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InterOil in the black and planning further PNG LNG development

18th March 2015

InterOil Corporation believes it is well placed for development of the Elk-Antelope gas field in Papua New Guinea, potentially the lowest cost new-build LNG project in the world, following ready cash available from 2014 divestments

InterOil Corporation believes it is well placed for development of the Elk-Antelope gas field in Papua New Guinea, potentially the lowest cost new-build LNG project in the world, following ready cash available from 2014 divestments
The company has identified five targets, outside of Elk-Antelope, with a potential of 17 trillion cubic feet of gas equivalent (Tcfe) of gross contingent and prospective resource. Source: InterOil

In releasing financial results for the fourth quarter and full year to December 31, 2014, the company reported net income of USD 289.8m, primarily due to completing its Elk-Antelope transaction with Total and the sale of its refinery and downstream businesses to Puma Energy.

InterOil chief executive Michael Hession said the past year has enabled the company to focus on developing Elk-Antelope and on maintaining its exploration effort in the Eastern Papuan Basin, one of the world’s most exciting emerging hydrocarbon provinces.

“We implemented structural changes in 2014, which allowed us to run our business more efficiently while building a strong foundation for growth,” he said.

“These changes included establishing a new management team, renewing our board, strengthening our balance sheet and streamlining our operations.”

The company has identified five targets, outside of Elk-Antelope, with a potential of 17 trillion cubic feet of gas equivalent (Tcfe) of gross contingent and prospective resource.

 “Independent analysis suggests Elk-Antelope is the most competitive new-build LNG project globally, with the potential for superior returns even at low commodity prices,” Hession said.

“We are well placed with liquidity of USD 715m and an anticipated certification payment, to meet our commitments and pursue the LNG project timetable.

“We have had five consecutive discoveries in the Eastern Papuan Basin where we hold a premier license position.

“We are now planning five wells outside of Elk-Antelope to target about 17 Tcfe of gross contingent and prospective resource; 8 Tcfe of which could be targeted by appraisal wells at Bobcat, Raptor, and Triceratops-3 plus 9 Tcfe by exploration wells at Antelope-South and Wahoo.”

Net profit after tax for the full year was USD 289.8m, compared to a loss of USD 40.4m in 2013.

The increase in net profit was assisted by the completion payment of the sale of an affiliated company (holding equity in PRL15) to Total E&P PNG Limited, as well as the sale of the company’s refinery and downstream businesses to Puma Energy Pacific Holdings Pte Ltd.

The company had USD 415m in cash and receivables plus USD 300m in undrawn credit facilities at December 31, 2014.

As part of InterOil’s strategy to enable development of gas resources, the company completed on March 26, 2014 a sales and purchase agreement under which Total acquired, through the purchase of all shares of a wholly-owned subsidiary, a gross participating interest of 40.1275 per cent in PRL15, which contains the Elk and Antelope gas fields.

InterOil retained 36.5375 per cent of the license and received USD 401.3m as a completion payment.

The company is entitled to additional resource certification payments and milestone payments from Total, as the project evolves.

On June 30, 2014, InterOil completed the sale of its Papua New Guinea oil refinery and distribution businesses to Puma Energy for USD 525.6m, generating a gain of USD 49.5m.

The sale streamlined InterOil’s business and has helped fund the company’s upstream operations.

Antelope-4 in PRL15, about one kilometre south of Antelope-2, and the most southern well on the Elk-Antelope field, started drilling on September 16, 2014.

The well intersected the top of the carbonate reservoir at 1,911 metres true vertical depth sub-sea (TVDSS) in line with expectation and has eliminated the risk of a steeply dipping southern flank.

The well is currently within reservoir at 2,038 metres (TVDSS). Once total depth is reached, wireline logs will be run and, after evaluation, it is planned to install gauges to monitor pressure drawdown during the Antelope-5 extended well test.

Antelope-5, about 1.8 kilometres south-south-west of Antelope-3, started drilling on December 23, 2014 to appraise the western extent of the Elk-Antelope field.

The well intersected the top of the carbonate reservoir at 1,534 metres (TVDSS), about 230 metres higher than InterOil’s reference case.

Initial results from Antelope-5 clearly identify this well as providing the best reservoir thickness, quality and fracture density of all the wells drilled on the Antelope field. In particular, the thickness and quality of the dolomite zone is superior at this location with porosity readings of up to 25 per cent, signifying a high-quality reservoir.

On February 24, 2015 the well reached a total depth of 2,307 metres (TVDSS). Evaluation of the field will include an extended well test at Antelope-5 with gauges monitoring pressure drawdown in other appraisal wells.

As part of the 2015 appraisal drilling campaign, the PRL15 Joint Venture has selected the location of Antelope-6 to provide structural control and define reservoir quality on the eastern flank of the field. The well is located about 1.9km east-north-east of Antelope-2. Site preparation is under way and, following final approvals, drilling is planned for mid-year.

InterOil is being carried by Total on the Antelope-4, Antelope-5 and Antelope-6 appraisal wells for 75 per cent of the first USD 50m gross well cost, in each well.

As of December 31, 2014 GLJ, an independent qualified reserves evaluator, has estimated gross contingent natural gas and condensate resources for the Elk-Antelope field to range from 7.5 Tcfe (P90), 9.9 Tcfe (P50) to 11.8 Tcfe (P10). These estimates are equivalent to that of December 31, 2013.

The appraisal campaign on the Antelope field is not yet complete and volume certification using all data from the three 2015 appraisal wells is expected towards the end of the year.

InterOil’s exploration and appraisal drilling is set to target 17 Tcfe outside of Elk-Antelope.

With success at Raptor in PPL475 and Bobcat in PPL476 in late 2014, the company has had five consecutive discoveries in the Eastern Papuan Basin.

Raptor, which is 12km west of Elk-Antelope, was drilled to a measured depth of 4,032 meters below the rig rotary table. Following the acquisition of additional seismic, an appraisal well is likely to be drilled towards the end of 2015.

Bobcat, about 30km north-west of Elk-Antelope, was drilled to a measured total depth of 3,207 meters below the rig rotary table. Acquisition of seismic over Bobcat will assist in identifying the potential location for an appraisal well.

Triceratops-3 appraisal well is scheduled to start in Q2 2015 and is designed to confirm additional volumes to the north-west of Triceratops-1 and Triceratops-2. The Triceratops field is about 45km west-north-west of Elk-Antelope.

InterOil’s internal assessment of the Bobcat, Raptor and Triceratops discoveries indicate that they may hold about 8 Tcfe in cumulative gross, unrisked, contingent resource.

Resumption of exploration drilling at Wahoo in PPL474 is planned before mid-year.Wahoo is about 135km south-east of Elk-Antelope and 165km north-west of Port Moresby. The exploration well was suspended on July 14, 2014, following safety concerns over high pressures.

Antelope South, previously called Antelope Deep, is an exploration well in PRL15 and is scheduled to be drilled in Q3 2015 to test a large structure that partially underlies, but is separate to the Antelope field. It is about 1.9km south-east of Elk-Antelope.

InterOil is being carried by Total on the Antelope South exploration well for 75% of the first $60 million gross well cost.

InterOil’s internal assessment of these two exploration targets indicate that they potentially may hold a cumulative gross, unrisked, prospective resource of about 9 trillion Tcfe.

Planning for an airborne gravity gradiometry survey over most of InterOil’s acreage began in late 2014 and acquisition began in early 2015. It is expected to be completed in 2H 2015.

The survey will help to identify new leads and optimize seismic acquisition. Early results show a significant improvement in the definition and detail of potential leads.

Between March and August 2014, InterOil acquired a total of 124km of two-dimensional seismic.
Acquisition of a further 439km of seismic began in Q4 2014 and is scheduled to finish in the second half of 2015.

Subsequent to the end of 2014, the International Chamber of Commerce arbitration panel dismissed all claims by the PAC LNG companies, affiliates of Oil Search Limited, to pre-emptive rights over a share sale and purchase agreement involving an interest in the Elk-Antelope field.

Consequently, Total E&P PNG Limited is a party to the PRL 15 joint venture operating agreement and, having complied with the terms of the PRL 15 Joint Venture Operating Agreement, has full rights from February 27, 2014, the date of the original transfer of interest.

In February 2015, all participants in the PRL15 Joint Venture unanimously voted to appoint Total E&P PNG Limited as operator of the PRL15 Joint Venture.

The appointment will take effect in accordance with an operator transition plan, the joint venture operating agreement and is subject to any necessary PNG Government approvals.

Total, with input from the PRL 15 JV, has had a large team working on the Elk-Antelope LNG development concept during 2014 and the initial 24 LNG scenarios have been narrowed down to three primary concepts.

In late 2014, Total presented its proposed project timeline which targets:
• Concept select before the end of Q2 2015;
• Early works projects in 2016;
• Contract awards and construction in 2017.

During Q4 2014, Chris Finlayson, who has nearly 40 years’ global experience in the energy industry and was the former chief executive officer for BG Group, became the chairman of InterOil on the retirement of Dr Gaylen Byker.

The director appointments of Dr Ellis Armstrong, former chief financial officer of BP E&P, and Katherine Hirschfeld, a former senior BP executive, were announced in Q4 2014 and were effective January 1, 2015. The company also recently announced the appointment of Mr Chee Keong Yap, a former chief financial officer of Singapore Power, as a director effective from March 13, 2015. Mr Yap replaces Mr Samuel Delcamp as a director, who formally retired from the Board on March 12, 2015.

These appointments provide the Board with significant additional global oil and gas skills and board experience.



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