InterOil Corporation 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.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 linewith 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 wereowned/operated under the Shell name.
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.