InterOil Announces 2011 Financial and Operating Results

PORT MORESBY, Papua New Guinea and HOUSTON, March 19, 2012 /PRNewswire/ -- InterOil Corporation (NYSE:IOC) (POMSoX:IOC) today announced financial and operating results for the fourth quarter and full year ended December 31, 2011.

Fourth Quarter 2011 Highlights and Recent Developments

• During the fourth quarter, InterOil completed two Heads of Agreements (HOA) on long-term LNG supply for its proposed LNG project in Papua New Guinea, bringing the total of its three HOAs to 3.3 to 3.8 million tonnes per annum (mtpa). While not binding, these HOAs set out the basis upon which the parties intend to negotiate and document terms for the purchase and sale of LNG.
• Exploration activities continued across our three Petroleum Prospecting Licenses (PPLs) in PNG during the quarter. Seven dip lines were acquired to further delineate the Wahoo and Mako prospects and identify potential drilling locations.  Processing and interpretation of the data is ongoing.  A third phase of seismic data acquisition, which consists of two dip orientated lines totaling 21 kilometers in length over the Tuna prospect and Wahoo/Mako prospects, commenced on December 22, 2011.  Line preparation is currently in progress.
• Net profit for the year ended December 31, 2011 was $17.7 million compared with a net loss of $44.5 million for the same period in 2010, an improvement of $62.2 million.  The operating segments of Corporate, Midstream Refining and Downstream collectively returned a net profit for the year of $82.3 million.  The development segments of Upstream and Midstream Liquefaction yielded a net loss of $64.6 million.
• Subsequent to the quarter end, on January 17th, 2012, InterOil announced that the Triceratops-2 delineation well had been spudded.  The Triceratops-2 well is an appraisal well to test the presence of hydrocarbons and determine whether a potential reefal carbonate reservoir exists in the Triceratops field.

InterOil's Chief Executive Officer Phil Mulacek commented, "We continue to work with our existing LNG development partners and the PNG government to advance our LNG project towards first production.  Simultaneously, our advisors are managing the process of soliciting and evaluating proposals from potential strategic LNG partners.  If a strategic partner is selected, we expect that such a partner would assist with accelerating the LNG project's capacity growth.  Our delineation drilling at Triceratops has the potential to add to our substantial resource estimate at Elk and Antelope, and provide back-up supply for increasing LNG capacity.  Our prospect inventory is maturing and we anticipate that it will support our goal of a multi-year, multi-well exploration program.  We believe that these achievements, combined with our strong balance sheet, support our continued growth and operational success."

Corporate Financial Results

InterOil recorded a net profit for the year ended December 31, 2011 of $17.7 million, compared with a net loss of $44.5 million for the same period in 2010, an improvement of $62.2 million.  The operating segments of Corporate, Midstream Refining and Downstream collectively returned a net profit for the year of $82.3 million.  The development segments of Upstream and Midstream Liquefaction yielded a net loss of $64.6 million for an aggregate net profit of $17.7 million.

EBITDA for the year ended December 31, 2011 was $50.4 million, an increase of $66.9 million over negative EBITDA of $16.5 million for the same period in 2010, the improvement was mainly due to unusual, one time charges in 2010 and an improvement in our net foreign exchange gains as a result of rising Papua New Guinea Kina ("PGK") against USD.

Total revenues for the year ended December 31, 2011 were $1,118.9 million compared with $807.0 million and $693.1 million respectively for the same periods in 2010 and 2009.  This increase in the year ended 2011 compared to the same period in 2010 was due to the higher crude price environment in the 2011 year and an increase in domestic volumes of product sold for higher margin products.  The total volume of all products sold by us was 7.5 million barrels for fiscal year 2011, compared with 7.2 million barrels in 2010.

Business Segment Results

Upstream - Work commenced on the seven dip lines, 56 kilometer, Kwalaha seismic data acquisition program on September 16, 2011 and was completed on December 20, 2011.  The objective of the survey was to further delineate the Wahoo and Mako prospects and identify potential drilling locations.  Processing and interpretation of the data is ongoing.  A third phase of seismic data acquisition, which consists of two dip orientated lines totaling 21 kilometers in length over the Tuna prospect, commenced on December 22, 2011.  Line preparation is currently in progress.

During 2011, we contracted for airborne magnetic, gravity and gamma ray prospecting over PPL 236, PPL 237 and PPL 238. Five acquisition blocks were acquired for a total of 14,288 line kilometers of airborne data.  Data processing over this airborne data is currently undergoing final quality control assessment.

The preparation of the Triceratops-2 well site was completed at the end of 2011 and the Triceratops-2 well was spudded on January 17, 2012.  The Triceratops-2 well is an appraisal well to test the presence of hydrocarbons and determine whether a potential reefal carbonate reservoir exists in the Triceratops field.  

During 2011, the FEED work was completed on the Condensate Stripping Project.  The FEED phase generated deliverables to technically and commercially define the project and prepare it for execution and proposals were solicited from potential Engineering, Procurement and Construction ("EPC") contractors.  We are continuing the planning and preparation efforts for Condensate Stripping Project execution which includes preparing a combined LNG project execution plan, execution schedule and risk assessment work.

InterOil's Upstream business realized a net loss of $49.1 million in 2011 compared to a loss of $78.6 million in the comparable period a year ago. The decrease in the loss in 2011 was mainly due to a $30.6 loss on extinguishment of IPI liability in 2010.

Midstream Refining – Total refinery throughput for the year ended December 31, 2011 was 24,856 barrels per operating day, compared with 24,682 barrels per operating day during 2010. Capacity utilization for 2011, based on 36,500 barrels per day operating capacity, was 54% compared with 53% in 2010.

The Company's Midstream Refining operations generated a net profit of $46.7 million in 2011 versus a profit of $33.5 million in the prior year. The $13.2 million positive variance is largely due to an increase in foreign exchange gain which was partially offset by a decrease in the gross margin.

Midstream Liquefaction – During 2011, site-specific engineering for the land based modular LNG and fixed-floating LNG facilities were undertaken along with other pre-investment in the LNG Project to lower risks to potential strategic partners and to secure our LNG Project timeline and costs.

On November 25, 2011, a Heads of Agreement was signed with Gunvor Singapore Pte. Ltd. for the supply of one mtpa of LNG from the LNG Project in Papua New Guinea. On December 2, 2011, a further Heads of Agreement was signed with ENN Energy Trading Company Ltd. of China, for the supply of one to one and one half mtpa of LNG from the LNG Project. The Heads of Agreements, while not binding, provide exclusivity on the LNG volumes, during negotiation of the definitive agreement, and set out the basis upon which the parties intend to negotiate and document terms for the purchase and sale of LNG commencing in 2015.

The Company's Midstream Liquefaction business generated a loss of $15.5 million in 2011 compared with a loss of $8.4 million a year ago. The negative variance is largely due to an increase in office, administration and other expenses for the year resulting from increased activities undertaken to negotiate long term LNG offtake agreements, pre-FEED work being undertaken for the LNG Project's proposed land based liquefaction and fixed-floating liquefaction facilities, and also further the discussions with the PNG State to achieve requisite approvals to complete the LNG project.

Downstream - Total Downstream sales volumes for 2011 were 678.0 million liters, compared with 626.5 million liters in 2010.  In 2011, InterOil signed supply agreements with several key contractors and sub-contractors associated with the Exxon Mobil LNG project, Papua New Guinea's largest resource project to date.  In addition, the Company re-signed all existing major customers in the agricultural, commercial and aviation sectors to further three year term supply agreements.

InterOil's Downstream operations generated a net profit of $11.6 million in 2011, an improvement of $4.9 million versus a profit of $6.7 million in the previous year.  Gross margins increased in 2011 as compared to the prior year mainly due to an increase in domestic sales volumes, the impact of the revised pricing formula that came into effect in late 2010, and the increasing price environment during the period leading to higher margins on inventories sold.

Corporate – The shipping business, which operates two vessels transporting petroleum products for us and external customers both within PNG and for export in the South Pacific region, was transferred from our Downstream segment to our Corporate segment during the year.

The Corporate segment generated a net profit of $21.9 million in 2011, compared to a net profit of $3.3 million in 2010. The positive variance is the result of reduced interest expenses due to higher interest charges to other business segments on increased loan balances, and a litigation expense which was included in the prior year period.

Balance Sheet and Liquidity

InterOil closed 2011 with cash, cash equivalents and cash restricted totaling $108.1 million (December 2010 - $280.9 million), of which $39.3 million is restricted (December 2010 - $47.3 million).  The Company also has investments in Bank of PNG treasury bills of $11.8 million as at December 31, 2011 (December 2010 - $nil).

We also had aggregate working capital facilities of $290.6 million, with $85.1 million available for use in our Midstream Refining operations, and $54.2 million available for use in our Downstream operations.

The Company is managing its gearing levels by maintaining the debt-to-capital ratio (debt/(shareholders' equity + debt)) at 50% or less.  Our debt-to-capital ratio was 12% in December 2011 from 13% in December 2010.

InterOil 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.

Summary of Debt Facilities

Summarized below are the debt facilities available to us and the balances outstanding as at December 31, 2011.

NON-GAAP EBITDA Reconciliation

EBITDA represents our net income/(loss) plus total interest expense (excluding amortization of debt issuance costs), income tax expense, depreciation and amortization expense.  EBITDA is used by us to analyze operating performance.  EBITDA does not have a standardized meaning prescribed by GAAP (i.e., IFRS) and, therefore, may not be comparable with the calculation of similar measures for other companies.  The items excluded from EBITDA are significant in assessing our operating results.  Therefore, EBITDA should not be considered in isolation or as an alternative to net earnings, operating profit, net cash provided from operating activities and other measures of financial performance prepared in accordance with IFRS.  Further, EBITDA is not a measure of cash flow under IFRS and should not be considered as such.  For reconciliation of EBITDA to the net income (loss) under IFRS, refer to the following table.

The following table reconciles net income (loss), a GAAP measure, to EBITDA, a non-GAAP measure for each of the last eight quarters.  Our IFRS transition date was January 1, 2010 and as such, the 2010 comparative information has been restated in accordance with IFRS.

InterOil Corporation is developing a vertically integrated energy business whose primary focus is Papua New Guinea and the surrounding region.  InterOil's assets consist of petroleum licenses covering about 3.9 million acres, an oil refinery, and retail and commercial distribution facilities, all located in Papua New Guinea.  In addition, InterOil is a shareholder in a joint venture established to construct an LNG plant in Papua New Guinea.

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

Forward Looking Statements

This press release includes "forward-looking statements" as defined in United States federal and Canadian securities laws. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the InterOil expects, believes or anticipates will or may occur in the future are forward-looking statements, including in particular further seismic-related exploration activities, development activities, the potential execution of definitive LNG supply agreements , the ability to attract a strategic LNG partner, the construction and development of the proposed LNG project and condensate stripping project, anticipated financial conditions and performance, business prospects, strategies, regulatory developments, the ability to obtain financing on acceptable terms, the ability to identify drilling locations and the ability to develop reserves and production through development and exploration activities. Statements relating to 'resources' are forward looking, as they involve the applied assessment, based on certain estimates and assumptions, that the resources described exist in the quantities estimated. These statements are based on certain assumptions made by the Company based on its experience and perception of current conditions, expected future developments and other factors it believes are appropriate in the circumstances. No assurances can be given however, that these events will occur. Actual results will differ, and the difference may be material and adverse to the Company and its shareholders. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause our actual results to differ materially from those implied or expressed by the forward-looking statements. Some of these factors include the risk factors discussed in the Company's filings with the Securities and Exchange Commission and on SEDAR, including but not limited to those in the Company's Annual Report for the year ended December 31, 2011 on Form 40-F and its Annual Information Form for the year ended December 31, 2011. In particular, there is no established market for natural gas or gas condensate in Papua New Guinea and no guarantee that gas or gas condensate from the Elk and Antelope fields will ultimately be able to be extracted and sold commercially.

Investors are urged to consider closely the disclosure in the Company's Form 40-F, available from us at www.interoil.com or from the SEC at www.sec.gov and its and its Annual Information Form available on SEDAR at www.sedar.com.

SOURCE InterOil Corporation

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