InterOil Corp. April 5, 2013

(IOC:NYSE) Company Brief

Pavel Molchanov, (713) 278-5270, Pavel.Molchanov@RaymondJames.com

Alex Morris, Sr. Res. Assoc., (713) 278-5235, Alex.Morris@RaymondJames.com

Exploration and Production ____________________________________________

In-Flight Reading for the LNG Partnership "Holding Pattern"

♦ Over the past month, we have regularly heard the question from investors: Why hasn’t

InterOil disclosed updates on the status of its LNG partnership? Recall, final bids were

received on February 28 – from “several” prospective partners, as the company put it.

Investor questions intensified after the end of March, presumably based on the notion that

the company had one month to strike a deal. So, let’s be crystal-clear on this point:

Management did not, will not, and should not specify any precise timetable for making a

deal announcement. Neither have we. There have been instances in the past when

management attempted to give guidance on timing with regard to discussions over which

they lack unilateral control. When those timetables were not met, investors held the

company responsible for missing targets. With that in mind, it is emphatically the correct

policy for the company not to self-impose arbitrary deadlines.

♦ Here is a related question we have heard: With the bids in place, why can’t the decision be

made almost instantly? For one thing, this is the most impactful decision in InterOil’s

history, and it is far more important to get it done right than to get it done quickly. This is

also a board-level decision, which naturally entails extended deliberation and debate. But

that aside, at this point, we think the decision on the winning bid has probably been made

already. However, that does not mean that the agreement can be finalized instantly. Keep

in mind, when InterOil and the partner sign on the proverbial dotted line, they will be

making a commitment with many specific, technical provisions – it’s not just a generic

partnership. This includes things like LNG plant size, technology to be used, contractors to

be chosen, LNG pricing policy, who will handle offtake agreements, etc. As such, there are

some post-bid discussions that must be wrapped up before a comprehensive agreement

can be signed and then announced. Finally, the Papua New Guinea government is involved

in the process, and as all of us know, dealing with bureaucrats and politicians – in any

country – tends to prolong any discussion.

♦ To review: the company has previously disclosed receiving at least four preliminary bids:

two from major oil companies, one from a national oil company, and one from a utility

(known to be Kogas). What we do not know at this point is which of these four companies

have made final bids and whether any other players entered the mix late in the game.

What management has said is that all of the final bids came from companies that qualify

under the government’s criteria (i.e., “internationally recognized LNG operators&rdquo. The

identity of the partner is much less important than the financial terms of the partnership

and associated resource selldown. For context, shares are currently trading at

approximately $0.60/Mcf on a 1P basis, which compares to a five-year South Pacific

transaction average that we estimate at around $1.20/Mcf.

♦ In the meantime, here is something that is entirely within InterOil’s control: drilling the

next well. CEO Phil Mulacek was quoted in the local media today, saying that the Elk-3

delineation well is on the cusp of spudding. Elk-3, expected to take 90-120 days, will be the

first well in the Elk/Antelope field to drill through the whole reservoir from top of gas to

the bottom reservoir at the water contact and test the lower porosity section. To be sure,

the market is far more focused (and rightly so) on the LNG partnership process than the

concurrent exploration program, but exploration catalysts should not be overlooked.

'Getitrt2' pid='20212' datel Wrote:Let's see if this is better: InterOil Corp. April 5, 2013 (IOC:NYSE) Company Brief Pavel Molchanov, (713) 278-5270, Pavel.Molchanov@RaymondJames.com Alex Morris, Sr. Res. Assoc., (713) 278-5235, Alex.Morris@RaymondJames.com Exploration and Production ____________________________________________ In-Flight Reading for the LNG Partnership "Holding Pattern" ♦Over the past month, we have regularly heard the question from investors: Why hasn’t InterOil disclosed updates on the status of its LNG partnership? Recall, final bids were received on February 28 – from “several” prospective partners, as the company put it. Investor questions intensified after the end of March, presumably based on the notion that the company had one month to strike a deal. So, let’s be crystal-clear on this point: Management did not, will not, and should not specify any precise timetable for making a deal announcement. Neither have we. There have been instances in the past when management attempted to give guidance on timing with regard to discussions over which they lack unilateral control. When those timetables were not met, investors held the company responsible for missing targets. With that in mind, it is emphatically the correct policy for the company not to self-impose arbitrary deadlines. ♦Here is a related question we have heard: With the bids in place, why can’t the decision be made almost instantly? For one thing, this is the most impactful decision in InterOil’s history, and it is far more important to get it done right than to get it done quickly. This is also a board-level decision, which naturally entails extended deliberation and debate. But that aside, at this point, we think the decision on the winning bid has probably been made already. However, that does not mean that the agreement can be finalized instantly. Keep in mind, when InterOil and the partner sign on the proverbial dotted line, they will be making a commitment with many specific, technical provisions – it’s not just a generic partnership. This includes things like LNG plant size, technology to be used, contractors to be chosen, LNG pricing policy, who will handle offtake agreements, etc. As such, there are some post-bid discussions that must be wrapped up before a comprehensive agreement can be signed and then announced. Finally, the Papua New Guinea government is involved in the process, and as all of us know, dealing with bureaucrats and politicians – in any country – tends to prolong any discussion. ♦To review: the company has previously disclosed receiving at least four preliminary bids: two from major oil companies, one from a national oil company, and one from a utility (known to be Kogas). What we do not know at this point is which of these four companies have made final bids and whether any other players entered the mix late in the game. What management has said is that all of the final bids came from companies that qualify under the government’s criteria (i.e., “internationally recognized LNG operators&rdquo. The identity of the partner is much less important than the financial terms of the partnership and associated resource selldown. For context, shares are currently trading at approximately $0.60/Mcf on a 1P basis, which compares to a five-year South Pacific transaction average that we estimate at around $1.20/Mcf. ♦In the meantime, here is something that is entirely within InterOil’s control: drilling the next well. CEO Phil Mulacek was quoted in the local media today, saying that the Elk-3 delineation well is on the cusp of spudding. Elk-3, expected to take 90-120 days, will be the first well in the Elk/Antelope field to drill through the whole reservoir from top of gas to the bottom reservoir at the water contact and test the lower porosity section. To be sure, the market is far more focused (and rightly so) on the LNG partnership process than the concurrent exploration program, but exploration catalysts should not be overlooked.

Isn't this exactly where we all wanted to be for the last couple of years?  Final bids and post bid discussions between IOC and multiple pre-approved bidders?

The process cannot be described as delayed in Pavel's mind or mine either.

**********

InterOil Corp. April 5, 2013

(IOC:NYSE) Company Brief

Pavel Molchanov, (713) 278-5270, Pavel.Molchanov@RaymondJames.com

Alex Morris, Sr. Res. Assoc., (713) 278-5235, Alex.Morris@RaymondJames.com

Exploration and Production ____________________________________________

In-Flight Reading for the LNG Partnership "Holding Pattern"

♦ Over the past month, we have regularly heard the question from investors: Why hasn’t

InterOil disclosed updates on the status of its LNG partnership? Recall, final bids were

received on February 28 – from “several” prospective partners, as the company put it.

Investor questions intensified after the end of March, presumably based on the notion that

the company had one month to strike a deal. So, let’s be crystal-clear on this point:

Management did not, will not, and should not specify any precise timetable for making a

deal announcement. Neither have we. There have been instances in the past when

management attempted to give guidance on timing with regard to discussions over which

they lack unilateral control. When those timetables were not met, investors held the

company responsible for missing targets. With that in mind, it is emphatically the correct

policy for the company not to self-impose arbitrary deadlines.

♦ Here is a related question we have heard: With the bids in place, why can’t the decision be

made almost instantly? For one thing, this is the most impactful decision in InterOil’s

history, and it is far more important to get it done right than to get it done quickly. This is

also a board-level decision, which naturally entails extended deliberation and debate. But

that aside, at this point, we think the decision on the winning bid has probably been made

already. However, that does not mean that the agreement can be finalized instantly. Keep

in mind, when InterOil and the partner sign on the proverbial dotted line, they will be

making a commitment with many specific, technical provisions – it’s not just a generic

partnership. This includes things like LNG plant size, technology to be used, contractors to

be chosen, LNG pricing policy, who will handle offtake agreements, etc. As such, there are

some post-bid discussions that must be wrapped up before a comprehensive agreement

can be signed and then announced. Finally, the Papua New Guinea government is involved

in the process, and as all of us know, dealing with bureaucrats and politicians – in any

country – tends to prolong any discussion.

♦ To review: the company has previously disclosed receiving at least four preliminary bids:

two from major oil companies, one from a national oil company, and one from a utility

(known to be Kogas). What we do not know at this point is which of these four companies

have made final bids and whether any other players entered the mix late in the game.

What management has said is that all of the final bids came from companies that qualify

under the government’s criteria (i.e., “internationally recognized LNG operators&rdquo. The

identity of the partner is much less important than the financial terms of the partnership

and associated resource selldown. For context, shares are currently trading at

approximately $0.60/Mcf on a 1P basis, which compares to a five-year South Pacific

transaction average that we estimate at around $1.20/Mcf.

♦ In the meantime, here is something that is entirely within InterOil’s control: drilling the

next well. CEO Phil Mulacek was quoted in the local media today, saying that the Elk-3

delineation well is on the cusp of spudding. Elk-3, expected to take 90-120 days, will be the

first well in the Elk/Antelope field to drill through the whole reservoir from top of gas to

the bottom reservoir at the water contact and test the lower porosity section. To be sure,

the market is far more focused (and rightly so) on the LNG partnership process than the

concurrent exploration program, but exploration catalysts should not be overlooked.