InterOil Announces 2010 Financial and Operating Results

CAIRNS, Australia and HOUSTON, March 22, 2011 /PRNewswire/ -- InterOil Corporation (NYSE: IOC) (POMSoX:IOC) today announced financial and operating results for the fourth quarter and full year ended December 31, 2010.

Fourth Quarter 2010 Highlights and Recent Developments

• On November 10, 2010, InterOil completed public offerings of 2.8 million common shares at US$75 per share and US$70 million aggregate principal amount of 2.75% Convertible Senior Notes due 2015. InterOil has received total combined net proceeds from the offerings of approximately $266 million, after deducting underwriting discounts, commissions and estimated offering expenses. InterOil closed 2010 with cash, cash equivalents and restricted cash totalling $280.9 million.
• During the fourth quarter, the seismic program focused on further delineation of the Bwata and Wolverine structures on Petroleum Prospecting License (PPL) 237.  At the end of the 2010, the seismic program for PPL 236 was well advanced.  The PPL 236 seismic program totals 70 kilometers comprising 6 dip lines which transect the Whale, Tuna, Barracuda, Wahoo, Mako and Shark leads.
• InterOil recorded a consolidated net loss for the year ended December 31, 2010 of $45.5 million.  The operating segments returned a net profit of $41.4 million. This was offset by $12.0 million settlement of litigation, investments in development, including $30.6 million expensed for buyback of indirect participation interests (IPI), $8.7 million expensed seismic activity, $8.4 million expensed liquefied natural gas (LNG) project costs, and $8.3 million expensed for rig maintenance.
• Subsequent to the quarter, InterOil announced a Project Funding and Construction Agreement and a Shareholder Agreement with Energy World Corporation Ltd. setting forth the parameters in respect of the development, construction, financing and operation of a planned three million tonne per annum (mtpa) land-based modular LNG facility in the Gulf Province of Papua New Guinea.

InterOil Chief Executive Officer Phil Mulacek commented, "We continue to advance our effort to monetize our resources.  We believe that our delineation drilling and the resultant annual resource estimate further demonstrates the value of our reservoirs at Elk and Antelope.  Our partners, Mitsui & Co., Ltd. and Energy World Corporation, Ltd. continue to progress our project toward a final investment decisions with respect to our planned condensate stripping and LNG facilities, respectively.  These achievements, combined with our strong balance sheet, support our continued growth and operational success."

Corporate Financial Results

InterOil recorded a net loss for the year ended December 31, 2010 of $45.5 million, compared with a net profit of $6.1 million for the same period in 2009, a reduction of $51.6 million.  The operating segments of Corporate, Midstream Refining and Downstream collectively returned a net profit for the year of $41.4 million.  The development segments of Upstream and Midstream Liquefaction yielded a net loss of $86.9 million for an aggregate net loss of $45.5 million.  The net loss from the development segments was the result of a number of unusual/one time charges.  The main items contributing to the consolidated loss for the year were: 1) loss on extinguishment of IPI liability of $30.6 million, 2) settlement of litigation for $12.0 million, and 3) seismic activity and rig maintenance costs expensed for $17.0 million.

Inclusive of $59.6 million in non-operating expenses, InterOil's earnings before interest, taxes, depreciation and amortization ("EBITDA") for the year ended December 31, 2010 was a loss of $16.5 million, compared with a gain of $19.3 million in 2009, an reduction of $35.8 million.  Total revenue increased by $113.9 million from $693.1 million in 2009 to $807.0 million for the full year ended December 30, 2010.  

Business Segment Results

Upstream - During the fourth quarter, the seismic program focused on further delineation of the Bwata and Wolverine structures, apportioned into 58 kilometers for Bwata (consisting of 3 dip lines and 1 strike line) and 45.4 kilometers for Wolverine (consisting of 3 dip lines and a strike line running north-south).  The data is being processed and interpreted.  

At the end of the 2010, the initial preparatory work on a seismic program for PPL 236 was well advanced with social mapping and construction of the base camp initiated.  Work on the PPL 236 seismic comprises 70 kilometers comprising 6 dip lines which transect the Whale, Tuna, Barracuda, Wahoo, Mako and Shark leads.  The seismic program will fulfill our license commitment for the first 2-year extension period in PPL 236.  

On November 30, 2010, we were granted Petroleum Retention License ("PRL") 15, covering blocks including and surrounding the Elk and Antelope fields, unifying the fields into a single license separate from our exploration acreage and specifying minimum work commitment activities over the next five years. We have initiated work on the application and associated information to be submitted to the State in support of a Petroleum Development License ("PDL"), which is required to be able to produce hydrocarbons.

During the last quarter of 2010, drilling equipment underwent maintenance, and our drilling and associated equipments crew were on standby.  All costs in relation to the maintenance and standby time has been expensed. InterOil Rig #2 is ready to resume drilling.

InterOil's Upstream business realized a net loss of $78.6 million in 2010 compared to a loss of $39.5 million in the comparable period a year ago. The increase in the loss in 2010 was mainly due to a $16.8 million increase in exploration costs, $9.2 million higher intercompany interest charges, and a $5.2 million reduction in the gain on sale of exploration assets in 2010 compared with 2009.

Midstream Refining – Total refinery throughput for the year ended December 31, 2010 was 24,682 barrels per operating day, compared with 21,155 barrels per operating day during 2009. Capacity utilization for 2010, based on 36,500 barrels per day operating capacity, was 53% compared with 47% in 2009.

The Company's Midstream Refining operations generated a net profit of $32.5 million in 2010 versus a profit of $41.8 million in the prior year. The $9.3 million negative variance is largely due to the initial recognition in 2009 of $14.3 million of deferred tax assets which is partly offset by an increase in gross margins.

Midstream Liquefaction – InterOil advanced the process of monetizing its discovered natural gas resources by signing a heads of agreement with Energy World Corporation ("EWC") to construct a three million tonne per annum land based LNG facility in the Gulf Province of Papua New Guinea.  Following this agreement, and subsequent to year end, on February 2, 2011, the parties signed certain conditional agreements defining certain parameters for the aforementioned development, construction, financing and the operation of the planned land-based modular LNG facilities.

Further engineering and planning work was undertaken to design the LNG and condensate stripping facilities, and appropriate supporting infrastructure, including a jetty and loading facilities together with pipelines for both gas and condensate.

The Company's Midstream Liquefaction business generated a loss of $8.4 million in 2010 compared with a loss of $8.4 million a year ago. The segment results benefited from capitalizing direct project related costs since the LNG project agreement with the government of Papua New Guinea was signed in December of 2009, which were offset by higher management expenses and share compensation costs related to the LNG Project development which are not capitalized.

Downstream - Total Downstream sales volumes for 2010 were 626.5 million liters, compared with 588.8 million liters in 2009.  Volume growth continued throughout the year, mainly due to increased construction activity in the latter half of the year associated with Exxon Mobil's LNG project in Papua New Guinea.  

InterOil's Downstream operations generated a net profit of $6.7 million in 2010, a reduction of $1.8 million versus a profit of $8.5 million in the previous year.  Higher lease and administrative costs were partially offset by higher margins on increased sales.

Corporate - The Corporate segment generated a net profit of $3.3 million in 2010, compared to a net loss of $4.3 million in 2009, primarily caused by increased intercompany interest charges and reduced corporate interest expense which was partially offset by a $12 million litigation settlement expense.

Balance Sheet and Liquidity

InterOil closed 2010 with cash, cash equivalents and cash restricted totalling $280.9 million (December 2009 - $75.8 million), of which $47.3 million is restricted (December 2009 - $29.3 million).  We also had aggregate working capital facilities of $239.2 million, with $46.3 million available for use in our Midstream Refining operations, and $48.0 million available for use in our Downstream operations.

On November 10, 2010, the Company closed a public offering of 2.8 million common shares at US$75 per share and US$70 million aggregate principal amount of 2.75% convertible senior notes due 2015.  InterOil has received total combined net proceeds from the offerings of approximately $266 million, after deducting underwriting discounts, commissions and estimated offering expenses.

Our debt-to-capital ratio (debt / (shareholders' equity + debt)) was increased to 13% in December 2010 from 11% in December 2009.  This increase in gearing was mainly due to the 2.75% convertible senior notes issued in November of 2010.

Summary of Debt Facilities  

Summarized below are the debt facilities available to us and the balances outstanding as at December 31, 2010.

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 United States or Canadian generally accepted accounting principles 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 GAAP.  Further, EBITDA is not a measure of cash flow under GAAP and should not be considered as such.  For reconciliation of EBITDA to the net income (loss) under GAAP, 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.

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.  

FOR INVESTOR RELATIONS ENQUIRIES:

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, the potential execution of definitive agreements with Energy World Corporation and/or Mitsui & Co. Ltd in relation to the proposed LNG and condensate stripping projects, respectively, progress to and achievement of Final Investment Decisions in such projects, the construction and development of the proposed LNG plant and condensate stripping plant, anticipated financial conditions and performance, business prospects, strategies, regulatory developments, the ability to obtain financing on acceptable terms, 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, 2010 on Form 40-F and its Annual Information Form for the year ended December 31, 2010. 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.

The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves. We include in this press release resource estimates other than proved reserves, that the SEC's guidelines strictly prohibit us from including in filings with the SEC.

SOURCE InterOil Corporation