Apparently, negotiations do not have to be that long, there seems to be a preliminary understanding and commitment of funds dependent on certain conditions to be met this month by Petromin, the PNG state entity for participating in resource projects.

InterOil Announces Direct Participation in Elk/Antelope Field by PNG Government Entity, Petromin

• TORONTO, ONTARIO–(Marketwire – Oct. 30, 2008) – InterOil Corporation (TSX:IOL)(AMEX:IOC)(POMSoX:IOC), today announced that it has agreed with Petromin PNG Holdings Limited, a government entity mandated to invest in resource projects on behalf of the Independent State of Papua New Guinea, for Petromin to take a direct interest in the Elk/Antelope field. Petromin will contribute an initial deposit and will fund 20.5% of the costs of developing the field. The agreement remains subject to certain formal conditions precedent expected to be satisfied within the next month.
• “We are very excited that Petromin has agreed to take this interest and undertake this investment,” said Mr. Mulacek, Chief Executive Officer of InterOil. “Participation by the state entity confirms the support expressed by the Government of Papua New Guinea for our proposed LNG project and will provide valuable impetus at this time for our exploration and development efforts.”

What could these conditions be, some possibilities:

• Third party resource evaluation
• Formal agreement with the PNG government
• Quarterly result
• Drilling progress
• Participation by a strategic investor
• Resolve of the legal differences with Merrill
• PNG locating funds

The first two, third party resource evaluation or a formal agreement with the PNG government seem by far the most logical. We can’t fathom that it will be conditional on quarterly results, nor, because of the time frame involved (November) on drilling progress as this is just a little too soon to get to the pay zone of Antelope1, the well they are currently drilling.

The other condition which might be the case is that it is dependent on the participation of a strategic investor, or the PNG government locating the funds for the investment, but the wording of the PR doesn’t seem to suggest this.

In any case, this direct participation and sharing of cost is surprising, we have to say. We didn’t see this coming, but it’s a nice surprise.

What’s more, this is the first development commitment in 40 years of the PNG government, they could have waited and just collect royalties instead. And perhaps even more significant, it will help induce other strategic investors waiting in the wings.

And we aks this. Would this have happened if the PNG government was not quite sure that there is enough gas in the ground to support an LNG facility? Hardly.