) below 233. 87 .489 Amortized cost See (iii) below Amortized Cost Amortized Cost 180.000 49.381 94. for disclosure purposes.638. 2011 Carrying Amount $ December 31.inputs other than quoted prices included in Level 1 that are observable for the asset or liability.304.137 59.954 51.044 49.See (i) below 49.637.176 4.425.921 76.

(h) Capital management The finance department of the Company is responsible for capital management. 5.1 million. economic conditions. the Company signed a binding HOA with PRE for PRE to be able to earn a 10. 2012 was $100.0 million initial cash payment (which does not include carried costs) out of future upstream production proceeds. (iii) The fair value of the secured loan is based on discounted cash flow analysis using a current market interest rate applicable for the loan arrangement. 2012. PRE’s gross participating interest will be subject to the Government of Papua New Guinea’s back-in rights provided for in relevant PNG legislation. Downstream and Corporate.9% gross) participating interest in the PPL237 Petroleum Prospecting License onshore Papua New Guinea.S. and Australia and New Zealand Banking Group (PNG) Limited. treasury note with the same approximate maturity profile plus the OPIC spread (3%). This involves the use of operating and development economic forecasting models which facilitates analysis of the Company’s financial position including cash flow forecasts to determine the future capital management strategy. On July 27. The Company believes that it has sufficient funds for the Midstream Refinery and Downstream operations.Upstream. expenses and total assets are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. The transaction contemplates staged initial cash payments totaling $116. 2012. 2012. or a combination of. The interest rate on the loan is equal to LIBOR plus 6. PRE has the option to terminate the Farm-In Agreement at various stages of the work program and to be reimbursed up to $96. On April 18. with the final repayment to be made in August 2015.4% per annum. 2012. The gearing levels were 19% in December 2012 (12% in December 2011). Bank South Pacific Limited. the LNG Project and well exploration licenses. Completion of the farm-in transaction remains subject to satisfaction of additional conditions within 18 months. Therefore the Company must extend or secure sufficient funding through renewed or additional borrowings. Macquarie Capital (USA) Inc. Consolidation adjustments relating to total assets relates to the elimination of intercompany loans and investments in subsidiaries. The fair value of the Company’s derivative contracts are based on price indications provided to us by an external brokerage who enter into derivative transactions with counter parties on the Company’s behalf. The loan is secured over the fixed assets of the refinery. Capital management is undertaken to ensure a secure. Borrowings under the facility have been used for repayment of all outstanding amounts under the term loan granted by OPIC and will also be used for general corporate purposes. The eliminations relate to sales and operating revenues between segments recorded at transfer prices based on current market prices and to 88 . Additionally. The balance outstanding under the loan facility as at December 31. however.9 million. capital market conditions.0 million from Westpac which is repayable in equal installments over 3. including the Triceratops structure located within that license. an additional carry of 25% of the costs of an agreed exploration work program. 2012 was $12.0 million of the $116. with BNP Paribas Singapore. existing cash balances and ongoing cash generated from these operations will not be sufficient to facilitate further necessary development of the Elk and Antelope fields. 2012. The balance outstanding under the loan as at December 31. the Company entered into a five year amortizing $100 million syndicated secured term loan facility. Upstream. including execution of PRE JVOA. Segment revenues. The Company is managing its gearing levels by maintaining the debt-to-capital ratio (debt/(shareholders’ equity + debt)) at 50% or less. cost-effective and flexible supply of funds is available to meet the Company’s expenditure requirements and safeguard its abilities to continue as a going concern. The loan agreement stipulates semi-annual principal payments of $2. Midstream consists of both Midstream Refining and Midstream Liquefaction.0% net (12. The loan is secured by a fixed and floating charge over the assets of Downstream operations. Midstream. appraisal of Triceratops field. On October 16. equity raising and or asset sales to enable sufficient cash to be available to further its development plans. Segmented financial information As stated in note 1.5 years with an interest rate of LIBOR plus 4. the Company obtained a secured loan of $15. Recommendations are based on operating cash flows.0 million. The optimum gearing levels for the Company are overseen by the Board of Directors based on recommendations by Management. Midstream and Downstream include costs allocated from the Corporate activities based on a fee for services provided. and a final resource payment. management has identified four major reporting segments . being the current interest rate on a U. The Company is actively managing the gearing levels and raising equity/debt as required for optimizing shareholder returns. The Corporate segment includes assets and liabilities that do not specifically relate to the other reporting segments.(ii) Derivative contracts classified as being at fair value through profit and loss are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. and UBS AG continued working on the bid process to seek a strategic partner to acquire an interest in the Elk and Antelope fields. repayable in six monthly installments. Management expects that the Company will be able to secure the necessary financing through one. future cash needs for development. Notes to and forming part of the segment information Segment information is prepared in conformity with the accounting policies of the entity.0 million.5%. condensate stripping and liquefaction facilities. and PNG Government approval. During the quarter ended March 31. and will be reassessed as situations change. the aforementioned alternatives. Investment bankers led by Morgan Stanley & Company LLC. Results in this segment primarily include management expenses. the Company executed a farm in agreement with PRE relating to the Triceratops structure and the participating interest in the PPL 237 license materially in line with the HOA signed on April 18.

711.187.816.498.584) (56.225 18.099 (Dec 2011 .815.967) (1.558 1.559 (4. with the exception of the Corporate segment which also has operations in the United States.861 12. Dec 2010 . 2012 Revenues from external customers Intersegment revenues Interest revenue Other revenue Total segment revenue Cost of sales and operating expenses Administrative.075) (783.925.051.514 51.665 270. The Downstream segment derives their revenue from the sale of refined petroleum product to the domestic market in PNG on a wholesale and retail basis.190 43.307.329.386 89 .584.798. Dec 2010 – $227.831 46.256) 12.879 (8.557.295 147.545 182.457) (485.418.528.844 (56.831 221.912. The Corporate segment derives their revenue from the shipping business which currently operates two vessels transporting petroleum products for our Downstream segment and external customers.320.584) 558. Included in the revenues from e xternal customers in the Midstream – Refining segment for the year en ded December 31.107.206 1. The Midstream – Refining segment derives their revenue from the sale of refined petroleum product to the domestic market in PNG and for export.185.647 7.594) (49.893) 5.878 185.672 1.965.257.603.259.665.894.170) 13.361.522 2.068 113.571) 63.657 10.843.001.620 12.260 11.$273.877 864.739 4.659 800.607.864 (31.857 1.049 64.272 (28.430 (Dec 2011 .790 85.143.652.702) (1.525 818.470.816 248.776 8.119. Dec 2010 – 21% ) of total revenues from external customers.526.558 21.299.894 4.914) 2.158.901.855.616.118 (2.401 Upstream 6.555.097.835 3.500) 10.229.097.777 Midstream Liquefaction 379 379 525.825.193 10.148 (4.059 Corporate 196.821 1.572.120.688 2.214 49.722.946 4.504.410 (9.116 1.967) (49.240.074) (781.120.263 28.071.369.$194. Included in the Company’s revenues from external customers for the year ended December 31.754 1.675.035 (11.763) 32.818.815.216.410 75.236.798 18.797 4.823.261 12.844.458 1.357.761.931.712.165.702) (33.209 1.585.663) or 13% (Dec 2011 – 18%.219.363.155.833 1.170) 13.139 2.032 2.525.870.494 79.932. The majority of the Company’s operations are located in Papua New Guinea.292.538.936 669.204.894.786.844 523.682.792.727. excluding exploration impairment Depreciation and amortisation Interest expense Total segment expenses Segment (loss)/profit before income taxes Income tax benefit/(expense) Segment net (loss)/profit Segment assets Unallocated: Deferred tax Total assets per the balance sheet Segment liabilities Capital expenditure (net of cash calls) 121.175.284 40.757.226.669) (671. both within PNG and for export in the South Pacific region.585.642) (60.095 52.065 185.184. 2012 is revenue from a single cust omer of $174.114.775).146) 33.098) 472.$ 171.897 10.970.795 34. Australia and Singapore.056 1.840.486 929.852.283) (129.256) (2.216) 25.512.735.308.828 (13.384.927.383.402.792.709 1.418.929. professional and general expenses Derivative loss/(gain) Foreign exchange loss/(gain) Gain on conveyance of exploration assets Exploration costs.716.635 (2.692.849.827. Year ended December 31.863.910 1.233.081.843.905.087.979 Downstream 862.858.018 67.538.542 6.112 Consolidation adjustments (734.901.866) Total 1.393 43. 2012 is revenue from exports to foreign countries of $356.739 17.843.325 Midstream Refining 445.367 23.430 (1.unrealized intersegment profits in inventories.345.067 10.

056 5.290) 326.189 13.087 2.370 107.878 16.511.205.025.798) (38.020.476 Corporate 265.012.968) (38.526.354.105.349 74.129 Midstream Liquefaction 2 2 14.935 139.986.213.861.420.499 196.667 17.054 6.391 328.979 1.330 2.135.125.965.011 (4.718 585.624.701) (48.664.967) (49.110.962.889 704.116.307.414 (1.009.122.988 7.563) 21.603 10.124 11.474 1.067 1.687 141.025.083 3.453 (2.649 13.422 4.129.977.457 (955.052.759.687.139 Midstream Refining 362.058.006.569 18.028 15.868 39.901 15.420.081) 3.662 1.565.072 16.849 (15.333.165 (2.356.464.082.513.968 1.435.967) 390.574.247.922 52.118.594.528.851 69.255.157.459) (129.086 15.121.632 1.723 201.146 9.572 444.995 735.088.470) 92.Year ended December 31.541.747 Consolidation adjustments (639.330 (62.906.824.026.467.922.561) (679.780.434 745.949.939.240.018.662.409 830.870 (60.661) 3.424) 11.881. professional and general expenses Derivative (gain)/loss Foreign exchange loss/(gain) Loss on Flex LNG investment Exploration costs.689) 2.239 (49.224 11.457 90 .778) (26.273 1.135.253.826.448.842 8.420.636 53.009.401 38.362.102.706.561) (677.389.605.792. 2012 Revenues from external customers Intersegment revenues Interest revenue Other revenue Total segment revenue Cost of sales and operating expenses Administrative.127 25.152.106.321) (25.925.273 85.916 68.889.346.125.406 18.658.081 728.272 5.090 1.744.118.856 Downstream 743.173.841.795 948.672 30.150 20.435.371. excluding exploration impairment Depreciation and amortisation Interest expense Total segment expenses Segment (loss)/profit before income taxes Income tax benefit/(expense) Segment net (loss)/profit Segment assets Unallocated: Deferred tax Total assets per the balance sheet Segment liabilities Unallocated: Deferred tax Total liabilities per the balance sheet Capital expenditure (net of cash calls) Upstream 15.202.458.288) 11.247 229.968 47.558.150 3.806 79.467.122.042 4.854 9.533 35.948.730.847) (15.774 (23.945.655 58.533.017.689.922 897.814) Total 1.126 9.011.406 1.341 11.951.847) 7.072.359) (592.207.482 909.675 18.853 1.518 46.467.136.931.037 6.927 23.254.

952 1.355.505 11.929 1.048 806.623.343.306) 12.089.280.253 Midstream Liquefaction 643 643 7.554.751 265.21%).000 105.746. excluding exploration impairment Depreciation and amortisation Interest expense Total segment expenses Segment (loss)/profit before income taxes Income tax (expense)/benefit Segment net (loss)/profit Segment assets Unallocated: Deferred tax Total assets per the balance sheet Segment liabilities Capital expenditure (net of cash calls) Upstream 14.484.394 68.981.103.580.354. cash and cash equivalents earned an average interest rate of 0.070.512 7.894 2.823.348) (6.739.995.140.708 6.811. 2011 $ 45.324.561.263 701.057 6.503) 266.708.591.770 117.981 (78.932) (436.785 Midstream Refining 298.022.816 4.905 (8.742.606 (1.440 Corporate 32.637 325.690 975.449.556 470.876.134 23.718 379.364.291.390.362 56.751) (374.823 (2.362 Consolidation adjustments (412.274.921.391.500 3.280.490 1.303.Year ended December 31.409.572 102.932) (435.390.907 (2.118.701.817.460 December 31.686 24.961 10. 91 .707.297 494.833) (36.922 7.399 150.517. 2012 $ Cash on deposit Bank term deposits .442.024 (504.485 (526.602.771.386) 6.400 11.14% per annum (2011 – 0.827 15.568.819) (24.840.860.861 28.360.387) 33.999 58.594 52.290.229 107.783) 30.043.441 233.757 3.661.736 35.486) 7.690) (1.034 (8.478 13.188 10.098.503) (78.563.944. Cash and cash equivalents The components of cash and cash equivalents are as follows: December 31.500 1.305.710 12.568.677 40.671.055.227 1.858.024 66.132.118 18.364 1.334.600 Downstream 504.584.233.267 (30.970.477.579) Total 802.776.556.540.252.975.636 33.374.650 52. professional and general expenses Derivative loss/(gain) Foreign exchange loss/(gain) Gain on conveyance of exploration assets Loss on extinguishment of IPI liability Litigation settlement expense Exploration costs.553.071) 947.000.855) 3.000 16.240) (1.821 49.660 605.551 81.584 643.783) 30.470.873 82.584 49.000.989.878 7.193.561.629 23.576.527.721 3.988 1.156 (4.882 1.044 22.047 December 31.881 81.321.239.972.591.723) (44.778) (129.954 6. 2012 Revenues from external customers Intersegment revenues Interest revenue Other revenue Total segment revenue Cost of sales and operating expenses Administrative.332.23%.611 (38.786.644 90.037 3.576. 2010 $ 233. 2010 – 0.065.710 16.176 109.169.219 3.981.796 8.367 25.140.939.251 505.409.929 14.554.118.264.656 11.168) 272.968) (24.139.821 In 2012.846.220 845.240) (34.650.681 483.048.Papua New Guinea kina deposits 259.071 4.600.051.175.759.876.513.859.391) 35.714 677.511) (1.

214.850 4.49% (2011 – 3.315 2011 $ 2010 $ 8. 2010 – 3.Non-current 37.995 40. the Company purchased two treasury bills from the Bank of Papua New Guinea totaling approximately $11.3%) Cash deposit on secured loan (0.303.061.069 Cash held as deposit on the BNP working capital facility supports the Company’s working capital facility with BNP Paribas. is comprised of the following: December 31.440 6. 2012 is used to support the $100. All outstanding amounts under the term loan with OPIC was fully repaid during the quarter ended December 31. 2010 $ 40.341 1. Both of these treasury bills had a 182 day term and matured in January 2012.1%) Cash deposit on office premises (4.0 million and the related interest that will be payable for the next half yearly installment.480 5.5 million and the related interest that would be payable with the next installment.598.363.148 6.454.832. these investments were classified as held to-maturity financial assets and were therefore recorded at amortized cost using the effective interest method.613. all financial assets are non-interest bearing.008. which mainly relates to the working capital facility.094 December 31. the Company earned nil interest (2011 – nil.995 130. Supplemental cash flow information Year ended December 31.nil) on the cash on deposit which related to the working capital facility.011.664.074 47.664. The balance is based on 20% of the outstanding balance of the BNP working capital facility 1 (refer note 18) plus any amounts that are fully cash secured. restricted cash and short term treasury bills.649.000 243.284 7. 2012 $ Cash deposit on working capital facility (0.001 32.407 5.329 207.922 239.982.110 (PGK 25. the cash deposit relating to the BNP working capital facility reduced the interest costs relating to the facility usage in 2012 by 3.827. Cash restricted.001 161.38%.763 December 31. 2012.660.268.758 50. 2010 .295.903.459 5.000.238. 2011 $ 32.481 6.696 8. The cash held as deposit on secured loan for the years ended December 2011 and 2010 were used to support the Company’s secured loan borrowings with the Overseas Private Investment Corporation (“OPIC”) and related to one half yearly installment of $4.708 11. Short term treasury bills During July 2011. 9. BSP & BNP Syndicated Loan and relates to next half year installment of $8.610 1.Current Bank term deposits on Petroleum Prospecting Licenses (2.687.959 3.250. However.486 179.982.631 37. Based on the guidance under IAS 39 ‘Financial Instruments Recognition and Measurement’.0 million ANZ.312).7. 92 .340.463 49. The cash held as deposit on the secured loan for the year ended December 31.33%).0%) Cash restricted .801 203.762 39.670.426 11. 2012 $ Cash paid during the period Interest (including interest withholding tax) Income taxes Interest received Non-cash investing activities: Fair value of Flex LNG option received Increase in share capital from: Buyback of non-controlling interest Non-cash financing activities: Increase in share capital from: The exercise of share options and vesting of restricted stock Buyback of IPI #3 investor rights Litigation settlement settled in shares 11. Financial instruments (a) Cash and cash equivalents With the exception of cash and cash equivalents.368 12.340.278.1%) Cash restricted .009 8.254.631 167. In 2012.258 17.382 143. The cash deposit on this facility did not receive interest during the year as these deposit amounts reduced the interest being charged by BNP on the facility utilization.450.

$595.Manages the sales price risk of gasoil (diesel) Fair Value December 31.643) Add: Priced out non-hedge accounted contracts as at December 31. 2010.250 (24.664 56.000 96.922 As at December 31.448) 24.000 48.440.578) relating to outstanding derivative contracts for which hedge accounting was not applied or had been discontinued.000 Expiry Q1 2012 Q1 2012 Q2 2012 Q3 2012 Derivative type Cash flow hedge . 2012.000 160.523) (306.000 45.000 280. Derivative Brent Swap Gasoil Crack Swap Gasoil Crack Swap Gasoil Crack Swap Type Sell Brent Sell Gasoil Crack Sell Gasoil Crack Sell Gasoil Crack Notional Volumes (bbls) 70. 237 and 238 are being utilized by the Company.Manages the export price risk of naphtha Cash flow hedge . InterOil had a net receivable of $233.000 Expiry Q1 2013 Q1 2013 Q1 2013 Q1 2013 Q2 2013 Q2 2013 Q3 2013 Q3 2013 Q4 2013 Q4 2013 Derivative type Cash flow hedge . the Company had the following open non-hedge accounted derivative contracts outstanding. 2010.Manages the export price risk of naphtha Cash flow hedge .264) 102.516 185.000 45.Manages the sales price risk of naphtha Cash flow hedge . 2011 and December 31. 2011. 2011 97.Manages the sales price risk of gasoil (diesel) Fair Value December 31.565 233. the Company had the following open non-hedge accounted derivative contracts outstanding.000 195.Manages the sales price risk of naphtha Cash flow hedge .950 595.000 195. 2011 $ (50.160 497. Dec 2010 – payable of $178. 93 .922 (Dec 2011 .Manages the sales price risk of gasoil (diesel) Cash flow hedge .Manages the sales price risk of gasoil (diesel) Cash flow hedge .440 As at December 31.000 45.000 45.Manages the sales price risk of naphtha Cash flow hedge . 2011 $ (63.495 221.Manages the sales price risk of gasoil (diesel) Cash flow hedge .Manages the export price risk of naphtha Cash flow hedge .210 (24. The Company had no outstanding hedge accounted derivative contracts as at December 31.870 (229. Derivative Brent Swap Brent Swap Naphtha Crack Swap Gasoil Crack Swap Naphtha Crack Swap Gasoil Crack Swap Naphtha Crack Swap Gasoil Crack Swap Naphtha Crack Swap Gasoil Crack Swap Type Sell Brent Buy Brent Sell Naphtha Crack Sell Gasoil Crack Sell Naphtha Crack Sell Gasoil Crack Sell Gasoil Crack Sell Gasoil Crack Sell Naphtha Crack Sell Gasoil Crack Notional Volumes (bbls) 260.681) 154.000 195.Bank term deposits on PPL’s are unavailable for use while PPL 236. the Company had the following open non-hedge accounted derivative contracts outstanding. December 31. 2012.490 Add: Priced out non-hedge accounted contracts as at December 31.495 1.Manages the sales price risk of gasoil (diesel) Cash flow hedge .Manages the sales price risk of gasoil (diesel) Cash flow hedge . As at December 31.Manages the sales price risk of naphtha Cash flow hedge . 2012.849) (48. (b) Commodity derivative contracts InterOil uses derivative commodity instruments to manage its exposure to price volatility on a portion of its refined product and crude inventories in accordance with risk management policy described in note 4.000 48. 2012 463. At December 31.048) 39.

Trade and other receivables December 31.815. As at December 31. Dec 2010 – loss of $1. 2010 $ 45.457 was recognized on the non-hedge accounted currency derivative contracts for the year ended December 31. if any.697 3. This loss is included in derivative (losses)/gains in the consolidated income statement.406) relating to refined petroleum products is included in ‘Changes in inventories of finished goods and work in progress’ within the consolidated income statement. 2012.$53.017.240.131.Manages the export price risk of naphtha Fair Value December 31.Manages the export price risk of naphtha Cash flow hedge .267.137.227 December 31.778.690). This gain is included in derivative (losses)/gains in the consolidated income statement.Manages the export price risk of naphtha Cash flow hedge .600 December 31.857.578) A loss of $4.061 48. A gain of $11. As the sale is with recourse.631) of intercompany receivables which were eliminated on consolidation.360 As at December 31.647 was recognized on the non-hedge accounted derivative contracts for the year ended December 31. Dec 2010 .239.$26.710.006.311.883 67. the discounted trade receivables.087. As at December 31. 2011.240.030.535 at December 31.578) Add: Priced out non-hedge accounted contracts as at December 31. 2011 $ 40.Derivative Naphtha Swap Brent Swap Naphtha/Brent Swap Type Sell Naphtha Buy Brent Sell Naphtha / Buy Brent Notional Volumes (bbls) 54. Inventories December 31.147 57.033. (c) Currency derivative contracts During the year ended December 31.$nil) in outstanding trade receivables had been sold with recourse under the facility. Dec 2010 – gain of $526.878).799 December 31.871.273 34.452. 2012 (Dec 2011 – loss of $11.108 70.457.797. 2011 $ (275.496 InterOil has a discounting facility with BNP Paribas on specific monetary receivables under which the Company is able to sell.721.000 54.107 (Dec 2011 . The discounted trade receivables are usually settled within a month of their discounting and there have not been any collection issues relating to these discounted trade receivables.000 (refer to note 18).797 135.619.004. 2012. the Company had a net payable of nil (Dec 2011 . 11. Dec 2010 . 2012 (Dec 2011 – gain of $2. $80. 2012.626.328 (Dec 2011 . 10.668.941 673. the Company started to enter into AUD to USD foreign currency forward contracts to minimize the foreign exchange risk in relation to the expenses to be incurred in AUD.047. 2012 and December 31.265.854 2. This balance includes $24.430 (Dec 2011 . The Company has retained the responsibility for administering and collecting accounts receivable sold.105 194.$259.000 Expiry Q1 2011 Q1 2011 Q1 2011 Derivative type Cash flow hedge .803 23.958) 179.948.884.903 66.$nil) in relation to outstanding non-hedge accounted currency derivative contracts.839. Dec 2010 $21. 2012 $ Midstream .435 2.000. 2010 no net realizable value write 94 .954 146. 2011 $ 112.$11.771.Refining (crude oil feedstock) Midstream . The write down of $322.690 171.591.664) of the trade receivables secures the BNP Paribas working capital facility disclosed in note 18.118 (81. on a revolving basis.253 127.634 49. 2012 $ Trade receivables Other receivables Total 112.339 December 31. 2012 (Dec 2011 .832.000 54.283 36. inventory had been written down to its net realizable value.428.Refining (parts inventory) Downstream (refined petroleum product) 75.457. As at December 31. At December 31. are retained on the balance sheet and included in the accounts receivable and the sale proceeds are recognized in the working capital facility. Dec 2010 . 2010 (178.071. 2010 $ 23.738) (178.Refining (refined petroleum product) Midstream . 2010.080.321.564.$74. Other receivables balance mainly relates to cash calls receivable from joint venture partners in the Upstream segment. trade receivables up to $60.$10. $47.273.

At December 31. $128. InterOil also acquired a further 2.5% of Pacific LNG’s economic interest in the joint venture LNG Project was valued at $864. These calculations use cash flow projections covering a twenty-year period and the key assumptions used in the calculations include an oil price of $100/bbl and an annual inflation rate of 2%. As part of the acquisition.107) of the Midstream Refining inventory balance secures the BNP Paribas working capital facility disclosed in note 18.000.300.761. Dec 2010 . The recoverable amount of the Midstream – Liquefaction segment has been determined based on fair value less costs to sell calculations. acquired half of Merrill Lynch’s interest in the LNG Joint Venture Company for $11.250.377 based on the previous transaction with Merrill Lynch that was completed in February 2009.$113. InterOil LNG Holdings Inc.806 ‘B’ Class shares held by Merrill Lynch.234 (Dec 2011 . (c) Impairment tests for goodwill Management reviews the business performance based on operating segments and goodwill is monitored by the management at the operating segment level. (b) Acquisition of interest from Pacific LNG During September 2009. Goodwill (a) Acquisition of interest from Merrill Lynch On February 27.109. 12. being the most appropriate guide to the fair value of the interest acquired.$90.032.5% of Pacific LNG’s economic interest in the joint venture LNG Project from Pacific LNG as part of the Elk and Antelope interest acquisition. The goodwill recognized at December 31. InterOil LNG Holdings Inc. 2012 is allocated to the Midstream – Liquefaction segment. This fair value has been recognized as goodwill on acquisition of the LNG interest in the Balance Sheet.685. 95 . The amount recognized as goodwill of $5. was transferred 548.940 represents the amount of purchase consideration paid to Merrill Lynch over and above the fair value of the identifiable net assets acquired. 2012.down was necessary. The fair value of 2. 2009.

673 15.587 53.932) 171.962 (1.539 (60.970) 27.863 23.649 14.239 218.013) 256.821.624 (29.974) 95.542 (2.872 16.192 246.942 15.552.108 706.972 25. 2012: Cost Accumulated depreciation Net book value 255.643 (1.531 16.316 (3.989.714.460) 1.783.872 40.031.516 2.509) (9.256.485) 246.205.008.673 15.081) 549.007.836.842.251.819 2.994 25.445 (5.670 (35.929 28.024.591 36.832 225.671 (4.007.482 20.624.873.253) 4.239 320.410 (1.780 (1.068.055) 1.990 9.132.929 2.427 190.519.614.649 19. 2010: Opening net book value Additions Disposals Transfers from work in progress Reclassification to other asset categories Depreciation for the period Exchange differences Closing net book value At December 31.120.159 (83.043.836. 2012: Opening net book value Additions Disposals Transfers from work in progress Reclassification to other asset categories Depreciation for the period Exchange differences Closing net book value At December 31.442 4.907.316.233.547) (11.713.718.990 3.950) 671.561.615.360.948 243.127 88.614 (2.314) (13.314) 9.403 (94.703 (42.703 248.563.13. 2010: Cost Accumulated depreciation Net book value Year ended December 31.143.245) 3.620) 3.935.783.485.193 23.518 15.673 15.766.076.281 (1.395 (11.482 4.709 (138.244.426 229.948 182.322.786 25.018.518 1.274.740.907.145) (16.651 69.482 7.673.179 (51.833 (12.972 25.108 3.781 141.574) 1.907. 2011: Cost Accumulated depreciation Net book value Year ended December 31.989.137.110.427 242.442 907.657 (8.323.103) 171.031.821.427 29.224.812.217.766.656.248) 3.274.012.661) 313.046.143.859.006) 255.205.786 Refinery Totals At January 1.034 1.881.591 11.911) 4. 2010: Cost Accumulated depreciation Net book value Year ended December 31.967.519.390.656.678.847 (10.632.517.145 (993.703.996) 1.925 (8.235 (28.341 (47.024.014 (2.904.307.057 25. Oil and gas properties Costs of oil and gas properties which are not subject to depletion are as follows: 96 .810.591 4.388) 541.225.838 (25.419.110.519.306) (446.794.211 4.862) 11.771 (71.565 255.632.409 (8.345 14.256.392.035) 11.007. 2011: Opening net book value Additions Disposals Transfers from work in progress Reclassification to other asset categories Depreciation for the period Exchange differences Closing net book value At December 31.832.678) 1.397.587 14.632.887) 2.453 (8.794.508 (7.073.489.948 31.947 (22.024.590) 23.138) (418.316) 121.043.931.024.349 (88.110.972 25.039.903) (4.079.395 (33.294 (2.396.325.043.550.034 1.615.547 (5.547.256.638 8.850) (20.101 6.808) 907.638 16.734 302.863 62.605.734 766.680) 26.048.932.972 25.970 (947.783.918.615.510) 218.742.975 (84.780.064.675 26.961) 7.836.766.068.274.234) 34.110.279) (42.505) 14.907. Plant and equipment Land and Buildings Plant and Equipment Motor Vehicles Deferred Project Costs and Work in Progress 8.187.370 (395.394.329) 12.444.467.892 1.223.477.297.288) 176.024.503 (13.081) 258.086 (437.073.715.442 4.279.678.587 1.893.042.371.248) 157.661) 190.034 8.673 14.228) 650.808) 16.656.525) 7.917.842) 176.929 11.433 (117.525.278) (9.977) 8.082.557 246.651 31.676 27.205.426 363.036 (61.505.982.143 (20.786 25.947.006) 7.976) 225.839 3.426 225.493 (981.192 393.703 176.143.635.321.888 570.554) 182.375 (5.005 11.051.641.638 8.893) 182.239 1.

213 for the year was recognized as a gain on conveyance. The following table discloses a breakdown of the exploration costs incurred for the periods ended: December 31.793.080 18. and developing a liquefied natural gas plant and associated facilities in PNG. Under the framework 97 .418.852.934. Refer to note 22 for details in relation to the sale of an interest in PPL 237.924.716.929 99.114 351.170 2.759 14. 2010 $ Since the date of the IPI Agreement in February 2005 up to the year ended December 31.852.105 184.976) 107. The majority of the current year’s increase in the PPL drilling programs relates to the drilling activity on the Triceratops field for the Triceratops 2 appraisal well and activity on the Elk and Antelope field for the drilling of the Antelope 3 appraisal well.847.055.854.522 December 31.001.811.981.355.367. certain IPI investors’ with a combined 13. Available-for-sale Investments On April 11.653 17.752) (18.178 16. An amount of $1.993.929 16.448) 152.957 1.901.176 3.963.104.550.558 166. and site preparation work on Elk 3 appraisal well.929 10.521 515.653.523.766 December 31.048 362.020 (192. 2010 $ 207.683 1.493.213 4.129.708 215.667 common shares.288 145.140.294. 2012 $ Property Acquisition Costs Exploration Costs Development Costs Add: Amounts capitalized in relation to the appraisal program cash calls on IPI interest buyback transactions Add: Premium paid on IPI buyback transactions Less: Conveyance accounting offset against properties Less: Costs allocated against cash calls Total Costs capitalized Charged to expense Geophysical and other costs Total charged to expense Oil and Gas Property Additions (capitalized and expensed) 13. executed a framework agreement with Flex LNG Ltd related to the construction and operation of a two million tonnes per annum floating liquefied natural gas processing vessel.202.744. the Company and Pacific LNG Operations Ltd. 2011.558. 2012 $ Gain on conveyance of oil and gas properties Conveyance of PPL 244 interest (15% of the property) Conveyance of PPL 237 interest to PRE Conveyance accounting of IPI Agreement (note 20) 2. 2010 $ 28. 2011 $ December 31.140.101 255. 2011 $ 116. 2012 $ Drilling and construction equipment Drilling consumables and spares Petroleum Prospecting License drilling programs (Unproved) Gross Capitalized Costs Accumulated depletion and amortization Unproved oil and gas properties Proved oil and gas properties Net Capitalized Costs 515.325.981.December 31.999.353.165.901.085% interest out of the remaining 15.894.435. 2012.558 13. 2011 $ 79.738 The majority of the costs capitalized under ‘Petroleum Prospective License drilling programs (Unproved)’ above relates to the exploration and development expenditure on the Elk and Antelope fields.150 125. An additional investor with a 1% interest has had their right to convert their IPI percentage into 133. The development and monetization efforts of these fields are ongoing. the gas gathering and associated common facilities.294.1386% IPI interest in the eight well drilling program have waived their right to convert their IPI percentage into 1.435. 15.004 (8.288 December 31.135) 82.150 18.738 255.333 common shares forfeited as a result of being registered on PRL 15.054 96.622) (19.722 (12.766 362. and include the condensate stripping and associated facilities.922.783 2.176 The following table discloses a breakdown of the gain realized on conveyance of oil and gas properties for the periods ended: December 31.028 December 31.959 269. These waivers or forfeitures of the conversion option have triggered conveyance under the IPI Agreement for their respective share of interest.523.055.783 December 31.

064.458) 202. The fair value at December 31. 2011.574.087.487) (1. Based on guidance under IAS 39.299.407.703 983. the Flex LNG Ltd options.236.105) 98 . Management has determined that recognition of this gain is appropriate as there is no ongoing obligation or commitment that the Company needs to fulfill as a result of receiving these options.304.038) 504.133 144.198.961) (735.423.815.709) (556.157 (15.073. Management used the Black Scholes pricing model to fair value the options at grant date and subsequently the derivative through to the date of exercise.440) 709.184.314 897. the Company and Pacific LNG Operations Ltd.330. 2012 was $4.214.167 common shares.376.00% (2. Transaction costs of $17.315.209) 3.015.711.607) 16. Income taxes (a) Income tax expense The combined income tax expense in the consolidated income statements reflects an effective tax rate which differs from the expected statutory rate (combined federal and provincial rates). April 11.176 (Dec 2011 .512. The total amount recognized as the long term investment in relation to the Flex LNG shares in the balance sheet after the exercise of the options was $11.029 (726.461. on the date of grant of those options to the Company.146. to acquire up to 11. the options were classified as a derivative financial instrument at initial recognition and then reclassified as ‘available-for-sale’ when the options were exercised and the common shares acquired.938.498.136) (71.333 8.409.723 (9.00% (12.501. The option value on exercise date was $4.132) (10. 2010 $ (38.$3.671 1.107.693.644 (3.995 31. 16. except for impairment losses which can be evidenced by a significant or prolonged decline in the fair value of an investment.net (723.732. 2011 $ 16.718.853 10.350 were also incurred in relation to the transaction and were allocated to the investment.50% 5.250) December 31.147) (1. 2012 $ (Loss)/profit before income taxes and non controlling interest Statutory income tax rate Computed tax (benefit)/expense Effect on income tax of: (Income)/losses in foreign jurisdictions not (assessable)/deductible Non-deductible stock compensation expense Non-deductible pre-LNG Project Agreement costs Non-deductible premium paid on buyback of IPI interest Non-taxable gain on conveyance of exploration assets Effect of currency translation on tax base Tax rate differential in foreign jurisdictions Under provision for income tax in prior years Midstream .936 10.407 and Pacific LNG Operations Ltd acquiring the remaining 2.636 317.103.348) 33.743 December 31.234 (8.667) 2.258 was recognized in the consolidated income statement under ‘Gain on Flex LNG options received’.922.236. the Company recognized the financial asset.556 (15.461.664) 1.938.674 (706. changes in the fair value of the Flex LNG Ltd shares after initial recognition are to be recognized in other comprehensive income within shareholders equity.5909 Norwegian Kroner.744) 588. an equity purchase option was issued to the Company and Pacific LNG Operations Ltd.Refining tax exempt income as per Refinery Project Agreement Tax losses for which no future tax benefit has been brought to account Deduction claimed for prior years undeducted interest expense Initial recognition of future tax assets/liabilities based on recoverability assessment Other .214.101 (868. 2011. Considering the various classification options available and managements intention to hold the options/shares after exercising for the medium term.650. exercised this option with the Company acquiring 8.368) (1. Based on guidance under IAS 39.500) 30.080 common shares in Flex LNG Ltd at an average strike price of 4.899 (973.913 common shares of Flex LNG Ltd at a cost of $7. Differences for the years ended were accounted for as follows: December 31. The cumulative fair value of the options received of $4. On May 16.154) 6.agreement.369) (1.258 and the exercise price paid was $7.786) and was calculated using quoted prices on Oslo stock exchange Axess.

259) (4.543 24.241 2.646.649) (216.409) (8.526.208. tax losses incurred prior to January 1. without taking into consideration the offsetting of balances within the same tax jurisdiction.410. 2005 and ended December 31.561 24. 2010.369 336.477.525 14.360) 325.690 6.184.663) 547.279 at December 31.771.075.(b) Deferred income tax December 31.093 1. projected future taxable income.556.325.894) 4.477. 2011 Charge to the income statement Interest deductibility on payment of withholding tax Exchange differences At December 31.309 15.679.586. scheduled reversal of deferred tax liabilities.518.622) at December 31.552 68. 2011 $ 35.726 (21. 2010.882 December 31.691.690 The movement in deferred income tax assets and liabilities during the year.584 Tax depreciation $ 5.350.183 73. 2010 $ 30.282) (76.509 (650.855. 2012. 2010 Charge to the income statement Exchange differences At December 31.317) 34.183 28.198 (1. 2010.953 Other $ 2.108.690 The gross movement on the deferred income tax account is as follows: December 31. 2012 The deferred tax assets and liabilities recorded in the consolidated balance sheet mainly relate to Midstream – Refining and Downstream assets in PNG.800.200 (1.723.369 2.183 28.511. 2011 $ 28. Tax losses carried forward to offset against future earnings total PGK 330.163 (2. All losses incurred by InterOil Limited have a twenty year carry forward period. 2012.876 (1. The Refinery Project Agreement gave “pioneer” status to InterOil Limited (”IOL”).690 6.458 Deferred tax assets and liabilities At January 1.319. is as follows: Tax losses $ 23.656) 670. 99 . The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.855. projected tax rates and tax planning strategies in making this assessment.526.965.244. The amounts are non-current as at December 31. 2010 Charge to the income statement Exchange differences At December 31.165 Unrealized foreign exchange (gains) / losses $ (1.075. No deferred tax assets have been recognized for the exploration expenditure pending final investment decision on projects for monetization of resources from the licenses held. In relation to the refinery.991 188.106) (2. Management considers the actual levels of past taxable income.273 6.317) 34.511.184.733 46. 2012 $ Deferred tax assets Deferred tax liabilities Deferred tax assets (net) 63.184.248.477.882 December 31.539 2.882 11.889.578 15.477.556. 2005 were frozen during the tax holiday and became available for use after the tax holiday ceased on December 31. the Company has temporary differences and losses carried forward in relation to exploration expenditure incurred in PNG of $480.800 389.692) 15.637.410.319.788.136.878.325 14.526.521 (1.535.526.458 December 31.477. This status gave IOL a tax holiday beginning upon the date of the commencement of commercial production. 2012.882 11.273 (1.391) 34. January 1.075.690 28. 2012 $ At January 1 Charge to the income statement Interest deductibility on payment of withholding tax Exchange differences At December 31 34.293.701.150.487 ($157.252. 2010 $ 28.367 (2.075.458 63.582.142 262.491) 181.849 2.853) 157.326.168.163 (2.898 63.896.656) 670.309 15.624 (3.509 (650.756 Total $ 30.369 2.124.248.774) 6.347) 4. In addition to the above. Tax losses incurred during the tax holiday also became available for use after December 31.898 63.620.458 December 31.

450.880 (a) Petromin participation in Elk and Antelope fields On October 30.000 in advance payments received from Petromin has been held under ‘Petromin cash calls received’ above.390 85.000.131 6. The State’s (and Petromin’s) right to take an interest arises upon issuance of the Prospecting Development License (”PDL”).381 December 31. During the quarter ended December 31.000.238 180.480. Trades and other payables December 31.757 75. 2010. Facility 2 is for $60. 2013 with an increase in Facility 1 limit by an additional $10.000.000 limit from Facility 2 to Facility 1. including sunk costs. During the year the weighted average interest rate was 2.539. The portion of funding that relates to InterOil’s share of the project. funded by Mitsui.882.000 or USD equivalent for hedging transactions via BNP Paribas Commodity Indexed Transaction Group or other acceptable counter parties.999. Petromin contributed an initial deposit and agreed to conditionally fund 20.midstream Westpac and Bank South Pacific working capital facility .000.000.452.96%.000. 2010 – 2. Facility 1 is for $180.452.290.241.907 15. $15. is classified as an unsecured loan (refer to note 19(d)).000 13.860 53. The proposed joint venture is to be entered into for equal shares between Mitsui and InterOil. and a maximum availability of $240.470. As at December 31. a government entity mandated to invest in resource projects on behalf of the State.757) is held in current liabilities as the agreement requires repayment if FID is not reached. The facility is secured by sales contracts. the working capital facility agreement with BNP Paribas was amended so that the facility was made evergreen and the annual renewal requirement removed. participation in Condensate Stripping Plant On April 15.238 (Dec 2011 $11. In October 2012.435.503 December 31.023.216 47.393.153 29.254. The total facility is split into Facility 1 and Facility 2 as per the agreement with BNP Paribas. entered into an agreement to take a 20. 2012 $ 94.023 159.372 16. freight loans. InterOil has proposed that cash contributions made by Petromin to date to fund the development will be held and credited against the State’s obligation to contribute its portion of sunk costs upon grant of the PDL.559 1. Mitsui will be responsible for arranging or providing financing for the capital costs of the plant. On August 4. 2012.479 94. The portion of funding that relates to Mitsui’s share of the project as at December 31.69%) after considering the reduction in interest due to the deposit amounts maintained which reduces the interest being charged on the facility utilization (refer section ‘Cash and cash equivalents’ under note 9).767 51. and that it should terminate. 2012 $ Trade payables .030.downstream Total working capital facility December 31. purchase contracts. 2012).456.326 (a) BNP Paribas working capital facility InterOil has a syndicated working capital credit facility led by BNP Paribas (Singapore branch) with a maximum availability of $240. also applies upon issuance of the PDL. 2010.000 (increased temporarily to $260. The following table outlines the facility and the amount available for use at year end: 100 .000 partly cash-secured short term advances and for discounting of any monetary receivables acceptable to BNP Paribas in order to reduce Facility 1 balances.607.393.000 on February 01. 2010 $ 50.000 on January 31.$6.042. which has not yet occurred. Working capital facilities Amounts drawn down BNP Paribas working capital facility . Dec 2010 .000. short term advances.023. 2012. The total facility was renewed in February 2012 until January 31.600 15.000. and then increased to $240. 2011 $ 69. The obligation to fund its portion of the costs of developing the field. advances on merchandise.456. Petromin PNG Holdings Limited (”Petromin”).000 and finances purchases of hydrocarbons via the issuance of documentary letters of credit and or standby letters of credit. once a PDL is granted.230. all crude and refined products of the refinery and trade receivables. certain cash accounts associated with the refinery.000 6.435.435. At the end of the 2011 year.132.000.000.5% direct interest in the Elk and Antelope fields if and once nominated by the State to take its legislative interest. the Company entered into a preliminary works joint venture and preliminary works financing agreement with Mitsui relating to the CS Project.435.product import Other accounts payable and accrued liabilities Petromin cash calls received Mitsui cash calls received Total trade and other payables 35.000 in November 2011. 2010 $ 5. 18.000. 2011 $ 10. amounting to $13.17.5% on the short term advances.5% of the costs of developing these fields. Petromin remains the State’s nominee to acquire the State’s interest under relevant Papua New Guinean legislation.000 to $180. there was a temporary reallocation of $10. (b) Mitsui & Co.992.000 for the combined facility. and includes a sublimit of Euro 18.479 December 31.263 15. 2008.000 11.541.026. The facility bears interest at LIBOR + 3. 2012. 2012.67% (2011 – 2.crude import Trade payables .000.290.177 December 31. the JVOA for the CS Project was finalized. the parties agreed that the Agreement’s intended operation had ended.031 10. Refer to note 19(d) for further details in relation to this agreement. reverted to $230.

all outstanding amounts under the term loan with OPIC was fully repaid by the Company.910. 2013. The fifth letter of credit for $23.000.deferred financing costs Secured loan (Westpac) .757 14.94% (Dec 2011 .032.000 December 31. 2011 $ 260.300.000.000).000 (10.209.non current portion Total non current secured loan Total secured and unsecured loans 4.023.778) 34.$90. as separately disclosed in note 9.131) (164.000.000. the company had six letters of credit outstanding totaling $139.393. 2012. 101 .000) 6. 19.000 was for a crude cargo and was drawn down on February 6.115 84.829.912.$113. BSP & BNP Syndication) . (b) Westpac and Bank South Pacific working capital facility The Company has an approximate $66.non current portion Secured loan (OPIC) .479) 240.000 was for a gasoline cargo and was drawn down on January 3.559) (50.000 (815. 2012.200. Dec 2010 .797.000 was for a diesel cargo and was drawn down on January 3.832.757 35. 2010 .030. 2010 .340.000.559) (93. The interest rate on the loan was equal to the treasury cost applicable to each promissory note outstanding plus the OPIC spread (3%). 2010 $ 190. The first letter of credit for $5.869 December 31.000 89. 2013.000) 46.456.297 31. 2013. 2012 $ Working capital credit facility Less amounts included in the working capital facility liability: Short term advances/facilities drawn down Discounted receivables Less: other amounts outstanding under the facility: Letters of credit outstanding Working capital credit facility available for use (139.$2.979 (a) OPIC Secured Loan On June 12.815.571. In addition.500.152) (47. The sixth letter of credit for $20.521 (47.000.290.000.023.269.037.668.000. none of this combined facility has been utilized. BSP & BNP Syndication) .000 (462.6%).023 19. During the year the weighted average interest rate was 10% (Dec 2011 – 9. 2010 – $26.306 (Dec 2011 .current portion Secured loan (Westpac) .001.250. 2013. inventory of $128.000 was for a crude cargo and was drawn down on January 4.109.000).80%) and the total interest expense included in finance costs was $2.087.834) 26. 2010 $ 9.non current portion Secured loan (ANZ.286.266.December 31.400.000.800).107 (2011 .000 was for a crude cargo and was drawn down on January 27. During the year ended December 31.000. 2013.deferred financing costs Secured loan (ANZ.430.000) and the BSP facility limit is approximately $23. The cash deposit on working capital facility. BSP & BNP Syndication) .000.252 December 31.000.564.631) of inter company receivables which were eliminated on consolidation.000 (PGK 140.current portion Secured loan (ANZ.000 (PGK 10.570.901. 2012 the weighted average interest rate was 6. The second letter of credit for $25.000) revolving working capital facility for its Downstream operations in PNG from BSP and Westpac. 2010 .000.000 10.664) also secured the facility. These facilities are secured by a fixed and floating charge over the assets of Downstream operations.000 16. Westpac facility limit is approximately $42.000 (686.884.234 (2011 .189 December 31.137 120.500.131) (10. As at December 31.813.$53.000.current portion Secured loan (ANZ. included restricted cash of $37. The third letter of credit for $36.200.000.710. Secured and unsecured loans December 31. The fourth letter of credit for $29.461.030. 2011 $ 9.000) 85. The Westpac facility was increased in February 2012.982.685.$3. by $4.$21.000 5. 2012 $ Secured loan (OPIC) .995) which is being maintained as a security margin for the facility. The trade receivable balance securing the facility includes $24. Dec 2010 – 6.023 26.024. 2013.000 (PGK 90.430 (2011 .182) 11.93%.000 was for a crude cargo and was drawn down on February 7.deferred financing costs Unsecured loan (Mitsui) Total current portion of loans Secured loan (OPIC) .383.000 (PGK 50.700.393.107) and trade receivables of $80.500.166 45.000.795.456.500.446. BSP & BNP Syndication) . 2001. The BSP facility is renewable annually and was renewed in October 2012 through to October 2013.222 49.$74.327) (94.6.755. the Company entered into a loan agreement with OPIC to secure a project financing facility of $85.$40.857. 2012. The Westpac facility is for an initial term of three years and was renewed in November 2011 through to November 2014.441 At December 31.664.203.631 (2011 $32. and the entire amount of this facility remains available for use.059.775.124.863) 8.265.000 (50.000 (3. During the quarter ended December 31.

The investors will be able to approve the location of the final two wells to be drilled.674.143.405.197.002 540.000 each. The proposed joint venture is to be entered into for equal shares between Mitsui and InterOil.940.695 at December 31.674.000. BSP & BNP Syndicated Loan On October 16.000 was provided as part of the increased Westpac working capital facility which is repayable in equal installments over 3. The loan agreement stipulates half yearly principal payments of $2.651. 2012.405.350 34.non current portion Total non current indirect participation interest Total indirect participation interest 1. In the instance that InterOil proposes appraisal or completion of an exploration or development well. During the year ended December 31. The agreement contains certain financial covenants which include the maintenance of minimum levels of equity cover and debt service cover and limitations on the incurrence of additional indebtedness. InterOil has made cash calls for the completion. two installment payments amounting to $8. one in PPL 236. 20. 2005 between the Company and a number of investors. the Company entered into preliminary joint venture and financing agreements with Mitsui relating to the Condensate Stripping Project. 2010 $ 540. 2012 are being amortized over the period until November 2017. the company was in compliance with all applicable covenants.384. the next two installments are for an amount of $10.490 33. During the year ended December 31.833.393 31.286.5%.861. at the Company’s election which has be made in advance of the interest period. 2012 $ Indirect participation interest (PNGDV) .non current portion Indirect participation interest ("IPI") . 2012 the weighted average interest rate was 6. The location of the other two wells is yet to be determined. The portion of funding that relates to Mitsui’s share of the project is held in current liabilities. During the year ended December 31. (c) ANZ.81% and the total interest expense included in finance costs was $946. 2012.24% and the total interest expense included in finance costs was $749.4% per annum. the IPI liability relating to two exploration wells that are expected to be drilled within the next twelve month period have been transferred to the current portion of the liability.73% and the total interest expense included in finance costs was $574. Indirect participation interests December 31. appraisal and development programs performed on the exploration or development wells that form part of the IPI Agreement.134.905 15. 2012. InterOil is responsible for drilling eight exploration wells.897 34. four of which will be in PPL 238.000.002 844. Bank South Pacific Limited. 2012.002 844. 2010. The first four half yearly installments are for an amount of $8. 2011 $ 540. the Company entered into a five year amortizing $100 million syndicated secured term loan facility with BNP Paribas Singapore.5 years with an interest rate of LIBOR + 4. the investors will be asked to contribute to the completion work in proportion to their IPI percentage and InterOil will bear the remaining cost.002 540. The loan is secured by a fixed and floating charge over the assets of Downstream operations. (a) Indirect participation interest (“IPI”) The IPI balance relates to $125. 237 and 238.000 which will be due for payment on March 2.289. InterOil will be required to refund Mitsui’s share of capital expenditure incurred and the unsecured loan within a specified period.033.000.290. The interest rate on the loan is equal to LIBOR plus 6.840 34. 2012. In the event that a positive FID is not reached or made.492 13.current portion Indirect participation interest ("IPI") . The principal of the secured loan facility is repayable in ten half yearly installments over the period of five years.(b) Westpac Secured Loan A secured loan of $15. and Australia and New Zealand Banking Group (PNG) Limited.000 each which will be due for payment on May 9.246. The loan is secured over the fixed assets of the refinery which have a carrying value of $192.790 December 31.000.000.000. The amount financed by Mitsui for InterOil’s proportion of cash calls is treated as an unsecured loan with interest being accrued daily at LIBOR plus a margin of 6.490 33. (d) Mitsui Unsecured Loan On April 15.000. and the final four installments are for an amount of $12. The interest payments are to be made either in quarterly or half yearly payments.000 each. the JVOA for the CS Project was finalized. Should an investor choose not to participate in the completion 102 . 2012 the weighted average interest rate was 6.393 16. Cash calls made in advance are shown as a liability when received and reduced as amounts are spent on the extended well programs. As of December 31. 2013 and November 9. In exchange InterOil had provided the investors with a 25% interest in an eight well drilling program to be conducted in InterOil’s PPL 236. and one in PPL 237. As at December 31. 2013 have been reclassified into the current portion of the liability.389 As at December 31. Under the IPI agreement.000 received by InterOil subject to the terms of the agreement dated February 25.387 34. 2012.134. 2013 and September 2. whereas cash calls made in arrears are shown as a reduction to amounts previously recognized as receivable as the amounts were spent on the extended well programs. 2013 have been classified into the current portion of the liability. 2012 the weighted average interest rate was 4.000 each. two installment payments amounting to $4. On August 4.811. 2010.current portion Total current indirect participation interest Indirect participation interest (PNGDV) . As at December 31.397 16.00%.842 December 31. with the final repayment to be made in August 2015.045 as at December 31. Deferred financing costs relating to the loan of $3.

the indirect participation interest in the eight well drilling program will be maintained and distributions from success in these wells will be paid in accordance with the agreement.2864% interest in the IPI agreement have sold their interest to the Company.5% interest waived during the year ended December 31. During the year ended December 31. InterOil’s direct interest in exploration licenses is 75.371. Detailed disclosure of this transaction is provided in the section ‘Extinguishment of IPI liability’ below.000.50 per share. and the residual value of $20. several IPI investors were registered on PRL 15. 2012. 2012.works of an exploration well. 2012.089. 2006 and the later of December 15. including 0. certain IPI investors representing a 6. One of the investors now registered on PRL 15 had not previously waived their right to convert their 1% percent interest into 133. Any partial conversion of an indirect participation interest into common shares will result in a corresponding decrease in the investors’ interest in the eight well drilling program. 2012. following registration on PRL 15. 2012. • (iii) Extinguishment of IPI liability Prior to the year ended December 31.334 common shares in the company. appraisal and development program undertaken in Elk and Antelope fields as part of the IPI agreement. being the estimated expenditures to complete the eight well drilling program. Under the IPI Agreement. reducing the liability to $96.333.8614% due to the following: • Conversion of IPI interests: Prior to the year ended December 31.000 were partly accounted for as a non-financial liability and partly as a conversion option. the Company has bought a combined 6. the following transactions have occurred: (i) Increase in InterOil’s direct interest in the IPI program by 9. which reduced the IPI liability by $2. The difference between proceeds on conveyance and capitalized costs to the interests conveyed will be recognized as gain or loss in the income statement.6114%. These fees have been allocated against the non-financial liability. From the date of the agreement up to December 31. when an investor is registered on a PRL. conveyance was triggered on this portion of the IPI agreement.015. 103 . conveyance accounting will be applied.5% interest that the State is able to take up under relevant legislation.368. and excluding the 20.575% interest in the IPI agreement have exercised their right to convert their interest into common shares resulting in issuance of 476. InterOil will account for the exploration costs relating to the eight well program under the successful efforts accounting policy adopted by the Company.480). InterOil paid financing fees and transaction costs of $8. 2006.861. (ii) Waiver or forfeiture of conversion rights resulting in conveyance accounting • • Certain IPI investors representing a 13.667 InterOil common shares. Dec 2010 – 340.744. Buyback of IPI interests by the Company: Prior to the year ended December 31.851.741 related to the indirect participation interest on behalf of the indirect participation interest investors in 2005. the balance of the indirect participation interest that may be converted into shares is a maximum of 140.259. 2012. The non-financial liability was initially valued at $105.480. certain IPI investors representing a 3.000. 2012. or they elect to participate in the PRL for a successful well. they forfeit their right to convert their IPI percentage into common shares. IPI investors with a combined 1. The funds of $125.138. These conversions reduced the initial IPI liability balance by $13. As at December 31. 2012. InterOil will maintain the liability at its initial value until conveyance is triggered on the lapse of the conversion option available to the investors. which reduced the IPI liability by $26. Under the agreement.000. between June 15. These cash call amounts were previously offset against the capitalized oil and gas properties. Under this model the consideration paid is allocated to the various components involved in the exchange transactions. As a result.085% interest in the IPI agreement have waived their right to convert their IPI percentage into 1. Therefore.523. or 90 days after the completion of the eighth well.480 common shares being issued if all these IPI investors choose to exercise their conversion options. the investor will forfeit certain rights to the well in question as well as their right to convert into common shares. As at December 31. 2012.000 has been allocated to the conversion option presented under Shareholder’s equity. at a price of $37. During the year ended December 31. When an investor elects to participate in a PRL or when the investor forfeits the conversion option.These components include: • cash calls made from the IPI investors in relation to the completion. This entails determination of proceeds for the interests conveyed and the cost of that interest as represented in the ‘Oil and gas properties’ in the balance sheet. All geological and geophysical costs relating to the exploration program will be expensed as incurred and all drilling costs will be capitalized and assessed for recovery at each period.2864% interest in the IPI agreement from investors. • As at December 31.160 and the initial conversion option balance by $2.480 common shares (Dec 2011 – 340. their conversion rights have now been forfeited and conveyance was triggered on this portion of the IPI agreement. 2012.000. Management has adopted the extinguishment liability model.0536% interest in the IPI agreement still have the conversion rights outstanding resulting in a maximum of 140. InterOil has drilled four exploration wells under the IPI agreement as at December 31.860. Should the option to convert to shares not be exercised. the gain recognized for the conveyance accounting of IPI accounting was $ 1. assuming that all remaining indirect participation interest investors take up their working interest rights in such licenses.667 common shares. all or part of the 25% initial indirect participation interest could have been converted to a maximum of 3.213.000.333 common shares. and have been reinstated in the oil and gas properties asset to their full historical cost basis for those programs following this exchange transaction. 2012.

834 common shares valued at $11. 2007. PNGDV has a 6.002) 30. Merrill Lynch Commodities (Europe) Limited and PNG LNG Inc. InterOil LNG Holdings Inc.. a Shareholders’ Agreement was signed between InterOil LNG Holdings Inc. 2012 we have drilled 6 exploration wells since inception of the Company’s exploration program within PPL 236. and Pacific LNG Operations Ltd respectively. 2009.000 in recognition of its contribution to the LNG Project at the time of signing the Shareholders’ Agreement. being reduced by amounts already incurred in fulfilling the obligation.466) (5.250. a) $112.424.409 (3. 2010 $ (b) Indirect participation interest – PNGDV As at December 31.500 meters and the cost exceeds $8.500 per 1% per well (with higher amounts to be paid if the depth exceed 3.• • fair value of the conversion options extinguished as part of the exchange transactions. 237 and 238 is $1.500 per percentage point plus actual cost over $1. Two ‘A’ Class shares were owned by InterOil LNG Holdings Inc. two by Merrill Lynch Commodities (Europe) Limited. As part of the Shareholders’ Agreement.492). giving equal voting rights and board positions in the joint venture. The following table discloses a breakdown of the loss on extinguishment of IPI liability for the periods ended: December 31.500 per percentage point or b) where the well is planned to be drilled beyond 2.. Dec 2010 $1.25% interest in 16 wells commencing from exploration wells numbered 9 to 24.560 relating to its obligation to drill the four exploration wells on behalf of the investors. 237 and 238 in PNG.500. 2007. stakeholder relations within Papua New Guinea. This balance is based on the initial liability recognized in 2006 of $3. PNGDV also has the right to participate in the 16 wells that follow the first four mentioned above up to an interest of 5. Pacific LNG Operations Ltd.000).5% of Pacific LNG’s unexercised economic interest in the joint venture LNG Project. (c) PNG Energy Investors PNG Energy Investors (“PNGEI”). All key operational matters require ‘Unanimous’ or ‘Super-majority’ Board resolution which confirms that none of the joint ventures are in a position to exercise unilateral control over the joint venture.000) (7. an indirect participation interest investor who converted all of its interest to common shares in fiscal year 2004.$1. The other Joint Venture partner is being issued ‘B’ Class shares as it contributes cash into the Joint Venture Company by way of cash calls.000. During September 2009. has the right to participate up to a 4.75% interest in the four exploration wells starting with Elk-1 (with an additional two exploration wells to be drilled after Elk-4/A).384. with full voting rights with each share controlling one board position.588. 2012 $ Loss on extinguishment of IPI liability Consideration paid for exchange transactions less amounts capitalized in relation to the appraisal program cash calls less book value of IPI liability extinguished less book value of conversion options extinguished less difference between book value and fair value of conversion options extinguished taken to contributed surplus 48. InterOil was also provided with ‘B’ Class shares in the Joint Venture Company with a fair value of $100. In order to participate.120. and one by Pacific LNG Operations Ltd.. Fair value was determined based on the agreement between the independent joint venture partners. As at the end of December 31. The main items contributed by InterOil into the Joint Venture Company were infrastructure developed by InterOil near the proposed LNG site at Napa Napa. Based on this transaction.5% direct working interest in the Elk and Antelope fields.710 December 31. as 104 . PNGEI would be required to contribute for each exploration well.784. On February 27. After the completion of this transaction. As part of the Shareholders’ Agreement on July 30. general supply agreements secured with landowners for supply of gas.75% at a cost of $112. as part of acquisition by Pacific LNG of a 2. advanced stage of project development.000 for its share of the settlement. The two ‘A’ Class shares held by Merrill Lynch have been transferred to InterOil LNG Holdings Inc.000 charged pro-rata per percentage point. 2012.384. Deferred gain on contributions to LNG Project On July 30.231) (1. and 173 ‘A’ Class shares have been issued to Pacific LNG Operations Ltd bringing the ‘A’ Class shareholding of both remaining joint venture partners to 175 ‘A’ Class shares each. acquired Merrill Lynch’s interest in the Joint Venture Company.568. the balance of the PNG Drilling Ventures Limited (“PNGDV”) indirect participation interest in the Company’s phase one exploration program within the area governed by PPL 236. IPI liability extinguished as part of the exchange transactions whereby the difference between the fair value of the shares issued and the book value of the IPI liability post allocation to the other components mentioned above has been recorded as an expense in the statement of operations.805..384. A further 172 ‘A’ Class shares have been issued to InterOil LNG Holdings Inc. 21. $112.000 meters.492. Merrill Lynch did not retain any ownership or other interest in the PNG LNG project.492 (Dec 2011 . Pacific LNG transferred to InterOil 2. InterOil issued 499. etc. and Pacific LNG Operations Ltd.000. five ‘A’ Class shares were issued by PNG LNG Inc.908. 2011 $ December 31.

To date InterOil has a recognized deferred gain on its contributions to the Joint Venture based on the share of other joint venture partners in the project. As a result. as the HOA Payment is non-refundable. including PNG Government approval. As such.5% commission payable to PacLNG.$4. while the $17. by reducing PacLNG’s indirect participating interest in the Triceratops structure.5% of resource payments made by Pacific Rubiales (other than carried costs). 2010. contributed by InterOil. As InterOil’s shareholding within the Joint Venture Company as at December 31.582%.0 million allocated to the PPL 237 (XT) Area has been recognized as a gain on conveyance in the consolidated income statement (after any associated sale costs.0 million initial cash payment (which does not include carried costs) out of future upstream production proceeds.0 million was paid in accordance with the HOA and became non-refundable on execution of the Farm-In Agreement. and its affiliates (“PacLNG”) are participating on a 25% beneficial equity basis in the portion of the farm-in transaction relating to the Triceratops structure (2. The first $20. On July 27. PRE have paid $40. The transaction contemplates staged initial cash payments totaling $116.. PRE has the option to terminate the Farm-In Agreement at various stages of the work program and to be reimbursed up to US$96. However. with the remaining balance of nil (Dec 31. Contributions from joint venture partner On April 18. and the $3. which has reduced the LNG project costs to $4.9% gross) participating interest in the PPL237 Petroleum Prospecting License onshore Papua New Guinea.857) being recorded as a deferred gain.0 million of the HOA Payment has been allocated to the PPL237 (XT) Area and $17. This deferred gain may increase/decrease as the other Joint Venture partners decrease/increase their shareholding in the project. (“PRE”) for PRE to be able to earn a 10.5% commission payable to PacLNG). 2012 (Dec 2011 $9.0 million credit allocated to PacLNG is also receivable from PacLNG and has therefore been recognized as a non-current receivable.415). an affiliate of Clarion Finanz A.113.66%).$8. Dec 31.0 million of the staged cash payments. The second cash payment of $20.810. the $5. 2012 (Dec 2011 – nil. the gain on contribution of non cash assets to the project by InterOil relating to other joint venture partners’ shareholding (15..190) has been recognized by InterOil in its balance sheet as a deferred gain. 2012. PacLNG will also receive a commission fee of 2.0 million (SPI’s net share after allocations to other investors) at the date of execution of the Farm-In Agreement. 2011 .5% net and 3. The PPL237 (XT) Area currently has no cost base recognized on the balance sheet on the date of execution of the Farm-In Agreement.G.0 million is potentially refundable to PRE if they decide to exit the program. the Company signed a binding Heads of Agreement (“HOA”) with Pacific Rubiales Energy Corp.5% and 47. The $17. 2012.949. PacLNG will receive credits for 25% of the payments PRE makes under the farm-in transaction relating to the Triceratops structure.0 million of the $116. an additional carry of 25% of the costs of an agreed exploration work program. Dec 2010 – nil). InterOil and Pacific LNG hold 52. Additionally. have been eliminated on proportionate consolidation of the joint venture balances.418% . The Initial Resource Payment is payable by PRE within one month after a discovery in Triceratops is considered to be commercial and the necessary resource certifications have been obtained. conveyance accounting has been applied to this payment.0 million allocated to Triceratops has been allocated against the cost base of Triceratops field included within oil and gas properties on the balance sheet. However. the Company executed a farm in agreement with PRE relating to the Triceratops structure and the participating interest in the PPL 237 license materially in line with the HOA signed on April 18.0 million of the HOA Payment has been allocated to the Triceratops Area.113. 2012. Any deferred gain will be recognized in the consolidated income statement when/if the risks and rewards have considered to be passed. Dec 2010 – 86. The intangible assets of the Joint Venture Company.0% net (12. including the Triceratops structure located within that license.0 million due to PacLNG as a result of the second cash payment of $20. the Advance Payment Facility is refundable if PRE decides to exit the program or the agreement is not completed. 2012 is 84. subject to the exercise of all their rights to the ‘B’ Class shares on payment of cash calls. PRE’s gross participating interest will be subject to the Government of Papua New Guinea’s back-in rights provided for in relevant PNG legislation. The 25% credit of $5. which will be adjusted against their cash calls receivable balance. This amount has been recorded as a reduction of deferred LNG project costs of $15.0 million.25 million) and the 2. Dec 31.$5. 105 .amounting to $15.0 million allocated to Triceratops is gross of PacLNG’s 25% credit ($4.5% economic interest respectively in the LNG project.at December 31. 2012. Completion of the farm-in transaction remains subject to satisfaction of additional conditions within 18 months.582% (Dec 2011 – 84. $3.0 million has been adjusted against their cash calls receivable balance.2% gross participating interest).775. 2010 . Certain other indirect participating interest holders may also participate in the farm-in transaction.857 at December 31. at which time management expects the conveyance to be triggered on these payments.385. hence conveyance accounting has not been triggered on this payment. cash payments received under the Advance Payment Facility are to be retained on the balance sheet as a long-term liability until the Initial Resource Payment has been received. Based on the agreement. The Triceratops Area had a cost base on the balance sheet of approximately $55.0 million was paid in accordance with the Farm-In Agreement under the Advance Payment Facility. and a final resource payment.190 at December 31. Amounts paid to PacLNG or other indirect participating interest holders as part of this transaction will be reimbursable back to the Company (under same terms as reimbursable to PRE) if PRE exercises its option to terminate the Farm-In Agreement at any stage of the work program. as the $20. including the 2. Pacific LNG Operations Ltd. Based on the company’s disclosed policy on successful efforts accounting for oil and gas properties and accounting guidance under ASC 932-360.415. 22.302.126. As at December 31. 2010 .

(a) Common shares .562. Asset retirement obligations The Company plans to dismantle the refinery and restore the site when the refinery is decommissioned.000 Common Shares of InterOil Corporation.6% and the fair value of the best estimate was derived based on discounting the obligation to the current period end using a discount rate of 7. 2010 $ - 25.01% minority shareholding in SPI InterOil LDC.096 84. the Company elected to exchange the 5. The 5.$159.100.850) (217.269 December 31. 2011 $ 4. These costs have been capitalized as part of the cost of the refinery and are depreciated over the life of the asset.000 shares of SPI InterOil LDC held by PIE Corp. Each common share entitles the holder to one vote.300 (243. 2011. with the issue of 5.100.300 and recorded a decrease in equity attributable to owners of the Company of $217. for Common Shares on a one-for-one basis.550.000 Common Shares issued by InterOil Corporation were valued at $243. 2012 $ Carrying amount of non-controlling interests acquired Consideration paid to non-controlling interests Excess of consideration paid recognised in Company's equity December 31. and are fully paid. The inflation factor used in the independent assessment of the retirement obligation is 2. Non controlling interest The non controlling interest as at December 31. The following table shows the movement in the asset retirement obligation during the period: December 31. The effect of changes in the ownership interest of SPI InterOil LDC on the equity attributable to owners of the Company during the year is summarized as follows: December 31. 2011. The provision will be accreted over the remaining useful life of the refinery to bring the provision to the estimated expenditure required at the time of decommissioning. The accretion expense for the year ended December 31. InterOil had entered into an agreement with PIE Corp. 2010 related to Petroleum Independent and Exploration Corporation’s (“PIE Corp.969 4. may be exchanged.23. Dec 2010 . The Company now holds 100% of the equity share capital of SPI InterOil LDC.78%. Share capital and reserves The authorized share capital of the Company consists of an unlimited number of common shares with no par value. On September 30. The Company derecognized non-controlling interests of $26.356.000 shares of SPI InterOil LDC held by PIE Corp.334 December 31. Management received the final results of an independent assessment of the potential asset retirement obligations of the refinery at the time of decommissioning and a provision of $4.269 331. 2012 was $331. 2011 $ 26.096 (Dec 2011 .978.300.735 159. at InterOil’s election.562. 2012 $ Opening balance Initial recognition of provision Accretion of provision Foreign exchange impact on translation of provision Closing balance 4. under which the remaining 5.”) 0.550) December 31. During the quarter ended June 30. 2010 $ - 24.$nil).178 4.735 was recognized for the present value of the estimated expenditure required to complete this obligation.850. The carrying amount of the non-controlling interest in the Company on the date of acquisition was $26.356 302.Changes to issued share capital were as follows: 106 .

000.$1. and are subject to the option plan rules.657 1.850 905.000. while the vesting of some options granted are reliant on various performance conditions.398 Undrawn Amount December 31.552 265. certain employees and to a limited number of contractor personnel.4575 common shares per $1. 27. Dec 2010 . in May and November of each year. Available-for-sale financial assets: Changes in the fair value and exchange differences arising on translation of investments.087. 2011 Shares issued on exercise of options under Stock Incentive Plan Shares issued on vesting of restricted stock units under Stock Incentive Plan December 31.298. Options vest at various dates in accordance with the applicable individual option agreements.625 per share).756 (b) Nature and purpose of reserves • • • • Foreign currency translation reserve: Exchange differences arising on translation of the foreign controlled entity are recognized in other comprehensive income and accumulated in a separate reserve within equity.700 754. the Company completed the issue of $70. Contributed surplus: The contributed surplus reserve is used to recognize the fair market value of employee stock options and restricted stock units that have not been forfeited or been exercised. 2012 amounting to $1. Amounts are reclassified to profit or loss when the associated assets are sold or impaired.440 50. In addition to the accretion.138 243.75% convertible notes with a maturity of five years.733 20.000 47.614 18.056).857 and the equity component amounted to $14. Conversion options: This reserve is used to recognize the value of the conversion option included in the agreement with IPI investors (refer to note 20). The interest payable up to November 2012 was paid in cash.141.865 3. 2010. vested options must generally be exercised within 90 days or before expiry of the options if this occurs earlier.574 2.860. Options are exercisable for common shares on a 1:1 basis. such as equities classified as available-for-sale financial assets. Stock compensation (a) Stock options Options are issued at no less than market price to directors. are recognized in other comprehensive income and accumulated in a separate reserve within equity.679 895.079 5. Accrued interest on these notes is to be paid semi-annually in arrears.632).$3. 26.985 50.Total Facility $ January 1.567 48. 2010 Shares issued on exercise of options under Stock Incentive Plan Shares issued on vesting of restricted stock units under Stock Incentive Plan Shares issued on buyback of IPI#3 Interest Shares issued on litigation settlement Shares issued on public offering December 31.310.036.000 unsecured 2.75% convertible notes On November 10.659.052 7.925. with the vesting of the majority of options issued only being reliant on the individual remaining employed with the Company for a certain time period. 2012 $ 613. Dec 2010 .418. commencing May 2011.368 12.361. have an exercise period of three to five years after the date of grant.545.981. vesting generally between one to four years after the date of grant.212.000.760 74.000 (Dec 2011 . The accretion expense relating to the note liability for the year ended December 31. The cumulative amount is reclassified to profit or loss when the net investment is disposed of.687.800. The Company has the right to redeem the notes if the daily closing sale price of the common shares has been at least 125% of the conversion price then in effect for at least 15 trading days during any 20 consecutive trading day period. 2012 43.277 928.992. The liability component will be accreted over the five year maturity period to bring the liability back to the carrying value.121.000 principal amount of notes (which results in an effective initial conversion price of approximately $95. Individuals are granted options which only vest if certain performance standards are met.800.071 411. Upon resignation or retirement.654 479.999.000 198.$432.$278.677 2.872.363 19.75% per annum has been expensed for the year ended December 31.788 199. This balance will reduce when IPI investors sell their interest back to the Company.651.000 48. The note holders have the right to convert their note into common shares at any time at a conversion rate of 10. 2010 Shares issued on exercise of options under Stock Incentive Plan Shares issued on vesting of restricted stock units under Stock Incentive Plan Shares issued on buyback of non-controlling interest December 31. The liability component on initial recognition after adjusting for the underwriting placement fee and transaction costs amounted to $51. 2012 was $3. interest at 2.817. 107 .408.925. 2.951 (Dec 2011 .607.

The current year compensation expense of $2.82 66.47 3.903.26 Aggregate intrinsic value of the 1.760) (100.487.824.500 330.804 (2011 .240.00 12.357 (2011 – 1.02 2.00 Number of options 285.$68.267 110.294.628.82 36.628. in addition to the options outstanding as per the above table.59) (28.00 41.229 (2011 .46.20 December 31.000 34.00 71. 2010 .$7.667 470.871.000 110.703.688.$592.000 596.016 .598.827 Weighted average exercise price $ 27.00 31.000 30.000 (411.298.035.01 to 31.824.01 to 41.68) 27. Aggregate intrinsic value of 596.33) 30.839.December 31.0 5. there were an additional 1.827 90.07 54. 2010 .772).067 Weighted average exercise price $ 9.839. 2012 was $11.79 25.645.85 33.066.23 2.197.197.133 (2011 .50 Options exercisable Number of options 285.267. 2009. The assumptions contained in the Black Scholes pricing model are as follows: Year 2012 2011 2011 2010 2010 Period Jan 1 to Dec 31 Apr 1 to Dec 31 Jan 1 to Mar 31 Jul 1 to Dec 31 Jan 1 to Jun 30 Risk free interest rate (%) 0.133 (2011 .$2.000 (2011 – 110.000) options granted subsequent to January 1.871. 2010 – 330.8 1.176.24 (28.066.32) (9. An amount of $2.01 to 81.63 3.01 to 61.688.067 Weighted average exercise price $ 30.804 (2011 .244) on contributed surplus.$32. 2012 Stock options outstanding Outstanding at beginning of period Granted Exercised Forfeited Expired Outstanding at end of period Number of options 1.89 (16. 2010 .$9.0 5.067 Weighted average exercise price $ 9. 2012 is $23.0 5.0 5.733) (500) 1.667 30.400 106. 2010 – 1. 2010 .953.2 Dividend yield Volatility (%) 80 78 79 87 87 Weighted average expected life for options 5.$2.88 66. leaving a net impact of $4.58 74.671 (2011 .$7.773) was transferred to share capital on exercise of options. 2012 is $8.000) 1.000 34. 2010 Number of options 1.059 (2011 .885).017) was adjusted against contributed surplus under equity and $7.0 108 .400 106.$37. 2012 was $7.000 30.$7.20 Weighted average remaining term (years) 0.$10.000 (479. 2010 .017) has been recognized as compensation expense for the year ended December 31.531.194.79 25. The weighted-average grant-date fair value of options granted during 2012 was $36.95 (2011 .85 33.035.30 (2011 .00 61. 2012. 2010 .32).728.121.01 to 24.000 110.$9.274.31 59.01 to 51.4 1.01 to 12.$12.$61.80 15.067 options issued and outstanding as at December 31.003.$7.80) 36.03 1.82 22.00 51.617) common shares reserved for issuance under the Company’s 2009 stock incentive plan as approved on June 19.80 15.54.838.2 0.82 53.26).48 0.488.02 (25. Cash received from option exercise under all share-based payment arrangements for the year ended December 31. The weighted-average share price at the date of exercise of options exercised during the year ended December 31. 2011 Number of options 1.97 December 31.067 options exercisable as at December 31.97 57.$4. The fair value of the 90.00 24. 2012 has been estimated at the date of grant in the amount of $3. 2010 .598. 2010 .$4.501) using a Black-Scholes pricing model.$7. 2012 was $74.5 0. 2012.315.000) 1.663.487.000 (265.91) (47.101.90 1.440) (45.000.903. Options issued and outstanding Range of exercise prices $ 8.01 to 71.000 30.267 Weighted average exercise price $ 22.58 74. 2010 . The total intrinsic value of options exercised during the year ended December 31.31 At December 31.000 1.066.

leaving a net impact of $527.$2. This is due to the fact that the inclusion of convertible securities in the calculation would result in the EPS being anti-dilutive.484 140.175. 2012. 2011 and 2010 is the net profit/loss as per Consolidated Income Statement.86) 63. 2010 1. 28. 2010 .985 340.882.267 124. 2012 Number of restricted stock units 152.688.881. The dilutive instruments outstanding at December 31.478 803.55 54. Potential dilutive instruments outstanding Employee stock options Employee Restricted Stock IPI Indirect Participation interest .056 common shares at prices ranging from $9. 2011 Number of restricted stock units 124. 2010 .978.06 (59.$1.conversion options 2.175.563.63 were outstanding as at December 31. certain employees and to a limited number of contractor personnel under the Company’s 2009 stock incentive plan.16 (53.329. 2012. 2012 and some of these were included in the computation of the diluted earnings per share for the year ended December 31.451.827 152.964 The income available to the common shareholders and the income available to the dilutive holders.056 Number of shares December 31.$4.079) (18.480 732.933 (2011 .400 107.985) was transferred to share capital on vesting of stock units.483 (20.$2. 2010 $ 44. 2012 $ Basic Employee stock options Employee restricted stock Indirect participation interest Other Diluted 48.The expected volatility used in the Black Scholes pricing model has been based on historical volatility of the Company’s common shares for the period based on the expected life of the options.54 57.066.992) 152.$4.889.$4.655 (2011 .480 3.190 Weighted Average Grant Date Fair Value per restricted stock unit $ 56.214. used in the calculation of the denominator in the EPS calculation is as follows: Year ended December 31. 2011 $ 47. used in the calculation of the numerator in the EPS calculation for the year ended December 31.775 49. The reconciliation between the ‘Basic’ and ‘Basic and Diluted’ shares. convertible notes.329.480 732.425.07) (66.357.998) on contributed surplus.000 2.418.850 (83.75% Convertible notes Others Total stock options/shares outstanding Number of shares December 31.138. Restricted stock vests at various dates in accordance with the applicable restricted stock agreement.670 109 . stock options and restricted stock units totaling 2.99 Restricted stock units outstanding Outstanding at beginning of period Granted Exercised Forfeited Expired Total An amount of $4.983) was adjusted against contributed surplus under equity and $4. December 31. 2010 . (b) Restricted stock Restricted stock may be issued to directors.670 44.712.977.73 (68.80 to $95.881.700) (3.308 117. 2010 were not included in the computation of the diluted loss per share in respective periods because they caused the loss per share to be anti-dilutive. 2012 1.676) 153.278 (2011 .933 (2011 .89) (64.89 December 31.190 97.092.740 49.484 Weighted Average Grant Date Fair Value per restricted stock unit $ 61.563.069 (50.480 732.54 December 31. vesting generally between one to three years after the date of grant.192 97. 2010 . 2011 1.34) 61.822 584. The current year compensation expense of $4.$1.092.025 2. December 31.$4.978.192 340.192 Weighted Average Grant Date Fair Value per restricted stock unit $ 68.13) 56.190 December 31.55) (56.190 340.756.99 67.999.880) (12.487.351 302.025 5.507 88.991) 124.983) has been recognized as compensation expense for the year ended December 31.522 Number of shares December 31.352.025 2. 2012.067 153.256 December 31. 2010 Number of restricted stock units 41. Earnings/(Loss) per share Conversion options.

925 54.810 4-5 years '000 30.29. Less than 1 year '000 44. In addition.779 75. 2012.277 6. During the year ended December 31. requires the Company to spend a further $20.965 3-4 years '000 30.810 30.341.$nil.414 1. (c) Key management compensation Key management includes directors (executive and non-executive) and executive officers. an officer and director of InterOil and acted as a sponsor of the Company’s oil refinery project until late June 2011.$nil. commercial office properties. instead P. Articles of association of SPI InterOil LDC (“SPI”) provide for the business and affairs of the entity to be managed by a general manager appointed by the shareholders of SPI.E”) P. and the majority of 110 .384 87.847. The remaining lease terms are between 1 and 30 years. (b) Breckland Limited This entity is controlled by Roger Grundy. Under the laws of the Commonwealth of The Bahamas. as at December 31. accounting and reporting costs and no costs (Dec 2011 .$112. the general manager exercises all powers which would typically be exercised by a Board of Directors. 30. is governed by a Shareholders’ Agreement signed on July 30.3 million commitment.730 13. Dec 2010 . 2007 between the Joint Ventures’.589 2-3 years '000 31. In November of 2011.702 39.556 1-2 years '000 25.384 306. 2012. refer to note 5.889 December 31. 2011 $ 3. Amounts paid or payable to Breckland for technical services during the year amounted to $nil (Dec 2011 . Subsequent to year end.I.$150. management estimates that satisfying this license commitment would also satisfy our commitments to the IPI investors in relation to drilling the final four wells and satisfy the commitments in relation to the IPI agreement.PNGDV (note 20) 69.$nil.810 30.730 a. a director of InterOil.219 83.110 1.732 9.653.545 1. Guidance under IAS 31 – ‘Interest in Joint Ventures’ is followed and the entity has been proportionately consolidated in InterOil’s consolidated financial statements. 2012 $ Salaries and other short-term employee benefits Post-employment benefits Share-based payments Total 5. $nil (Dec 2011 .I.993 6. motor vessels and office equipment under non-cancellable operating lease agreements. residential apartments.314. 2012.765 102.328.I.3 million as a condition of renewal of our petroleum prospecting licenses up to 2014.149 December 31. SPI LDC has been renamed South Pacific Refining Limited.7 million on the development of the Elk and Antelope fields by the end of 2014.064. Company is committed to spend a further $49. SPI does not have a Board of Directors. Related parties (a) Petroleum Independent and Exploration Corporation (“P. Of this $49.$21. Dec 2010 . being those which are not required by laws or by SPI’s constituting documents to be exercised by the members (shareholders) of SPI. (b) Operating lease commitments – Company as lessee The Company leases various retail service station premises.925 1.176 9. and provides technical and advisory services to the Company on normal commercial terms.000 shares held in SP InterOil LDC by PIE for 5.000 shares in InterOil Corporation.Liquefaction.810 More than 5 years '000 - The amount pertaining to the petroleum prospecting and retention licenses represents the amount InterOil has committed as a condition on renewal of these licenses.E is controlled by Phil Mulacek.E has been appointed as the general manager of SPI. 2010 $ 2.615 1. Dec 2010 .046 93. The consolidated results of InterOil’s proportionate shareholding in the LNG Project has been disclosed separately within the segment notes under Midstream .427 94.000) was expensed for the sponsor’s management fees in relation to legal.923). the terms of grant of PRL15.250 27.952 159. the Company elected to exchange the 5.200 71. Commitments and contingencies (a) Exploration and debt commitments Payments due by period contractual obligations are as follows: Less than Total '000 Petroleum prospecting and retention licenses (a) Secured and unsecured loans Convertible notes obligations Indirect participation interest .421.439.500) were included in accrued liabilities at December 31. The sponsor agreements were terminated with PIE on exchange of the share holding interest in SPI LDC.672 (d) Joint ventures The Company’s interests in PNG LNG Inc. InterOil is the majority shareholder of SPI and therefore has the power to appoint the general manager.985. The compensation paid or payable to key management for services is shown below: December 31.

2012.273. 2010 $ 6. the Company received confirmation from the Customs Service that they agreed with the calculations submitted and the matter is now considered closed by the Customs Service. results of operations or liquidity. 2012.149 6. 2011. that was initially recognized in the year ended December 31. While the outcome of these matters is uncertain and there can be no assurance that such matters will be resolved in the Company’s favor.385 December 31. based on their best estimate in relation to this matter.957. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: December 31. 2012 in the income statement amounted to $12.266.386. 111 . The Company received a letter in November 2011 from the then Commissioner of Customs setting out certain findings from the audit. the Company again met with the Customs Service and received strong indications from Customs that matters would be concluded on the basis that the only amount owing by the Company is that in respect of the ‘time value of money’ due to certain delays in filing and any associated administrative penalties levied thereon.071 15.263 2.558.983.381.005. Audit by PNG Customs During the second half of 2011. Management has maintained a provision.lease agreements are renewable at the end of the lease period at market rate.845 3. 31.017 December 31. the Company does not currently believe that the outcome of adverse decisions in any pending or threatened proceedings or any amount which it may be required to pay by reason thereof would have a material adverse impact on its financial position. The Company submitted certain calculations in relation to this to the Customs Service.605 16.501.043 458.257. 2011 $ 6.276 8.560.123. The Company has since met with the Customs Service and provided it with supporting documentation to demonstrate that the GST amounts claimed in their letter have all been paid. 2011. Subsequent to the year ended December 31.390 Lease payments for the year ended December 31. This amount also includes new leases and renewals of leases negotiated during the year 2012. (c) Contingencies: From time to time the Company is involved in various claims and litigation arising in the course of its business. the letter noted that administrative penalties were able to be levied by Customs in the range of 50% to 200% of the assessed amounts as per the Customs Act.252. the PNG Customs Service commenced an audit of our petroleum product imports into Papua New Guinea for the years 2007 to 2010. As well as requiring payment of GST. 2012 $ Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years Total 16.291 27. The Company has since paid the penalty amount which was in line with the provision initially recognized by the Company for the year ended December 31. During the quarter ended December 31. Subsequent events There are no subsequent events that require disclosure.249 8. This letter included comments alleging that payment of import GST was required and had not been made on imports of certain refined products.

a company organized under the laws of Australia. Farm out agreements often stipulate that a party must drill a well to a certain depth. within a certain time frame. The assignor of the interest usually reserves a specified overriding royalty interest. 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. “Contingent resources” are those quantities of natural gas and condensate estimated. with the option to convert the overriding royalty interest to a specified working interest upon payout of drilling and production expenses. “Gas” means a mixture of lighter hydrocarbons that exist either in the gaseous phase or in solution in crude oil in reservoirs but are gaseous at atmospheric conditions. However. income tax expense. including gathering and condensate pipeline. “Convertible notes” means the 2. “EWC” means Energy World Corporation Limited. “CRU” means catalytic reformer unit. “FLEX LNG” means FLEX LNG Limited. 2012.75% convertible senior notes of InterOil due November 15. “API” means the American Petroleum Institute. “AIF” means this Annual Information Form for the year ended December 31. EBITDA is a non-GAAP measure used to analyze operating performance. “FEED” means front end engineering and design. “AUD” means Australian dollars. “Crude Oil” A mixture consisting mainly of pentanes and heavier hydrocarbons that exists in the liquid phase in reservoirs and remains liquid at atmospheric pressure and temperature. furthermore. “DST” refers to a drill stem test and is a procedure for isolating and testing the surrounding geological formation through the drill pipe. “CDU” means crude distillation unit. in some instances the decision may be qualified by certain conditions. “Feedstock” means raw material used in a refinery or other processing plant.Glossary of Terms “2012 MD&A” means the Management’s Discussion and Analysis for the year ended December 31. “CGR” means condensate to gas ratio. 2012. “BP” means BP Singapore Pte Limited. as of a given date. “EPC Contractor” means an engineering. “Condensate” A component of natural gas which is a liquid at surface conditions. Such a decision is ordinarily the point at which a decision is made to proceed with a project and it becomes unconditional. “Crack spread” The simultaneous purchase or sale of crude against the sale or purchase of refined petroleum products. 112 . to be potentially recoverable from known accumulations using established technology or technology under development. 2015. condensate storage and associated facilities being progressed in joint venture with Mitsui. “Farm out” A contractual agreement with an owner who holds a working interest in an oil and gas lease to assign all or part of that interest to another party in exchange for the other party’s fulfillment of contractually specified conditions. “GAAP” means Canadian generally accepted accounting principles. Crude oil may contain small amounts of sulfur and other non hydrocarbons but does not include liquids obtained from the processing of natural gas. “CSP Joint Venture” or “CSP JV” means the Joint Venture Operating Agreement (“JVOA”) entered into for the proposed condensate stripping facilities with Mitsui or the joint venture formed to develop and operate the proposed condensate stripping facilities as the context requires. “BSP” means Bank of South Pacific Limited. “FID” means final investment decision. “Board” means the board of directors of InterOil.. including being subject to necessary approvals by the State. procurement and construction contractor. “BNP Paribas” means BNP Paribas Capital (Singapore) Limited. but which are not currently considered to be commercially recoverable due to one or more contingencies. “COGE Handbook” refers to the Canadian Oil and Gas Evaluation Handbook. typically. depreciation and amortization expense. the well must be completed as a commercial producer to earn an assignment of the working interest. Natural gas may contain sulfur or other non-hydrocarbon compounds. “EBITDA” EBITDA represents net income/(loss) plus total interest expense (excluding amortization of debt issuance costs). at a specified location. “Barrel. Bbl” (petroleum) Unit volume measurement used for petroleum and its products. “Condensate Stripping Project” means the proposed condensate stripping facilities. a British Virgin Islands Company listed on the Oslo Stock Exchange. See “Non-GAAP Measures and Reconciliation”. These spread differentials which represent refining margins are normally quoted in dollars per barrel by converting the product prices into dollars per barrel and subtracting the crude price.

often in association with petroleum. “Gross wells” refers to the total number of wells in which we have an interest. losses incurred in the transportation of refined products. the Independent Consumer and Competition Commission. 2009. “ICCC” means Papua New Guinea’s competition authority. “Mmscfpd” means million standard cubic feet of gas per day. The costs added to the reported Platts price include freight costs.. including plants that fractionate raw natural gas plant liquids. “Natural gas” means a naturally occurring mixture of hydrocarbon and non-hydrocarbon gases found in porous geological formations beneath the earth’s surface. “IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board. “Mmbtu” means one million British thermal units. “JVOA” means joint venture operating agreement. “LPG” means liquefied petroleum gas. “NEC” means National Executive Council of Papua New Guinea. “LIBOR” means daily reference rate based on the interest rates at which banks borrow unsecured funds from banks in the London wholesale money market. butane and condensate.. One cubic foot of natural gas produces approximately 1. typically ethane. “IPP” means import parity price.Standards of Disclosure for Oil and Gas Activities adopted by the Canadian Securities Administrators. IPP is calculated under agreement with the State by adding the costs that would typically be incurred to import such product to an average posted price for such product in Singapore as reported by Platts.ft. It is a feedstock destined either for the petrochemical industry or for gasoline production by reforming or isomerisation within a refinery. landing charges. Natural gas may be converted to a liquid state by pressure and severe cooling for transportation purposes. including the State. so 1. “Net wells” refers to the aggregate of the numbers obtained by multiplying each gross well by our percentage working interest in that well. LPG can also occur naturally as a condensate. of gas is comparable to 1 mmbtu. “IPF” refers to InterOil power fuel. “IPI Agreement” means the Amended and Restated Indirect Participation Agreement dated February 25.Audit Committees adopted by the Canadian Securities Administrators. “LNG” means liquefied natural gas. “IPWI” means indirect participation working interest. propane. “LSWR” means low sulfur waxy residue. an independent qualified reserves evaluator. “MOPS” means Mean of Platts Singapore. “NI 51-101” refers to National Instrument 51-101 . The principal constituent is methane. consisting of any one or more of propane. 2005. “LNG Project” means the development by us of liquefaction facilities in the Gulf Province of Papua New Guinea described as our Midstream Liquefaction business segment and being undertaken as a joint venture with Pac LNG and with other potential partners. Ltd. “Mitsui” refers to Mitsui & Co. demurrage and taxes.000 btus. Usually produced at refineries or natural gas processing plants. “Mark-to-market” refers to the accounting standards of assigning a value to a position held in a financial instrument based on the current fair market price for the instrument or similar instruments. “LNGL” means Liquid Niugini Gas Limited. “Mtpa” means million tonnes per annum. “GLJ 2012 Report” means the report dated February 27. 2012 setting forth certain information regarding contingent resources of our interests in the Elk and Antelope fields in PNG. InterOil’s marketing name for low sulfur waxy residue or LSWR. which is predominantly artificially liquefied methane. “LNG Project Agreement” means the LNG Project Agreement between the State and LNGL dated December 23. butane and isobutane. 113 . insurance costs. LNG. “NRV” means net realizable value. natural gas liquids. “NI 52-110” refers to National Instrument 52-110 . as amended. “HOA” means Heads of Agreement. a wholly owned subsidiary of PNG LNG formed in Papua New Guinea to contract with the State and pursue the LNG Project. For each refined product produced and sold locally in Papua New Guinea. “NGL” means natural gas liquids. which are heavier fractions that occur naturally as liquids. a company organized under the laws of Japan and/or certain of its wholly-owned subsidiaries (as the context requires). including construction of the proposed liquefaction facilities.“GLJ” means GLJ Petroleum Consultants Limited. and then returned to a gaseous state to be used as fuel. “IPI holders” means investors holding IPWIs in certain exploration wells required to be drilled pursuant to the IPI Agreement.000 cu. is not to be confused with NGLs. 2013 with an effective date of December 31. “Naphtha” That portion of the distillate obtained from the refinement of petroleum which is an intermediate between the lighter gasoline and the heavier benzene.

is an IPI holder and a shareholder in PNGDV. To Convert From mcf cubic meters bbls cubic meters feet meters miles kilometers acres hectares 114 To cubic meters cubic feet cubic meters bbls meters feet kilometers miles hectares acres Multiply By 28. “PRE JVOA” means the Joint Operating Agreement entered into with PRE for PPL 237 based on the provisions defined in the HOA and the Farm-In Agreement with PRE.405 2. sweet crudes are low. a company incorporated in Papua New Guinea by the State. “PNGEI” means PNG Energy Investors LLC. The tenement given by the State to allow the license holder to evaluate the commercial and technical options for the potential development of an oil and/or gas field. and Pac LNG.315 0. “Working interest” means the percentage of undivided interest held by InterOil in an oil and natural gas property. Conversion The following table sets forth certain standard conversions between Standard Imperial Units and the International System of Units (metric units). “VSP” means vertical seismic profile “Westpac” means Westpac Bank PNG Limited.281 1... “State” or “PNG” means the Independent State of Papua New Guinea. “Prospective Resources” are those quantities of petroleum estimated.159 6.5% direct interest in the Elk and Antelope fields. “Shell” means Royal Dutch Shell plc.621 0. Prospective Resources are further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development and may be sub classified based on project maturity. “PNG LNG” means PNG LNG. an entity with which we entered into an IPI Agreement on May 12. “PRE” means Pacific Rubiales Energy Corp. Sour crudes are high in sulfur. available markets or other reasons.G.305 3. “PPL” means Petroleum Prospecting License. Inc. 2004. holds a 2. “SEC” means the United States Securities and Exchange Commission. Shareholders are InterOil LNG Holdings Inc.. “PGK” means the Kina. “USD” means United States Dollars. Prospective resources have both an associated chance of discovery and a chance of development. a wholly-owned subsidiary of InterOil.“OPIC” means Overseas Private Investment Corporation. a company incorporated in the Bahamas and affiliated with Clarion Finanz A. an entity with which we entered into an IPI Agreement. currency of Papua New Guinea. Canada. an agency of the United States Government. “Petromin” means Petromin PNG Holdings Limited..471 . “SWC” means rotary side wall cores “Sweet/sour crude” Sweetness describes the degree of a given crude’s sulfur content. a company incorporated in British Columbia.609 0. “PNGDV” means PNG Drilling Ventures Limited. The tenement given by the State to explore for oil and gas. “YBCA” means the Business Corporations Act (Yukon Territory). The right granted by the State to develop a field for commercial production. a joint venture company established in 2007 to hold the interests of certain joint venturers in the venture to construct the proposed liquefaction facilities. “PDL” means Petroleum Development License. “Shut-in” refers to wells that are capable of producing oil or natural gas which are not producing due to lack of available transportation facilities. as of a given date. This company is our joint venture partner in the LNG Project (holding equal voting shares in PNG LNG). “Pac LNG” means Pacific LNG Operations Ltd. or a subsidiary or affiliate of that company. to be potentially recoverable from undiscovered accumulations by application of future development projects.317 35.289 0. “PRL” means Petroleum Retention License.

2012.Corporate Directory The following table provides information with respect to all of our directors and executive officers: Name. 5. He was appointed to the Audit Committee on August 13. Australia Ford Nicholson British Columbia. 2012 1. USA William Jasper III Texas. Roger Grundy was Chairman of the Reserves Committee throughout 2012 and as of the date of this AIF. 2012. and of the Reserves Committee throughout 2012 and as of the date of this AIF. Lewis Western Aust ralia. USA Collin Visaggio Western Australia. and a member of the Nominating and Governance Committee and Compensation Committee throughout 2012. Roger Lewis was Chairman of the Audit Committee. Gaylen acts as Chairman of each of the Board’s Nominating and Governance Committee and Compensation Committee and has held such positions throughout 2012. 2012 Director (7) President and Chief Operating Officer Chief Financial Officer General Counsel and Corporate Secretary July 2. Location Gaylen Byker Michigan. 2012 September 18. Director Director (3) Director (4) Director (5) Director (6) Date of Appointment May 29. 2012 and remains as a director as of the date of this AIF. Delcamp California. 6. Delcamp. 2006 October 26. 7. 1997 May 29. Mulacek Texas. 2010 July 2. USA Christian Vinson Port Moresby. PNG Roger Grundy Derbyshire. 115 . Australia Geoff Applegate Singapore Position with InterOil Chairman (1) Director and Chief Executive Officer (2) Vice President Corporate Development and Government Affairs. UK Roger F. 2008 June 22. Ford Nicholson was a member of the Audit Committee until August 13. USA Phil E. Samuel L. Phil Mulacek continues as Chief Executive Officer. 1997 November 26. He is a member of the Audit Committee and of the Reserves Committee. 1997 May 29. Canada Sir Rabbie Namaliu Port Moresby. Samuel Delcamp was appointed as a Director on July 2. 1997 May 29. 2. 3. Papua New Guinea Samuel L. 2006 December 1. 2012 and remains as a director as of the date of this AIF. Sir Rabbie was appointed on July 2. 4. 2012 and was then replaced by Mr. Gaylen Byker assumed the role of Chairman of the Board in July.

Texas 75202 Telephone: +1 (214) 651-5000 116 . 4th Floor Port Moresby NCD Papua New Guinea Telephone: +1 (675) 320-1980 www. Cairns Square 42 . Andrews Vice President of Capital Markets The Woodlands.52 Abbott Street Cairns Queensland 4870 Australia Telephone: +61 (7) 4046 4600 Facsimile: +61 (7) 4031 4565 Port Moresby. Texas www.com Meg LaSalle Investor Relations Coordinator The Woodlands.A. Australia Level 3. Alberta T2P 4K7 Telephone: +1 (403) 298-3100 Australia Papua New Guinea Auditors PricewaterhouseCoopers 201 Sussex Street Darling Park Tower 2 NSW 2000 Sydney Australia Telephone: +61 (2) 8266 0000 Facsimile: +61 (2) 8266 9999 Agency of Record Content Media Group Limited The Woodlands.A.com Co-Transfer Agent (USA) Computershare Trust Company N.pg Trading symbol: IOC Bankers Singapore BNP Paribas Singapore Branch 10 Collyer Quay #33-01 Ocean Financial Centre Singapore 049315 Telephone: +65 6219 1288 Facsimile: +65 6210 1355 Papua New Guinea Bank of South Pacific PO Box 78 Port Moresby. Ground Floor Port Moresby. NCD Papua New Guinea Telephone: +675 305 6705 Facsimile: +675 305 6695 Westpac Bank PNG Limited Cnr Waigani Drive & Poinciana Street Level 2 Waigani Corporate Centre PO Box 706 Port Moresby. NCD Level 2 Ravalien Haus Harbour City NCD 0121 Telephone: +675 3217 040 Facsimile: +675 3099 398 InterOil Refinery Site Office Napa Napa Papua New Guinea Telephone: +675 3099 100 Facsimile: +675 3099 188 Houston. New York 10005 www. NCD Papua New Guinea Telephone: +675 322 3464 Facsimile: +675 321 1607 United States of America Wells Fargo Bank TX N. Ontario Canada M5J 2YI Telephone: (800) 564-6253 Facsimile: (888) 453-0330 E-mail: service@computershare. 9th Floor Toronto. Papua New Guinea InterOil PNG Corporate Limited InterOil Products Limited InterOil Shipping Pte Ltd InterOil Limited PO Box 1971 Port Moresby.com Legal Canada Bennett Jones LLP 45 Bankers Hall East 855 2nd Street SW Calgary. Texas USA 25025 I-45 North. 100 University Avenue.computershare.com Website: www.com Trading symbol: IOC Papua New Guinea Port Moresby Stock Exchange Defens Haus.nyse. Colorado 80401 Telephone: (800) 962-4284 International: +1 (514) 982-7555 Investor Relations Wayne W.Operational Office Locations Cairns. Suite 420 The Woodlands.com.pomsox. Texas Email: meg. Texas 79401 Telephone: +1 (806) 767-7418 Transfer Agent and Share Registrars Main Agent Computershare Investor Services Inc. NCD Papua New Guinea Telephone: +675 312 7347 Facsimile: +675 312 7355 Australia and New Zealand Banking Group Limited PO Box 1152 Harbour City.contentmedia. 1500 Broadway Lubbock.cc Gadens Lawyers 77 Castlereagh Street Sydney NSW 2000 Australia Telephone: +1 (61) 2 9931 4999 United States of America Haynes and Boone LLP Attorneys and Counselors 901 Main Street Suite 3100 Dallas. Texas Email: wayne.lasalle@interoil. Texas 77380 Telephone: +1 (281) 292-1800 Facsimile: +1 (281) 292-0888 Singapore InterOil Singapore Pte Ltd 111 Somerset Road TripleOne Somerset #06-05 Singapore 238164 Telephone: +65 6507 0222 Facsimile: +65 6884 9562 Stock Exchanges United States of America NYSE Euronext 11 Wall Street New York.andrews@interoil. 350 Indiana Street Golden.

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