InterOil Announces Financial Results for the Third Quarter 2006

InterOil Corporation (TSX: IOL) (AMEX: IOC) (POMSoX:IOC), a Canadian company with operations in Papua New Guinea today announced that its unaudited financial statements and accompanying notes for the quarter ended September 30, 2006, and the related management's discussion and analysis ("MD&A") were filed with the relevant Canadian securities regulatory authorities. Copies of InterOil's filed documents may be obtained through SEDAR at www.sedar.com or on InterOil's website at www.interoil.com. InterOil plans to hold a conference call on Wednesday, November 15, 2006 at 08:15 a.m. Eastern to review its financial and operational results for the quarter ended September 30, 2006.



The conference call phone number is (800) 230-1074 for U.S. callers and (612) 332-0335 for international callers. You may listen to the conference by using the following link http://mail.interoil.com/conference/index4.htm followed by clicking on one of the links as indicated. Alternatively, you may visit our website where a direct link to the conference call has been provided.

Highlights include:

- As of September 30, 2006, we discovered and tested gas and gas liquids in our Elk#1 well located in Petroleum Prospecting License 238 in Papua New Guinea.

- The Elk #1 well has been confirmed as a gas and condensate discovery well.

- Refinery optimization revamp was successfully completed in the third quarter 2006.

- Refinery revamp has resulted in improved reliability and reduction in refinery fuel costs.

- Reduction in sales of negative margin exports has been achieved.

- Increase in middle distillate production has been achieved.

- Our Downstream Wholesale and Retail Distribution business continues to operate in line with our expectations.

- On October 1, 2006, the closing of the purchase of Shell Papua New Guinea was finalized.

- The Shell Asset Portfolio comprises four terminals, three depots and 28 retail sites that were owned/operated under the Shell name.



Summary of Quarterly Results

Our consolidated net loss for the quarter ended September 30, 2006 was $7.6 million ($0.25 loss/share), compared to the loss of $2.9 million ($0.10 loss/share) for the same period in 2005. Our consolidated net loss for the nine month period ended September 30, 2006 was $39.7 million, compared to the loss of $27.1 million for the same period in 2005.

Third Quarter Results

The following table summarizes unaudited financial information for the three months ended September 30, 2006 and the preceding seven quarters.


Quarters ended                                               2006
                             ----------------------------------------------
($ thousands, except per
 share data) (unaudited)                           Sep30    Jun30    Mar31
---------------------------------------------------------------------------
Sales and operating revenues                     111,372  124,671  110,283
---------------------------------------------------------------------------
 Upstream                                            950    1,196      996
---------------------------------------------------------------------------
 Midstream                                        94,566  106,693  103,009
---------------------------------------------------------------------------
 Downstream                                       39,494   37,963   27,776
---------------------------------------------------------------------------
 Corporate                                       (23,638) (21,181) (21,498)
---------------------------------------------------------------------------
 Earnings before interest,
  taxes, depreciation and
  amortization(4)                                  1,140  (10,258)  (9,105)
---------------------------------------------------------------------------
 Upstream                                         (1,676)  (4,013)  (2,581)
---------------------------------------------------------------------------
 Midstream                                         1,254   (8,320)  (5,326)
---------------------------------------------------------------------------
 Downstream                                        1,921    3,527     (358)
---------------------------------------------------------------------------
 Corporate                                          (359)  (1,452)    (840)
---------------------------------------------------------------------------
Net income (loss) per
 segment(5)                                       (7,554) (17,761) (14,363)
---------------------------------------------------------------------------
 Upstream                                         (1,880)  (4,187)  (2,780)
---------------------------------------------------------------------------
 Midstream                                        (4,775) (13,677) (10,266)
---------------------------------------------------------------------------
 Downstream                                        1,245    2,394     (314)
---------------------------------------------------------------------------
 Corporate                                        (2,144)  (2,291)  (1,003)
---------------------------------------------------------------------------
Net income (loss) per share(5)
---------------------------------------------------------------------------
 Per share-Basic                                   (0.25)   (0.60)   (0.49)
---------------------------------------------------------------------------
 Per share-Diluted                                 (0.25)   (0.60)   (0.49)
---------------------------------------------------------------------------

Quarters ended                           2005 (adjusted)(1)           2004
                             ----------------------------------------------
($ thousands, except per
 share data) (unaudited)       Dec31(2) Sep30(2)   Jun30  Mar31(3)   Dec31
---------------------------------------------------------------------------
Sales and operating revenues   125,216  129,465  125,275  103,584   22,151
---------------------------------------------------------------------------
 Upstream                            -        -        -        -        -
---------------------------------------------------------------------------
 Midstream                     108,488  115,203  114,734   97,996        -
---------------------------------------------------------------------------
 Downstream                     38,757   32,454   30,062   23,588   39,811
---------------------------------------------------------------------------
 Corporate                     (22,029) (18,192) (19,521) (18,000) (17,660)
---------------------------------------------------------------------------
 Earnings before interest,
  taxes, depreciation and
  amortization(4)               (5,565)   3,485   (6,856)  (5,688) (40,306)
---------------------------------------------------------------------------
 Upstream                       (3,217)  (2,058)  (2,651)  (1,604) (37,395)
---------------------------------------------------------------------------
 Midstream                      (6,470)   6,000   (6,778)  (3,460)  (2,684)
---------------------------------------------------------------------------
 Downstream                      3,674    2,526    2,619      629    3,441
---------------------------------------------------------------------------
 Corporate                         448   (2,983)     (46)  (1,253)  (3,668)
---------------------------------------------------------------------------
Net income (loss) per
 segment(5)                    (12,162)  (2,912) (12,853) (11,355) (43,856)
---------------------------------------------------------------------------
 Upstream                       (3,307)  (2,273)  (2,655)  (1,609) (37,405)
---------------------------------------------------------------------------
 Midstream                     (11,887)   1,017  (12,155)  (8,443)  (3,840)
---------------------------------------------------------------------------
 Downstream                      2,515    1,465    1,857      255    2,349
---------------------------------------------------------------------------
 Corporate                         517   (3,121)     100   (1,558)  (4,960)
---------------------------------------------------------------------------
Net income (loss) per share(5)
---------------------------------------------------------------------------
 Per share-Basic                 (0.42)   (0.10)   (0.45)   (0.40)   (1.73)
---------------------------------------------------------------------------
 Per share-Diluted               (0.42)   (0.10)   (0.45)   (0.40)   (1.73)
---------------------------------------------------------------------------

(1) Comparative quarterly results for all quarters during 2005 have been adjusted and re-presented to include the adopted accounting treatment for exploration expenses associated with our $125 million Indirect Participation Interest Agreement entered into in February 2005 as reviewed by our auditors in the third quarter of 2005. The adjusted results present the quarterly financial information as if the indirect participation interest accounting policy we adopted during the third quarter of 2005 had been adopted at the inception of the agreement. See Note 23 to our unaudited financial statements for the three and nine month periods ended September 30, 2006 and 2005.

(2) The sales and operating revenues for the downstream segment have been adjusted from those previously disclosed. The effect of the adjustment was to increase sales and operating revenues in the September 2005 quarter by $4,984 and decrease sales in the December 2005 quarter by $4,984. There was no impact on the net income reported in either quarter.

(3) Practical completion of our refinery occurred in the first quarter of 2005. For quarterly comparative purposes the commencement of refining operations should be taken into account when analyzing the respective financial statements. Refining operations on a progressive start-up basis commenced in the first quarter of 2005.

(4) Earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA, represents our net income (loss) less (plus) total interest expense (excluding amortization of debt issuance costs), income tax expense, depreciation and amortization expense. For a reconciliation of net income (loss), a Canadian generally accepted accounting principles measure, to EBITDA, a non-GAAP measure (see GAAP reconciliation in full text version MD&A).

(5) We did not have any discontinued operations or extraordinary items during the periods covered by this table.

"The third quarter 2006, was dynamic in all our business segments," said Mr. Phil. Mulacek, CEO and Chairman of InterOil. "We completed our refinery revamp on time and within our financial budget. The refinery revamp is expected to result in improved efficiencies and profitability going forward. We announced a gas and condensate discovery at the Elk #1 well that is expected to allow us to explore the possibility of developing an onshore Liquefied Natural Gas (LNG) facility adjacent to our refinery in Papua New Guinea. Lastly, we satisfied all the conditions precedent and successfully closed the acquisition of the Shell Papua New Guinea asset portfolio - doubling the size of our downstream business."

Results of Operations

Upstream-Exploration and Production

Third Quarter 2006 vs. 2005 - For the quarter ended September 30, 2006, our exploration and production business segment reported a loss of $1.9 million compared to a loss of $2.3 million for the same quarter of 2005. The decrease in the loss of $0.4 between the quarter ended September 30, 2006 as compared to the same quarter in 2005 was primarily the result of a decrease in the accretion expense recognized for the indirect participation interest.

"Although the final size and extent of our recent discovery at the Elk #1 are still to be determined, early results are very encouraging, and will allow us to explore our LNG possibilities. The Elk and Antelope structures will require additional well to be drilled to define the total resource and reserve potential," said Mr Mulacek.

Midstream - Refining and Marketing

Third Quarter 2006 vs. 2005 - For the quarter ended September 30, 2006, our midstream business segment recognized a loss of $4.8 million compared to a profit of $1.0 million for the same quarter of 2005. The primary reason for the loss is due to the refinery being shutdown for 25 days during the quarter ended September, 2006 when compared to nil days for the same quarter of 2005. When compared to the second quarter ending June 30, 2006, earnings before interest, taxes, depreciation and amortization increased by $11.4 million from a loss before interest, taxes, depreciation and amortization of $10.3. The increase in earnings before interest, taxes, depreciation and amortization primarily resulted from the optimization work undertaken in June and July.

"This quarter we implemented the refinery revamp that was necessary to improve the reliability at the refinery and improve the operational efficiencies both in terms of products manufactured as well as the use of product to power the refinery," said Mr Mulacek. "These revamp activities are already starting to flow through in the form of better product utilization at a lower cost."

Downstream-Wholesale and Retail Distribution

Third Quarter 2006 vs. 2005 - Our downstream business segment's net profit after tax during the quarter ended September 30, 2006 was $1.24 million, a decrease of $0.2 million when compared to the same period in 2005. The decrease in after tax net income for the third quarter of 2006 compared to the same period in 2005 is primarily attributable to increase in repairs and maintenance costs in relation to terminal and depot facilities as well as an increase in general corporate overheads.

"We are excited about the acquisition of Shell Papua New Guinea as it has provided us with an opportunity to grow our downstream business and to integrate these assets into our existing downstream marketing and distribution business," said Mr Phil Mulacek, CEO and Chairman of InterOil. "We believe that there are significant opportunities that will result in improved marketing efficiencies. The re-branding of the acquired Shell assets under our existing InterOil Products Limited name has commenced."

InterOil is developing a vertically integrated energy company whose primary focus is Papua New Guinea and the surrounding region. Its assets comprise an oil refinery, upstream petroleum exploration licenses, retail and commercial distribution assets and targeting expansion into Liquefied Natural Gas (LNG). The majority of the refined products from InterOil's refinery are secured by off-take contracts with Shell and InterOil's wholly-owned subsidiary, InterOil Products Limited. BP Singapore is InterOil's agent for crude oil supplied to the refinery. InterOil is also undertaking an extensive petroleum exploration program within its eight million acre license area located in Papua New Guinea. InterOil is widely recognized as being the largest value added processing facility in PNG.

The full text of InterOil's third quarter release, including Management's Discussion and Analysis (MD&A) can be accessed on InterOil's website at www.interoil.com and will be available through SEDAR at www.sedar.com.

Cautionary Statements

This press release contains forward-looking statements as defined in U.S. federal and Canadian securities laws. All statements, other than statements of historical facts, included in this release are forward-looking statements. Forward-looking statements include, without limitation, statements regarding our drilling plans, plans for expanding our business segments, business strategy, plans and objectives for future operations, future capital and other expenditures, and those statements preceded by, followed by or that otherwise include the words "may," "plans'" "believe," "expects," "anticipates," "intends," "estimates" or similar expressions or variations on such expressions. Each forward-looking statement reflects our current view of future events and is subject to risks, uncertainties and other factors that could cause our actual results to differ materially from any results expressed or implied by our forward-looking statements. These risks and uncertainties include, but are not limited to, the ability of our refinery to operate at full capacity and to operate profitability; uncertainty involving the geology of oil and gas deposits and reserve estimates; delays and changes in plans with respect to exploration or development projects or capital expenditures; political, legal and economic risks related to Papua New Guinea; the impact of competition; the volatility of prices for crude oil and the volatility of the difference between our purchase price of crude oil feedstocks and the sales price of our refined products; the uncertainty of our ability to attract capital; and the risks described under the heading "Risk Factors" in our 2005 Annual Information Form dated March 31, 2006 and our Management's Discussion and Analysis for the Third Quarter of 2006.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate, and, therefore, we cannot assure you that the forward-looking statements included in this MD&A will prove to be accurate. In light of the significant uncertainties inherent in our forward-looking statements, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Except as may be required by applicable law, we undertake no obligation to publicly update or advise of any change in any forward-looking statement, whether as a result of new information, future events or otherwise. Our forward-looking statements are expressly qualified in their entirety by this cautionary statement.

We currently have no reserves as defined in Canadian National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. All information contained herein regarding resources are references to undiscovered resources under Canadian National Instrument 51-101, whether stated or not.


Contacts:
InterOil Corporation
Anesti Dermedgoglou, V.P., Investor Relations
Cairns, Qld Australia
+61 7 4046 4600
Email: anesti@interoil.com
Website: www.interoil.com

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