40-F

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 40-F

(Check One)

o Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934

or

þ Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2005

Commission File Number: 001-32179

InterOil Corporation

(Exact Name of Registrant as Specified in Its Charter)

New Brunswick, Canada
( Province or Other Jurisdiction of Incorporation or Organization )

2911	Not Applicable
( Primary Standard Industrial Classification Code )	( I.R.S. Employer Identification Number )

Suite 2, Level 2
Orchid Plaza, 79-88 Abbott Street
Cairns, QLD 4870, Australia
+61 (7) 4046-4600
(Address and Telephone Number of Registrant’s Principal Executive Offices)

CT Corporation Systems
111 8th Avenue
New York, New York 10011
(212) 894-8940
(Name, Address (Including Zip Code), and Telephone Number
(Including Area Code) of Agent for Service in the United States)

Copy to:

InterOil Corporation
25025 I-45 North, Suite 420
The Woodlands, TX 77380
Attention: General Counsel
(281) 292-1800
Facsimile: (281) 292-0888

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Shares	American Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

For annual reports, indicate by check mark the information filed with this form:

þ Annual Information Form þ Audited Annual Financial Statements

As of December 31, 2005, 29,163,320 of the issuer’s common shares were outstanding.

Indicate by check mark whether the registrant by filing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). If “Yes” is marked, indicate the filing number assigned to the registrant in connection with such rule. o Yes 82-___  þ No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. þ Yes     o No

PRINCIPAL DOCUMENTS

The following documents have been filed as part of this Annual Report on Form 40-F (“Report”):

A. Annual Information Form

The 2005 Annual Information Form for InterOil Corporation (the “Company”) is incorporated herein by reference.

B. Audited Annual Financial Statements

The audited consolidated financial statements of the Company for the years ended December 31, 2005, 2004 and 2003, including the report of the Company’s independent auditors with respect thereto, are incorporated herein by reference. For a reconciliation of important differences between Canadian and United States generally accepted accounting principles, see Note 24 of the Notes to the audited financial statements incorporated herein by reference.

C. Management’s Discussion and Analysis

The Company’s Management’s Discussion and Analysis for the year ended December 31, 2005 (“MD&A”) is incorporated herein by reference.

DISCLOSURE CONTROLS AND PROCEDURES

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. The Company’s management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Report.

There were no changes to the Company’s internal control over financial reporting during the period covered by this Report that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

AUDIT COMMITTEE

The Audit Committee of the Company’s Board of Directors is comprised of Dr. Byker, Dr. Folie and Mr. Speal. The Board of Directors has affirmatively determined that each of the members is financially literate and is an independent director for purposes of American Stock Exchange rules applicable to members of the audit committee. Additionally, the Board of Directors has determined that Mr. Speal has the accounting or financial management expertise to be considered a “financial expert” as defined by the Securities Exchange Act of 1934.

2

CODE OF ETHICS AND BUSINESS CONDUCT

The Company’s Board of Directors has adopted a Code of Ethics and Business Conduct which applies to all directors, officers and employees of the Company. The Board has not granted any waivers to the Code of Ethics and Business Conduct. The Code of Ethics and Business Conduct is accessible on the Company’s website http://www.interoil.com. Any amendments to or waivers of the Code of Ethics and Business Conduct that applies to the Company’s Chief Executive Officer, Chief Financial Officer, principle accounting officer or controller will also be posted on the Company’s website.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees Paid to Independent Auditors. Fees paid for professional services rendered related to the audit of the Company’s annual consolidated financial statements for the year ended December 31, 2005 by PricewaterhouseCoopers were $333,344. For the year ended December 31, 2004, fees paid and payable for professional services rendered by KPMG for the annual audit and quarterly reviews were $324,337, including out-of-pocket expenses.

Audit-Related Fees. Fees paid for professional services rendered related to audit-related services for the Company for the year ended December 31, 2005 by PricewaterhouseCoopers were $10,180. The audit-related services provided by PricewaterhouseCoopers during 2005 consisted of reviewing the Company’s preparations for complying with the Sarbanes-Oxley Act of 2002. For the year ended December 31, 2004, fees paid and payable for professional services rendered by KPMG for audit-related fees were $197,182, including out-of-pocket expenses. The audit-related services provided by KPMG during 2004 consisted of work performed in connection with prospectuses and stock exchange related requirements.

Tax Fees. Fees paid for professional services rendered related to tax services for the Company for the year ended December 31, 2005 by PricewaterhouseCoopers were $9,900. For the year ended December 31, 2004, fees paid and payable for professional services rendered by KPMG for tax services were $28,234, including out-of-pocket expenses.

All Other Fees. Fees paid for professional services rendered related to all other services for the Company for the year ended December 31, 2005 by PricewaterhouseCoopers were $22,884. The other services provided by PricewaterhouseCoopers during 2005 consisted of procedures performed in connection with the quarterly financial reporting of the Company’s subsidiaries. For the year ended December 31, 2004, fees paid and payable for professional services rendered by KPMG for all other fees were $129,772, including out-of-pocket expenses. The other services provided by KPMG during 2004 consisted of fees associated with registration and procedures performed in connection with the quarterly financial reporting of the Company’s subsidiaries.

Pre-Approval. The Audit Committee of the Company’s Board of Directors pre-approves all auditing services, including the compensation and terms of the audit engagement, and all other non-audit services to be performed by the Company’s independent auditors. Non-audit services subject to the de-minimus exceptions described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934 may be approved by the Audit Committee prior to the completion of the audit. All of the services provided by the Company’s independent auditors during 2004 and 2005 were pre-approved by the audit committee.

OFF BALANCE SHEET ARRANGEMENTS

Please see the section titled “Off Balance Sheet Arrangements” in the Company’s MD&A, which is incorporated herein by reference.

3

CONTRACTUAL OBLIGATIONS

Please see the section titled “Contractual Obligations and Commitments” in the Company’s MD&A, which is incorporated herein by reference.

AMEX CORPORATE GOVERNANCE

The Company’s common shares are listed on The American Stock Exchange (“AMEX”). Section 110 of the AMEX company guide permits AMEX to consider the laws, customs and practices of foreign issuers in relaxing certain AMEX listing criteria, and to grant exemptions from AMEX listing criteria based on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the non-complying practice is not prohibited by home country law. A description of the significant ways in which the Company’s governance practices differ from those followed by domestic companies pursuant to AMEX standards is as follows:

Shareholder Meeting Quorum Requirement. The AMEX minimum quorum requirement for a shareholder meeting is one-third of the outstanding common shares. In addition, a company listed on AMEX is required to state its quorum requirement in its bylaws. The Company’s quorum requirement is set forth in its By-Laws. A quorum for a meeting of members of the Company is two persons present in person, each being a shareholder entitled to vote thereat, or a duly appointed proxy for an absent shareholder so entitled.

Proxy Delivery Requirement. The AMEX requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies shall be solicited pursuant to a proxy statement that conforms to SEC proxy rules. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Securities Exchange Act of 1934, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Securities Exchange Act of 1934, as amended. The Company solicits proxies in accordance with applicable rules and regulations in Canada.

The foregoing are consistent with the laws, customs and practices in Canada.

UNDERTAKINGS

The Company undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

CONSENT TO SERVICE PROCESS

The Company has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this Report arises.

4

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Company certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	INTEROIL CORPORATION
	/s/ Phil E. Mulacek
	Phil E. Mulacek
	Chairman of the Board,
	Chief Executive Officer and
	President
Date: March 31, 2006

TABLE OF CONTENTS

Annual Information Form

Audited annual consolidated financial statements

Management's Discussion and Analysis

Consent of PricewaterhouseCoopers

Consent of KPMG

InterOil Corporation Code of Ethics

Purchase and Sale Agreement

Secured Revolving Crude Import Facility

Amended and Restated Indirect Participation Interest Agreement

Amended Indirect Participation Interest Agreement

Drilling Participation Agreement

Loan Agreement

Certification of CEO pursuant to Rule 13a-14a/15d-14a

Certification of CFO pursuant to Rule 13a-14a/15d-14a

Certification of CEO pursuant to Section 1350

Certification of CFO pursuant to Section 1350

EXHIBIT INDEX

The following exhibits have been filed as part of the Annual Report:

EXHIBIT
NUMBER	DESCRIPTION
1.	Annual Information Form for the year ended December 31, 2005
2.	Audited annual consolidated financial statements for the year ended December 31, 2005, including a reconciliation to United States generally accepted accounting procedures
3.	Management’s Discussion and Analysis for the year ended December 31, 2005
4.	Consent of PricewaterhouseCoopers dated March 31, 2006
5.	Consent of KPMG dated March 31, 2006
6.	InterOil Corporation Code of Ethics and Business Conduct
7.	Purchase and Sale Agreement between InterOil Products Limited and Shell Overseas Holdings Limited dated January 4, 2006
8.	Secured Revolving Crude Import Facility between EP InterOil, Ltd. and BNP Paribas, Singapore Branch dated August 12, 2005
9.	Amended and Restated Indirect Participation Interest Agreement between InterOil Corporation and the Investors signatory thereto dated February 25, 2005
10.	Amended Indirect Participation Interest Agreement between InterOil Corporation and PNG Energy Investors, LLC dated May 12, 2004
11.	Drilling Participation Agreement between InterOil Corporation and PNG Drilling Ventures Limited dated July 21, 2003
12.	Loan Agreement between EP InterOil, Ltd. and Overseas Private Investment Corporation dated June 12, 2001, as amended
13.	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
14.	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
15.	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code
16.	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code

EX-99.1

InterOil Corporation

Annual Information Form

For the Year Ended December 31, 2005

March 31, 2006

Corporate Structure	2
General Development of Our Business	3
Description of Our Business	5
Overview	5
Exploration and Production	5
Refining and Marketing	9
Wholesale and Retail Distribution	14
Environmental Regulations	16
Social and Environmental Policy	16
Risk Factors	18
Dividends	26
Description of Our Capital Structure	26
Market for Our Securities	27
Directors and Officers	28
Board Committees	31
Interests of Management and Others in Material Transaction	31
Legal Proceedings	32
Material Contracts	32
Transfer Agent and Registrar	35
Forward-looking Statements	35
Additional Information	37

     In this Annual Information Form, references to “we”, “us”, “our” and “InterOil” refer to InterOil Corporation and its subsidiaries, unless the context requires otherwise. All dollar amounts are stated in United States dollars unless otherwise stated.

Our registered office in Canada is located at:	Our corporate office in Australia is located at:
Brunswick House	Suite 2, Level 2
10th Floor, 44 Chipman Hill	Orchid Plaza, 79-88 Abbott Street
Saint John, NB E2L 4S6	Cairns, QLD 4870

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Page 1 of 37

Annual Information Form
March 31, 2006

Corporate Structure

InterOil Corporation was formed under the Business Corporations Act (New Brunswick). We are developing a fully-integrated oil and gas company in Papua New Guinea (PNG). We have three business segments: Exploration and Production, Refining and Marketing, and Wholesale and Retail Distribution. We operate these business segments through various subsidiaries. All of our subsidiaries have integrated, shared management. Our material subsidiaries are described below. Unless otherwise noted, all of our subsidiaries are directly or indirectly 100% owned by InterOil Corporation.

Exploration and Production

S.P.I. Exploration and Production Corp. was incorporated in the Commonwealth of the Bahamas in 1998. S.P.I. Exploration and Production Corp. is a holding company that owns our operating subsidiaries which hold exploration licenses and conduct exploration activities in Papua New Guinea. InterOil Corporation owns 9,999 (99.99%) of the outstanding ordinary shares of S.P.I. Exploration and Production Corp. and P.I.E. Group LLC, a Delaware limited liability company incorporated in 1996 that is controlled by Phil Mulacek, our Chief Executive Officer, owns 1 (0.01%) ordinary share of S.P.I. Exploration and Production Corp. Entities controlled by Gaylen Byker, one of our directors, also have an ownership interest in P.I.E. Group LLC.

Refining and Marketing

S.P. InterOil, LDC was incorporated in the Commonwealth of the Bahamas in 1996. S.P. InterOil, LDC is a holding company that owns our operating subsidiaries which own our refinery located in Port Moresby, Papua New Guinea. The General Manager of S.P. InterOil, LDC is Petroleum Independent and Exploration Corporation, a Texas corporation incorporated in 1981. Phil Mulacek, our Chief Executive Officer, is the President of, and has an ownership interest in, Petroleum Independent and Exploration Corporation. InterOil Corporation owns 20,152,870 (99.98%) and Petroleum Independent and Exploration Corporation owns 5,000 (0.02%) of the outstanding ordinary shares of S.P. InterOil, LDC. We have entered into an agreement with Petroleum Independent and Exploration Corporation to exchange, on a one-for-one basis, the 5,000 shares of S.P. InterOil, LDC that it holds for an equal number of shares of InterOil Corporation. Petroleum Independent and Exploration Corporation’s ownership of these shares provided the U.S. content necessary for us to obtain $85 million in project financing from the Overseas Private Investment Corporation, an agency of the US Government. The proceeds of this financing were used to construct our refinery in Papua New Guinea.

EP InterOil, Ltd. was incorporated in the Cayman Islands in 1996. EP InterOil, Ltd. was used to finance the development of our refinery and is currently used for additional financing purposes. EP InterOil, Ltd. owns InterOil Limited, the operating subsidiary that owns our refinery. S.P. InterOil, LDC owns 100% of the voting ordinary shares and, as of March 31, 2006, owned 75.7 million (98.7%) of the non-voting ordinary shares of EP InterOil, Ltd. Enron Papua New Guinea Limited, a wholly-owned subsidiary of Enron, owns 897,542 (1.2%) of the non-voting ordinary shares of EP InterOil, Ltd. Enron Papua New Guinea Limited has decided that the refinery is not consistent with its corporate objectives and it has abandoned any further financing of the refinery. Enron Papua New Guinea Limited’s interest is anticipated to be diluted on an ongoing basis as we contribute more equity to EP InterOil, Ltd.

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InterOil Limited was incorporated in Papua New Guinea in 1994. InterOil Limited owns and operates our refinery in Port Moresby, Papua New Guinea.

Wholesale and Retail Distribution

S.P.I. Distribution Limited was incorporated in the Commonwealth of the Bahamas in 2001. S.P.I. Distribution Limited is a holding company that owns our operating subsidiaries which own our wholesale and retail distribution operations, including InterOil Products Limited. InterOil Corporation owns 9,999 (99.99%) of the outstanding ordinary shares of S.P.I. Distribution and P.I.E. Group LLC, a Delaware limited liability company controlled by our Chief Executive Officer, owns 1 (0.01%) ordinary share of S.P.I. Distribution Limited.

InterOil Products Limited was incorporated in Papua New Guinea in 1969. We acquired InterOil Products Limited, which owns and operates our petroleum products distribution, wholesale and retail business in Papua New Guinea, in 2004.

General Development of Our Business

In January 2005, we announced the practical completion of our refinery in Papua New Guinea. Our refinery is rated to process up to 32,500 barrels of oil per day. The project agreement that we executed with the government of Papua New Guinea in May 1997 will provide us with tax benefits until December 31, 2010 and with other market privileges for a period of 30 years from the date of practical completion. We have executed an agreement with BP Singapore Pte Limited to act as the crude supplier for our refinery. Our agreement with BP Singapore does not expire until June 2009.

On April 28, 2004, we acquired BP Papua New Guinea Limited, a distributor of refined petroleum products in Papua New Guinea, for $13.2 million. The assets held by BP Papua New Guinea Limited included existing inventories, three larger depots and seven terminals, and contracts to supply refined petroleum products to more than 30 independently-operated retail stations. Following the acquisition, we changed the name of this entity to InterOil Products Limited. InterOil Products Limited owns and operates our wholesale and retail distribution business in Papua New Guinea.

In January of 2006, we entered into an agreement with Shell Overseas Holdings Limited to purchase all of Shell’s retail and distribution assets in Papua New Guinea. The closing of this transaction is subject to the approval of several governmental authorities in Papua New Guinea. The purchase price of these assets is $10 million plus the value inventory. If Papua New Guinea governmental approval is obtained, we anticipate closing the transaction during the second quarter of 2006. The Shell portfolio is a distribution network of 16 retail service stations, eight terminals and depots, 14 aviation refueling facilities, and one marine refueling facility.

We currently have three exploration licenses in Papua New Guinea covering approximately eight million acres that are the focus of our exploration activities. We have funded our exploration efforts through indirect participation interest agreements. Pursuant to these agreements, investors are not required to spend any additional amounts to drill the exploration wells drilled in connection with the agreements. Investors currently have the right to approximately a 36% working interest in any exploration wells drilled and any resulting fields by paying their share of all testing and development costs, including the costs of all development wells drilled. During 2005, we drilled two unsuccessful exploration wells under these agreements.

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Our common shares commenced trading on the Toronto Stock Exchange in July 2004 and on the American Stock Exchange in September 2004. We have engaged in the following financing transactions since January 1, 2003:

• In August 2005, we entered into a $150 million secured revolving crude import facility with BNP Paribas, Singapore Branch. As of December 31, 2005, the credit limit under this facility, which is subject to change at the discretion of BNP Paribas, was $150 million. The facility provides for the issuance of up to $120 million in letters of credit with a maximum term of 30 days and short terms loans relating to previously issued letters of credit with a maximum term of 60 days. The short term loans bear interest at LIBOR plus 2.5%. In addition, the facility provides for up to $40 million in borrowings that are secured by our receivables or cash deposits. All borrowings under this facility are secured by our crude and refined product inventories, receivables and specified cash deposits. As of December 31, 2005, $44.0 million remained available for future borrowings under this facility.

• In February 2005, we entered into an agreement with institutional accredited investors in which the investors paid us $125 million and we agreed to drill eight exploration wells in Papua New Guinea. Between June 15, 2006 and the later of 90 days after the drilling of the eighth exploration well and December 15, 2006, each investor may elect to convert its interest under the agreement into our common shares. An investor’s interest, or any portion thereof, may be converted into a number of common shares equal to the amount paid by the investor for its interest divided by $37.50. If all of the investors converted their entire indirect participation interest into common shares, we would be obligated to issue 3,333,334 common shares.

• In January 2005, we entered into a $20 million 5% term loan facility. In July 2005, we increased the availability under this loan facility to $25 million. Borrowings under this facility are due 15 months after disbursement. The initial $20 million in borrowings will become due in April and May of 2006. As of December 31, 2005, $3.5 million remained available for future borrowings under this facility.

• In the third quarter of 2004, we issued $45.0 million in 8.875% senior convertible debentures due 2009 that were subsequently converted into 2.4 million of our common shares. We also issued warrants to acquire 359,415 common shares at a price of $21.91. The warrants have a five year term. As of December 31, 2005, warrants to purchase 340,247 common shares remained outstanding.

• During 2004, we raised $12.2 million from PNG Drilling Ventures Limited for our second indirect interest participation agreement program. As of December 31, 2005, PNG Drilling Ventures Limited had converted $2.5 million of their investment into 141,545 of our common shares. If our exploration program does not discover at least five million barrels of oil and gas, the $9.7 million balance of the investment is convertible into 237,356 of our common shares plus $5.5 million payable, at our discretion, in cash or our common shares based on the average price of our shares in the month preceding such payment.

• During 2003, we raised approximately $61 million in net proceeds through the issuance of an aggregate of 3.8 million common shares in three private placements.

• During 2003, we raised $7.6 million from PNG Energy Investors pursuant to an indirect participation interest agreement. In May 2004, PNG Energy Investors converted its investment into 683,140 of our common shares.

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Description of Our Business

Overview

Our goal continues to be the development of a vertically-integrated energy company whose focus is on operations in Papua New Guinea and the surrounding region. Our strategy is to continue conducting oil and gas exploration operations in Papua New Guinea, operating our refinery and marketing the refined products it produces, and operating our wholesale and retail distribution business for refined petroleum products in Papua New Guinea. Our operations are organized into three major business segments:

• Exploration and Production. Our upstream business segment explores for oil and natural gas in Papua New Guinea.

• Refining and Marketing. Our midstream business segment operates our refinery in Papua New Guinea and markets the refined products it produces both domestically in Papua New Guinea and for export.

• Wholesales and Retail Distribution. Our downstream business segment is engaged in the wholesale and retail distribution of refined products in Papua New Guinea.

As of March 27, 2006, we had 295 full-time and 32 part-time employees. In addition, we directly paid 78 employees in our refining and marketing business segment that are provided by Petrofac Nuigini Limited pursuant to the agreement described under “Description of Our Business—Refining and Marketing—Facilities and Major Subcontractors.”

Exploration and Production

The statement of reserves data and other oil and gas information provided below was prepared as of the date of this Annual Information Form and is provided as of December 31, 2005, unless a later date is specified. The following information was prepared in accordance with Canadian National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. Form 51-101F3 Report of Management and Directors on Oil and Gas Disclosure, is attached to this Annual Information Form as Schedule A. We have no reserves as defined in Canadian National Instrument 51-101 and, accordingly, do not have any oil or gas production or related future net revenue. All information contained herein regarding resources are references to “undiscovered resources” as defined in Canadian National Instrument 51-101.

We currently have four exploration licenses and two retention licenses in Papua New Guinea covering approximately eight million acres. Petroleum Prospecting Licenses 236, 237 and 238 are located in the Eastern Papuan Basin northwest of Port Moresby. We own a 100% working interest in, and our current exploration efforts are focused on, these three licenses. In addition, we own a 15% working interest in Petroleum Prospecting License 244, located offshore in the Gulf of Papua. As of December 31, 2005, we also owned a 20% working interest in Petroleum Retention Licenses 4 and 5.

2005 Exploration Activities

We are currently engaged in an eight well exploration program covering Petroleum Prospecting Licenses 236, 237 and 238 that was commenced in April 2005. During 2005, we drilled two wells under this program and anticipate drilling an additional six wells by the end of 2007. In April 2005, we commenced drilling of the Black Bass–1 well on Petroleum Prospecting License 236. This well was plugged and abandoned in July 2005. In September 2005, we drilled the Triceratops–1

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exploration well on Petroleum Prospecting License 237. We plugged and abandoned the Triceratops–1 well in December 2005.

In 2005, our seismic acquisition program surveyed a total of 100 miles using 2D seismic at a cost of $9.6 million. Our 2005 seismic program consisted of eight lines and recorded 17 miles in Petroleum Prospecting License 237 and 83 miles in Petroleum Prospecting License 238. The 2005 seismic program complemented the 36 miles of seismic that we recorded during the previous two years. As of December 31, 2005, we had approximately 1,000 miles of 2D seismic data covering Petroleum Prospecting Licenses 236, 237 and 238, including the 136 miles we have recorded since acquiring these licenses.

In addition to our seismic acquisition program, during 2005 we conducted airborne gravity and magnetic surveys over Petroleum Prospecting Licenses 237 and 238 covering more than 3,800 line miles. Airborne gravity and magnetic methods have enabled us to better identify the quality of leads derived from surface geology and to optimize the location of our 2D seismic programs. In the first quarter of 2006, we anticipate completing our second airborne survey that will cover an additional 6,300 linear miles over Petroleum Prospecting Licenses 237 and 238.

In October 2005, we acquired a drilling rig that we plan to use for all of our future wells. The rig cost $7.6 million and is capable of drilling to depths of up to 13,500 feet. We also completed the construction of our exploration and production warehouse and office complex located at our refinery site in Port Moresby at a cost of $1.3 million.

Oil and Gas Wells

We did not have an interest in any oil wells or producing gas wells as of December 31, 2005. The following table sets out the number and status of non-producing gas wells in which we have a working interest as of December 31, 2005.

Working Interest in Non-Producing Gas Wells

Location	Gross		Net
Papua New Guinea		4		1.6

Properties with No Attributed Reserves

The following table sets out our undeveloped land holdings as of December 31, 2005.

Undeveloped Acres

Location	Gross		Net
Papua New Guinea		8,981,232		8,187,787
Total		8,981,232		8,187,787

Our abandonment and reclamation costs for all of our current licenses are estimated to be $80,000. These costs consist of the costs to rehabilitate two drilling locations that still need additional surface rehabilitation and are based on the costs we have incurred rehabilitating similar properties.

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Costs Incurred

The following table summarizes the capital expenditure related to our exploration activities for the year ended December 31, 2005.

Capital Expenditures

Expenditure	Amount (In Millions)
Property Acquisition Costs		—
Proved Properties		—
Undeveloped Properties		—
Exploration Costs	$	44.4
Development Costs		—
Total	$	44.4

Tax Horizon

Since we have not generated any income from our exploration activities, we have not paid any income taxes with respect to such activities. We do not know when or if we will incur income taxes related to our oil and gas exploration and development activities.

Exploration and Development Activities

The following table sets out the results of our exploration activities during 2005. We did not have any development wells in 2005.

Undeveloped Wells

Type	Gross		Net
Oil		—		—
Gas		—		—
Service		—		—
Dry		2		2
Total		2		2

Petroleum License Details

Traditionally, exploration for oil and gas in Papua New Guinea has focused on the western part of the country. The majority of our exploration acreage in located in the Eastern Papuan Basin in Papua New Guinea. Each of our six licenses in Papua New Guinea is described below.

Each petroleum prospecting license in Papua New Guinea requires a bond backed by a bank guarantee of K100,000 (US$31,500), an annual license fee and annual work and expenditure commitments as set by the Minister for Petroleum and Energy under the license conditions. Petroleum prospecting licenses are granted for an initial term of six years. The aggregate annual license fee for Petroleum Prospecting Licenses 236, 237 and 238 for 2006 was K190,500 (US$60,000). We are required to submit to the government of Papua New Guinea for approval a work program that includes our drilling plans and minimum expenditures every two years. Under our existing work commitments, we are required to drill an additional well on Petroleum Prospecting License 237 before the end of March 2007. Our minimum biannual expenditure requirements for all of our petroleum prospecting license areas have been met through March

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2007. Petroleum prospecting licenses may be renewed for an additional six years. However, 50% of the license area must be surrendered in order to obtain the renewal.

Petroleum retention licenses may be granted to licensees of petroleum prospecting licenses in which gas fields or parts of gas fields have been discovered to permit time for the licensee to develop commercialization alternatives for the gas discoveries. Petroleum Retention Licenses 4 and 5 were carved out of Petroleum Prospecting License 157 as a result of the Stanley, Elevala and Ketu gas discoveries by the licensees from whom we purchased these retention licenses. The initial period of a petroleum retention license is for five years and an extension of five years may be granted. In connection with an application for, or a renewal of, a petroleum retention license, we are required to submit a one year work program and a work program for the remaining four years that is contingent on the results of the first year’s operations.

Petroleum Prospecting License 236

We have a 100% working interest in Petroleum Prospecting License 236, subject to elections made by holders of indirect participation interests described below, and are the operator of the license. This license was granted to us on March 28, 2003. We drilled an exploration well in this area in 2005 that satisfied the well obligation for this license through March 2007. This license covers an area that includes our refinery and it does have limited road access. We believe that the proximity of this license area to Port Moresby would reduce the costs of developing any future oil or gas discoveries.

Petroleum Prospecting License 237

We have a 100% working interest in Petroleum Prospecting License 237, subject to elections made by holders of indirect participation interests described below, and are the operator of the license. This license was granted to us on March 28, 2003. This license contains the gas discovery well Bwata – 1. We drilled an exploration well in this area in 2005. We are required to drill an additional well on this license before March 28, 2007. The relatively flat nature of the terrain covered by this license means that low altitude airborne geophysical exploration methods may be utilized.

Petroleum Prospecting License 238

We have a 100% working interest in Petroleum Prospecting License 238, subject to elections made by holders of indirect participation interests described below, and are the operator of the license. This license was granted to us on March 7, 2003. We drilled our first three exploration wells in this area. Our Elk-1 well, which we commenced drilling in February 2006, will satisfy the well obligation for this license through March 2007.

Petroleum Prospecting License 244

We have a 15% working interest in Petroleum Prospecting License 244. Talisman Oil Ltd. is the operator of this license. This license was granted to us on February 25, 2005. This license is located offshore Papua New Guinea in the Gulf of Papua.

Petroleum Retention License 4

We had a 20% working interest in Petroleum Retention License 4 at December 31, 2005. This license was granted to us on September 1, 2000. An application for a five year extension of the term of this license was submitted on August 26, 2005, but we have not yet received an approval of this extension request. This license is located in western Papua New Guinea. This license

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contains the Stanley gas discovery well. During 2005, Santos Nuigini Exploration Ltd., the prior operator of this license, withdrew from this license and was replaced by Trans-Orient Petroleum (PNG) Limited. We did not execute any preemptive rights in connection with the transfer by Santos. Also during 2005, Greenslopes Limited and Carnavon Petroleum Limited announced their intent to sell their interests in Petroleum Retention Licenses 4 and 5. We have exercised our preemptive rights in connection with these transfers. If our application for extension is approved, upon completion of the transfers of interests as a result of our exercise of preemptive rights, we estimate that our working interest in Petroleum Retention License 4 will be between 43% and 48%, depending on the elections of other working interest holders.

Petroleum Retention License 5

We had a 20% working interest in Petroleum Retention License 5 at December 31, 2005. Santos Nuigini Exploration Pty Limited is the operator of this well. This license was granted to us on February 15, 2000. This license was renewed for an additional five year term on February 15, 2005. This license is located in western Papua New Guinea. This license contains the Elevala and Ketu gas discovery wells. As a result of our exercise of preemptive rights discussed above, we estimate that our working interest in Petroleum Retention License 5 will be increased to approximately 29%.

Indirect Participation Agreement

In February 2005, we entered into an agreement with institutional accredited investors in which the investors paid us $125 million and we agreed to drill eight exploration wells in Papua New Guinea on Petroleum Prospecting Licenses 236, 237 or 238. When we choose to test or complete any of these wells, the investors have the right to a 25% working interest by paying their share of a budgeted testing amount. If the tested or completed well is a commercial success, the investors, by continuing to pay their 25% share of all future development costs, such as seismic, development drilling, production facilities and pipelines, retain their right to earn a 25% working interest in the resulting field and production. In addition, between June 15, 2006 and the later of 90 days after the drilling of the eighth exploration well and December 15, 2006, each investor may elect to convert its interest under the agreement into our common shares. An investor’s interest, or any portion thereof, may be converted into a number of common shares equal to the amount paid by the investor for its interest divided by $37.50. If all of the investors converted their entire indirect participation interest into common shares, we would be obligated to issue 3,333,334 common shares.

Refining and Marketing

Our refinery is currently our primary asset. On January 31, 2005, our refinery achieved practical completion. Practical completion means construction of the refinery has been completed and that the refinery has satisfactorily completed the reliability and performance tests which were conducted as part of the acceptance and handover process from the construction contractor. The refinery is centrally located across the harbor from Port Moresby, the capital city of Papua New Guinea, and is 15 miles (24 kilometers) by road and 2.5 miles (4 kilometers) by water from Port Moresby. Our refinery is rated to process up to 32,500 barrels of oil per day using Kutubu crude as the feedstock. Depending on the type of oil used as a feedstock, the actual number of barrels of oil that can be processed may be above or below this amount. Currently, due to market conditions, we are not operating our refinery at its maximum rate.

We operate in accordance with the World Bank’s recommended environmental standards. Our refining and marketing business segment places a considerable amount of focus on its health, safety and environment initiatives.

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The design configuration of our refinery takes advantage of regionally available light sweet crudes, which are low in sulfur content. Designing the refinery for sweet crude feedstocks reduced the construction costs we were required to incur in order to meet the World Bank’s environmental standards. Using a light sweet crude our crude distillation unit produces the following refined products:

• propane;

• butane;

• light, medium and heavy naphtha;

• jet fuel (kerosene);

• diesel; and

• low sulfur waxy residue.

Our reforming unit, which converts heavy naphtha into reformate, is capable of processing up to 3,500 barrels of naphtha per day. The reformate is then blended with butane and light naphtha to produce gasoline. Jet fuel and diesel, commonly referred to as middle distillates, and gasoline are currently the highest margin products that our refinery produces.

The mix of refined products produced by a refinery is referred to as its production slate. Our basic objective is to maximize the amount of higher margin middle distillates and gasoline produced per barrel of crude feedstock used at the expense of the relatively lower margin products, consisting of naphtha and low sulfur waxy residue. The crude feedstocks that we are currently using do not produce a significant quantity of propane or butane. Our target yield is subject to the prevailing demand for various refined products, available crude feedstocks, projected product margins and logistics at the time of production.

Papua New Guinea is the primary market for our refinery. Currently, jet fuel, diesel and gasoline are the primary products that we produce for the Papua New Guinea market. During 2005, our yield of jet fuel, diesel, and gasoline accounted for approximately 57% of the refinery’s output. The nature of the crude oil being processed, light sweet crude, results in the production of naphtha and low sulfur waxy residue. To the extent that we do not convert this naphtha to gasoline, we export it to the rapidly growing Asian markets in two grades, light naphtha and mixed naphtha, which are predominately used as petrochemical feedstocks. Low sulfur waxy residue can be sold as fuel and is valued by more-complex refineries as cracker feedstock.

Optimization Efforts

Since the margin on low sulfur waxy residue is negative, we have taken steps to utilize a greater portion of this product internally. We currently use higher margin diesel fuel produced by our refinery to generate electricity and run other refinery equipment. We have ongoing refinery optimization initiatives that will allow us to use low sulfur waxy residue for internal power generation needs rather than diesel. These initiatives include the installation of new generators capable of running on, and the conversion of the refinery’s primary heaters and boilers to be fueled by, less profitable refinery products, primarily low sulfur waxy residue. We plan to install the new generators and convert the boilers and heaters during the second and third quarters of 2006. The installation of the new generators and conversion of the boilers and heaters will require us to shut down the refinery for approximately three weeks.

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As discussed below under, “Crude Supply and Throughput,” we evaluated multiple crude feedstocks to determine which feedstocks will allow us to achieve our target mix of refined products. These crude selection efforts were an integral part of our refinery optimization efforts. While we will continue to evaluate alternative crudes, we believe we have identified several crude feedstocks that will allow us to achieve our target production slate and will emphasize the acquisition and use of these crude feedstocks during 2006. In addition to our crude selection and currently ongoing optimization works, Shell Global Solutions is assisting us in designing additional changes to our refinery that we believe will allow us to further optimize our refinery’s performance and increase its throughput capacity.

Facilities and Major Subcontractors

We have a jetty with two berths for loading and off-loading ships and a road tanker loading system. Our larger berth has deep water access of 56 feet (17 meters) and has been designed to accommodate 12,000 to 110,000 dead weight tonnage crude and product tankers. Our smaller berth can accommodate ships with a capacity of up to 20,500 dead weight tons. Our tank farm has the ability to store approximately 750,000 barrels of crude feedstocks and approximately 1.1 million barrels of refined products. Our onsite infrastructure makes our facility generally self-sufficient. We have a reverse osmosis desalination unit that produces all of the water used by our refinery, power generation facilities that meet all of our electricity needs, and other site infrastructure and support facilities, including a laboratory, a waste water treatment plant, staff accommodations and a fire station.

Petrofac Facilities Management Limited, a facilities management company, was responsible for the day-to-day operation and maintenance of our refinery during the first half of 2005. In June 2005, we reached an agreement to revise our current facilities management contract to transition management of the refinery to us. While the revised contract has not yet been executed, in connection with the transition plan, we took over the management of refinery operations effective as of November 1, 2005. We are currently in the process of negotiating a new contract with Petrofac whereby Petrofac will continue to provide employees used in the operation of the refinery.

Our refinery’s on-site laboratory is staffed and operated by an independent company, SGS Australia Pty Ltd. The SGS laboratory is presently undergoing Australian NATA (National Association of Testing Authorities) accreditation, and all crude imports and finished products are tested and certified on-site to contractual specifications. SGS also provides independent certification of quantities loaded and discharged at the refinery.

Crude Supply and Throughput

In December 2001, we entered into an agreement with BP Singapore Pte Limited whereby BP will act as the exclusive supplier of crude feedstocks to our refinery through June 2009. BP is the largest marketer of crude in the region. This contract affords us some security of supply and provides access to the majority of the regional crudes that our refinery can process. Our agreement with BP provides BP with financial incentives to secure the most economically attractive crude feedstocks for our refinery. Our contract with BP limits our ability to purchase directly from producers or from other traders and marketers in the region. BP has potential conflicts of interest since it acts as a marketer for producers, procurer for BP refineries in the region and as procurer on our behalf.

During 2005, eight different crude feedstocks, including the Papua New Guinea Kutubu crude, were processed as part of our crude optimization program initiated to improve our refining margins. During 2005, our refinery processed 11 crude cargoes. Our refinery has processed both local Papua New Guinea and imported crude and will continue to review alternative light sweet crudes

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that may provide improved margins for our refinery’s product slate. The average daily crude throughput at our refinery for 2005 was 20,655 barrels per day. The crudes processed during the second half of 2005 yielded a higher percentage of middle distillates, consisting of jet fuel and diesel, and a lower percentage of low sulfur waxy residue per barrel of crude processed. This means that we were able to process a lesser volume of crude and still yield the same amount of jet fuel and diesel that was produced using crudes with a lower middle distillate yield. Total average middle distillate yield increased to about 60 percent on crude processed during the fourth quarter 2005 in comparison to approximately 50 percent for all of 2005. During 2006, we plan, to the extent available, to use crude feedstocks that have these higher middle distillate yields.

Due to our limited crude storage capacity, we are exposed to disruptions in supply and may incur demurrage costs while vessels wait to offload crude to our refinery or may be required to shutdown our refinery as a result of events or incidents beyond our control preventing us from receiving needed crude shipments. Since we are not operating at full capacity at this time, we are usually able to offset these disruptions by temporarily increasing or decreasing the throughput of our refinery. During 2005, these disruptions required us to shut down our refinery for an aggregate of 26 days.

Marketing

Papua New Guinea is our principal market for all the products our refinery produces except naphtha and low sulfur waxy residue. Under our 30 year agreement with the Government of Papua New Guinea, the government has undertaken to ensure that all domestic distributors purchase their refined petroleum product needs from our refinery, or any refinery which is later constructed in Papua New Guinea, at an import parity price. In general, the import parity price is the price that would be paid in Papua New Guinea for a refined product that is being imported. For each refined product produced and sold locally in Papua New Guinea, the import parity price is calculated by adding the costs that would typically be incurred to import such product to the average posted price for such product in Singapore as reported by Platts. The costs that are added to the reported Platts’ price include freight costs, insurance costs, landing charges, losses incurred in the transportation of refined products, demurrage and taxes. The import parity price was implemented in September 2004 by the Papua New Guinea Independent Consumer and Competition Commission for purchases of refined products from our refinery.

The major export product from our refinery is naphtha, which is sold to Shell International Eastern Trading Company on a term basis pursuant to a contract that expires in September 2007. During 2005, there were seven export cargoes of naphtha averaging approximately 30,000 metric tons each. The production of naphtha at the refinery is variable and depends on the composition of the crude feedstock used, the relative economics for gasoline and naphtha and our capacity to convert naphtha to gasoline. Shell International exported three cargoes of middle distillates and gasoline in the fourth quarter of 2004 and one in February 2005 to the nearby north Australian markets. We have not exported middle distillates and gasoline since February 2005 because this business is not currently economic to our refinery. We expect to reenter the export market for middle distillates and gasoline following the completion of our optimization efforts.

Due to changes in Australian regulations, our gasoline and diesel no longer meet the specifications required for export to Australia. Our products do meet the specification in the nearby Pacific Island markets that we are currently targeting. Our refinery is fully certified to manufacture and market Jet A-1 fuel to international specifications and has already supplied product to both domestic Papua New Guinea and overseas airlines. We have also loaded six liquefied petroleum gas vessels with butane and propane for domestic and export markets. In 2005, we exported six cargoes of low sulfur waxy residue.

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Competition

Due to their favorable properties, light sweet crudes from the Southeast Asian and Northwestern Australian region are highly sought after by refiners. Therefore, there is significant competition to secure cargoes of these crudes. We rely on our relationship with our crude supplier, BP Singapore Pte Limited, to secure all of our crude feedstock needs at acceptable prices and in sufficient quantities. Due to the limited supply of light sweet crudes and the greater financial and other resources of most of our competitors, we are not always able to secure the specific crudes we desire for our refinery and are required to obtain alternate crudes that are available. To date, our relationship with BP has generally allowed us to obtain the available crudes at competitive pricing.

We own the only refinery in Papua New Guinea. As a result, we are the only current beneficiary of the import parity price structure and the ensuing requirement for domestic refined product needs to be procured from domestic refineries as described under “Marketing.” We do not envision there being any new entrants into the refining business within Papua New Guinea under the current market conditions. Excess jet fuel, diesel, gasoline, naphtha and low sulfur waxy residue that is exported is sold subject to prevailing commodity market conditions. Our geographical position and limited storage capacity limits our ability to compete with the regional refining center in Singapore to secure sales of large parcel sizes. However, these same factors may also provide competitive advantages if we expand our exports of refined products to the small and fragmented South Pacific markets.

Trading and Risk Management

Our revenues are derived from the sale of refined products. Prices for refined products and crude feedstocks are extremely volatile and sometimes experience large fluctuations over short periods of time as a result of relatively small changes in supplies, weather conditions, economic conditions and government actions. Due to the nature of our business, there is always a time difference between the purchase of a crude feedstock and its arrival at the refinery and the supply of finished products to the various markets. From time to time, we enter into derivative instruments to reduce the risks of changes in the relative prices of our crude feedstocks and refined products. The derivatives reduce our exposure on the hedged volumes based on timing differences and also to decreases in refining margins. However, these derivatives limit the benefit we might otherwise have received from any increases in refining margins on the hedged volumes.

We enter into “swaps” of crude oil to reduce our risk to timing differences in the purchase of crude feedstocks and the sale of the refined products they are used to produce. Under these arrangements, we agree to pay a counterparty if the price of oil goes up between the time of our purchase of crude feedstocks and the sale of the refined products and the counterparty agrees to pay us if the price of oil decreases during such period. This allows us to better align the pricing of our crude feedstocks to the timing of the sale of our refined products. These swaps reduce our exposure to negative margins in the event crude prices, and consequently the prices of refined products, fall between the date of a purchase of crude feedstocks and the sale of the refined products, and limit our ability to realize increased margins as a result of increases in oil prices.

We also enter into hedges on the difference in prices between the costs of our crude feedstocks and the sales price of our refined products. These price differences are typically referred to as margins or crack spreads. Under these arrangements, the counterparty pays us if the crack spread decreases and we pay the counterparty if the crack spread increases. These hedges are entered into to help secure margins on a portion of our future sales. From time to time, we also enter into forward fixed priced product sales.

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We enter into these various derivative agreements to reduce the effects of volatile oil and refined product prices and do not enter into hedge transactions for speculative purposes. In 2006, we expect to continue our hedging program. We will continue to evaluate our hedging program and, as a result of such evaluations, we may enter into additional hedging arrangements.

Wholesale and Retail Distribution

Our retail and wholesale distribution business encompasses the bulk storage, transportation, distribution, wholesaling and retailing of refined petroleum products in Papua New Guinea. This business consists of supplying retail stations and commercial customers with petroleum products throughout Papua New Guinea. We own and operate three larger terminals and nine depots that we use to supply product throughout Papua New Guinea. As of December 31, 2005, we delivered more than 20 percent of Papua New Guinea’s refined petroleum product needs. The head office for our wholesale and retail distribution business is located in the industrial city of Lae, Papua New Guinea.

Supply of Products

Our retail and wholesale distribution business distributes diesel, jet fuel, gasoline and fuel oil as well as commercial and industrial lubricants such as engine and hydraulic oils. In general, all of the refined products sold pursuant to our wholesale and retail distribution business are purchased from our refining and marketing business segment. We import the commercial and industrial lubricants, which constitute a small percentage of our sales. We also import fuel oil that we sell to a domestic power plant. Although the sale of imported fuel oil constituted approximately 12% of the volume of refined products we sold during 2005, this contract involves low margins.

All of the companies engaged in the distribution of petroleum products in Papua New Guinea utilize two shared tankers to supply petroleum products from our refinery to their terminals and depots. All of our terminals and five of our depots are supplied petroleum products from these shared tankers. We do not own these tankers and incur shipping charges for their use. We are responsible for scheduling all of the deliveries made by these tankers for the entire petroleum distribution industry in Papua New Guinea. We have four depots that do not receive petroleum products from the industry shared tankers. Two of these depots are supplied with petroleum products from smaller coastal ships and two are located inland and are supplied by truck.

We utilize our 12 terminals and depots to distribute refined petroleum products to retail service stations and commercial customers. Our larger commercial customers use their own vessels to offload petroleum products at our terminals. We supply retail service stations and smaller commercial customers with petroleum products using trucks or, in the case of some commercial customers, coastal ships. We do not own any of these shipping or trucking distribution assets and incur transportation charges for these services.

Retail Distribution

As of December 31, 2005, we provided petroleum products to 33 retail service stations that operated under the InterOil brand name. These 33 stations consisted of four stations that we own and lease to the operator, one station that we lease and sublease to the operator, and 28 stations that are independently owned and operated. We supply products to each of these stations pursuant to distribution agreements. For the majority of these retail service stations, we supply the pumps and related infrastructure to the operators of the stations.

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Wholesale Distribution

In addition to our retail distribution network, we also supply petroleum products as a wholesaler to larger commercial clients. We enter into commercial supply agreements with mining, agricultural, fishing, logging and similar commercial clients whereby we supply their petroleum product needs. Pursuant to many of these agreements, we supply and maintain company-owned above-ground storage tanks and pumps that are used by these customers. More than two-thirds of the volume of petroleum products that we sold during 2005 was supplied to commercial customers. Although we supply a greater volume of petroleum products to commercial customers, we also realize smaller margins on the products sold to these customers.

Recent Developments

In order to meet customer requirements and satisfy projected increases in demand in Papua New Guinea, we have implemented or are in the process of implementing initiatives aimed at improving our services. These initiatives include:

• In August 2005, we completed the installation of a one million liter bulk storage tank. The construction of a two million liter bulk storage tank is expected to be completed by the third quarter of 2006. These storage tanks will allow us to meet growing demand for refined products.

• In the fourth quarter of 2005, we acquired a barge facility that we intend to use to provide refueling services for small to medium sized vessels. We expect to complete the installation of this facility in the second quarter of 2006. The installation of a new facility will lead to improved efficiencies in our refueling services.

• Four new dealer-owned retail stations that we will supply are expected to become operational during 2006 and will extend our marketing reach.

Competition

Our wholesale and retail distribution business competes with Shell and Mobil, both of whom have significantly greater resources than we do. In addition, we also compete with smaller local distributors of petroleum products. We believe that we will be able to obtain refined products for our distribution business at competitive prices. We also believe that our commitment to growing our distribution business in Papua New Guinea at a time when major-integrated oil and gas companies have indicated a desire to exit the Papua New Guinea market provides us with a competitive advantage. However, major-integrated oil and gas companies such as Shell and Mobil have significantly greater resources than we do and could expand much more rapidly in this market than we can if they chose to do so.

Customers

We sell approximately 7% of our refined petroleum products to New Britain Palm Oil Limited, a commercial customer in the agricultural business, pursuant to a wholesale distribution contract. We do not anticipate that the loss of other wholesale distribution contracts would have a material impact on this business segment. However, due to the amount of petroleum products provided to New Britain Palm Oil Limited, the loss of this customer, at least in the short term, would adversely affect the profitability of our retail and wholesale distribution business segment.

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Environmental Regulations

Our operations in Papua New Guinea are subject to a comprehensive range of environmental laws and regulations and a variety of local and international conventions. The Papua New Guinea environmental law regime provides for laws concerning:

• emissions of substances into, and pollution and contamination of, the atmosphere, waters and land;

• production, use, handling, storage, transportation and disposal of waste, hazardous substances and dangerous goods;

• conservation of natural resources;

• the protection of threatened and endangered flora and fauna; and

• the health and safety of people.

Specifically, this environmental legislation provides for restrictions and prohibitions on spills, releases, or emissions of various substances produced in association with our operations in the oil and gas industry. With respect to our exploration and production business segment, these environmental laws require that our sites be operated, maintained, abandoned and reclaimed to standards set out in the relevant legislation. The significant Papua New Guinea laws applicable to our operations include the Environment Act 2000; the Oil & Gas Act 1998; the Dumping of Wastes at Sea Act (Ch. 369); the Conservation Areas Act (Ch.362); and the International Trade (Flora and Fauna) Act (Ch.391).

The Environment Act 2000 is the single most significant legislation affecting our operations. This act regulates the environmental impact of development activities in order to promote sustainable development of the environment and the economic, social and physical well-being of people. The Environment Act 2000 imposes a duty to take all reasonable and practicable measures to prevent or minimize environmental harm. A breach of this act can result in significant fines or penalties. Under the Compensation (Prohibition of Foreign Legal Proceedings) Act 1995, no legal proceedings for compensation claims arising from petroleum projects in Papua New Guinea may be taken up or pursued in any foreign court.

Compliance with Papua New Guinea’s environmental legislation can require significant expenditures. The environmental legislation regime is complex and subject to different interpretations. Although no assurances can be made, we believe that, absent the occurrence of an extraordinary event, compliance with existing Papua New Guinea laws regulating the release of materials into the environment or otherwise relating to the protection of the environment will not have a material effect upon our capital expenditures, earnings or competitive position with respect to our existing assets and operations. Future legislative action and regulatory initiatives could result in changes to operating permits, additional remedial actions or increased capital expenditures and operating costs that cannot be assessed with certainty at this time.

Social and Environmental Policy

Our goal is to implement and maintain positive environmental practices and high standards of safety and social responsibility in all our operations. We actively review and improve our programs with the support of our staff, the Papua New Guinea government and local communities.

We have developed an active community relations program encompassing all segments of our operations. Although our refinery is located on state owned land we have developed a long-term

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community development assistance program that includes local communities from the three main villages in the vicinity. In compliance with Papua New Guinea law, our development philosophy is based on “bottom-up planning” thus ensuring that all planning and development takes the local community into account.

Training workshops involving local communities, with participants ranging in ages from 14 to 68 years old, started in April 2001. These workshops formed the basis for a five-year rolling plan covering areas such as communication, needs analysis, planning, leadership and conflict resolution. The provision of a reticulated water supply to local communities has been one of the many positive outcomes of our efforts, leading to improved health and living standards.

In our exploration areas we have a team of land and industrial relations officers who operate in the field. This team undertakes initial “land-owner” identification and assists with the recruitment of local village personnel. Other duties include the establishment of communication channels with the community and their leaders to ensure minimum social disruption and the smooth running of exploration activities. The officers also have the responsibility of paying compensation to land-owners with respect to our activities. Other activities include the provision of health and medical services to our employees, contractors and the local communities in the areas in which our exploration activities are conducted.

The recording of verbal histories, clan boundaries and genealogies has been integrated with our extensive geological mapping, seismic and drilling activities and provides a valuable resource for future use. Preliminary social mapping and landowner identification studies of the customary land owners in our license areas is carried out on a consultative basis with the relevant stakeholders prior to conducting geological and exploration activities. The social mapping and landowner identification studies are undertaken in order to understand the social structure, how society functions and its relationship to the land, as well as identifying the actual owners and occupiers of the customary land on which all of our exploration activities are conducted.

We also work closely with the national and provincial governments, landowners and the community in order to ensure all our activities have a minimum environmental impact on the flora and fauna and to understand the quality of life of the people that inhabit the areas in which we work.

We are committed to:

• Maintaining procedures designed to ensure that our operations are conducted in compliance with all applicable laws, regulations and standards, and where laws do not exist, adopting and applying standards that reflect our commitment to socially and environmentally responsible behaviors.

• Providing a safe and healthy working environment for all employees and contractors, and establishing emergency response procedures that allow personnel to respond promptly and effectively.

• Establishing community development assistance programs to enhance and improve the standard of health and education.

• Pursuing socially responsible community relations initiatives that reflect the community’s needs, enhance our reputation and recognize the importance of the culture, heritage and traditional rights of the communities in which we operate.

• Understanding the traditional and contemporary culture, beliefs and social dynamics of locals in all project areas with particular reference to land matters, in order to better manage socio-economic changes in oil and gas exploration and in our refinery operations in Papua New Guinea.

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• Ensuring community affairs issues are a major focus in the planning, management and delivery of our activities, while ensuring that our health, safety and environment operating procedures are adhered to in every task performed;

• Communicating with employees, contractors, partners, government and the local project impacted communities in a transparent, open and proactive manner;

• Providing cultural awareness information and training to our employees and contractors at all levels;

• Ensuring compliance with all applicable industrial relations legislation and procedures in all employment arrangements with our contractors and sub-contractors; and

• Providing business development advise and support to appropriate, representative and sustainable community owned enterprises where they have the capability to provide cost effective and competent services.

Risk Factors

Our financial results are subject to numerous risks and uncertainties, some of which are described below. The risks and uncertainties described below are not the only risks facing us. Additional risks not presently known to us or which we consider immaterial based on information currently available to us may also materially adversely affect us. If any of the following risks or uncertainties actually occur, our business, financial condition and results of operations could be materially adversely affected.

We have a limited operating history which makes it difficult to determine our potential.

We are a company with limited financial results upon which you may judge our potential. We may not become profitable. In the past, we have experienced delays and other problems frequently associated with development stages businesses. We may continue to experience many of the problems, delays and expenses encountered by any early stage business, many of which are beyond our control. These include, but are not limited to, difficulty in optimizing our refinery’s performance, finding an export market for our refined products, substantial delays and expenses in conducting our exploration drilling program, difficulty in obtaining financing, having inadequate management resources to capitalize on market opportunities and execute our strategy, failing to identify prospects with sufficient reserves to justify our investment in those prospects, and competition from larger and more established companies. In addition, period-to-period comparisons of our operating results to date may not be meaningful. You should not rely on our results of operations for any prior period as an indication of our future performance or prospects.

Our refinery has not operated at full capacity for an extended period of time and our profitability may be materially negatively affected if it is not able to do so.

We have completed the construction of our refinery in Papua New Guinea. In January 2005, we declared practical completion of our refinery. Our ability to operate our refinery at its rated capacity must be considered in light of the risks inherent in the operation of, and the difficulties, costs, complications and delays we face as the operator of, a relatively small refinery. These risks include, without limitation, shortages and delays in the delivery of crude feedstocks or equipment; contractual disagreements; labor shortages or disruptions; difficulties marketing our refined products; political events; accidents; and unforeseen engineering, design or environmental problems. We were unable to operate our refinery for a period of 12 days during March 2005, 14 days in November 2005 and 12 days in February 2006 as a result of shortages of crude feedstocks. Such shortages may occur in the future as well.

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If we are not able to market all of our refinery’s output, we will not be able to operate our refinery at its full capacity and our financial condition and results of operations may be materially adversely affected.

The project agreement described under “Material Contracts” gives us certain rights to supply the domestic market in Papua New Guinea with our refined products. We have entered into domestic sales contracts with the major distributors in Papua New Guinea under which they will purchase refined products for distribution in Papua New Guinea exclusively from us. However, our project agreement provides that if there is more than one refinery operating in Papua New Guinea during the term of the project agreement, the right to supply the domestic market will be shared by the refineries in proportion to their refining capacities. Therefore, if one or more additional refineries are built in Papua New Guinea, our share of the domestic market will be diminished.

We are able to fulfill the domestic market in Papua New Guinea’s demand for our products by refining approximately 16,000 to 20,000 barrels of crude feedstock a day. Our refinery is rated to process up to 32,500 barrels of oil per day and our current optimization efforts are intended to further increase our daily throughput capacity. In order to process these additional barrels of crude feedstock, we must identify markets into which we can sell our products profitably. The operating margins currently needed for our refinery to sell refined products profitably and the cost and availability of obtaining tankers to export our refined products limit our ability to export our refined products from Papua New Guinea. In addition, we are unable to export diesel and gasoline to Australia due to recent changes in Australia’s regulations regarding permitted sulfur and benzene content that our refined products do not meet.

We plan to market the balance of the refinery’s output in nearby regional markets. Although we have signed export contracts with Shell that expire in September 2007 and January 2008, we are currently operating the refinery at less than full capacity due to an inability to profitably export our refined products. We can give no assurances that we will be able to profitably market the refinery’s output to these regional markets and we may be unable to market all of the refinery’s output we produce. In addition, if our relationship with Shell were to terminate for any reason, we cannot assure you that we will be able to enter into other commercial agreements for the export of our refinery’s output. Accordingly, there can be no assurance of our or our refinery’s future profitability.

Our refinery operations may not be profitable.

Our refining operations are expected to be primarily affected by the difference or margin between the sales prices of our refined products and the costs we incur to purchase crude oil and other feedstocks. Historically, refining margins have been volatile, and we expect that this volatility will continue to exist in the future. Therefore, we will be subject to the risk that the difference between the cost to us of our crude oil supply and the price at which we can sell our refined products will not be sufficient for our profitable operation and will not allow us to service our indebtedness. We cannot control the prices at which our feedstocks will be purchased or at which refined petroleum products can be sold.

We may not be successful in our exploration for oil and gas.

We currently do not have any oil or gas reserves that are deemed proved, probable or possible pursuant to National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. As of December 31, 2005, we had drilled five unsuccessful exploration wells. We plan to drill at least six additional exploration wells in Papua New Guinea during the next two years. We cannot be certain that the exploration wells we drill will be productive or that we will recover all or any portion of the costs to drill these wells. Because of the high cost, topography and subsurface characteristics of

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the areas we are exploring, we have limited seismic or other geoscience data to assist us in identifying drilling objectives. The lack of this data makes our exploration activities more risky than would be the case if such information were readily available.

In addition, our exploration and development plans may be curtailed, delayed or cancelled as a result of a lack of adequate capital and other factors, such as weather, compliance with governmental regulations, landowner interference, mechanical difficulties, shortages of materials, delays in the delivery of equipment, success or failure of activities in similar areas, current and forecasted prices for oil and changes in the estimates of costs to complete the projects. We will continue to gather information about our exploration projects, and it is possible that additional information may cause us to alter our schedule or determine that a project should not be pursued at all. You should understand that our plans regarding our projects are subject to change.

Our investments in Papua New Guinea are subject to political, legal and economic risks that could materially adversely affect their value.

Our investments in Papua New Guinea involve risks typically associated with investments in developing countries, such as uncertain political, economic, legal and tax environments; expropriation and nationalization of assets; war; renegotiation or nullification of existing contracts; taxation policies; foreign exchange restrictions; international monetary fluctuations; currency controls; and foreign governmental regulations that favor or require the awarding of service contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction.

Political conditions have at times been unstable in Papua New Guinea. We attempt to conduct our business in such a manner that political and economic events of this nature will have minimal effects on our operations. In addition, we believe that oil exploration and refinery operations are in the long term best interests of Papua New Guinea and that we will continue to have the support of the current government. Notwithstanding the current support, our ability to conduct operations or exploration and development activities is subject to changes in government regulations or shifts in political attitudes over which we have no control. There can be no assurance that we have adequate protection against any or all of the risks described above.

In addition, if a dispute arises with respect to our Papua New Guinea operations, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons, especially foreign oil ministries and national oil companies, to the jurisdiction of Canada or the United States.

If we are not able to obtain crude feedstocks for our refinery, our financial condition and results of operations will be materially adversely affected.

Our project agreement requires the government of Papua New Guinea to take action to ensure that domestic crude oil producers sell us their Papua New Guinea domestic crude production for use in our refinery and that refined products for domestic Papua New Guinea use will be purchased from us by distributors at the import parity price. However, our agreement with BP Singapore is our only commercial agreement for the delivery of crude feedstock. The BP agreement expires on June 14, 2009. If our relationship with BP were to terminate for any reason, we cannot assure you that we will be able to enter into other commercial agreements to supply adequate feedstock to our refinery. In addition, early termination of the BP agreement could have a material adverse effect on our results of operations and financial condition.

Papua New Guinea crude oil production rates are expected to satisfy the refinery’s requirements through 2009. However, we do not believe that exclusively using oil currently being produced in

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Papua New Guinea is optimal for the operation of our refinery. Alternative crude oils that are suitable for use as refinery feedstock are available in the nearby region. However, our access to oil sourced from outside Papua New Guinea may be more limited. In addition, the increased cost, if any, of oil from outside Papua New Guinea may reduce our gross profit margins and negate the operational benefits of using such oil. We can provide no assurances that we will be able to obtain all of the oil needed to operate our refinery or that we will be able to obtain the crude feedstocks that allow us to operate our refinery at profitable levels.

We may be required to temporarily or permanently shut down our operations in Papua New Guinea if we are not be able to obtain all of the licenses necessary to operate our business.

Our operations require licenses and permits from various governmental authorities to drill wells, operate the refinery and market our refined products. We believe that we hold all necessary licenses and permits under applicable laws and regulations for our operations in Papua New Guinea and believe we will be able to comply in all material respects with the terms of such licenses and permits. However, such licenses and permits are subject to change in various circumstances. There can be no guarantee that we will be able to obtain or maintain all necessary licenses and permits that may be required to maintain for continued operations.

Our refining operations expose us to risks, not all of which are insured.

Our refining operations are subject to various hazards common to the industry, including explosions, fires, toxic emissions, maritime hazards and uncontrollable flows of crude oil and refined products. In addition, our refining operations are subject to hazards of loss from earthquakes, tsunamis and severe weather conditions. As protection against operating hazards, we maintain insurance coverage against some, but not all of such potential losses. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates. In addition, losses may exceed coverage limits. As a result of market conditions, premiums and deductibles for certain types of insurance policies for refiners have increased substantially and could escalate further. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. For example, insurance carriers now require broad exclusions for losses due to risk of war and terrorist acts. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our financial position.

The exploration and production, the refining and the distribution businesses are competitive.

We operate in the highly competitive areas of oil exploration and production, refining and distribution of refined products. A number of our competitors have materially greater financial and other resources than we possess. Such competitors have a greater ability to bear the economic risks inherent in all phases of the industry.

In our exploration and production business, we will compete for the purchase of licenses from the government of Papua New Guinea and the purchase of leases from other oil and gas companies. Factors that affect our ability to compete in the marketplace include:

• our access to the capital necessary to drill wells and acquire properties;

• our ability to acquire and analyze seismic, geological and other information relating to a property;

• our ability to retain the personnel necessary to properly evaluate seismic and other information relating to a property;

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• the development of, and our ability to access, transportation systems to bring future production to the market, and the costs of such transportation systems;

• the standards we establish for the minimum projected return on an investment of our capital; and

• the availability of alternate fuel sources.

We will also compete with other oil and gas companies in Papua New Guinea for the labor and equipment needed to carry out our exploration operations. Most of our competitors have substantially greater financial and other resources than us. In addition, larger competitors may be able to absorb the burden of any changes in federal, state and local laws and regulations more easily than we can, which would adversely affect our competitive position. These competitors may be able to pay more for exploratory prospects and productive oil and gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than we can. Our ability to explore for oil and gas prospects and to acquire additional properties in the future will depend on our ability to conduct operations, to evaluate and select suitable properties, and to consummate transactions in this highly competitive environment. In addition, most of our competitors have been operating in the oil and gas business for a much longer time than we have and have demonstrated the ability to operate through industry cycles.

In our refining business, we will compete with numerous other companies for available supplies of crude oil and other feedstocks and for outlets for our refined products. These competitors often have greater brand name recognition than we do. BP has agreed to supply all of our feedstock. However, many of our competitors obtain a significant portion of their feedstocks from company-owned production, which may enable them to obtain feedstocks at a lower cost. The high cost of transporting goods to and from Papua New Guinea reduces the availability of alternate fuel sources and retail outlets for our refined products. Competitors that have their own production or extensive distribution networks are at times able to offset losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages. In addition, new technology is making refining more efficient, which could lead to lower prices and reduced margins. We cannot be certain that we will be able to implement new technologies in a timely basis or at a cost that is acceptable to us.

The volatility of oil prices could adversely affect our results of operations.

The prices we receive for the refined products we produce and sell are likely to continue to be subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and a variety of additional factors beyond our control. These factors include, but are not limited to, the condition of the worldwide economy and the demand for and supply of oil, the actions of the Organization of Petroleum Exporting Countries, governmental regulations, political stability in the Middle East and elsewhere, and the availability of alternate fuel sources. Oil and gas markets are both seasonal and cyclical. The prices for oil will affect:

• our revenues, cash flows and earnings;

• our ability to attract capital to finance our operations, and the cost of such capital;

• the value of our oil properties;

• the profit or loss we incur in refining petroleum products; and

• the profit or loss we incur in exploring for and developing reserves.

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Compliance with and changes in environmental laws could adversely affect our performance.

We are subject to extensive laws and regulations, including those relating to the discharge of materials into the environment, waste management, pollution prevention measures and the characteristics and composition of gasoline and diesel fuels. If we violate or fail to comply with these laws and regulations, we could be fined or otherwise sanctioned. Because environmental laws and regulations are increasingly becoming more stringent and new environmental laws and regulations are continuously being enacted or proposed, the level of future expenditures required for environmental matters could increase in the future. In addition, any major upgrades to our refinery could require material additional expenditures to comply with environmental laws and regulations.

Weather and unforeseen operating hazards may adversely impact our operating activities.

Our operations are subject to risks inherent in the oil and gas industry, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires, equipment failures, pollution, and other environmental risks. These risks could result in substantial losses due to injury and loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage, and suspension of operations. Our Papua New Guinea operations are subject to a variety of additional operating risks such as earthquakes, mudslides, tsunamis, cyclones and other effects associated with active volcanoes, extensive rainfall or other adverse weather conditions. Our operations could result in liability for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and other environmental damages. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could have a material adverse effect on our financial condition and results of operations.

You may be unable to enforce your legal rights against us.

We are a New Brunswick, Canada corporation. Substantially all of our assets are located outside of Canada and the United States. It may be difficult for investors to enforce, outside of Canada and the United States, judgments against us that are obtained in Canada or the United States in any such actions, including actions predicated upon the civil liability provisions of the securities laws of Canada and the United States. In addition, many of our directors and officers are nationals or residents of countries outside of Canada and the United States, and all, or a substantial portion of, the assets of such persons are located outside of Canada and the United States. As a result, it may be difficult for investors to affect service of process within Canada or the United States upon such persons or to enforce judgments against them obtained in Canadian or United States courts, including judgments predicated upon the civil liability provisions of the securities laws of Canada or the United States.

We may not be able to generate cash flows if we are unable to raise capital.

We make, and will continue to make, substantial capital expenditures for exploration, development, acquisition and production of oil and gas reserves, refinery expansions and improvements, acquisitions of distribution assets, and for further capital acquisitions and expenses. We will need additional financing to complete our business plans. If we are unable to obtain debt or equity financing because of lower refining margins, lower oil prices, delays, operating difficulties, construction costs, or lack of drilling success, we may not have the ability to expend the capital necessary to undertake or complete future drilling programs and to make other needed capital

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expenditures. We also intend to make offers to acquire oil and gas properties and distribution assets in the ordinary course of our business. If these offers are accepted, our capital needs may increase substantially. There can be no assurance that additional debt or equity financing or cash generated by operations will be available to meet these requirements.

If we are unable to renew our petroleum licenses with the Papua New Guinea government, we may be required to discontinue our exploration activities in Papua New Guinea.

Our petroleum prospecting licenses are granted for a period of six years. However, every two years we are required to submit a work program containing our minimum expenditures for the succeeding biannual period. In order for us to retain our licenses, the Papua New Guinea government could require us to expend more than we have budgeted or deem appropriate. If we are unable to meet the minimum expenditure levels or determine that making such expenditures is not in our best interests, we will be required to relinquish our petroleum prospecting licenses.

Our petroleum retention licenses are granted for a period of five years. In connection with an application for, or a renewal of, a petroleum retention license, we are required to submit a one year work program and a work program for the remaining four years that is contingent on the results of the first year’s operations. If we determine that the contingent work is not justified or requires revision, we may be required to renegotiate the terms of the work program with the government of Papua New Guinea in order to retain our retention license. If we were unable to agree upon a revised work program for the remaining term of the retention license, we may be required to forfeit the license.

We may not be successful in acquiring and developing oil and gas properties.

The successful acquisition and development of oil and gas properties requires an assessment of recoverable reserves, future oil and gas prices and operating costs, potential environmental and other liabilities and other factors. Such assessments are necessarily inexact. As a result, we may not recover the purchase price of a property from the sale of production from the property, or may not recognize an acceptable return from properties we acquire. In addition, we cannot assure you that our exploitation activities will result in the discovery of any reserves. Our operations may be curtailed, delayed or canceled as a result of a lack of adequate capital and other factors, such as title problems, weather, compliance with governmental regulations or price controls, mechanical difficulties, or shortages or delays in the delivery of equipment. In addition, the costs of exploration and development may materially exceed initial estimates.

Our significant debt levels and our debt covenants may limit our future flexibility in obtaining additional financing and in pursuing business opportunities.

As of December 31, 2005, we had $113.7 million in long-term debt, excluding current maturities. The level of our indebtedness will have important effects on our future operations, including:

• a portion of our cash flow will be used to pay interest and principal on our debt and will not be available for other purposes;

• our OPIC loan agreement and BNP credit facility contain financial tests which we must satisfy in order to avoid a default under such credit facilities; and

• our ability to obtain additional financing for capital expenditures and other purposes may be limited.

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Our hedging activities may result in losses.

To reduce the risks of changes in the relative prices of our crude feedstocks and refined products, we may enter into hedging arrangements. Hedging arrangements would expose us to risk of financial loss in some circumstances, including the following:

• if the amount of refined products produced is less than expected or is not produced or sold during the planned time period;

• if the other party to the hedging contract defaults on its contract obligations; or

• if there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received.

In addition, these hedging arrangements may limit the benefit we would receive from increases in the price of our refined products relative to the prices for our crude feedstocks.

If we are unable to recruit and retain qualified personnel, it could have a material adverse effect on our operating results and stock price.

Our success depends in large part on the continued services of our executive officers, our senior managers and other key personnel. The loss of these people, especially without advance notice, could have a material adverse impact on our results of operations and our stock price. It is also very important that we attract and retain highly skilled personnel, including technical personnel, to operate our refinery, accommodate our exploration plans, and replace personnel who leave. Competition for qualified personnel can be intense, and there are a limited number of people with the requisite knowledge and experience. Under these conditions, we could be unable to recruit, train, and retain employees. If we cannot attract and retain qualified personnel, it could have a material adverse impact on our operating results and stock price.

Petroleum Independent and Exploration Corporation can affect our raising of capital through the issuance of common shares or securities convertible into common shares.

Mr. Phil E. Mulacek, our Chief Executive Officer, is the President of, and has an ownership interest in, Petroleum Independent and Exploration Corporation. Petroleum Independent and Exploration Corporation owns 433,169 of our common shares, and has a right to exchange its remaining 5,000 shares of S.P. InterOil, LDC on a one-for-one basis for our common shares. Our articles of amalgamation contain restrictions on our issuance of common shares or securities convertible into common shares, except with, among other things, the consent of Petroleum Independent and Exploration Corporation. Mr. Mulacek has an ownership interest in, and Petroleum Independent and Exploration Corporation is the sole general manager of, P.I.E. Group, LLC, which, with Commodities Trading International Corporation, have pre-emptive rights in respect of issuances of our common shares or securities convertible into common shares. Therefore, through his control of Petroleum Independent and Exploration Corporation and P.I.E. Group, LLC, Mr. Mulacek or any successor to his interest in those companies can prevent us from raising capital through the issuance of common shares or securities convertible into common shares.

Changing regulations regarding corporate governance and public disclosure could cause additional expenses and failure to comply may adversely affect our reputation and the value of our securities.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and new and changing provisions of Canadian securities laws, are creating uncertainty because of the lack of specificity and varying

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interpretations of the rules. As a result, the application of the rules may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Any failure to comply with applicable laws may materially adversely affect our reputation and the value of our securities.

If we fail to comply with Section 404 of the Sarbanes-Oxley Act of 2002, our reputation and the value of our securities may be adversely affected.

Beginning with our annual report for the year ending December 31, 2006, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include an internal control report of management with our annual report on Form 40-F, which is to include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. That report will also be required to include a statement that our independent auditors have issued an attestation report on management’s assessment of our internal control over financial reporting.

In order to achieve compliance with Section 404 within the prescribed period, management is in the process of adopting a detailed project work plan to assess the adequacy of our internal control over financial reporting, validate through testing that controls are functioning as documented, remediate any control weaknesses that may be identified, and implement a continuous reporting and improvement process for internal control over financial reporting. Any failure to comply with Section 404, including issuing the required management report and obtaining the attestation report on management’s assessment from our independent auditors, may materially adversely affect our reputation and the value of our securities.

Dividends

We have never paid dividends on our common shares and currently intend to retain all cash flow from operations for the future operation and development of our business. Our OPIC loan agreement restricts the subsidiaries that operate our refining business segment from paying dividends to us.

Description of Our Capital Structure

We are authorized to issue an unlimited number of common shares. Holders of common shares are entitled to one vote per share at meetings of our shareholders, to receive dividends on common shares when declared by our Board of Directors and to receive pro-rata our remaining property and assets upon our dissolution or winding up, subject to any rights having priority over the common shares.

Our articles of amalgamation contain restrictions on our issuance of common shares or securities convertible into common shares without the approval of Petroleum Independent and Exploration Corporation, a corporation controlled by Phil Mulacek, our Chief Executive Officer. There are also pre-emptive rights in our articles granted to P.I.E. Group LLC, a company controlled by our Chief Executive Officer, and Commodities Trading International Corporation in respect of issuances of our common shares or securities.

Our by-laws and governing statute, the Business Corporations Act (New Brunswick), provide for cumulative voting for the election for directors such that each shareholder entitled to vote for the

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election of directors has the right to cast a number of votes equal to the number of votes attached to the common shares held by such shareholder multiplied by the number of directors to be elected, and may cast all such votes in favor of one candidate or distribute them among all candidates in any manner.

Market for Our Securities

Our common shares trade on the Toronto Stock Exchange under the symbol IOL in Canadian dollars, on the American Stock Exchange under the symbol IOC in US dollars, and on the Port Moresby Stock Exchange under the symbol IOC in Papua New Guinea Kina.

The following tables disclose the monthly high and low trading prices and volume of our common shares traded on the TSX and AMEX during 2005:

Toronto Stock Exchange (TSX:IOL) in Canadian Dollars

Month	High		Low		Volume
January		47.91		40.70		1,144,144
February		53.66		41.88		669,622
March		53.90		38.84		543,855
April		43.30		30.35		483,160
May		38.88		30.93		298,549
June		35.35		28.17		492,852
July		37.10		27.25		389,324
August		30.80		25.94		298,000
September		29.78		25.37		1,371,182
October		27.49		20.84		403,641
November		25.55		21.00		215,175
December		33.50		21.38		602,852
Total						6,912,356

American Stock Exchange (AMEX:IOC) in United States Dollars

Month	High		Low		Volume
January		39.16		33.06		7,544,500
February		43.65		33.23		6,295,500
March		43.40		31.76		8,426,700
April		35.85		24.29		8,396,600
May		30.88		24.50		5,960,700
June		28.90		20.07		8,821,200
July		32.07		22.80		6,541,200
August		25.60		21.27		3,829,100
September		24.95		21.70		5,170,600
October		23.61		17.50		4,835,000
November		21.29		17.69		3,832,700
December		28.81		18.50		9,348,400
Total						79,002,200

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Prior Sales

In February 2005, we entered into an agreement with institutional accredited investors in which the investors paid us $125 million and we agreed to drill eight exploration wells in Papua New Guinea. Investors are able to convert their interests under the agreement into a maximum of 3,333,334 of our common shares.

We issued $45.0 million in 8.875% senior convertible debentures due 2009 and warrants to purchase 359,415 of our common shares in private placements on August 27, 2004 and September 3, 2004. The debentures were subsequently converted into 2.4 million of our common shares. Each warrant entitles the holder to purchase one common share at an exercise price of $21.91, subject to certain adjustments, until August 27, 2009. As of December 31, 2005, warrants to purchase 340,247 common shares remained outstanding.

During 2004, we raised $12.2 million from PNG Drilling Ventures Limited for our second indirect interest participation agreement program. As of December 31, 2005, PNG Drilling Ventures Limited had converted $2.5 million of their investment into 141,545 of our common shares. If our exploration program does not discover at least five million barrels of oil and gas, the $9.7 million balance of the investment is convertible into 237,356 of our common shares plus $5.5 million payable, at our discretion, in cash or our common shares based on the average price of our shares in the month preceding such payment.

During 2003, we raised $7.6 million from PNG Energy Investors pursuant to an indirect participation interest agreement. In May 2004, PNG Energy Investors converted its investment into 683,140 of our common shares.

Directors and Officers

The following table provides information with respect to all of our current directors and executive officers. Each director has been elected to serve until the 2006 annual meeting of shareholders or his earlier resignation or removal. Each executive officer has been elected to serve until his or her successor is duly appointed or elected by the Board of Directors or their earlier removal or resignation from office.

Directors & Officers

Name	Address	Position	Date of Appointment
Phil E. Mulacek	The Woodlands, TX, USA	Chairman, CEO, & Director	May 29, 1997
Christian M. Vinson	Cairns, QLD, Australia	Vice President, COO & Director	May 29, 1997
Gaylen J. Byker	Grand Rapids, MI, USA	Director	May 29, 1997
G. Michael Folie	Brighton, VIC, Australia	Deputy Chairman & Director	January 1, 2001
Roger N. Grundy	Matlock Derbyshire, UK	Director	May 29, 1997
Edward N. Speal	Toronto, ON, Canada	Director	June 25, 2003
Anesti Dermedgoglou	Cairns, QLD, Australia	Vice President of Investor Relations	June 3, 2002
Peter Diezman	Lae, Papua New Guinea	General Manager — Wholesale and Retail Distribution	March 1, 2005
Thomas Donovan	Lufkin, TX, USA	Chief Financial Officer	December 1, 2002
Gerry Gilbert	Houston, TX, USA	General Manager — Exploration and Production	July 1, 2005
Daniel Lloyd	Houston, TX, USA	General Counsel & Corporate Secretary	September 19, 2005
Anthony Poon	Sydney, NSW, Australia	General Manager — Supply and Trading	October 1, 2005

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As of March 16, 2006, our directors and executive officers as a group beneficially owned 7,750,832 common shares, representing 22.8% of our outstanding common shares. The common shares beneficially owned by our directors and executive officers exclude 240,000 shares issuable upon exercise of outstanding options.

The following is a brief description of the background and principal occupation of each director and executive officer during the preceding five years:

Phil E. Mulacek is the Chairman of our Board of Directors and our Chief Executive Officer. He has held these positions since 1997. Mr. Mulacek is the founder and President of Petroleum Independent Exploration Corporation based in Houston, Texas. Petroleum Independent Exploration Corporation was established in 1981 for the purposes of oil and gas exploration, drilling and production, and operated across the southwest portion of the United States. Petroleum Independent Exploration Corporation led the development of our refinery and the commercial activities that were necessary to secure the refinery’s economic viability. Mr. Mulacek has over 25 years experience in oil and gas exploration and production and holds a Bachelor of Science Degree in Petroleum Engineering from Texas Tech University.

Christian M. Vinson has been our Chief Operating Officer since 1995. Mr. Vinson joined us from Petroleum Independent Exploration Corporation, a Houston, Texas based oil and gas exploration and production company. Before joining Petroleum Independent Exploration Corporation, Mr. Vinson was a manager with NUM Corporation, a Schneider company involved in mechanical and electrical engineering automation, in Naperville, Illinois where his responsibilities included the establishment of the company’s first office in the United States. As our Chief Operating Officer, Mr. Vinson has responsibility for government and community relations and corporate development in Papua New Guinea. Mr. Vinson has played a key role in the development of our company. Mr. Vinson has developed long standing relationships with key government and industry leaders in Papua New Guinea over the last ten years. Mr Vinson earned an Electrical and Mechanical Engineering degree from Ecole d’Electricité et Mécanique Industrielles, Paris, France.

Gaylen J. Byker is President of Calvin College, a liberal arts institution of higher learning, located in Grand Rapids, Michigan. Dr. Byker has obtained four university degrees including a PhD in international relations from the University of Pennsylvania and a Doctorate of Jurisprudence from the University of Michigan. Dr. Byker is a former partner of Offshore Energy Development Corporation where he was head of Development, Hedging and Project Finance for gas exploration and transportation projects offshore. Prior to joining OEDC, he was co-head of Commodity Derivatives at Phibro Energy, Inc., a subsidiary of Salomon, Inc. and head of the Commodity-Indexed Transactions Group at Banque Paribas, New York, with worldwide responsibility for hedging and financing transactions utilizing long-term commodity price risk management. Dr. Byker was manager of Commodity-Indexed Swaps and Financings for Chase Manhattan Investment Bank, New York, and was also a lawyer at Morgan, Lewis & Bockius in Philadelphia, Pennsylvania, USA

G. Michael Folie is the Deputy Chairman of our Board of Directors. Since 2000, Dr. Folie has been a consultant specializing in petroleum and mining. Dr. Folie was managing director and Chief

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Executive Officer of Acacia Resources Limited, an Australian Stock Exchange listed company, from 1994 until it merged with AngloGold in January 2000. Dr. Folie held a number of senior executive positions with Shell Australia Limited and its subsidiaries from 1979 to 1994 where he was involved in all aspects of Shell’s Australian businesses, including investments in coal, alumina, gold, liquefied natural gas, oil refineries and chemical plants. From 1990 to 1994, Dr. Folie was a director of Shell Australia, involved in all of Shell’s operations, including oil products and refining. Dr. Folie has been a director of the Institute of Public Affairs since 1993 and Chairman of Regis Resources NL, an Australian Stock Exchange listed company, since 2004. Dr. Folie obtained a PhD in Civil Engineering from Southampton University and a Masters in Economics from the London School of Economics.

Roger N. Grundy is the Managing Director of Breckland Ltd, a UK-based engineering consulting firm, and is an internationally recognized expert in the area of refinery efficiency. Mr. Grundy serves as the Technical Director for our refinery and has acted as a consultant to more than 145 existing refineries on six continents for major oil companies, independents and the World Bank. Mr. Grundy has 38 years experience in all areas of oil refinery and petrochemical operations and construction and holds an Honours Degree in Mechanical Engineering from University College, London. He is also a Fellow of the UK Institution of Mechanical Engineers, Member of the American Institute of Chemical Engineers and a Member of the Institute of Petroleum.

Edward N. Speal is based in Toronto, Ontario and is President and CEO of BNP Paribas (Canada). Previously, Mr. Speal was Managing Director responsible for the Energy, Project Finance and Corporate Banking businesses for BNP Paribas in Canada. Mr. Speal was the President and Chief Executive Officer of Paribas Bank of Canada from 1996 to 2000. Mr. Speal worked in New York for Banque Paribas running its Commodity Index Trading Group from 1992 until 1996. From 1989 to 1991, he was managing director of R. P. Urfer & Co., working on an exclusive basis for Banque Paribas as Advisory Director assisting in the establishment and development of its global commodity derivatives business. From 1983-1989, Mr. Speal worked for the Chase Manhattan Bank of Canada. Mr. Speal is a Canadian citizen and is a graduate of Queen’s University at Kingston.

Anesti Dermedgoglou is our Vice President of Investor & Public Relations. Mr. Dermedgoglou joined us in 2002. From 1998 until joining us, Mr. Dermedgoglou was a stock broker with Merrill Lynch in Perth, Western Australia. From 1996 to 1998 Mr. Dermedgolou was a stock-broker at Porter Western Limited in Perth, Western Australia. Mr. Dermedgoglou was a Director of Frankel Pollack Vinderine Inc, one of the largest stock broking companies in South Africa, from 1986 to 1996. Mr. Dermedgoglou is a former member of the Johannesburg Stock Exchange. Mr. Dermedgoglou has worked in the stock broking industry for 16 years and holds a Bachelor of Commerce Degree from The University of South Africa.

Peter Diezmann is General Manager of our Wholesale and Retail Distribution business segment. Mr. Diezman joined us in March 2005. Prior to joining us, Mr. Diezmann had worked for BP Australia since 1981, serving in various capacities, including retail, wholesale, distributor, and terminals & logistics management positions, and as General Manager of BP Papua New Guinea for four years prior to our acquisition of that business. Mr. Diezmann holds a Masters of Business Administration (MBA) Degree from James Cook University in Queensland, Australia.

Tom S. Donovan is our Chief Financial Officer. Prior to joining us in 2002, Mr. Donovan was the Director of Corporate Accounting for Rapid Design Service, Inc. RDS provided product design, development, engineering, document processing, and training through 35 locations in 11 countries. Prior to joining RDS in 1994, Mr. Donovan had held various positions in financial management for International Total Services, Inc. Mr. Donovan has a Bachelor of Business and Administration (Accounting and Finance) from the University of Toledo, Toledo, Ohio.

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Gerry Gilbert is General Manager of our Exploration and Production business segment. Mr. Gilbert joined us in July 2005. Mr. Gilbert was CEO of Oluma, Inc., a company that designs, manufactures, and markets a suite of fiber-optic products and systems from July 2004 until May 2005. From September 2001 to June 2004, Mr. Gilbert was the Senior VP—International for Transworld Exploration and Production and was responsible for the company’s exploration and production activities which were largely focused in West Africa, New Zealand and Indonesia. From August 2000 until September 2001, Mr. Gilbert worked as an independent consultant to the exploration and production industry. From July 1995 until August 2000, Mr. Gilbert was Executive VP and President, respectively, for Western Atlas’ and Baker Hughes’ exploration and production groups. Mr. Gilbert’s professional career spans 37 years in the upstream oil and gas industry and oil service industry. Mr. Gilbert has held senior management positions in the geophysical service divisions of Western Atlas, Halliburton and Texas Instruments. Mr. Gilbert has a BS in Electrical Engineering from the University of Texas at Austin, a MS in Electrical Engineering from Southern Methodist University and has also completed The Management Program at Rice University. Mr. Gilbert is a member of the Geology Foundation Advisory Council at UT Austin, the Society of Petroleum Engineers, the Society of Exploration Geophysicists, the American Association of Petroleum Geologists, the European Association of Geoscientists and Engineers and the IEEE

Daniel Lloyd is our General Counsel and Corporate Secretary. Mr. Lloyd joined us in September 2005. From 1999 until joining us, Mr. Lloyd was an attorney practicing in the Corporate Securities Section of Haynes and Boone, LLP in Houston, Texas. While in private practice, Mr. Lloyd represented a diverse range of publicly-traded U.S. and Canadian exploration and production companies. Mr. Lloyd holds a Bachelor of Business Administration in Finance and a Doctorate of Jurisprudence from the University of Texas.

Anthony Poon is General Manager of our Supply, Trading & Risk Management department. Mr. Poon joined us in October 2005. From January 2003 until joining us, Mr. Poon was a private oil trading and risk management consultant. During 2002, Mr. Poon served as a Business Manager/Operations Leader with ChevronTexaco Singapore. Prior to joining ChevronTexaco, Mr. Poon had been employed by Caltex in Singapore for more than 30 years. Mr. Poon’s last position with Caltex was Head of the International Crude Oil Trading Department for Caltex in Singapore where he was responsible for crude and derivatives trading and price risk management, including crude supply to Caltex’s refineries worldwide. During his tenure at Caltex, Mr. Poon held various positions involving refinery supply operations, shipping, terminalling, demurrage and oil loss claims, and crude and refined product operations.

Board Committees

Our Board of Directors has formed an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Dr. Byker, Dr. Folie and Mr. Speal are the members of each of these committees. Dr. Byker is the Chairman of the Audit Committee and the Nominating and Corporate Governance Committee. Dr. Folie is the Chairman of the Compensation Committee.

Interests of Management and Others in Material Transaction

Petroleum Independent and Exploration Corporation, a company controlled by Mr. Mulacek, our Chief Executive Officer, was paid a management fee of $150,000, $150,410 and $150,000 during 2005, 2004 and 2003, respectively. This management fee relates to Petroleum Independent and Exploration Company being appointed the General Manager of our subsidiary, S.P. InterOil, LDC.

We made interest payments of $9,376, $246,745 and $105,374, and loan principal payments of $1.1 million, $2.2 million and $1.4 million to Petroleum Independent and Exploration Corporation

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during 2005, 2004 and 2003, respectively. As of December 31, 2005, we had repaid all amounts that we owed to Petroleum Independent and Exploration Company. The loans outstanding to Petroleum Independent and Exploration Corporation were for amounts loaned by lending institutions to Petroleum Independent and Exploration Company. These loans were collateralized by barges legally owned by Petroleum Independent and Exploration Company but beneficially owned by us and common shares of ours owned by Petroleum Independent and Exploration Company. The interest rates charged to us by Petroleum Independent and Exploration Company reflected the actual interest rates paid by Petroleum Independent and Exploration Company to the lending institutions.

Breckland Limited provides technical and advisory services to us on normal commercial terms. Roger Grundy, one of our directors, is also a director of Breckland and he provides consulting services to us as an employee of Breckland. Breckland was paid $179,608, $120,426 and $131,250 during 2005, 2004 and 2003, respectively.

On November 22, 2005, we acquired Direct Employment Services Corp. for $1,000. Christian Vinson, our Chief Operating Officer and a director, was paid $500, the par value of shares of Direct Employment Services Corp. Prior to November 22, 2005, the services of certain of our executive officers and senior management were provided under a management services agreement with Direct Employment Services Corp. Direct Employment Services Corp. was established for the purposes of providing non-profit management services to us for our U.S. employees. Direct Employment Services Corp. invoiced us for its direct costs in providing the services of these employees but did not recognize any income from providing these services to us. Direct Employment Services Corp. was paid $549,978, $708,104, and 535,855 during 2005, 2004 and 2003, respectively.

Legal Proceedings

We are a defendant in various legal proceedings and claims which arise in the ordinary course of our business. We do not believe that the ultimate resolution of any such actions will have a material affect on our financial position or results of operations.

Material Contracts

Each of the following material agreements has been filed on SEDAR at www.sedar.com.

Date	Description	SEDAR Filing Date
January 4, 2006	Purchase and Sale Agreement between InterOil Products Limited and Shell Overseas Holdings Limited	March 30, 2006
August 12, 2005	$150 Million Secured Revolving Crude Import Facility between EP InterOil, Ltd. and BNP Paribas, Singapore Branch	March 30, 2006
February 25, 2005	Amended and Restated Indirect Participation Interest Agreement between InterOil Corporation and the Investors signatory thereto	March 30, 2006
May 12, 2004	Amended Indirect Participation Interest Agreement between InterOil Corporation and PNG Energy Investors, LLC	March 30, 2006
July 21, 2003	Drilling Participation Agreement between InterOil Corporation and PNG Drilling Ventures Limited	March 30, 2006

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Date	Description	SEDAR Filing Date
March 26, 2002	Engineering, Procurement and Construction Contract for InterOil Refinery between InterOil Limited and Clough Niugini Limited	November 11, 2004
June 12, 2001	Loan Agreement between EP InterOil, Ltd. and Overseas Private Investment Corporation, as amended	March 30, 2006
December 21, 2001	Crude Supply Agency and Sales Agreement between EP InterOil, Ltd. and BP Singapore Pte Limited	November 11, 2004
March 23, 2001	Export Marketing and Shipping Agreement between EP InterOil, Ltd. and Shell International Eastern Trading Company	November 11, 2004
February 6, 2001	Agreement for the Sale and Purchase of Naphtha between EP InterOil, Ltd. and Shell International Eastern Trading Company	November 11, 2004
May 29, 1997	Refinery State Project Agreement between InterOil Limited, EP InterOil, Ltd. and The Independent State of Papua New Guinea	November 11, 2004

Purchase and Sale Agreement dated January 4, 2006

The Purchase and Sale Agreement dated January 4, 2006 between us and Shell Overseas Holdings Limited provides for the purchase by us of all of the outstanding shares of Shell Papua New Guinea Limited. Shell Papua New Guinea Limited owns wholesale and retail distribution assets in Papua New Guinea. The purchase price for the shares is $10 million, plus the value of Shell Papua New Guinea Limited’s net current assets. This agreement provides that the closing of the acquisition is subject to the approval of several governmental authorities in Papua New Guinea. If Papua New Guinea governmental approval is obtained, we expect the transaction contemplated by this agreement to close in the second quarter of 2006.

$150 Million Secured Revolving Crude Import Facility dated August 12, 2005

We entered into a $150 Million Secured Revolving Crude Import Facility with BNP Paribas, Singapore Branch on August 12, 2005. The terms of this agreement are described under “General Development of Our Business.”

Amended and Restated Indirect Participation Interest Agreement dated February 25, 2005

In February 2005, we entered into an agreement with institutional accredited investors in which the investors paid us $125 million and we agreed to drill eight exploration wells in Papua New Guinea on Petroleum Prospecting Licenses 236, 237 or 238. The terms of this agreement are described under “Description of Our Business—Exploration and Production—Indirect Participation Interest Agreement.”

Amended Indirect Participation Interest Agreement dated May 12, 2004

We entered into an Amended Indirect Participation Interest Agreement with PNG Energy Investors, LLC on May 12, 2004. This agreement grants PNG Energy Investors the right to acquire up to a 4.25% working interest in 16 exploration wells following our drilling of an initial eight exploration wells. As of December 31, 2005, we had drilled five exploration wells. Therefore, PNG Energy Investors will have the right to acquire a working interest in the sixth well of our current exploration

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program and the subsequently drilled 15 exploration wells. PNG Energy Investors is required to pay us for its initial interest in such exploration wells and for all completion and future development costs attributable to its interest in any wells in which it acquires an interest.

Drilling Participation Agreement dated July 21, 2003

During 2004, we raised $12.2 million from PNG Drilling Ventures Limited, as agent and trustee for its investors, pursuant to the Drilling Participation Agreement. Under this agreement PNG Drilling Ventures has the right to acquire a working interest in our first 16 exploration wells equal to 13.5% multiplied by the result of eight divided by the number of exploration wells we drill. PNG Drilling Ventures will be required to pay its share of any completion costs for future exploration wells or future development costs if an exploration well is a commercial success. If we decide to begin a second exploration program, PNG Drilling Ventures can acquire up to a 10.73% interest in the first eight wells of this program by paying $225,000 for each 0.25% interest it elects to acquire. As of December 31, 2005, PNG Drilling Ventures Limited had converted $2.5 million of their investment into 141,545 of our common shares. If our exploration program does not discover at least five million barrels of oil and gas, the $9.7 million balance of the investment is convertible into 237,356 of our common shares plus $5.5 million payable, at our discretion, in cash or our common shares based on the average price of our shares in the month preceding such payment.

Engineering Procurement and Construction Contract dated March 26, 2002

On March 26, 2002, we entered into an engineering procurement and construction contract with Clough Niugini Limited, which provides for the design, procurement, and construction of our refinery. This agreement was a lump-sum, turnkey contract providing for a construction/commissioning period of 26 months. Except for the defect liability provisions which expired in January 2006, this construction contract terminated upon practical completion of the refinery in January 2005. However, there are still outstanding issues between us and Clough regarding the terms of this contract and the warranties Clough provided.

OPIC Loan Agreement dated June 12, 2001

Our $85 million loan from OPIC was used to finance the construction of our refinery and is secured by all of the refinery’s capital assets. The loan matures on December 31, 2014 and requires semi-annual principal payments of $4,500,000 and semi-annual interest payments. Each disbursement under the loan bears interest at a rate equal to a weighted average of treasury rates at the time of disbursement plus 3.0%. During 2005, the weighted average interest rate of all disbursements pursuant to this loan agreement was 7.1%.

Crude Supply Agency and Sales Agreement

In December 2001, we entered into an agreement with BP Singapore Pte Limited whereby BP will supply crude feedstocks to our refinery through June 2009. Our agreement with BP provides BP with financial incentives to secure the most economically attractive crude feedstocks for our refinery. Our contract with BP may limit our ability to purchase directly from producers or from other traders and marketers in the region. Under this agreement, we pay BP the market price for crude feedstocks that it provides plus a nominal marketing fee per barrel.

Export Marketing and Shipping Agreement dated March 23, 2001

We entered into an agreement with Shell International Eastern Trading Company whereby Shell will market and distribute or purchase all petroleum products, other than naphtha which is governed by a separate agreement, exported by our refinery. Subject to limited exceptions, Shell

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has the exclusive right under this agreement to market, sell and distribute all products exported from the refinery other than marine diesel. Shell also agrees to purchase all of our refined products that exceed the domestic Papua New Guinea demand and are not covered by other export contracts. This agreement expires in January 2008.

Agreement for the Sale and Purchase of Naphtha dated February 6, 2001

We entered into an agreement with Shell International Eastern Trading Company whereby Shell will market and distribute or purchase all naphtha exported by our refinery. Under this contract, Shell agrees to purchase all of the naphtha produced by the refinery that is available for export. This agreement expires in September 2007.

Refinery State Project Agreement

On May 29, 1997, we entered into a project agreement with the Government of Papua New Guinea under which we agreed to construct and operate a refinery in Port Moresby, Papua New Guinea. The project agreement expires on January 31, 2035. In the project agreement, the Government of Papua New Guinea has agreed to use its best efforts to enable us to purchase sufficient crude oil produced in Papua New Guinea for the refinery to run at full capacity. If necessary, these efforts would include proposing legislation and issuing executive orders or policy directives. In addition, the government of Papua New Guinea has agreed that future agreements between Papua New Guinea and producers of oil in Papua New Guinea will contain provisions requiring such producers to sell oil produced in Papua New Guinea to local refineries to meet Papua New Guinea’s requirements for refined petroleum products. The purchase price for this oil will be the prevailing fair market price of such oil at the time of purchase.

The project agreement provides that the government of Papua New Guinea will take all actions necessary such that any refinery constructed in Papua New Guinea, including ours, will have the exclusive right to sell refined products at the import parity price prior to any imports into Papua New Guinea. In general, the import parity price is the price that would be paid in Papua New Guinea for a refined product that is being imported. For each refined product produced and sold locally in Papua New Guinea, the import parity price is calculated by adding the costs that would typically be incurred to import such product to the average posted price for such product in Singapore as reported by Platts. The costs that are added to the reported Platts’ price include freight costs, insurance costs, landing charges, losses incurred in the transportation of refined products, demurrage and taxes.

The project agreement provides that, until December 31, 2010, income from the refinery will not be taxed.

Transfer Agent and Registrar

Our transfer agent and registrar is Computershare Trust Company of Canada. In Papua New Guinea our transfer agent and registrar is Computershare Ltd. The registers for transfers of our common shares are maintained by Computershare Trust Company of Canada at its principal offices in Toronto, Ontario. Queries should be directed to Computershare Trust Company at 1-888-267-6555 (toll free in North America).

Forward-looking Statements

This Annual Information Form contains “forward-looking statements” as defined in U.S. federal and Canadian securities laws. All statements, other than statements of historical fact, included in or incorporated by reference in this Annual Information Form are forward-looking statements.

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Forward-looking statements include, without limitation, statements regarding our 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,” “believes,” “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:

• our lack of a substantial operating history;

• the ability of our refinery to operate at full capacity and to operate profitability;

• our ability to market refinery output;

• uncertainty involving the geology of oil and gas deposits and reserve estimates;

• the results of our exploration program and our ability to transport crude oil and natural gas to markets;

• 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;

• our dependence on exclusive relationships with our suppliers and customers;

• our ability to obtain necessary licenses, permits and other approvals;

• the impact of competition;

• the enforceability of your legal rights;

• the volatility of prices for crude oil and refined products, and the volatility of the difference between our purchase price for oil feedstocks and the sales price of our refined products;

• adverse weather, explosions, fires, natural disasters and other operating risks and hazards, some of which may not be insured;

• the uncertainty of our ability to attract capital;

• covenants in our financing and other agreements that may limit our ability to engage in business activities, raise additional financing or respond to changes in markets or competition; and

• the risks described under the heading “Risk Factors.”

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 Annual Information Form 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. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described under the heading “Risk Factors” and elsewhere in this Annual Information Form. 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. In making these statements, we disclaim any obligation to address or update each factor in future filings with Canadian securities regulatory authorities or the U.S. Securities and Exchange Commission, or communications regarding our business or results, and

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we do not undertake to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. In addition, any of the matters discussed above may have affected our past results and may affect future results so that our actual results may differ materially from those expressed in this Annual Information Form and in prior or subsequent communications.

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.

Additional Information

Additional information, including that related to directors’ and officers’ remuneration, principal holders of our common shares and securities authorized for issuance under equity compensation plans is contained in our management information circular for our most recent annual meeting of shareholders. Additional financial information is provided in our audited consolidated financial statements and related management’s discussion and analysis for the year ended December 31, 2005. Our management information circular, audited financial statements, management’s discussion and analysis and additional information can be found on SEDAR at www.sedar.com and on our web site at www.interoil.com.

Copies of the information circular, financial statements, management’s discussion and analysis and any additional copies of this Annual Information Form may also be obtained by contacting Anesti Dermedgoglou, Vice President of Investor Relations at 25025 I-45 North, Suite 420, The Woodlands, TX 77380, US Phone: (281) 292-1800, Australian Phone: +61 (7) 4046-4600.

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Schedule A

FORM 51-101F3

REPORT OF MANAGEMENT AND
DIRECTORS ON OIL AND GAS DISCLOSURE

Management of InterOil Corporation (the “Company”) is responsible for the preparation and disclosure of information with respect to the Company’s oil and gas activities in accordance with securities regulatory requirements. This information includes reserves data, which consist of the following:

(a)	(i)	proved and proved plus probable oil and gas reserves estimated as at December 31, 2005 using forecast prices and costs; and
	(ii)	the related estimated future net revenue; and
(b)	(i)	proved oil and gas reserves estimated as at December 31, 2005 using constant prices and costs; and
	(ii)	the related estimated future net revenue.

The Company does not have any reserves as defined under National Instrument 51-101.

The board of directors has reviewed the Company’s procedures for assembling and reporting other information associated with oil and gas activities and has reviewed that information with management. The board of directors has approved:

(a)	the content and filing with securities regulatory authorities of the other oil and gas information;
(b)	the content and filing of this report.

Because the reserves data are based on judgements regarding future events, actual results will vary and the variations may be material.

/s/ Phil E. Mulacek	/s/ Gaylen J. Byker
Phil E. Mulacek, Chairman and	Gaylen J. Byker, Director
Chief Executive Officer
/s/ Christian M. Vinson	/s/ Roger N. Grundy
Christian M. Vinson, Chief Operating	Roger N. Grundy, Director
Officer and Director
Dated: March 31, 2006

EX-99.2

InterOil Corporation
Consolidated Financial Statements
(Expressed in United States dollars) Years ended December 31, 2005, 2004 and 2003

InterOil Corporation
Consolidated Financial Statements
(Expressed in United States dollars)

Table of contents

Management’s Report	1
Auditor’s Report to the Shareholders	2
Consolidated Balance Sheets	4
Consolidated Statements of Operations	5
Consolidated Statements of Cash Flows	6
Consolidated Statements of Shareholders’ Equity	7
Notes to the Consolidated Financial Statements	8
Reconciliation to accounting principles generally accepted in the United States	26

InterOil Corporation
Consolidated Financial Statements
(Expressed in United States dollars)

MANAGEMENT’S REPORT

The management of InterOil Corporation is responsible for the financial information and operating data presented in this Annual Report.

The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. When alternative accounting methods exist, management has chosen those it deems most appropriate in the circumstances. Financial statements are not precise as they include certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects. Financial information presented elsewhere in this Annual Report has been prepared on a basis consistent with that in the consolidated financial statements.

InterOil Corporation maintains systems of internal accounting and administrative controls. These systems are designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the Company’s assets are properly accounted for and adequately safeguarded.

The Audit Committee of the Board of Directors, composed of independent non-management directors, meets regularly with management, as well as the external auditors, to discuss auditing, internal controls, accounting policy and financial reporting matters. The Committee reviews the annual consolidated financial statements with both management and the independent auditors and reports its findings to the Board of Directors before such statements are approved by the Board.

The 2005 consolidated financial statements have been audited by PricewaterhouseCoopers, the independent auditors, in accordance with Canadian generally accepted auditing standards on behalf of the shareholders. PricewaterhouseCoopers has full and free access to the Audit Committee.

/s/ Phil Mulacek Phil Mulacek	/s/ Tom Donovan Tom Donovan
Chief Executive Officer	Chief Financial Officer

- 1 -

To the Shareholders of InterOil Corporation

We have audited the consolidated balance sheet of InterOil Corporation as at December 31, 2005 and the consolidated statements of operations, shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at December 31, 2005 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

/s/ PricewaterhouseCoopers
PricewaterhouseCoopers

Melbourne, Australia
March 31, 2006

- 2 -

AUDITORS’ REPORT TO THE SHAREHOLDERS

We have audited the consolidated balance sheets of InterOil Corporation as at December 31, 2004 and 2003 and the consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2004 in accordance with Canadian generally accepted accounting principles.

(signed) KPMG

Sydney, Australia
March 4, 2005

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the company’s financial statements, such as the change described in Note 2(n) — Stock-based compensation — to the Company’s consolidated financial statements as at December 31, 2004 and 2003, and for each of the years in the three-year period ended December 31, 2004. Our report to the shareholders dated March 4, 2005 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the auditors’ report when the change is properly accounted for and adequately disclosed in the financial statements.

(signed) KPMG

Sydney, Australia
March 4, 2005

- 3 -

InterOil Corporation
Consolidated Balance Sheets
(Expressed in United States dollars)

	As at
	December 31,			December 31,			December 31,
	2005			2004			2003
	$			$			$
Assets
Current assets:
Cash and cash equivalents (note 4)		59,601,807			28,544,398			9,216,265
Trade receivables (note 7)		49,958,973			58,698,069			—
Commodity derivative contracts (note 6)		1,482,798			503,500			—
Other assets		1,011,195			806,123			486,584
Inventories (note 8)		44,087,484			27,916,902			—
Prepaid expenses		638,216			190,135			488,532
Restricted cash (note 6)		16,662,269			15,599,223			24,820,989
Total current assets		173,442,742			132,258,350			35,012,370
Deferred financing costs (note 16)		1,256,816			1,311,488			551,000
Plant and equipment (note 9)		237,399,148			244,363,355			201,758,465
Oil and gas properties (note 10)		16,399,492			6,605,360			23,018,015
Future income tax benefit (note 11)		1,058,898			1,303,631			—
Total assets		429,557,096			385,842,184			260,339,850
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities		26,005,034			26,328,544			5,835,583
Income tax payable		3,900,459			2,881,398			—
Working capital facility — crude feedstock (note 12)		70,724,322			76,520,541			—
Deferred hedge gain (note 6)		1,016,998			537,358			—
Business combination financing (note 13)		—			12,123,106			—
Due to related parties (note 14)		—			1,056,251			1,478,751
Unsecured loan (note 15)		21,453,132			—			—
Current portion of secured loan (note 16)		9,000,000			9,000,000			9,000,000
Current portion of indirect participation interest (note 17)		35,092,558			13,749,852			—
Total current liabilities		167,192,503			142,197,050			16,314,334
Accrued financing costs (note 16)		921,109			863,329			—
Secured loan (note 16)		71,500,000			76,000,000			74,000,000
Indirect participation interest (note 17)		30,166,311			—			—
Indirect participation interest — PNGDV(note 17)		9,685,830			10,608,830			16,600,000
Total liabilities		279,465,753			229,669,209			106,914,334
Non-controlling interest (note 18)		6,023,149			6,404,262			6,467,496
Shareholders’ equity:
Share capital (note 19)		223,934,500			216,813,654			157,449,200
Authorised — unlimited
Issued and outstanding 29,163,320
(Dec 31, 2004 - 28,310,884)
(Dec 31, 2003 - 24,815,961)
Contributed surplus		2,933,586			1,841,776			540,222
Warrants (note 21)		2,137,852			2,258,227			—
Foreign currency translation adjustment		477,443			463,200			—
Conversion options (note 17)		25,475,368			—			—
Accumulated deficit		(110,890,555	)		(71,608,144	)		(11,031,402	)
Total shareholders’ equity		144,068,194			149,768,713			146,958,020
Total liabilities and shareholders’ equity		429,557,096			385,842,184			260,339,850

See accompanying notes to the consolidated financial statements

Commitments and contingencies (note 23)

On behalf of the Board

Phil Mulacek, Director

Christian Vinson, Director

- 4 -

InterOil Corporation
Consolidated Statements of Operations
(Expressed in United States dollars)

	Year ended
	December 31,			December 31,			December 31,
	2005			2004			2003
	$			$			$
Revenue
Sales and operating revenues		481,180,645			70,644,486			—
Interest		1,830,808			382,461			246,912
Other		528,270			196,337			12,368
		483,539,723			71,223,284			259,280
Expenses
Cost of sales and operating expenses		467,246,990			65,344,516			—
Administrative and general expenses		14,672,793			7,831,550			2,264,187
Management fees for prior periods waived		—			—			(840,000	)
Depreciation and amortization		11,036,550			639,075			73,068
Exploration costs, excluding exploration impairment (note 10)		—			2,903,313			—
Exploration impairment (note 10)		2,144,429			35,566,761			164,992
Legal and professional fees		3,606,415			3,573,727			1,421,390
Short term borrowing costs		8,855,857			4,705,190			—
Long term borrowing costs		6,351,337			1,401,256			—
Accretion expense (note 17)		5,647,491			—			—
Foreign exchange loss		796,590			392,805			678,774
		520,358,452			122,358,193			3,762,411
Loss before income taxes and non-controlling interest		(36,818,729	)		(51,134,909	)		(3,503,131	)
Income taxes (note 11)
Current		(2,605,265	)		(2,538,410	)		(37,339	)
Future		(226,729	)		663,347			—
		(2,831,994	)		(1,875,063	)		(37,339	)
Loss before non-controlling interest		(39,650,723	)		(53,009,972	)		(3,540,470	)
Non-controlling interest		368,312			70,091			22,901
Net loss		(39,282,411	)		(52,939,881	)		(3,517,569	)
Basic loss per share (note 22)		(1.36	)		(2.09	)		(0.16	)
Diluted loss per share (note 22)		(1.36	)		(2.09	)		(0.16	)
Weighted average number of common shares outstanding
Basic and diluted		28,832,263			25,373,575			22,649,924

-5-

InterOil Corporation
Consolidated Statements of Cash Flows
(Expressed in United States dollars)

	Year ended
	December 31,			December 31,			December 31,
	2005			2004			2003
	$			$			$
Cash flows provided by (used in):
Operating activities
Net (loss) (note 5)		(39,282,411	)		(52,939,881	)		(3,517,569	)
Adjustments for non-cash transactions
Non-controlling interest		(381,113	)		(70,091	)		(22,901	)
Depreciation and amortization		11,036,550			639,075			73,068
Future income tax asset		244,733			(663,347	)		—
Gain on sale of other assets		—			(94,260	)		—
Gain on sale of plant and equipment		(95,053	)		—			—
Amortization of deferred financing costs		154,672			268,873			—
Amortization of discount on debt		161,255			604,045			—
Accretion of discount on indirect participation interest		5,647,491			—			—
Debt conversion settlement expense — debentures		—			77,589			—
Interest expense forfeited by debenture holders		—			998,438			—
Management fee waived		—			—			(840,000	)
Loss on unsettled hedge contracts		119,200			33,858			—
Gain on derivative contracts		(585,000	)		—			—
Stock compensation expense/(recovery)		1,668,896			1,209,921			(39,654	)
Inventory revaluation		355,215			1,508,334			—
Capitalized oil and gas properties expensed		2,144,429			35,566,761			164,992
Unrealized foreign exchange loss		796,590			392,805			678,774
Change in non-cash operating working capital
Increase/(decrease) in foreign currency translation adjustment		14,243			463,200			—
Decrease/(increase) in trade receivables		8,739,096			(50,456,671	)		—
(Increase) in commodity derivative contracts		(33,858	)		—			—
Decrease/(increase) in other assets and prepaid expenses		(653,153	)		982,014			220,196
(Increase) in inventories		(16,525,797	)		(24,167,627	)		—
Increase/(decrease) in accounts payable, accrued liabilities and income tax payable		3,761,311			5,880,047			(236,058	)
		(22,712,704	)		(79,766,917	)		(3,519,152	)
Investing activities
Expenditure on oil and gas properties		(11,249,477	)		(19,154,106	)		(19,987,946	)
Expenditure on plant and equipment		(4,089,519	)		(38,947,904	)		(81,843,608	)
Proceeds from indirect participation interest		80,410,591			10,724,885
Expenditure on oil and gas properties applied against indirect participation interest (note 17)		(31,774,513	)		—			—
Proceeds received on sale of assets		112,229			405,353			—
Redemption/(investment) of cash on short-term investments		—			24,723,572			(17,617,871	)
Acquisition of InterOil Products Limited net of cash received (note 13)		—			4,631,904			—
Repayment of business combination financing		(12,226,581	)		—			—
Increase in restricted cash held as security on borrowings		(1,063,046	)		(15,501,806	)		(97,417	)
Change in non-cash working capital
Increase/(decrease) in accounts payable and accrued liabilities		(3,165,756	)		4,094,594			(1,351,521	)
		15,468,253			(29,023,508	)		(120,898,363	)
Financing activities
Proceeds from secured loan		—			2,000,000			52,000,000
Repayments of secured loan		(4,500,000	)		—			—
Proceeds from senior convertible debentures and warrants		—			45,000,000			—
Senior convertible debenture issuance costs		—			(3,259,766	)		—
Proceeds from conversion options		22,700,814			6,259,967			16,300,000
Proceeds from related party borrowings		—			1,775,565			—
Repayments to related parties		(1,056,251	)		(2,198,065	)		(776,902	)
Proceeds from short term borrowings		21,453,132			5,100,000			—
Repayments of short term borrowings		—			(5,100,000	)		—
Proceeds from/(repayments of) working capital facility		(5,796,219	)		76,520,541			—
Proceeds from issue of common shares		5,500,384			2,020,316			62,822,143
		38,301,860			128,118,558			130,345,241
Increase/(decrease) in cash and cash equivalents		31,057,409			19,328,133			5,927,726
Cash and cash equivalents, beginning of period		28,544,398			9,216,265			3,288,539
Cash and cash equivalents, end of period (note 4)		59,601,807			28,544,398			9,216,265

See accompanying notes to the consolidated financial statements

See note 5 for non cash financing and investing activities

-6-

InterOil Corporation
Consolidated Statements of Shareholder’s Equity
(Expressed in United States dollars)

	Year ended
	December 31,			December 31,			December 31,
	2005			2004			2003
	$			$			$
Share capital
At beginning of period		216,813,654			157,449,200			94,120,609
Adjustment to reflect change in accounting for employee stock options (note 2n)		—			92,434			—
Issue of capital stock (note 19)		7,120,846			59,272,020			63,328,591
At end of period		223,934,500			216,813,654			157,449,200
Contributed surplus
At beginning of period		1,841,776			540,222			769,964
Adjustment to reflect change in accounting for employee stock options (note 2n)		—			645,216			—
Stock compensation (note 20)		1,091,810			656,338			(229,742	)
At end of period		2,933,586			1,841,776			540,222
Warrants
At beginning of period		2,258,227			—			—
Movement for period (note 21)		(120,375	)		2,258,227			—
At end of period		2,137,852			2,258,227			—
Foreign currency translation adjustment
At beginning of period		463,200			—			—
Movement for period, net of tax		14,243			463,200			—
At end of period		477,443			463,200			—
Conversion options
At beginning of period		—			—			—
Movement for period (note 17)		25,475,368			—			—
At end of period		25,475,368			—			—
Accumulated deficit
At beginning of period		(71,608,144	)		(11,031,402	)		(7,513,833	)
Adjustment to reflect change in accounting for employee stock options (note 2n)		—			(737,650	)		—
Adjustment to cumulative debentures conversion expense (note 21)		—			(6,899,211	)		—
Net (loss) for period		(39,282,411	)		(52,939,881	)		(3,517,569	)
At end of period		(110,890,555	)		(71,608,144	)		(11,031,402	)
Shareholders’ equity at end of period		144,068,194			149,768,713			146,958,020

See accompanying notes to the consolidated financial statements

-7-

InterOil Corporation
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

1. Nature of operations and organization

InterOil Corporation (the “Company” or “InterOil”) is a publicly traded, integrated oil and gas company operating in Papua New Guinea (“PNG”).

Management has segmented the company’s business based on differences in products and services and management strategy and responsibility. The Company’s business is conducted predominantly through three major business segments – upstream, midstream and downstream.

Upstream includes exploration for and development of crude oil and natural gas. Midstream includes refinery operations. The refinery processes crude oil into naphtha, gasoline, diesel, LPG, jet/kerosene, and low sulphur waxy residue. The midstream operations sell to the PNG domestic market as well as to the export market. Downstream includes the distribution of refined products and lubricants, including gasoline, diesel and fuel oils in PNG.

2. Significant accounting policies

(a) Principles of consolidation and the preparation of financial statements

These financial statements are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) which, in the case of the Company, differ in certain respects from those in the United States. These differences are described in note 25, Reconciliation to Accounting Principles Generally Accepted in the United States.

The consolidated financial statements for the year ended December 31, 2005 have been prepared on a going concern basis which presumes the realization of assets and discharge of liabilities in the normal course of business in the future. The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates.

The consolidated financial statements of the Company include the financial statements of SP InterOil, LDC (“SPI”) (99.9%), SPI Exploration and Production Corporation (100%), SPI Distribution Limited (100%), InterOil Australia Pty Ltd (100%), SPI InterOil Holdings Limited (100%), Direct Employment Services Company (100%) and their subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

(b) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and deposits with a maturity of less than three months at the time of purchase. Cash and cash equivalents are carried at cost. Accrued interest is included with other receivables.

(c) Restricted cash

Restricted cash consists of cash on deposit with a maturity of less than three months at the time of purchase but which is restricted from being used in daily operations. Restricted cash is carried at cost. Accrued interest is included with other receivables.

(d) Trade receivables

The collectibility of debts is assessed at the reporting date and specific provision is made for any doubtful accounts. The Company sells certain trade receivables with recourse to BNP Paribas under its working capital facility. The receivables are retained on the balance sheet as the Company retains the risks and rewards associated with carrying the receivables.

(e) Inventory

Crude oil and refined petroleum products are valued at the lower of cost, on a first-in, first-out basis, or net realizable value. The cost of midstream refined petroleum product consists of raw material, labour, direct overheads and transportation costs. Cost of downstream refined petroleum product includes the cost of the product plus related freight, wharfage and insurance.

-8-

InterOil Corporation
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

2. Significant accounting policies (cont’d)

(f) Derivative financial instruments

Derivative financial instruments are utilized by the Company in the management of its naphtha, low sulphur waxy residue, diesel and jet kerosene sales price exposures and its crude purchase cost exposures. The Company’s policy is not to utilize derivative financial instruments for trading or speculative purposes. The company may choose to designate derivative financial instruments as hedges.

When applicable, at the inception of the hedge, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions, the nature of the risk being hedged, how the hedging instruments’ effectiveness in offsetting the hedged risk will be assessed and a description of the method for measuring ineffectiveness. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or anticipated transactions. The Company also assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items at inception and on an ongoing basis.

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in a separate component of liabilities, until earnings are affected by the variability in cash flows of the designated hedged item.

The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is no longer designated as a hedging instrument, because it is unlikely that a forecasted transaction will occur, a hedged firm commitment no longer meets the definition of a firm commitment, or management determines that designation of the derivative as a hedging instrument is no longer appropriate.

In all situations in which hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings. The adjustment of the carrying amount of the hedged asset or liability is accounted for in the same manner as other components of the carrying amount of that asset or liability. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the Company recognizes immediately in earnings gains and losses that were previously accumulated in a separate component of liabilities.

The Company enters into naphtha, diesel and jet kerosene swaps in order to reduce the impact of fluctuating naphtha, jet kerosene and diesel prices, respectively, on its revenue. These swap agreements require the periodic exchange of payments without the exchange of the notional product amounts on which the payments are based. The Company designates its naphtha, diesel and jet kerosene price swap agreements as hedges of the underlying sale. Sales revenue of the respective product is adjusted to include the payments made or received under the price swaps.

The Company enters into crude swaps in order to reduce the impact of fluctuating crude prices on its cost of sales. These swap agreements require the periodic exchange of payments without the exchange of the notional product amount on which the payments are based. The Company designates its crude price swap agreements as hedges of the underlying purchase. Cost of sales is adjusted to include the payments made or received under the crude purchase cost swaps.

(g) Deferred financing costs

Deferred financing costs represent the unamortized financing costs paid to secure borrowings. Amortization is provided on a straight-line basis, over the term of the related debt and is included in expenses for the period.

(h) Plant and equipment

Refinery assets

The Company’s most significant item of plant and equipment is the oil refinery in PNG. The refinery is included within midstream assets. During 2004, the company was considered to be in the construction and pre-operating stage of development of the oil refinery, however, the pre-operating stage ceased on January 1, 2005. Project costs, net of any recoveries, incurred during the pre-operating stage were capitalized as part of plant and equipment. The refinery assets are recorded at cost. Development costs and the costs of acquiring or constructing support facilities and equipment are capitalized. Interest costs relating to the construction and pre-operating stage of the development project prior to commencement of commercial operations were capitalized as part of the cost of such plant and equipment. Refinery related assets are depreciated on straight line basis over their useful lives, at an average rate of 4% per annum. The refinery is built on land leased from the Independent State of Papua New Guinea. The lease expires on July 26, 2097 and does not outline any terms for restoration and closure costs.

-9-

InterOil Corporation
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

2. Significant accounting policies (cont’d)

(h) Plant and equipment (cont’d)

Repairs and maintenance costs, other than major turnaround costs, are charged to earnings as incurred. Major turnaround costs will be deferred to other assets when incurred and amortized over the estimated period of time to the next scheduled turnaround. No major turnaround costs had been incurred at December 31, 2005.

Other assets

Property, plant and equipment is recorded at cost. Depreciation of assets begins when the asset is in place and ready for its intended use. Assets under construction and deferred project costs are not depreciated. Depreciation of plant and equipment is calculated using the straight line method, based on the estimated service life of the asset. Maintenance and repair costs are expensed as incurred. Improvements that increase the capacity or prolong the service life of an asset are capitalized. The depreciation rates by category are as follows:

Downstream	0% - 25	%
Midstream	1% - 33	%
Upstream	4% - 100	%
Corporate	13% - 33	%

Leased assets

Operating lease payments are representative of the pattern of benefit derived from the leased asset and accordingly are included in expenses in the periods in which they are incurred.

Asset retirement obligations

Estimated costs of future dismantlement, site restoration and abandonment of properties are provided based upon current regulations and economic circumstances at year end. Management estimates there are no material obligations associated with the retirement of the refinery or with its normal operations relating to future restoration and closure costs. The refinery is built on land leased from the Independent State of Papua New Guinea. The lease expires on July 26, 2097.

Disposal of property, plant and equipment

At the time of disposition of plant and equipment, accounts are relieved of the asset values and accumulated depreciation and any resulting gain or loss is included in income.

Environmental remediation

Remediation costs are accrued based on estimates of known environmental remediation exposure. Ongoing environmental compliance costs, including maintenance and monitoring costs, are expensed as incurred. Provisions are determined on an assessment of current costs, current legal requirements and current technology. Changes in estimates are dealt with on a prospective basis. No provision has been raised.

(i) Oil and gas properties

The Company uses the successful-efforts method to account for its oil and gas exploration and development activities. Under this method, costs are accumulated on a field-by-field basis with certain exploratory expenditures and exploratory dry holes being expensed as incurred. The Company continues to carry as an asset the cost of drilling exploratory wells if the required capital expenditure is made and drilling of additional exploratory wells is underway or firmly planned for the near future or when exploration and evaluation activities have not yet reached a stage to allow reasonable assessment regarding the existence of economical reserves. Capitalized costs for producing wells will be subject to depletion on the units-of-production method. Geological and geophysical costs are expensed as incurred.

(j) Future income taxes

The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. A valuation allowance is provided against any portion of a future tax asset which will more likely not be recovered.

(k) Employee entitlements

The amounts expected to be paid to employees for their pro-rata entitlement to long service and annual leave and leave fares are accrued having regard to anticipated periods of service, remuneration levels and statutory obligations.

-10-

InterOil Corporation
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

2. Significant accounting policies (cont’d)

(l) Revenue recognition

The following particular accounting policies, which significantly affect the measurement of profit and of financial position, have been applied.

Revenue from midstream operations:

Revenue from sales of products is recognized when products are shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. During the year ended December 31, 2005, sales between the business segments of the Company have been eliminated from sales and operating revenues and cost of sales. Up to December 31, 2004, the sales between business segments of the Company were eliminated from sales and operating revenues and cost of sales and the asset for the refinery as all revenues and expenses relating to the refinery were capitalized as part of the development stage activities.

Revenue from downstream operations:

Sales of goods are recognized when the Company has delivered products to the customer, the customer takes ownership and assumes risk of loss, collection of the receivable is probable, persuasive evidence of an arrangement exists and the sale price is fixed or determinable. It is not the Company’s policy to sell products with a right of return.

Interest income:

Interest income is recognized on a time-proportionate basis using the effective interest method.

(m) Foreign currency translation

For subsidiaries considered to be self-sustaining foreign operations, all assets and liabilities denominated in foreign currency are translated to United States dollars at exchange rates in effect at the balance date and all revenue and expense items are translated at the rates of exchange in effect at the time of the transactions. Foreign exchange gains or losses are reported as a separate component of shareholders’ equity.

For subsidiaries considered to be an integrated foreign operation, monetary items denominated in foreign currency are translated to United States dollars at exchange rates in effect at balance date and non-monetary items are translated at rates of exchange in effect when the assets were acquired or obligations incurred. Revenue and expense items are translated at the rates of exchange in effect at the time of the transactions. Foreign exchange gains or losses are included in income.

(n) Stock-based compensation

Prior to January 1, 2004, the Company applied the fair value based method only to employee stock appreciation rights, and applied the settlement method of accounting to employee stock options. Under the settlement method, any consideration paid by employees on the exercise of stock options or purchase of stock was credited to share capital and no compensation expense was recognized.

The Company adopted the fair value based method to account for employee stock options, beginning January 1, 2004. Under the fair value based method, compensation expense is measured at fair value at the date of grant and is expensed over the award’s vesting period. In accordance with one of the transitional options permitted, the Company has retroactively applied the fair value based method to all employee stock options granted on or after January 1, 2002, without restatement to prior periods in the year ended December 31, 2004. The effect of retroactively adopting the fair value based method to the 2004 financial statements, without restatement, was to increase the opening accumulated deficit by $737,650, increase contributed surplus by $645,216 and increase share capital by $92,434.

(o) Per share amounts

Basic common shares outstanding are the weighted average number of common shares outstanding for each period. The calculation of basic per share amounts is based on net earnings/(loss) divided by the weighted average of common shares outstanding.

Diluted per share amounts are computed similarly to basic per share amounts except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of stock options, conversion options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and the proceeds from such exercises were used to acquire shares of common stock at the average price during the reporting period.

-11-

InterOil Corporation
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

2. Significant accounting policies (cont’d)

(p) Vulnerability to concentration risk

Credit risk

A significant amount of the Company’s export sales are made to one customer which represented $151,106,105 (2004 – $30,539,560) or 32% (2004 – 43%) of total sales in the twelve months ended December 31, 2005. The Company’s domestic sales for the period ended December 31, 2005 were not dependent on a single customer or geographic region of PNG.

Product risk

The composition of the crude feedstock will vary the refinery output of products. The 2005 output achieved includes distillates fuels, which includes diesel, gasoline and jet fuels (55%) and naphtha and low sulphur waxy residue (39%). The product yields obtained will vary going forward as the refinery operations are optimized and will vary based on the type of crude feedstock used.

Geographic risk

The operations of InterOil are concentrated in Papua New Guinea.

(q) Reclassification

Certain prior years’ amounts have been reclassified to conform with current presentation.

3. Segmented financial information

As noted in note 1, management has identified three major business segments—upstream, midstream and downstream. In addition, the corporate segment is also presented. The corporate segment includes assets and liabilities that do not specifically relate to the other business segments. Results in this segment primarily include financing costs and interest income.

Segment accounting policies are the same as those described in note 2, significant accounting policies. Upstream, midstream and downstream include costs allocated from the corporate activities. The allocation is based on a fee for service. The eliminations relate to sales and operating revenues between segments recorded at transfer prices based on current market prices and to unrealized intersegment profits in inventories. All sales are attributable to the Asia Pacific region.

Consolidation adjustments relating to total assets relates to the elimination of intercompany loans and investments in subsidiaries.

													Consolidation
Year ended December 2005	Upstream			Midstream			Downstream			Corporate			adjustments			Total
Revenues from external customers		—			356,326,763			124,853,882			—			—			481,180,645
Intersegment revenues		—			80,094,501			6,202			1,941,163			(82,041,866	)		—
Interest revenue		—			—			—			1,830,808			—			1,830,808
Other unallocated revenue		—			—			—			528,270			—			528,270
Total segment revenue		—			436,421,264			124,860,084			4,300,241			(82,041,866	)		483,539,723
Cost of sales and operating expenses		—			436,490,554			110,857,139			—			(80,100,703	)		467,246,990
Office and admin and other expenses		1,737,825			10,639,111			4,725,411			8,255,301			(2,061,804	)		23,295,844
Exploration costs, excluding exploration impairment		—			—			—			—			—			—
Exploration impairment		2,144,429			—			—			—			—			2,144,429
Depreciation and amortisation		314,467			10,598,134			204,247			49,732			(130,030	)		11,036,550
Accretion expense		5,647,491			—			—			—			—			5,647,491
Interest expense		—			10,161,899			225,450			806,694			(206,895	)		10,987,148
Income/(loss) from ordinary activities before income taxes		(9,844,212	)		(31,468,434	)		8,847,837			(4,811,486	)		457,566			(36,818,729	)
Income tax expense		—			—			(2,755,845	)		(76,149	)		—			(2,831,994	)
Non controlling interest		—			—			—			368,312			—			368,312
Total net income/(loss)		(9,844,212	)		(31,468,434	)		6,091,992			(4,519,323	)		457,566			(39,282,411	)
Total assets		75,587,143			314,904,035			47,342,109			317,227,597			(325,503,788	)		429,557,096

-12-

InterOil Corporation
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

3. Segmented financial information (cont’d)

													Consolidation
Year ended December 2004	Upstream			Midstream			Downstream			Corporate			adjustments			Total
Revenues from external customers		—			26,309,547			62,410,291			—			(18,075,352	)		70,644,486
Intersegment revenues		—			—			489,111			1,557,621			(2,046,732	)		—
Interest revenue		—			—			—			382,461			—			382,461
Other unallocated revenue		—			—			—			196,337			—			196,337
Total segment revenue		—			26,309,547			62,899,402			2,136,419			(20,122,084	)		71,223,284
Cost of sales and operating expenses		—			27,685,347			53,158,737			—			(15,499,568	)		65,344,516
Office and admin and other expenses		1,649,191			3,133,095			3,146,905			8,309,537			(1,537,415	)		14,701,313
Exploration costs, excluding exploration impairment		2,903,313			—			—			—			—			2,903,313
Exploration impairment		35,566,761			—			—			—			—			35,566,761
Depreciation and amortisation		12,510			311,986			224,214			90,365			—			639,075
Interest expense		4,932			843,888			455,368			1,899,027			—			3,203,215
Income/(loss) from ordinary activities before income taxes		(40,136,707	)		(5,664,769	)		5,914,178			(8,162,510	)		(3,085,101	)		(51,134,909	)
Income tax expense		—			—			(1,899,803	)		24,740			—			(1,875,063	)
Non controlling interest		—			—			—			70,091			—			70,091
Total net income/(loss)		(40,136,707	)		(5,664,769	)		4,014,375			(8,067,679	)		(3,085,101	)		(52,939,881	)
Total assets		21,570,219			310,941,494			34,436,144			211,530,962			(192,636,636	)		385,842,184

													Consolidation
Year ended December 2003	Upstream			Midstream			Downstream			Corporate			adjustments			Total
Revenues from external customers		—			—			—			—			—			—
Intersegment revenues		—			—			—			1,068,746			(1,068,746	)		—
Interest revenue		—			—			—			246,912			—			246,912
Other unallocated revenue		—			—			—			12,368			—			12,368
Total segment revenue		—			—			—			1,328,026			(1,068,746	)		259,280
Cost of sales and operating expenses		—			—			—			—			—			—
Office and admin and other expenses		520,270			222,067			24,939			3,730,502			(1,078,801	)		3,418,977
Exploration costs, excluding exploration impairment		—			—			—			—			—			—
Exploration impairment		164,992			—			—			—			—			164,992
Depreciation and amortisation		10,282			8,254			—			54,532			—			73,068
Interest expense		—			—			—			105,374			—			105,374
Income/(loss) from ordinary activities before income taxes		(695,544	)		(230,321	)		(24,939	)		(2,562,382	)		10,055			(3,503,131	)
Income tax expense		—			—			—			(37,339	)		—			(37,339	)
Non controlling interest		—			—			—			22,901			—			22,901
Total net income/(loss)		(695,544	)		(230,321	)		(24,939	)		(2,576,820	)		10,055			(3,517,569	)
Total assets		60,129,239			198,176,962			321,817			169,378,391			(167,666,559	)		260,339,850

-13-

InterOil Corporation
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

4. Cash and cash equivalents

The components of cash and cash equivalents are as follows:

	December 31,		December 31,		December 31,
	2005		2004		2003
	$		$		$
Cash on deposit		59,597,724		24,224,523		6,208,785
Bank term deposits
- Papua New Guinea kina deposits		—		4,315,513		—
- Australian dollar deposits		4,083		4,362		—
Papua New Guinea kina treasury bills		—		—		3,007,480
		59,601,807		28,544,398		9,216,265

5. Supplemental cash flow information

	December 31,		December 31,			December 31,
	2005		2004			2003
	$		$			$
Cash paid during the year
Interest		13,373,832		1,444,006			4,138,290
Income taxes		1,656,985		1,914,459			64,891
Interest received		1,800,062		671,479			149,631
Non-cash investing and financing activities:
Deferred financing costs included in accounts payable and accrued liabilities		100,000		—			—
Accrued financing costs and deferred financing costs		—		834,439			—
Increase in additional paid up capital as a result of a change in accounting policy for stock based compensation (note 2n)		—		645,216			—
Increase in due to related parties resulting from transfer of other assets		—		—			311,093
Increase in share capital from:
the exercise of share options		577,086		646,216			39,654
the exercise of warrants		120,375		—			—
oil and gas property expenditure paid for with stock		—		—			316,359
change in accounting policy for stock based compensation (note 2n)		—		92,434			—
transfer of deferred transaction costs on conversion of the debenture		—		(3,093,734	)		—
transfer of carrying value of debentures to share capital on conversion of the securities		—		42,890,448			—
conversion of indirect participation interest into share capital		923,000		9,226,260			—
shares issued to induce conversion of debentures		—		6,976,800			—
transaction costs being attributed to share capital transaction		—		300,000			—
Movement in accumulated deficit as a result of the inducement paid on conversion of the debentures		—		(6,899,211	)		—

All non-cash investing and financing activities disclosed in note 5 relate to the “corporate” segment except for those involving the oil and gas property expenditure paid for with stock (upstream) and accrued financing costs and deferred financing costs (midstream).

-14-

InterOil Corporation
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

6. Financial instruments

Restricted cash

With the exception of cash and cash equivalents and restricted cash, all financial assets are non-interest bearing. In 2005, cash and cash equivalents earned 2.9% on the cash on deposit which related to the working capital facility but was unrestricted. In 2005, cash and cash equivalents earned average interest rates of 1.3% per annum (2004 – 1.6%, 2003 – 1.5%) on bank term deposits. All other components of cash and cash equivalents are non-interest bearing. Restricted cash is comprised of the following:

	December 31,		December 31,		December 31,
	2005		2004		2003
	$		$		$
Cash deposit on working capital facility (2.9%)		16,452,216		15,497,127		—
Cash deposit on secured loan (2.1%)		106,267		—		—
Bank term deposits on Petroleum Prospecting Licenses (1.3%)		103,786		102,096		97,417
Managed trust		—		—		24,626,154
Pledged deposit		—		—		97,418
		16,662,269		15,599,223		24,820,989

Credit risk is minimized as all cash amounts and certificate of deposit are held with large banks which have acceptable credit ratings determined by a recognized rating agency. The carrying values of cash and cash equivalents, trade receivables, all other assets, accounts payable and accrued liabilities, all short-term loan facilities and amounts due to related parties approximate fair values due to the short term maturities of these instruments.

Cash held as deposit on the working capital facility supports the Company’s working capital facility with BNP Paribas. The balance is initially based on 20% of the outstanding balance of the facility subject to fluctuations or variations in inventory and accounts receivables. The cash held as deposit on secured loan supports the Company’s secured loan borrowings with the Overseas Private Investment Corporation (“OPIC”).

Bank term deposits on Petroleum Prospecting Licenses are unavailable to the company while Petroleum Prospecting Licenses 236, 237 and 238 are being utilized by the Company.

Commodity derivative contracts

InterOil uses derivative commodity instruments to manage exposure to price volatility on a portion of its refined product and crude inventories. As at December 31, 2005, InterOil had entered into jet kerosene crack spread swap agreements to hedge a portion of the anticipated 2006 sales of diesel and jet kerosene and crude swap agreements to hedge a portion of the anticipated 2006 sales of diesel, naphtha and low sulphur waxy residue. InterOil had also entered into swap agreements to hedge a portion of its anticipated first quarter 2006 naphtha sales and first quarter 2006 low sulphur waxy residue sales by buying and selling the raw material component, crude at fixed prices to match the timing of purchase and sale respectively.

At December 31, 2005, InterOil had a net receivable of $1,482,798 (2004 — $503,500, 2003 — $nil) relating to commodity hedge contracts. Of this total, a receivable of $897,798 (2004 — $503,500, 2003 — $nil) relates to hedges deemed effective at December 31, 2005 and a receivable of $585,000 (2004 — $nil, 2003 — $nil) relates to derivative contracts that were closed and for which hedge accounting has been discontinued. The gain on the derivative contracts for which hedge accounting was discontinued is included in general and administration expenses for the year ended December 31, 2005. The gain on the hedges on which final pricing will be determined in future periods of $1,016,998 (2004 — $ 537,358, 2003 — $nil) has been included in the deferred hedge gain liability on the balance sheet.

The following summarizes the effective hedge contracts by derivative type on which final pricing will be determined in future periods that are outstanding as at December 31, 2005:

Derivative	Type	Notional volumes (bbls)
Crude swap	Sell crude	300,000
Crude swap	Buy crude	250,000
Jet kerosene crack spread swap	Sell jet kerosene/buy crude	249,999

-15-

InterOil Corporation
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

6. Financial instruments (cont’d)

The comparative information as at December 31, 2004 is as follows:

Derivative	Type	Notional volumes (bbls)
Naphtha swap	Sell naphtha	50,000
Naphtha crack spread swap	Sell naphtha/buy crude	50,000

7. Trade receivables

At December 31, 2005, the Company had a discounting facility with BNP Paribas on specific monetary receivables (note 12). Under the facility, the company is able to sell on a revolving basis specific monetary receivables up to $40,000,000. As at December 31, 2005, $23,196,914 (2004 - $13,034,904, 2003 – not applicable) in outstanding accounts receivable had been sold with recourse under the facility. As the sale is with recourse, the receivables are retained on the balance sheet and included in the outstanding accounts receivable and the proceeds are recognized in the working capital facility. The Company has retained the responsibility for administering and collecting accounts receivable sold. The average effective rate on the discounting facility was approximately 6% (2004 — 6%).

At December 31, 2005 $39,430,264 (2004 — $49,989,840) of the trade receivables secures the BNP Paribas working capital facility disclosed in note 12.

8. Inventories

	December 31,		December 31,		December 31,
	2005		2004		2003
	$		$		$
Midstream (crude oil feedstock)		5,019,580		3,971,982		—
Midstream (refined petroleum product)		25,967,357		16,396,975		—
Downstream (refined petroleum product)		13,100,547		7,547,945		—
		44,087,484		27,916,902		—

At December 31, 2005, inventory had been written down to its net realizable value. The write down of $355,215 (2004 — $1,508,334) is included in cost of sales.

At December 31, 2005, $30,986,937 (2004 — $20,368,957) of the midstream inventory balance secures the BNP Paribas working capital facility disclosed in note 12.

9. Plant and equipment

The majority of the Company’s plant and equipment is located in PNG, except for items in the corporate segment with a net book value of $132,375 (2004 — $86,327, 2003 — $92,947) which are located in Australia. Amounts in deferred project costs and work in progress are not being amortised.

Consolidation entries relates to midstream assets which were created when the gross margin on 2004 refinery sales to the downstream segment were eliminated in the development stage of the refinery.

										Corporate &
Year ended December 31, 2005	Upstream			Midstream			Downstream			Consolidated			Totals
Plant and equipment		5,657,125			238,078,544			12,164,417			331,183			256,231,269
Deferred project costs and work in progress		—			1,987,085			1,386,488			—			3,373,573
Consolidation entries		—			—			—			(3,120,718	)		(3,120,718	)
Accumulated depreciation and amortisation		(308,378	)		(11,245,748	)		(7,332,042	)		(198,808	)		(19,084,976	)
Net book value		5,348,747			228,819,881			6,218,863			(2,988,343	)		237,399,148
Capital expenditure		—			3,284,108			1,902,334			95,782			5,282,224

-16-

InterOil Corporation
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

9. Plant and equipment (cont’d)

										Corporate &
Year ended December 31, 2004	Upstream			Midstream			Downstream			Consolidated			Totals
Plant and equipment		5,659,248			236,551,876			10,875,211			263,217			253,349,552
Deferred project costs and work in progress		—			—			949,924			—			949,924
Consolidation entries		—			—			—			(2,002,214	)		(2,002,214	)
Accumulated depreciation and amortisation		(19,792	)		(419,629	)		(7,317,596	)		(176,890	)		(7,933,907	)
Net book value		5,639,456			236,132,247			4,507,539			(1,915,887	)		244,363,355
Capital expenditure		1,131			40,532,990			1,320,644			83,920			41,938,685

									Corporate &
Year ended December 31, 2003	Upstream			Midstream			Downstream		Consolidated			Totals
Plant and equipment		5,655,994			43,218,420			—		179,472			49,053,886
Deferred project costs and work in progress		—			152,747,736			321,817		—			153,069,553
Consolidation entries		—			—			—		(165,647	)		(165,647	)
Accumulated depreciation and amortisation		(5,159	)		(107,643	)		—		(86,525	)		(199,327	)
Net book value		5,650,835			195,858,513			321,817		(72,700	)		201,758,465
Capital expenditure		5,658,117			81,226,712			100,333		53,791			87,038,953

10. Oil and gas properties

Costs of oil and gas properties which are not subject to depletion and depreciation and which have not been applied against the indirect participation interest liability (note 17) are as follows:

	December 31,		December 31,		December 31,
	2005		2004		2003
	$		$		$
Drilling equipment		15,100,860		5,353,471		6,992,867
Petroleum Propsecting License Drilling programs at cost
PPL 238		1,298,632		1,251,889		14,199,188
Other properties		—		—		1,825,960
		16,399,492		6,605,360		23,018,015

The following table discloses a breakdown of the exploration expenses presented in the statements of operations for the years ended:

	December 31,		December 31,		December 31,
	2005		2004		2003
	$		$		$
Exploration costs, excluding exploration impairment		—		2,903,313		—
Exploration impairment
Costs incurred in prior years		2,059,367		16,576,982		70,016
Costs incurred in current year		85,062		18,989,779		94,976
		2,144,429		35,566,761		164,992

- 17 -

InterOil Corporation Notes to Consolidated Financial Statements
(Expressed in United States dollars)

11. Income taxes

The combined income tax expense in the consolidated statements of operations reflects an effective tax rate which differs from the expected statutory rate (combined federal and provincial rates). Differences for the years ended were accounted for as follows:

	December 31,			December 31,			December 31,
	2005			2004			2003
	$			$			$
(Loss) before income taxes and non controlling interest		(36,818,729	)		(51,134,909	)		(3,503,131	)
Statutory income tax rate		35.10	%		35.12	%		35.12	%
Computed tax (benefit)		(12,923,374	)		(17,958,580	)		(1,230,300	)
Effect on income tax of:
Losses in foreign jurisdictions not deductible		2,834,689			2,273,530			(56,527	)
Non-deductible stock compensation expense		585,783			424,924			(13,926	)
Gains and losses on foreign exchange		268,843			58,659			302,499
Tax rate differential in foreign jurisdictions		1,224,361			(341,613	)		143,502
Over provision for tax in prior years		(113,950	)		(42,874	)		—
Tax losses for which no future tax benefit has been brought to account		9,845,189			2,696,330			836,142
Temporary differences for which no future tax benefit has been brought to account		1,123,458			14,552,726			—
Temporary differences brought to account on acquisition of subsidiary		(34,902	)		(488,027	)		—
Other — net		21,897			699,988			55,949
		2,831,994			1,875,063			37,339

The future income tax asset comprised the tax effect of the following:

	December 31,			December 31,			December 31,
	2005			2004			2003
	$			$			$
Future tax assets
Temporary differences
Plant and equipment		2,665,173			2,263,654			—
Exploration expenditure		12,184,351			11,541,022			—
Other — net		99,834			127,240			(1,194,314	)
		14,949,358			13,931,916			(1,194,314	)
Losses carried forward		17,373,507			4,850,380			2,558,406
		32,322,865			18,782,296			1,364,092
Less valuation allowance		(31,263,967	)		(17,478,665	)		(1,364,092	)
		1,058,898			1,303,631			—

All future tax assets recorded in the consolidated balance sheet relate to Papua New Guinea. The amounts are non current at December 31, 2005.

The valuation allowance for deferred tax assets increased by $13,785,302 in the year ended December 31, 2005, increased by $16,114,573 in the year ended December 31, 2004 and decreased by $673,421 in the year ended December 31, 2003. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the actual levels of past taxable income, scheduled reversal of deferred tax liabilities, projected future taxable income, projected tax rates and tax planning strategies in making this assessment. Management has determined that a 100% valuation allowance of the net operating loss carry-forward is appropriate as of December 31, 2005 in respect of losses generated from the refinery operations.

- 18 -

InterOil Corporation Notes to Consolidated Financial Statements
(Expressed in United States dollars)

11. Income taxes (cont’d)

The Project Agreement gives “pioneer” status to InterOil Limited. This status gives the Company a tax holiday beginning upon the date of the commencement of commercial production, January 1, 2005 and ending in five years on December 31, 2010.

In relation to the refinery, tax losses incurred prior to January 1, 2005 will be frozen during the five year tax holiday and will become available for use after the tax holiday ceases on December 31, 2010. In PNG, losses incurred prior to January 1, 2003 have a seven year carry forward limit. As a result, tax losses totaling K1,193,389 (US $388,329) will be lost prior to the expiry of the tax holiday. Tax losses carried forward to offset against future earnings total K71,799,811 (US $22,940,040) at December 31, 2005. Losses incurred in years subsequent to 2003 have a twenty year carry forward period.

12. Working capital facility – crude feedstock

In 2004 InterOil obtained a working capital credit facility with BNP Paribas (Singapore branch) with a maximum availability of $100,000,000. The facility was increased to $150,000,000 on August 12, 2005. The cash balance outstanding on the facility at December 31, 2005 was $70,724,322 (December 31, 2004 – $76,520,541) which included short term advances of $47,527,408 (December 31, 2004 — $63,485,637) and discounted monetary receivables of $23,196,914 (2004 — $13,034,904). This financing facility supports the ongoing procurement of crude oil for the refinery and includes related hedging transactions. The facility comprises a base facility to accommodate the issuance of letters of credit followed by secured loans in the form of short term advances. In addition to the base facility, the agreement offers both a cash secured short term facility and a discounting facility on specific monetary receivables (note 7). The facility is secured by sales contracts, purchase contracts, certain cash accounts associated with the refinery, all crude and refined products of the refinery and trade receivables.

The facility bears interest at LIBOR + 2.5% on the short term advances. During the year the weighted average interest rate was 5.81% (2004 – 4.36%).

The following table outlines the facility and the amount available for use at year end:

	December 31,			December 31,			December 31,
	2005			2004			2003
	$			$			$
Working capital credit facility		150,000,000			100,000,000			—
Less amounts outstanding:
Short term advances		(47,527,408	)		(63,485,637	)		—
Discounted receivables (note 7)		(23,196,914	)		(13,034,904	)		—
Letters of credit outstanding		(33,765,000	)		(14,000,000	)		—
Hedging facility		(1,500,000	)		—			—
Working capital credit facility available for use		44,010,678			9,479,459			—

At December 31, 2005, the company had a letter of credit outstanding for $33,765,000 (2004 - - $14,000,000) which expires on February 15, 2006 for a January crude receipt.

The cash deposit on working capital facility as separately disclosed in note 6 included restricted cash of $16,452,216 (2004 — $15,497,127) which was being maintained as a security market for the facility. In addition, inventory of $30,986,937 (2004 — $20,368,957), trade receivables of $34,371,072 (2004 — $46,911,393), and $5,059,192 (2004 — $3,078,447) of inter-company receivables which were eliminated on consolidation secured the facility.

- 19 -

InterOil Corporation Notes to Consolidated Financial Statements
(Expressed in United States dollars)

13. Acquisition of a subsidiary

In 2005, InterOil acquired 100% of the issued share capital of Direct Employment Services Company (“DESC”) and SPI InterOil Holdings Limited for a total cost of $2,000 which will be paid in cash. The purchase price reflects the book value of the shares at the time of acquisition. DESC was initially established for the purposes of providing non-profit management services to the Company for its U.S. employees and it has continued to provide management services to the Company since its acquisition. Prior to its acquisition, DESC was partially owned by Christian Vinson, the Company’s Chief Operating Officer. SPI InterOil Holdings Limited is a dormant shelf company to be used for a future business endeavor.

InterOil Products Limited

On April 28, 2004, InterOil, through its wholly owned subsidiary, SPI Distribution Limited, acquired 100% of the outstanding common shares of BP Papua New Guinea Limited which was subsequently renamed InterOil Products Limited (“IPL”). IPL is a distributor of refined petroleum products in Papua New Guinea.

The results of IPL’s operations have been included in the consolidated financial statements since April 28, 2004, the date control of IPL’s shares was transferred to InterOil. Under the purchase agreement, InterOil Corporation was entitled to the profit of IPL from March 1, 2004. The profit earned after tax between March 1, 2004 and April 28, 2004 of $1,243,746 was recognized as a reduction in the acquisition cost.

The adjusted purchase price is $13,226,854, including a service agreement for $1,000,000 related to the purchase. A deposit of $1,000,000 of the purchase price was paid in 2004. The remaining $12,226,854 (discounted amount $12,123,106) was paid on March 1, 2005 and was included in current liabilities in the financial statements at December 31, 2004.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.

	$
Cash		5,859,517
Trade receivables		8,241,400
Inventory		6,759,089
Other assets		1,614,249
Future income tax benefit		640,284
Property, plant and equipment		3,180,530
Total assets acquired		26,295,069
Accounts payable and accrued liabilities		(13,399,720	)
Net assets acquired		12,895,349

The net cash received from the purchase of IPL of $4,631,904 is comprised of $5,859,517 held by IPL at the time of acquisition less $1,000,000 paid relating to the acquisition price and $227,613 paid in transaction costs and in stamp duty.

14. Related parties

Amounts due to related parties of $nil (2004 – $1,056,251, 2003 — $1,478,751) represents monies owed to Petroleum Independent and Exploration Corporation (PIE) which acts as a sponsor of the Company’s oil refinery project. PIE is controlled by Phil Mulacek, an officer and director of InterOil. During the year, $1,056,251 of the loan to PIE was repaid. The loan had interest charged at a rate of 5.75% (2004 – 5.75%, 2003 – 5.75%) per annum. During the year ended December 31, 2004, PIE also advanced InterOil Corporation $1,775,565, which was repaid prior to December 31, 2004. The advance had interest charged at a rate of 6% per annum on a facility provided by Wells Fargo Bank Inc. During the year the Company incurred total interest to PIE amounting to $9,376 (2004 — $246,745, 2003 — $105,374). All of the interest collected by PIE on this loan was used to pay interest incurred under the Wells Fargo facility.

SPI does not have a Board of Directors. Instead, its articles of association provide for the business and affairs of SPI to be managed by a general manager appointed by the shareholders of SPI and its US sponsor under the Overseas Private Investment Corporation (OPIC), an agency of the US Government, loan. PIE has been appointed as the general manager of SPI. Under the laws of the Commonwealth of The Bahamas, the general manager exercises all powers which would typically be exercised by a Board of Directors, being those which are not required by laws or by SPI’s constituting documents to be exercised by the members (shareholders) of SPI. During the year, $150,000 (2004 — $150,410, 2003 — $150,000) was expensed for the sponsor’s (PIE) legal, accounting and reporting costs. Of this amount $75,000 was included in accrued liabilities at December 31, 2005. During 2003, PIE also waived $840,000 of management fees due to it for prior periods and this was reflected in the Consolidated Statement of Operations.

- 20 -

InterOil Corporation Notes to Consolidated Financial Statements
(Expressed in United States dollars)

14. Related parties (con’td)

Breckland Limited, a company controlled by Roger Grundy, a director of InterOil, provides technical and advisory services to the Company and/or subsidiaries on normal commercial terms. Amounts paid or payable to Breckland during the year amounted to $179,608 (2004 — $120,426, 2003 — $131,250).

The services of certain executive officers and senior management of the Company are provided under a management services agreement with DESC. DESC is a U.S. private Company that was partially owned by Christian Vinson, the Company’s Chief Operating Officer prior to its acquisition by InterOil on November 23, 2005 (note 13). In 2005, InterOil acquired 100% of the issued share capital of Direct Employment Services Company (“DESC”) for a total cost of $1,000 which will be paid in cash. Christian Vinson received $500 for his 50% interest in DESC. The purchase price reflects the book value of the shares at the time of acquisition. Prior to the acquisition, DESC was paid $549,978 (2004 — $708,104, 2003 — $535,855) for its management services.

Amounts due to Directors and executives at December 31, 2005 totaled $30,500 for Directors fees (2004 — $61,000 2003 — $30,500), and $573,571 for executive bonuses (2004 — $320,000, 2003 – $nil). These amounts are included in accounts payable and accrued liabilities.

15. Unsecured loan

On January 28, 2005, InterOil obtained a $20 million term loan facility of which a tranche of $10 million was received on January 31, 2005 and the balance of $10 million was received on February 25, 2005. The loan has an interest rate equal to 5% per annum payable quarterly in arrears and includes a 1% arrangement fee of the face amount. On July 21, 2005, the short term loan facility available to InterOil increased from $20 million to $25 million. The additional $5 million is to fund the purchase of new refinery generators and the conversion of the furnaces and fuel systems to burn specialty fuels. InterOil drew down a further $1,453,132 of the loan before December 31, 2005. The term of the loan is fifteen months from the disbursement dates, and is repayable at any time prior to expiry with no penalty. The loan has an interest rate equal to 5% per annum. In addition, the financier has an irrevocable right to participate in a subsequent equity financing up to an amount of $40 million.

16. Secured loan

On June 12, 2001, the Company entered into a loan agreement with OPIC to secure a project financing facility of $85,000,000. The facility is fully drawn down at December 31, 2005. The loan is secured over the assets of the refinery project which have a carrying value of $225,669,179 at December 31, 2005 (2004 — $236,132,247, 2003 – $195,858,513).

The loan expires December 31, 2014 and half yearly repayments of $4,500,000 commenced on December 31, 2005. During the year ended December 31, 2005, the repayment schedule was amended to reflect the delay in the commencement of refinery operations. The agreement contains certain financial covenants which include the maintenance of minimum levels of tangible net worth and limitations on the incurrence of additional indebtedness. Certain financial covenants were increased for the year ended December 31, 2005 to reflect the impact of higher crude prices.

The interest rate on the loan is equal to the treasury cost applicable to each promissory note outstanding plus the OPIC spread (3%). During 2005 the weighted average interest rate was 7.10% (2004 – 6.65 %, 2003 – 6.70%) and the total interest expense included in long term borrowing costs was $6,038,887(2004 — $nil, 2003 — $nil).

Deferred financing costs of $1,256,816 (2004 — $1,311,488, 2003 — $551,000) are being amortized over the period until June 2014. Of these costs, $475,000 (2004 — $551,000, 2003 — $551,000) were originally included as part of the cost of the refinery and have been separated out from refinery assets in the current and prior periods.

The accrued financing costs of $921,109 include discounting of the liability for a 12 month period. The total liability is $950,000 and will be due for payment at project completion as defined by the loan agreement with OPIC. Project completion will be reached when OPIC notifies PIE (sponsor of refinery project – see note 14) that the physical, operational, legal and financial completion tests have been met. The Company does not expect to meet the requirements for project completion in the next 12 months.

- 21 -

InterOil Corporation Notes to Consolidated Financial Statements
(Expressed in United States dollars)

17. Indirect participation interest

Indirect participation interest

	December 31,		December 31,		December 31,
	2005		2004		2003
	$		$		$
Current portion		35,092,558		13,749,852		—
Non current portion		30,166,311		—		—
Total indirect participation interest		65,258,869		13,749,852		—

Prior to December 31, 2004, the Company received deposits of $13,749,852 toward an $125,000,000 additional indirect participation interest (“IPI”). The remaining $111,250,148 was received in 2005. The $125,000,000 is subject to the terms of the agreement dated February 25, 2005 between the corporation and certain investors under which InterOil has provided the investors with a 25% interest in an eight well drilling program to be conducted in InterOil’s petroleum prospecting licenses 236, 237 and 238. Under the agreement, all or part of this indirect participation interest may be converted to a maximum of 3,333,334 common shares in the company between June 15, 2006 and the later of December 15, 2006 or until 90 days after the completion of the eighth well at a price of $37.50 per share. Should the conversion to shares not be exercised, the indirect participation interest in the eight well drilling program will be maintained and distributions from success in these wells will be paid in accordance with the agreements. Any partial conversion of an indirect participation interest into common shares will result in a corresponding decrease in the investors’ interest in the eight well drilling program.

Under the indirect participation interest, InterOil is responsible for drilling the eight wells, four of which will be in PPL 238, one in PPL 236, and one in PPL 237. The investors will be able to approve the location of the final two wells. In the instance that InterOil proposes completion of an exploration or development well, the investors will be asked to contribute to the completion work in proportion to their IPI percentage. InterOil will bear the remaining cost. Should an investor choose not to participate in the completion works, the investor will forfeit their right to the well in question as well as their right to convert into common shares.

InterOil has accounted for the $125,000,000 indirect participation interest as a non financial liability with a conversion option. The value of the conversion was $27,249,587. The balance of $97,750,413 was allocated to the indirect participation interest liability.

All costs incurred by the company relating to the eight well drilling program, including geological and geophysical costs, and commission costs associated with structuring the agreement, will be charged against the liability to a maximum amount of $97,750,413. For the period ending December 31, 2005, $31,774,513 has been charged against the liability for geological and geophysical costs and drilling costs and an additional $6,364,523 has been charged against the liability for finance and transaction costs. The liability and the accretion expense were increased during the year by $5,647,491. This amount represents the accretion of the discount calculated on the non-financial liability component of the indirect participation interest. InterOil will bear the costs for subsequent works projects and completion activities in proportion to its remaining ownership in the eight wells. These costs are accounted for in accordance with the company’s stated accounting policies.

InterOil paid financing fees and transaction costs of $8,138,742 related to the indirect participation interest on behalf of the indirect participation interest investors. These fees have been apportioned between the indirect participation interest and the conversion options in the same proportion as the original $125,000,000 was allocated between the non financial liability and the conversion options. The indirect participation interest liability portion of the finance and transaction costs was $6,364,523 and the remaining $1,774,219 was allocated against the conversion option, reducing the conversion option value to $25,475,368.

Indirect participation interest — PNGDV

As at December 31, 2005, the balance of the PNG Drilling Ventures Limited (“PNGDV”) indirect participation interest in the Company’s phase one exploration program within the area governed by Petroleum Prospecting Licenses “PPL” 236, 237 and 238 is $9,685,830. The total invested by PNGDV in the indirect participation interest is $12,185,000. As of December 31, 2005, PNG Drilling Ventures Limited had converted $2,499,170 of their investment into 141,545 of InterOil’s common shares, of this $923,000 was converted in 52,000 common shares in the current year. If the Company’s exploration program does not discover at least five million barrels of oil and gas, the $9,685,830 balance of the investment is convertible into 237,356 common shares plus $5,500,000 payable, at the Company’s discretion, in cash or common shares based on the average price of the Company’s shares in the month preceding such payment. PNGDV has an interest in the drilling program that will range from 6.75% to 11.25% depending upon various elections.

Other

In addition to the above, PNG Energy Investors (“PNGEI”), an indirect participation interest investor, that converted all of its interest to common shares in fiscal year 2004, has the right to participate up to a 4.25% interest in wells 9 to 24. In order to participate, PNGEI would be required to contribute a proportionate amount of drilling costs related to these wells.

- 22 -

InterOil Corporation Notes to Consolidated Financial Statements
(Expressed in United States dollars)

18. Non controlling interest

On September 11, 1998 Enron Papua New Guinea Ltd (“Enron”), SPI’s former joint venture partner, exercised its option (pursuant to a January 1997 joint venture agreement with SPI) to terminate the joint venture agreement. Consequently, SPI purchased Enron’s voting, non-participating shares in E.P. InterOil Limited (“EPI”), a wholly owned subsidiary of SPI, for a nominal amount. Enron no longer actively participates in the refinery operations but continues to be a non-voting participating shareholder in EPI. SPI now holds all voting non-participating shares issued from EPI and has sole responsibility for managing the refinery. Enron does not hold any transfer or conversion rights into shares of InterOil Corporation.

At December 31, 2005, a subsidiary, SP InterOil LDC, holds 98.83% (2004 – 98.74%, 2003 — 98.66%) of the non-voting participating shares issued from EPI.

19. Share capital

The authorized share capital of the Company consists of an unlimited number of common shares with no par value. Each common share entitles the holder to one vote.

Common shares

Changes to issued share capital were as follows:

	Number of shares		$
January 1, 2003		20,585,943		94,120,609
Shares issued for cash		3,817,500		61,060,640
Shares issued for conversion of convertible debt		31,240		316,359
Shares issued on exercise of options		381,278		1,951,592
December 31, 2003		24,815,961		157,449,200
Shares issued for conversion of convertible debt and indirect participation interest		3,184,828		56,698,121
Shares issued on exercise of options		310,095		2,666,333
December 31, 2004		28,310,884		216,813,654
Shares issued for indirect participation interest		52,000		923,000
Shares issued on exercise of warrants		19,168		540,346
Shares issued on exercise of options		781,268		5,657,500
December 31, 2005		29,163,320		223,934,500

- 23 -

InterOil Corporation

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

20. Stock options

At December 31, 2005, there were 911,068 common shares reserved for issuance under the Company stock option plan.

Options are issued at no less than market price to directors, staff and contractors. Options are exercisable on a 1:1 basis. Options vest at various dates in accordance with the applicable option agreement, have an exercise period of three to five years assuming continuous employment by the InterOil Group and may be exercised at any time after vesting within the exercise period. Upon resignation or retirement, vested options must be exercised within 30 days for employees and 90 days for directors.

	December 31, 2005						December 31, 2004						December 31, 2003
				Weighted						Weighted						Weighted
	Number of			average			Number of			average			Number of			average
Stock options outstanding	options			exercise price $			options			exercise price $			options			exercise price $
Outstanding at beginning of year		1,162,322			9.91			1,363,265			7.55			1,510,085			5.48
Granted		516,450			25.82			224,460			26.30			257,802			14.09
Exercised		(781,322	)		(6.50	)		(310,095	)		(6.52	)		(381,278	)		(4.62	)
Forfeited		(74,000	)		(13.11	)		(100,308	)		(25.28	)		(23,344	)		(5.75	)
Expired		(76,650	)		(26.01	)		(15,000	)		(8.00	)		—			—
Outstanding at end of year		746,800			22.27			1,162,322			9.91			1,363,265			7.55

	Options issued and outstanding						Options exercisable
					Weighted average
Range of exercise			Weighted average		remaining term				Weighted average
prices $	Number of options		exercise price $		(years)		Number of options		exercise price $
2.75 to 5.00		20,000		4.00		0.47		20,000		4.00
5.01 to 8.00		50,000		5.62		1.34		40,000		5.27
8.01 to 12.00		69,700		10.98		0.93		30,700		10.25
12.01 to 24.00		287,000		23.11		3.08		109,000		23.91
24.00 to 31.00		320,100		27.71		2.94		94,500		30.25
		746,800		22.27		2.87		294,200		20.63

The fair value of the 516,450 (2004 – 224,460, 2003 – 257,802) options granted subsequent to January 1, 2005 has been estimated at the date of grant in the amount of $4,834,139 (2004 - $1,122,938, 2003 — $1,087,131) using a Black-Scholes pricing model with the following assumptions: risk-free interest rate of 2.5% (2004 – 2.5%, 2003 – 3.2%), dividend yield of nil (2004 – nil, 2003 - - nil), volatility factor of the expensed market price of the Company’s common stock of 45% for grants between January 1, 2005 and June 30, 2005, a volatility factor of the expensed market price of the Company’s common stock of 55% for grants between July 1, 2005 and December 31, 2005 (2004 – 45%, 2003 – 45%), and a weighted average expected life of the options of 3.4 years (2004 – 3.8 years, 2003 – 3 years). An amount of $1,668,896 (2004 – $1,202,921) has been recognized as compensation expense. In 2003, $530,794 was recognized as a proforma compensation expense disclosure. The estimate fair value of the options is expensed over the option’s vesting period, which is identified in the individual option agreements.

21. Debentures and warrants

In 2004, InterOil issued a total of $45 million in senior convertible debentures. The debentures were to mature on August 28, 2009 and bore interest at a rate of 8.875% per annum, payable quarterly. The debentures were converted into 2,232,143 common shares of the Company at a fixed conversion price of $20.16 per share on December 31, 2004 at the investors’ option. The company also issued 180,000 additional shares to debenture holders in connection with their conversion of debt to equity. As a result of the issuance of the 180,000 additional shares, share capital increased by $6,976,800 which represents the fair market value of the shares on the date they were issued. In connection with these shares $77,589 was recognized as a debt conversion expense and $6,899,211 was recorded to accumulated deficit during the year ended December 31, 2004.

- 24 -

InterOil Corporation

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

21. Debentures and warrants (cont’d)

In 2004, in connection with the issuance of senior convertible debentures, InterOil issued five-year warrants to purchase 359,415 common shares at an exercise price equal to $21.91. A total of 340,247 (2004 – 359,415) were outstanding at December 31, 2005. The warrants are exercisable between August 27, 2004 and August 27, 2009. The warrants are recorded at the fair value calculated at inception as a separate component of equity. The fair value was calculated using a Black-Scholes pricing model with the following assumptions: risk-free interest rate of 2.5%, dividend yield of nil, volatility factor of the expected market price of the Company’s common stock of 45% and a weighted average expected life of the warrants of five years.

22. Loss per share

Warrants, conversion options and stock options totaling 4,885,762 common shares at prices ranging from $4.00 to $37.50 were outstanding in 2005 (2004 – 2,155,042 common shares at prices ranging from $2.75 to $30.40, 2003 – 2,769,940 common shares at prices ranging from $2.75 to $30.40 per share) but were not included in the computation of the diluted loss per share because they caused the loss per share to be antidilutive.

23. Commitments and contingencies

Payments due by period contractual obligations are as follows:

			Less than										More than 5
	Total		1 year		1-2 years		2-3 years		3-4 years		4-5 years		years
	’000		’000		’000		’000		’000		’000		’000
Secured loan obligations		80,500		9,000		9,000		9,000		9,000		9,000		35,500
Unsecured loan obligations		21,453		21,453		—		—		—		—		—
Indirect participation interest — PNGDV (a)		5,500		—		5,500		—		—		—		—
Indirect participation interest (note 17)		65,259		35,093		30,166		—		—		—		—
Capital expenditure commitments relating to refinery optimisation program (b)		4,600		4,600		—		—		—		—		—
Petroleum prospecting and retention licenses (c)		160		160		—		—		—		—		—
		177,472		70,306		44,666		9,000		9,000		9,000		35,500

(a)	The non current indirect participation interest terms provide for various conversion options. The amount provided is the maximum amount that can be converted to debt and differs to the amount presented in the December 31, 2005 Consolidated Balance Sheet due to conversion requirements into the Company’s full paid common shares. The non current indirect participation interest balance of $9,685,830 is convertible into 237,356 common shares plus $5,500,000 payable, at the Company’s discretion, in cash or common shares based on the average price of the Company’s shares in the month preceding such payment. PNGDV has an interest in the drilling program that will range from 6.75% to 11.25% depending upon various elections.
(b)	The company is in the process of a number of projects relating to optimizing the refinery’s output. Capital expenditure commitments of $4,600,000 have been made with respect to this program.
(c)	The amount pertaining to the petroleum prospecting and retention licenses represents the amount InterOil is required to spend over the next two years to maintain the exploration licenses. The committed amount can be spent in any proportion over the two years. In addition to this amount, InterOil must drill an exploration well on PPL 237 prior to March 2007. As the cost of drilling this well cannot be estimated, it is not included within the above table.

The company is involved in various claims and litigation arising in the normal course of business. While the outcome of these matters is uncertain and there can be no assurance that such matters will be resolved in the Company’s favour, the Company does not currently believe that the outcome of adverse decisions in any pending or threatened proceedings related to these and other matters or any amount which it may be required to pay by reason thereof would have a material adverse impact on its financial position, results of operations or liquidity.

The Company has income tax filings that are subject to audit and potential reassessment. The findings may impact the tax liability of the Company. The final results are not reasonably determinable at this time and management believes that it has adequately provided for current and future income taxes.

- 25 -

InterOil Corporation

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

24. Reconciliation to accounting principles generally accepted in the United States

The audited consolidated financial statements of the Company for the twelve month periods ended December 31, 2005, 2004 and 2003 have been prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) which, in most respects, conforms to generally accepted accounting principles in the United States (“U.S. GAAP”). The reconciliations and other information presented in this note are solely in relation to the consolidated financial statements. The significant differences between Canadian GAAP and U.S. GAAP as they relate to the Company are presented throughout this note. Additionally, where there is no significant conflict with Canadian GAAP requirements some of the additional U.S. GAAP disclosure requirements have been incorporated throughout the Canadian GAAP financial statements.

Consolidated statements of operations

The following table presents the consolidated statements of operations under U.S. GAAP compared to Canadian GAAP:

	Year Ended
	December 31, 2005						December 31, 2004						December 31, 2003
	$						$						$
	Canadian GAAP			U.S. GAAP			Canadian GAAP			U.S. GAAP			Canadian GAAP			U.S. GAAP
Revenue
Sales and operating revenues (1)		481,180,645			481,180,645			70,644,486			121,974,268			—			—
Interest income		1,830,808			—			382,461			—			246,912			—
Other income		528,270			—			196,337			—			12,368			—
		483,539,723			481,180,645			71,223,284			121,974,268			259,280			—
Expenses
Cost of sales and operating expenses (excluding depreciation shown below) (1)		467,246,990			467,400,576			65,344,516			129,871,126			—			—
Administrative and general expenses (1), (2)		14,672,793			14,687,717			7,831,550			8,081,740			2,264,187			2,264,187
Management fees for prior periods waived		—			—			—			—			(840,000	)		(840,000	)
Depreciation and amortization (1)		11,036,550			10,836,696			639,075			1,462,953			73,068			73,068
Exploration costs, excluding exploration impairment		—			—			2,903,313			2,903,313			—			—
Exploration impairment		2,144,429			2,144,429			35,566,761			35,566,761			164,992			164,992
Legal and professional fees (1)		3,606,415			3,606,415			3,573,727			3,655,631			1,421,390			1,421,390
Short term borrowing costs		8,855,857			8,855,857			4,705,190			4,705,190			—			—
Long term borrowing costs (1)		6,351,337			6,351,337			1,401,256			1,897,029			—			—
Accretion expense		5,647,491			5,647,491			—			—			—			—
Debt conversion expense (5)		—			—			—			6,976,800			—			—
Gain on revaluation of conversion options (6)		—			(4,279,284	)		—			—			—			—
Foreign exchange loss (2)		796,590			796,590			392,805			392,805			678,774			(7,392,002	)
Non-controlling interest (7)		(368,312	)		(368,475	)		(70,091	)		(265,624	)		(22,901	)		94,341
Interest income		—			(1,830,808	)		—			(382,461	)		—			(246,912	)
Other income		—			(528,270	)		—			(196,337	)		—			(12,368	)
		519,990,140			513,320,271			122,288,102			194,668,926			3,739,510			(4,473,304	)
Income/(loss) before income taxes		(36,450,417	)		(32,139,626	)		(51,064,818	)		(72,694,658	)		(3,480,230	)		4,473,304
Income tax expense (3)		(2,831,994	)		(2,831,994	)		(1,875,063	)		(1,875,063	)		(37,339	)		(37,339	)
Income/(loss) before cumulative effect of accounting change		(39,282,411	)		(34,971,620	)		(52,939,881	)		(74,569,721	)		(3,517,569	)		4,435,965
Cumulative effect of accounting change (4)		—			—			—			(737,650	)		—			—
Net income/(loss)		(39,282,411	)		(34,971,620	)		(52,939,881	)		(75,307,371	)		(3,517,569	)		4,435,965

- 26 -

InterOil Corporation

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

24. Reconciliation to accounting principles generally accepted in the United States (cont’d)

Statements of comprehensive income/(loss), net of tax

	Year Ended
	December 31,			December 31,			December 31,
	2005			2004			2003
	$			$			$
Net income/(loss) in accordance with U.S. GAAP, net of tax		(34,971,620	)		(75,307,371	)		4,435,965
Foreign currency translation reserve, net of tax		14,243			463,200			—
Deferred hedge gain, net of tax		457,184			537,358			—
Total other comprehensive income, net of tax		471,427			1,000,558			—
Comprehensive income/(loss), net of tax		(34,500,193	)		(74,306,813	)		4,435,965

Statements of accumulated other comprehensive income, net of tax (AOCI)

					Total
	Foreign				accumulated
	currency				other
	translation		Deferred hedge		comprehensive
	reserve		gain		income
AOCI balance as of December 31, 2001		—		—		—
Current period change		—		—		—
AOCI balance as of December 31, 2002		—		—		—
Current period change		—		—		—
AOCI balance as of December 31, 2003		—		—		—
Current period change		463,200		537,358		1,000,558
AOCI balance as of December 31, 2004		463,200		537,358		1,000,558
Current period change		14,243		457,184		471,427
AOCI balance as of December 31, 2005		477,443		994,542		1,471,985

Per share amounts

Basic per share amounts computed by dividing net income available to shareholders by the weighted average number of shares outstanding for the reporting period. Diluted per share amounts reflects the potential dilution that could occur if options or contracts to issue shares were exercised or converted into shares.

For the calculation of diluted per share amounts, the basic weighted average number of shares is increased by the dilutive effect of stock options determined using the treasury method. No potential shares in options on issue were dilutive for the years ended December 31, 2005 and December 31, 2004. Antidilutive options on issue for the year ended December 31, 2003 were 35,822.

Weighted average number of shares on which earnings per	Year ended December 31,
share calculations are based in accordance with U.S. GAAP	2005			2004			2003
Basic		28,832,263			25,373,575			22,649,924
Effect of dilutive options		—			—			1,542,214
Diluted		28,832,263			25,373,575			24,192,138
Net income/(loss) per share in accordance with U.S. GAAP
Basic		(1.21	)		(2.97	)		0.20
Diluted		(1.21	)		(2.97	)		0.18

- 27 -

InterOil Corporation

Notes to Consolidated Financial Statements
(Expressed in United States dollars)

24. Reconciliation to accounting principles generally accepted in the United States (cont’d)

Consolidated balance sheets

	December 31, 2005				December 31, 2004				December 31, 2003
	Canadian GAAP		U.S. GAAP		Canadian GAAP		U.S. GAAP		Canadian GAAP		U.S. GAAP
Current assets		173,442,742		173,442,742		132,258,350		132,258,350		35,012,370		35,012,370
Oil and gas properties		16,399,492		16,399,492		6,605,360		6,605,360		23,018,015		23,018,015
Capital assets (1), (2)		237,399,148		225,171,193		244,363,355		232,496,306		201,758,465		204,817,578
Deferred financing costs		1,256,816		1,256,816		1,311,488		1,311,488		551,000		551,000
Future income tax benefit (3)		1,058,898		1,058,898		1,303,631		1,303,631		—		—
Total assets		429,557,096		417,329,141		385,842,184		373,975,135		260,339,850		263,398,963
Current liabilities (2), (6)		167,192,503		188,187,731		142,197,050		141,659,692		—		—
Accrued financing costs		921,109		921,109		863,329		863,329		16,314,334		16,314,334
Long term debt (6)		111,352,141		110,536,000		86,608,830		86,608,830		90,600,000		90,600,000
Non-controlling interest (7)		6,023,149		5,682,695		6,404,262		6,063,971		6,467,496		6,322,739
Shareholders’ equity (1) (2) (4) (5) (6)		144,068,194		112,001,606		149,768,713		138,779,313		146,958,020		150,161,890
Total liabilities and shareholders’ equity		429,557,096		417,329,141		385,842,184		373,975,135		260,339,850		263,398,963

(1)	Operations
	The Company determined that refinery operations commenced under U.S. GAAP at December 1, 2004, which is the date management assessed that construction of the refinery was substantially complete and ready for its intended use. The Company ceased capitalization of certain costs to the refinery project at this date and recognized one month’s results from sales, related costs of sales and operating expenses and administrative and general expenses in the statement of operations for the year ended December 31, 2004.
	As disclosed in note 2(h) in the consolidated financial statements, operations commenced on January 1, 2005 under Canadian GAAP. Therefore, the Company continued to capitalize December 2004’s results to the refinery project. Due to the difference in the cost basis of the refinery, the depreciation expense recorded under U.S. GAAP differs from that recorded under Canadian GAAP during 2005.
	In the prior year, in addition to recognizing December 2004’s results in the statement of operations, one month of depreciation expense was also recorded under U.S. GAAP for the refinery during 2004. The useful life for the refinery under U.S. GAAP is the same as that disclosed under Canadian GAAP in note 2(h) in the consolidated financial statements.
(2)	Derivative instruments and hedging
	The Company accounts for derivatives and hedging activities in accordance with FASB Statement No. 133, “Accounting for Derivative Instruments and Certain Hedging Activities”, as amended (“SFAS No. 133”), which requires that all derivative instruments be recorded on the balance sheet at their respective fair values.
	The Company elected not to adopt the FASB’s optional hedge accounting provisions when SFAS No. 133 became effective on January 1, 2001. Accordingly unrealized gains and losses resulting from the valuation of derivatives at fair value arising during the year ended December 31, 2003 were recognized in income as the gains and losses arose under U.S. GAAP. Under Canadian GAAP for these years, the Company continued to recognize the gains and losses on derivative contracts designated as hedges concurrently with the recognition of the transactions being hedged.
	The Canadian Institute of Chartered Accountants issued Accounting Guideline 13 “Hedging Relationships” (“AcG-13”), which became effective January 1, 2004. This guideline was issued to align certain accounting principles under Canadian GAAP with SFAS No. 133, including hedge documentation and assessing hedge effectiveness. The Company adopted the hedge accounting provisions in AcG-13 and SFAS No. 133 in respect of the commodity forward contracts it transacted beginning in July 2004. Under Canadian GAAP, the Company includes hedges which are unsettled at period end in current liabilities based on a marked to market calculation. Under SFAS No. 133 the marked to market amount for the unsettled hedges is included in other comprehensive income to the extent that they are effective. The ineffective portion is expensed. Details of the hedge accounting is disclosed in notes 2(f) and 6 in the consolidated financial statements of the Company for the year ended December 31, 2005.

- 28 -

InterOil Corporation
Notes to Consolidated Financial Statements (Expressed in United States dollars)

24. Reconciliation to accounting principles generally accepted in the United States (cont’d)

(3)	Income tax effect of adjustments
	The income tax effect of U.S. GAAP adjustments was a reduction to the future tax asset of $1,497,267 for the year ended December 31, 2005 due to a decrease in the loss carryforwards. A corresponding decrease in the valuation allowance was recorded. No income tax expense was recorded in the years ended December 31, 2005, 2004 and 2003 due to the tax holiday period in PNG through five years after the refinery commences operations.
(4)	Stock based compensation
	FASB Statement No. 123, “Accounting for Stock-based Compensation” (“SFAS No. 123”), establishes financial accounting and reporting standards for stock-based employee compensation plans as well as transactions in which an entity issues its equity instruments to acquire goods or services from non-employees.
	Prior and during the year ended December 31, 2003, the Company issued options to non-employees that were direct awards of stock or that called for settlement by the issuance of equity instruments using the fair value method. The Company followed the provisions of the Canadian Institute of Chartered Accountants in Handbook Section 3870, “Stock-based compensation and other stock-based payments” (“CICA 3870”), which resulted in recognition of compensation expense for stock options issued to non-employees under Canadian GAAP on a basis consistent with the requirements of SFAS No. 123.
	As permitted under SFAS No. 123, the Company also issued options to employees that were direct awards of stock using the intrinsic value method, which is provided for in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”. Where options were granted with exercise prices equal to the market price when the options were granted, no compensation expense was recorded at the time of the option grants. Had compensation cost for the Company’s stock options been determined based on the fair market value at the grant dates of the awards, and amortized on a straight-line basis, consistent with methodology prescribed by SFAS No. 123, the Company’s net income and net income per share for the years ended December 31, 2003 would have been the pro forma amounts indicated as follows:

	Year ended
	December 31, 2003
Net income in accordance with U.S. GAAP		4,435,965
Pro forma stock based compensation		(530,794	)
Pro forma net income		3,905,171
Earnings per share as reported
Basic		0.20
Diluted		0.18
Pro forma earnings per share
Basic		0.17
Diluted		0.16

The fair values of all common share options granted are estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average fair market value of options granted during the year and the assumptions used in their determination are the same as note 20 to the consolidated financial statements.

At January 1, 2004, the Company adopted the provisions of CICA 3870 in respect of the employee stock-based awards, which resulted in recognition of compensation expense for such awards under Canadian GAAP on a basis consistent with the fair value provisions of SFAS No. 123. As disclosed in note 2(n) to the consolidated financial statements, the Company retroactively applied the fair value method to all employee stock options granted on or after January 1, 2002, without restatement to prior years.

- 29 -

InterOil Corporation
Notes to Consolidated Financial Statements (Expressed in United States dollars)

24. Reconciliation to accounting principles generally accepted in the United States (cont’d)

(4)	Stock based compensation (cont’d)
	This is not consistent with the modified prospective transition method allowed for a voluntary change to the fair value method under FASB Statement No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123” (“SFAS No. 148”). The modified prospective method requires retroactive consideration of all employee stock awards granted, modified or settled on or after January 1, 1995. The Company did not adjust for this GAAP difference as there were no options granted, modified or settled between January 1, 1995 and January 1, 2002 that would have materially impacted net income for the years ended December 31, 2005, 2004 and 2003.
	The cumulative effect of this change in accounting principle of $737,650 was recorded to opening accumulated deficit under Canadian GAAP. This is required to be disclosed as a cumulative change in accounting principle in the statement of operations under U.S. GAAP.
(5)	Debt conversion expense
	As disclosed in note 21 in the consolidated financial statements, 100% of the convertible debentures were converted before December 31, 2004. The Company issued an additional 180,000 shares to induce conversion before the end of the year. Under Canadian GAAP, the fair value of these shares was recorded as an increase in share capital of $6,976,800 with offsetting adjustments to retained earnings of $6,899,211 and a conversion expense of $77,589.
	FASB Statement No. 84, “Induced Conversions of Convertible Debt” requires an expense to be recorded when convertible debt is converted under an inducement. The Company recognized the entire fair value of the inducement shares of $6,976,800 as a conversion expense under U.S. GAAP.
(6)	Indirect participation interest
	As disclosed in note 17 in the consolidated financial statements, the company entered into an indirect participation interest agreement in exchange for proceeds of $125,000,000. Under Canadian GAAP, this amount was apportioned between non financial liabilities and equity.
	EITF 00-19 “Accounting for derivatives indexed to and potentially settled in a company’s own stock” requires the conversion options to be treated as a current liability. As a result, the conversion options should be adjusted to their fair market value on the reporting date. As such the company has recognised a gain on the revaluation of conversion options totalling $4,279,284 at December 31, 2005.
	Under Canadian GAAP, the company split $8,138,742 of transaction costs relating to the indirect participation interest agreement between the indirect participation interest liability ($6,364,523) and the conversion options ($1,774,219). Under US GAAP the full amount of $8,138,742 has been allocated to the indirect participation interest liability.
(7)	Non controlling interest
	The non-controlling interest movements are the result of the US GAAP adjustments relating to the midstream operations described in points 1 to 4 above.

Acquisition of InterOil Products Limited (“IPL”)

The following summary unaudited pro forma condensed consolidated financial information for the twelve month periods ended December 31, 2004 and 2003 shows the estimated pro forma impact on the Company’s consolidated financial statements of the acquisition of IPL as of April 28, 2004. Refer to note 13 of the consolidated financial statements.

This pro forma information is based on management’s current estimates of, and good faith assumptions regarding, the adjustments arising from the transactions described above. The pro forma adjustments are based on currently available information and actual adjustments could differ materially from current estimates.

The pro forma information does not purport to represent what the financial position and results of operations would actually have been had the acquisition of IPL been consummated on the dates indicated or to project the financial position of any future date of operations of any future period.

- 30 -

InterOil Corporation
Notes to Consolidated Financial Statements (Expressed in United States dollars)

24. Reconciliation to accounting principles generally accepted in the United States (cont’d)

Acquisition of InterOil Products Limited (“IPL”)

The following pro forma statements of earnings for the years ended December 31, 2004 and 2003 give effect to the acquisition of IPL as if it had occurred on January 1, 2003.

	InterOil			IPL (1)		Pro forma
Twelve months ended December 31, 2004	(audited)			(unaudited)		(unaudited)
Sales and operating revenue — Canadian GAAP		70,644,486			27,317,000		97,961,486
Sales and operating revenue — US GAAP		121,974,268			27,317,000		149,291,268
Net profit/(loss) — Canadian GAAP		(52,939,881	)		2,350,000		(50,589,881	)
Net profit/(loss) — U.S. GAAP		(75,307,371	)		2,350,000		(72,957,371	)
Basic loss per share (cents per share)
Canadian GAAP (2)		(208	)				(199	)
U.S. GAAP (3)		(297	)				(287	)
Diluted loss per share (cents per share)
Canadian GAAP (2)		(208	)				(199	)
U.S. GAAP (3)		(297	)				(287	)

	InterOil			IPL (1)		Pro forma
Twelve months ended December 31, 2003	(audited)			(unaudited)		(unaudited)
Sales and operating revenue — Canadian and U.S. GAAP		—			69,897,000		69,897,000
Net profit/(loss) — Canadian GAAP		(3,517,569	)		6,474,000		2,956,431
Net profit — U.S. GAAP		4,435,965			6,474,000		10,909,965
Basic earnings/(loss) per share (cents per share)
Canadian GAAP (2)		(15	)				14
U.S. GAAP (3)		20					49
Diluted earnings/(loss) per share (cents per share)
Canadian GAAP (2)		(15	)				13
U.S. GAAP (3)		18					45

(1)	Financial data for the year ended December 31, 2004 represents results for the period from January 1, 2004 to April 28, 2004, the effective date the Company gained control of IPL, and is derived from the unaudited management accounts of IPL. Financial data for the year ended December 31, 2003 represents the actual results for the year ended December 31, 2003.
(2)	The weighted average number of shares used in the earnings per share information is consistent with that used under Canadian GAAP for the respective periods.
(3)	The weighted average number of shares used in the earnings per share information is consistent with that used under U.S. GAAP for the respective periods.

- 31 -

InterOil Corporation
Notes to Consolidated Financial Statements (Expressed in United States dollars)

24. Reconciliation to accounting principles generally accepted in the United States (cont’d)

Recent Accounting Pronouncements

Accounting for inventory costs

In November 2004, the FASB issued FAS 151, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and waste materials as they relate to inventory costing. FAS 151 requires these items to be recognized as current period expenses. Additionally, the allocation of fixed production overheads to the cost of inventory should be based on the normal capacity of the production facilities. FAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect that the application of FAS 151 will have a material impact on the financial statements.

Accounting for exchanges of nonmonetary assets

In December 2004, the FASB issued FAS 153, which deals with the accounting for the exchanges of nonmonetary assets. FAS 153 is an amendment of APB Opinion 29. APB Opinion 29 requires that exchanges of nonmonetary assets should be based on the fair value of the assets exchanged. FAS 153 amends APB Opinion 29 to eliminate the exception from using fair market value for nonmonetary exchanges of similar productive assets and introduces a broader exception for exchanges of nonmonetary assets that do not have commercial substance. FAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect that the application of FAS 153 will have a material impact on the financial statements.

Accounting changes and error corrections

In May 2005, the FASB issued FAS 154, which deals with all voluntary changes in accounting principles and changes required by an accounting pronouncement if that pronouncement does not include specific transition provisions. FAS 154 replaces APB Opinion 20 “Accounting Changes” and FAS 3 “Reporting Accounting Changes in Interim Financial Statements”. This Statement requires retrospective application of a change in accounting principle to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects of the cumulative effect of the change, in which case the change in principle is applied as if it were adopted prospectively from the earliest date practicable. Corrections of an error require adjusting previously issued financial statements. FAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005.

- 32 -

EX-99.3

InterOil Corporation Year Ended 2005

Management’s Discussion and Analysis

March 31, 2006

Overview	2
Summary of Annual Results	2
Business Environment	4
Risk Factors	4
Forward-looking statements	4
Results of Operations	5
Upstream—Exploration and Production	6
Midstream—Refining and Marketing	7
Downstream—Wholesale and Retail Distribution	14
Corporate and Consolidation	15
Summary of Quarterly Results	17
Non-GAAP Measures	19
Capital Resources	20
Operating Activities	20
Investing Activities	20
Financing Activities	21
Upstream Capital Expenditure	21
Midstream Capital Expenditures	21
Downstream Capital Expenditures	21
Liquidity	22
Sources of Capital	22
Capital Requirements	23
Contractual Obligations and Commitments	24
Off-Balance Sheet Arrangements	24
Transactions with Related Parties	24
Share Capital	25
Financial and Derivative Instruments	26
Foreign Currency Hedge Contracts	26
Commodity Hedge Contracts	26
Critical Accounting Estimates	27
New Accounting Standards	29
Pending Accounting Standards	29
Public Securities Filings	29

InterOil Corporation
Page 1 of 29

March 31, 2006
Management’s Discussion and Analysis

The following Management’s Discussion and Analysis (MD&A), dated March 31, 2006, was prepared by the management of InterOil with respect to our financial performance for the periods covered by the related audited annual financial statements, along with a detailed analysis of our financial position and prospects. The information in this MD&A was approved by our Audit Committee on behalf of our Board of Directors on March 31, 2006 and incorporates all relevant considerations to that date. This MD&A should be read in conjunction with our audited annual consolidated financial statements and accompanying notes for the year ended December 31, 2005. Our financial statements and the financial information contained in the MD&A have been prepared in accordance with generally accepted accounting principles in Canada and are presented in United States dollars. References to “we,” “us,” “our,” and “InterOil” refer to InterOil Corporation and its subsidiaries.

Overview

Our goal continues to be the development of a vertically-integrated energy company whose focus is on operations in Papua New Guinea and the surrounding region. Our strategy is to continue conducting oil and gas exploration operations in Papua New Guinea, operating our refinery and marketing the refined products it produces, and operating our wholesale and retail distribution business for refined petroleum products in Papua New Guinea. Our operations are organized into three major business segments:

• Exploration and Production. Our upstream business segment explores for oil and natural gas in Papua New Guinea.

• Refining and Marketing. Our midstream business segment operates our refinery in Papua New Guinea and markets the refined products it produces both domestically in Papua New Guinea and for export.

• Wholesale and Retail Distribution. Our downstream business segment is engaged in the wholesale and retail distribution of refined products in Papua New Guinea.

Summary of Annual Results

The following table summarizes selected consolidated information for the years ended December 31, 2005, 2004 and 2003:

Summary Annual Results	Years ended December 31,
($ thousands)	2005			2004			2003
Total revenue		483,540			71,223			259
Sales and operating revenues		481,181			70,644			—
Cash flows used in operations		(22,713	)		(79,767	)		(3,519	)
Net loss (1)		(39,282	)		(52,940	)		(3,518	)
Net loss per share		(1.36	)		(2.09	)		(0.16	)
Net loss per diluted share		(1.36	)		(2.09	)		(0.16	)
Total assets		429,557			385,842			260,340
Long term debt		112,273			87,472			90,600
Cash dividends declared per share		—			—			—

InterOil Corporation
Page 2 of 29

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

Our refinery achieved practical completion in January 2005 and we generated our first operational income from our refining and marketing business segment during 2005. Our wholesale retail and distribution business segment continued to expand its business throughout the year. While our consolidated financial performance resulted in a loss in 2005, our wholesale retail and distribution business remained profitable during 2005 and generated a net income of $6.1 million.

Our refinery recognized revenues of $436 million in its first year of operations. During 2005, we initiated several optimization initiatives that we believe will allow our refinery to meet its earnings targets in the future. These initiatives included:

• the processing of eight different crude feedstocks to determine which crude feedstocks our refinery can most profitably process;

• a full review of operational procedures and the implementation of changes to procedures that were identified as capable of improving our refinery’s efficiency; and

• an analysis of equipment modifications that would support our ongoing optimization efforts.

Our crude selection and optimization efforts are focused on increasing our refinery’s gross margin by:

• reducing the net amount of low margin naphtha and low sulfur waxy residue that we sell.

• improving the percentage of higher margin products, jet fuel, diesel and gasoline, which our refinery produces per barrel of crude feedstock processed.

Our crude selection and optimization efforts are attempting to achieve our goal of improving our gross margin by allowing us to determine which crude feedstocks will produce a lower percentage of naphtha and low sulfur waxy residue in relation to other more profitable products and by making changes to our refinery’s equipment to permit us to use these lower margin products for internal power generation needs in lieu of diesel. Our crude selection and other optimization efforts are an ongoing part of our refinery start-up process. Although we will continue to evaluate additional crude feedstocks, we have identified crude feedstocks that we believe will allow us to achieve our target mix of refined products. Our current optimization initiatives are scheduled to be completed during mid 2006.

In addition to our optimization plans, we also have an ongoing long-term effort to expand our operations into profitable export markets for our refined products. We believe that we will be able to increase the amount of crude feedstock that we process daily, referred to as throughput, as a result of our refinery optimization efforts and our expansion into a viable regional export market. Upon completion of these initiatives, our refining and marketing business segment’s ability to operate profitably should be materially improved.

In February 2005, we raised $125 million pursuant to an indirect participation interest agreement whereby the investors have the right to a 25% working interest in any discoveries made in connection with the eight wells to be drilled under this agreement. The amounts acquired under this agreement are being used to fund an eight well exploration program in Papua New Guinea. We drilled the first two exploration wells under this program during 2005 and plan to drill the remaining six wells we are obligated to drill under the indirect participation interest agreement before year-end 2007. Our first two exploration wells under this new program were unsuccessful, but we believe that the extensive seismic acquisition and airborne gravity and magnetic surveys conducted during 2005 and being continued into 2006 will lead to enhanced prospect selection. In February 2006, we began drilling our third exploration well under this exploration program, Elk-1. This well will be the first well drilled using our new purpose built heli-portable drilling rig. We believe that owning our own rig will protect us from cost overruns in a market where drilling rig costs are increasing.

InterOil Corporation
Page 3 of 29

Business Environment

Risk Factors

Our financial results are significantly influenced by the business environment in which we operate. A summary of the various risks can be found under the heading “Risk Factors” in our 2005 Annual Information Form dated March 31, 2006 available at www.sedar.com.

Forward-looking statements

This MD&A contains “forward-looking statements” as defined in U.S. federal and Canadian securities laws. All statements, other than statements of historical fact, included in or incorporated by reference in this MD&A are forward-looking statements. Forward-looking statements include, without limitation, statements regarding our 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,” “believes,” “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:

• our lack of a substantial operating history;

• the ability of our refinery to operate at full capacity and to operate profitability;

• our ability to market refinery output;

• uncertainty involving the geology of oil and gas deposits and reserve estimates;

• the results of our exploration program and our ability to transport crude oil and natural gas to markets;

• 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;

• our dependence on exclusive relationships with our suppliers and customers;

• our ability to obtain necessary licenses, permits and other approvals;

• the impact of competition;

• the enforceability of your legal rights;

• the volatility of prices for crude oil and refined products, and the volatility of the difference between our purchase price for oil feedstocks and the sales price of our refined products;

• adverse weather, explosions, fires, natural disasters and other operating risks and hazards, some of which may not be insured;

• the uncertainty of our ability to attract capital;

• covenants in our financing and other agreements that may limit our ability to engage in business activities, raise additional financing or respond to changes in markets or competition; and

• the risks described under the heading “Risk Factors” in our 2005 Annual Information Form dated March 31, 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. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described under the heading “Risk Factors” in our 2005 Annual Information Form dated March 31, 2006 and elsewhere in this MD&A. 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. In making these statements, we disclaim any obligation to address or update each factor in future filings with Canadian securities regulatory authorities or the U.S. Securities and Exchange Commission, or communications regarding our business or results, and we do not undertake to address how any of these factors may have caused changes to discussions or information contained in previous filings or communications. In addition, any of the matters discussed above may have affected our past results and may affect future results so that our actual results may differ materially from those expressed in this MD&A and in prior or subsequent communications.

Our forward-looking statements are expressly qualified in their entirety by this cautionary statement.

InterOil Corporation
Page 4 of 29

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.

Results of Operations

Summary Annual Results	Years ended December 31,
($ thousands)	2005			2004			2003
Total revenue		483,540			71,223			259
Upstream		—			—			—
Midstream		436,421			26,310			—
Downstream		124,860			62,899			—
Corporate & Consolidated		(77,741	)		(17,986	)		259
Cost of sales and operating expenses		467,247			65,345			—
Upstream		—			—			—
Midstream		436,491			27,686			—
Downstream		110,857			53,159			—
Corporate & Consolidated		(80,101	)		(15,500	)		—
Revenue less cost of sales and operating expenses		16,293			5,878			259
Upstream		—			—			—
Midstream		(70	)		(1,376	)		—
Downstream		14,003			9,740			—
Corporate & Consolidated		2,360			(2,486	)		259
Office and administration and other expenses		23,296			14,701			3,420
Upstream		1,738			1,649			521
Midstream		10,639			3,133			222
Downstream		4,726			3,147			25
Corporate & Consolidated		6,193			6,772			2,652
Exploration costs (impairment and accretion expense)		7,791			38,470			165
Earnings before interest, taxes, depreciation and amortization (unaudited) (1)		(14,794	)		(47,293	)		(3,326	)
Upstream		(9,530	)		(40,119	)		(686	)
Midstream		(10,708	)		(4,509	)		(222	)
Downstream		9,278			6,593			(25	)
Corporate & Consolidated		(3,834	)		(9,258	)		(2,393	)
Interest expense		10,987			3,203			105
Upstream		—			5			—
Midstream		10,162			844			—
Downstream		225			455			—
Corporate & Consolidated		600			1,899			105
Income taxes & non-controlling interest		2,464			1,805			14
Upstream		—			—			—
Midstream		—			—			—
Downstream		2,756			1,900			—
Corporate & Consolidated		(292	)		(95	)		14
Depreciation & amortization		11,037			639			73
Upstream		314			13			10
Midstream		10,598			312			8
Downstream		205			224			—
Corporate & Consolidated		(80	)		90			55
Net income/(loss) per segment		(39,282	)		(52,940	)		(3,518	)
Upstream		(9,844	)		(40,137	)		(696	)
Midstream		(31,468	)		(5,665	)		(230	)
Downstream		6,092			4,014			(25	)
Corporate & Consolidated		(4,062	)		(11,152	)		(2,567	)
Net loss per share		(1.36	)		(2.09	)		(0.16	)
Net loss per diluted share		(1.36	)		(2.09	)		(0.16	)
Total assets		429,557			385,842			260,340
Long term debt		112,273			87,472			90,600

(1) Earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA, represents our net income (loss) 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 “Non-GAAP Measures.”

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Upstream—Exploration and Production

Year Ended December 31, 2005 compared to Year Ended December 31, 2004

Our exploration and production business segment recognized a loss of $9.8 million for the year ended December 31, 2005 compared to a loss of $40.1 million for the year ended December 31, 2004. The primary reason for the reduction in losses during 2005 was the treatment of exploration and production costs incurred under our $125 million indirect participation interest agreement which is described below.

The following table shows the results for our exploration and production business segment for the years ended December 31, 2005 and 2004:

Upstream — Operating results	Years ended December 31,
($ thousands)	2005			2004
External sales		—			—
Inter-segment revenue		—			—
Total segment revenue		—			—
Cost of sales and operating expenses		—			—
Office and administration and other expenses		1,738			1,649
Geological and geophysical expenses		—			2,903
Depreciation and amortization		314			13
Exploration impairment		2,144			35,567
Accretion expense		5,647			—
Interest expense		—			5
Loss from ordinary activities before income taxes		(9,844	)		(40,137	)
Income tax expenses		—			—
Total net loss		(9,844	)		(40,137	)

Revenues

As of December 31, 2005, we have not discovered any oil or gas reserves that are deemed to be proved, probable or possible and; therefore, we have not generated any operational revenues from our upstream business segment.

Expenses

During 2005, all exploration costs incurred as a result of obligations under our $125 million indirect participation interest agreement were paid for by our indirect participation investors and have therefore not been recognized as expenses. During 2005, $11.0 million in geological and geophysical costs, $20.8 million in drilling costs, and $6.4 million in finance and transaction costs were incurred.

Expenses decreased to $9.8 million for the twelve months ended December 31, 2005 from $40.1 million during the same period in 2004. The majority of this decrease is a result of $38.2 million in expenses being credited against the indirect participation interest liability rather than being recognized as an expense as discussed above. We incurred $5.6 million in accretion expense related to the amortization of the discount calculated on the non-financial liability component of the indirect participation interest during 2005. During the year ended December 31, 2004, we recognized $35.6 million in expenses for unsuccessful exploration wells and $2.9 million in geological and geophysical expenses.

Depreciation expense for the year ended December 31, 2005 increased compared to 2004 due to the acquisition of our drilling rig and the completion of our exploration and production offices and warehouse facilities adjacent to our refinery. Depreciation of these new assets commenced during the fourth quarter of 2005.

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Midstream—Refining and Marketing

Year Ended December 31, 2005 compared to Year Ended December 31, 2004

Our refinery commenced operations in the first quarter of 2005. For the year ended December 31, 2005, the operations start-up year of our refinery, our refining and marketing business segment recognized a loss of $31.5 million compared with a loss of $5.7 million for the year ended December 31, 2004. Prior to January 2005, we were still constructing and commissioning our refinery. The costs associated with the construction and commissioning of our refinery were capitalized rather than expensed. As a result of our refinery not having any operations in 2004, our 2004 and 2005 operating results are not comparable.

The following table shows the results for our refining and marketing business segment for the years ended December 31, 2005 and 2004:

Midstream — Operating results	Years ended December 31,
($ thousands)	2005			2004
External sales		356,327			26,310
Inter-segment revenue		80,094			—
Total segment revenue		436,421			26,310
Cost of sales and operating expenses		436,491			27,686
Office and administration and other expenses		10,639			3,133
Earnings before interest, taxes, depreciation and amortization (1) (unaudited)		(10,708	)		(4,509	)
Depreciation and amortization		10,597			312
Interest expense		10,162			844
Loss from ordinary activities before income taxes		(31,468	)		(5,665	)
Income tax expenses		—			—
Total net loss		(31,468	)		(5,665	)

(1) Earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA, represents our net income (loss) 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 “Non-GAAP Measures.”

Revenues

We generated revenues of $436.4 million during the twelve month period ended December 31, 2005. The increase in revenues during the year ended December 31, 2005 compared to 2004 is related to the fact that we began generating operational income from the sale of refined products for the first time during the first quarter of 2005. Our revenue of $26.3 million during the year ended December 31, 2004 was from the sale of a crude cargo in the third quarter of 2004 that our refinery was not ready to accept.

The primary products produced by our refinery are jet fuel and diesel (commonly referred to as middle distillates), gasoline, naphtha and low sulfur waxy residue. Our refinery’s reformer is able to convert a portion of the naphtha produced by our crude distillation unit into reformate which is then blended to produce gasoline. Currently, jet fuel, diesel and gasoline are the primary products that we produce for the Papua New Guinea market. Due to the lack of a local market in Papua New Guinea, the excess naphtha and low sulfur waxy residue is sold in export markets. We believe that the three primary factors that limited our ability to profitably export our products during 2005 were our geographical position, our limited access to regional markets, and our limited storage capacity for refined products. We believe that our location and size may provide competitive advantages if we supply refined products to the small and fragmented South Pacific

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regional markets. We are currently seeking to expand our exports to these regional markets in order to support an increase in the throughput of our refinery.

Revenues from our refining operations were adversely affected by our inability to operate our refinery for a period of 12 days during March 2005 and 14 days in November 2005 as a result of a shortage of crude feedstocks that were caused by the closure of the Kumul loading platform in Papua New Guinea and production disruptions affecting our crude supply. These shortages, which were beyond our control, resulted in shut-downs that reduced our throughputs during the first and fourth quarters of 2005. During the fourth quarter, we processed a new crude feedstock that did not perform as originally expected and produced a poor yield of higher margin refined products. These crude disruptions and poor crude feedstock were significant factors in the loss recognized by our midstream business segment during 2005.

We believe that the crude selection and refinery optimization efforts will improve our revenues and profitability going forward. Our ongoing crude selection efforts have increased the percentage of middle distillates produced by our refinery in relation to the amount of naphtha and low sulfur waxy residue produced. The amount of middle distillates and gasoline produced per barrel of crude feedstock increased by approximately 87% during the fourth quarter of 2005 compared to the third quarter of 2004, the first quarter during which any crude oil was processed by our refinery. The reduction in the amount of naphtha and low sulfur waxy residue being produced has reduced the amount of products we are required to export as a percentage of revenues from approximately 48% during the first quarter of 2005 to approximately 25% during the fourth quarter of 2005. We believe this reduction in these exports will improve our overall operating margins since exports of naphtha and low sulfur waxy residue result in negative product margins. The completion of our optimization efforts during 2006 should further increase our refinery’s profitability by increasing the internal use of low sulfur waxy residue for power generation and increasing the amount of diesel that may be sold.

Cost of Sales and Operating Expenses

Costs of sales and operating expenses were $436.5 million during the year ended December 31, 2005. The increase in costs of sales and operating expenses during year ended December 31, 2005 compared to 2004 is primarily related to the fact that we did not begin generating operational income from the sale of refined products until the first quarter of 2005. Our costs of sales and operating of $27.7 million during the year ended December 31, 2004 was from the purchase a crude cargo in that the third quarter of 2004 that we were required to sell because our refinery was not ready to accept it.

Our cost of sales was materially adversely impacted by the closure of the Kumul loading platform in Papua New Guinea during the first quarter 2005. This event necessitated a prompt purchase of an alternative crude cargo and the procurement of a diesel cargo to assure scheduled product delivery obligations were not adversely impacted. The purchase of these two cargoes on short-term notice resulted in higher costs than we would have incurred if the Kumul loading platform had remained open.

Office and Administration and Other Expenses

Office and administration expenses were $10.6 million for the year ended December 31, 2005 compared to $3.1 million during 2004. The increase is primarily due to the refinery commencing full operations in 2005.

Crude Prices

Revenues from our refining and marketing business segment are derived from the sale of refined products. The prices for refined products and the crude feedstocks used to produce those products are extremely volatile and sometimes experience large fluctuations over short periods of time as a result of relatively small changes in supplies, weather conditions, economic conditions and government actions. Due to the nature of our business, there is always a time difference between the purchase and processing of a crude feedstock and the sale of finished products to the various markets. We enter into derivative instruments to reduce the risks of changes in the relative prices of our crude feedstocks and refined products as a result of timing differences in the purchase of crude feedstocks and the sale of refined products. While these hedging activities have materially reduced our exposure to changes in crude oil prices, we are still exposed to some risks.

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The price of Tapis crude oil, as quoted by the Asian Petroleum Price Index (APPI), is a benchmark for setting crude prices within the region where we operate and is used by us when we purchase crude feedstock for our refinery. The price of APPI Tapis increased significantly through the nine month period ended September 30, 2005 before easing in the fourth quarter of 2005. APPI Tapis opened at $38.18 per barrel on January 1, 2005, peaked at $70.64 per barrel on September 22, 2005 and closed at $58.16 per barrel on December 29, 2005. The average APPI Tapis price was $50.30 per barrel for the first quarter 2005, $54.27 per barrel for the second quarter of 2005, $64.65 per barrel for the third quarter of 2005 and $59.19 per barrel for the fourth quarter. Generally, refineries achieve increased margins on refined products in a rising oil price environment and decreased margins in a falling oil price environment. The following chart shows the price of Tapis crude for year ended December 31, 2005, as reported by the APPI.

Market Pricing

The crack spread of a refined petroleum product refers to the difference between the price of such product and the price of the crude feedstock used to make such products. During 2005, unprecedented demand for diesel and jet fuels resulted in increased prices and margins for these products and has driven refineries worldwide to maximize the production of these products. As a result, incrementally more naphtha and low sulfur waxy residue in the case of hydro-skimming refineries such as ours, is produced. Because there has not been the same increase in demand for naphtha and low sulfur waxy residue as there has been for middle distillates, the margin for these products has, subject to short-term fluctuations, generally decreased. This decrease in margins for naphtha and low sulfur waxy residue partially offsets the increased margins expected from middle distillates.

The benchmark price for refined products in the region we operate is the average spot price quotations for refined products from Singapore reported by Platts. This benchmark is commonly referred to as the MOPS price for the relevant refined product. The following table is based on information obtained from APPI and Platts Global Alert service and shows the crack spread, or margin, between the benchmark crude for our feedstock, Tapis, and the relevant MOPS refined product benchmark. The actual prices we pay for our crude feedstock and receive for our refined product will differ from, but will be generally be related to, the Tapis and MOPS benchmarks.

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The impact of hurricanes Katrina and Rita in the Gulf of Mexico in August and September 2005 contributed to the increase in middle distillate and gasoline crack spreads, and also in the price per barrel of crude feedstocks during the third quarter of 2005. Price movements improved our revenues on Papua New Guinea domestic sales of middle distillates and gasoline during the fourth quarter of 2005. However, our overall margins on refined products decreased during the fourth quarter of 2005 due to higher prices paid for crude feedstock procured towards the end of the third quarter and early in fourth quarter of 2005. We believe that our hedging programs that were enhanced in late 2005 will reduce our exposure to the risks associated with these price movements in the future.

Sales of naphtha and low sulfur waxy residue in the third and fourth quarters of 2005 were significantly affected by the impact on commodities prices resulting from the hurricanes in the Gulf of Mexico in the third quarter of 2005. The higher pricing of naphtha and low sulfur waxy residue in the month of September 2005 resulted in better than average returns on naphtha and low sulfur waxy residue sales during the third quarter of 2005. The improved pricing during the third quarter of 2005 was offset by increased prices paid for crude feedstock in the third quarter of 2005 and the decrease in the prices of naphtha and low sulfur waxy residue in the fourth quarter of 2005.

Production Slate, Optimization of Crude Diet & Run Rates

During 2005, the first year of operations for our refinery, eight different crude feedstocks, including the PNG Kutubu crude, were processed and evaluated as part of our crude selection program. This program was initiated to determine the types of crude feedstocks that could have the most beneficial impact on our refining margins as we transition from our start-up phase to regular operations. Five of these different crude feedstocks were processed in the third and fourth quarters of 2005. This process has provided us with valuable operational data to continue the ongoing optimization of our refinery. While we will continue to identify and evaluate new crude feedstocks as part of our crude optimization initiatives aimed at improving the yield of our more profitable products, we have now identified a number of crude feedstocks and crude blends for our refinery that we expect will meet our production targets and which we intend to utilize, to the extent available, during 2006.

The mix of refined products produced by a refinery is referred to as its production slate. The following chart shows the progressive improvement in the middle distillate and gasoline yield due to changes in the crude feedstocks processed and improvements to operational procedures since the start-up of our refinery in 2004. Our basic objective was and continues to be to maximize the amount of higher margin middle distillates and

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gasoline produced per barrel of crude feedstock used at the expense of the relatively lower margin products, consisting of naphtha and low sulfur wax residue. Our target yield is subject to the prevailing demand for various refined products, the availability and cost of alternative crude feedstocks, projected product margins and logistics at the time of production.

As illustrated in the chart below, middle distillate and gasoline yields increased significantly since the third quarter of 2004. The fluctuations in gasoline production are primarily a result of our ability to reform enough naphtha into gasoline to fulfill all of the demand for Papua New Guinea’s domestic market while operating our reformer on a part-time basis.

Middle Distillates and Gasoline Production Slate

Naphtha and Low Sulfur Waxy Residue (LSWR) Production

The following chart shows the decrease in the net production of low sulfur waxy residue and naphtha since the start-up of our refinery. Our operational focus will be to continue to attempt to increase gasoline sales and to reduce the volume of low sulfur waxy residue produced per barrel of crude feedstock. We are able to produce more gasoline than is needed to service the domestic market in Papua New Guinea and believe we will be able to produce sufficient quantities to service the regional export market’s demand for gasoline once we expand into that market. Increased gasoline sales will result in a proportionally lower volume of naphtha since naphtha is used in the production of gasoline. The increased net naphtha production in third quarter 2005 is primarily as a result of decreased reforming activities as discussed in the preceding paragraph. We were generally able to decrease the production of low sulfur waxy residue throughout the year. The production of low sulfur waxy residue in the fourth quarter of 2005 was impacted by the testing of a crude feedstock that generated a poor production slate. We expect the low sulfur waxy residue production to decrease during 2006.

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Naphtha and Low Sulfur Waxy Residue Production

Refinery Throughput

Our refinery is rated to process up to 32,500 barrels of oil per day using Kutubu crude as the feedstock and established a peak rate of 34,500 barrels of oil per day during testing using Kutubu crude. During 2005, we processed a total of approximately 7.4 million barrels of crude feedstock. Our current optimization efforts are intended to further increase our daily throughput capacity while maintaining a production slate that produces a high percentage of middle distillates and gasoline. Depending on the type of crude feedstock used and prevailing domestic product demand, we are able to fulfill the domestic market in Papua New Guinea’s demand for our products by refining approximately 16,000 to 22,000 barrels of crude feedstock a day. While we are still in the process of expanding our exports into the regional export markets discussed above, we are focusing on minimizing the amount of crude feedstocks processed by our refinery. With the exception of the start up period, the amount of crude feedstock processed by our refinery has decreased over time due to our operational focus on optimizing crude feedstocks such that we process feedstocks with high middle distillate yield to meet Papua New Guinea’s domestic demand for diesel, jet fuel and gasoline, while reducing the amount of naphtha and low sulfur waxy residue we are required to export at a negative margin. During 2006 and 2007, we will focus on securing exports to the Pacific Island regional market to which we believe we can profitably export our products. Securing these export markets will permit us to increase our product output and maximize the use of our refining assets.

The previously discussed shut-downs of our refinery in March and November as a result of shortages of crude feedstocks that were beyond our control reduced our throughputs during the first and fourth quarters of 2005.

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The following chart illustrates the decrease in throughput since the start-up of our refinery:

Refinery Throughput

Commodity Derivatives

From time to time, we enter into derivative instruments to reduce the risks of changes in the relative prices of our crude feedstocks and refined products. The derivatives reduce our exposure to the timing differences inherent in our purchase of crude feedstocks and the sale of refined products produced using such feedstocks and to fluctuations in refining margins on the volumes hedged. However, these derivatives limit the benefit we might otherwise have received from any increases in refining margins on the hedged volumes.

Our derivative activities resulted in a gain of $746,648 for the year ended December 31, 2005, including contracts that have been marked to market at year end. As a result of our derivative activities, for the year ended December 31, 2005 we have recognized a loss of $270,350 in our statement of operations and a gain of $1,016,998 has been included in the deferred hedge gain liability account in our consolidated balance sheet.

During 2005, we entered into hedges on the margins, or crack spreads, of diesel and jet fuel, some of which extend into 2006. As a result of changes in physical product sales, some of these hedges were closed out during the fourth quarter of 2005 for a net unrealized gain. These hedges were made to take advantage of high crack spreads and are intended to help secure margins on a portion of our sales. During 2005, we entered into various hedges intended to better match the timing of our purchase of crude feedstocks and the sale of refined products produced from those crude feedstocks.

During December 2005, we also initiated “trigger pricing” on part of a crude cargo with our crude supplier, BP Singapore, which, although not a derivative hedge, forms part of our risk management strategy to secure margin from sales of domestic products. Trigger pricing allows us, at our option, to purchase a portion of a crude cargo at a fixed price rather than unknown future prices. The fixed price we would receive upon making a trigger pricing election is generally similar to what can be achieved using derivative financial instruments on the date a trigger pricing election is made.

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Downstream—Wholesale and Retail Distribution

Year Ended December 31, 2005 compared to Year Ended December 31, 2004

Our wholesale and retail distribution business segment recognized after-tax net income of $6.1 million for the year ended December 31, 2005 compared to after-tax net income of $4.0 million for the year ended December 31, 2004. The primary reason for the increase in net income is due to the fact that we acquired our wholesale and retail distribution business segment on April 28, 2004 and only operated it for eight months during 2004.

The following table shows the results for our refining and marketing business segment for years ended December 31, 2005 and 2004:

Downstream — Operating results	Years ended December 31,
($thousands)	2005			2004
External sales		124,854			62,410
Inter-segment revenue		6			489
Total segment revenue		124,860			62,899
Cost of sales and operating expenses		110,857			53,159
Office and administration and other expenses		4,725			3,147
Depreciation and amortization		204			224
Interest expense		225			455
Net income from ordinary activities before income taxes		8,848			5,914
Income tax expenses		(2,756	)		(1,900	)
Total net income		6,092			4,014

Revenues

Total revenues for the year ended December 31, 2005 were $124.9 million compared with $62.4 million for the year ended December 31, 2004. Our revenues for the year ended December 31, 2004 include sales from April 29, 2004. The increase in sales and operating revenue for the year ended December 31, 2005 compared to the year ended December 31, 2004 is primarily the result of the additional period of operations during 2005. In addition, revenues increased as a result of a significant increase in product prices during 2005 as a result of the worldwide increase in crude prices. Revenues also increased as a result of an increase in the net volumes of refined products sold. The average quarterly volume of refined products sold by our wholesale and retail distribution business increased by 21% compared to the amount of refined products sold by the business during the quarter immediately prior to the acquisition date. Our downstream business sold 210 million liters of product during 2005, compared to 162 million liters of product in 2004. The average sales price of products sold per liter was $0.59 in 2005 compared to $0.38 for 2004.

Expenses

The main cost of sales and operating expenses is derived from either purchasing products from our refinery or importing products not produced at our refinery from other parties. Our refinery supplies 100% of our downstream business’ diesel, gasoline, and jet fuel requirements. Our downstream business segment will continue to import other fuels, such as fuel oil, and lubricant products as our refinery does not produce these products.

Costs of sales and operating expenses were $110.9 million during 2005 compared to $53.2 million during 2004. The increase in expenses is a result of the additional period of operations during 2005 and the average price of products sold per liter increasing from $0.33 during 2004 to $0.53 during 2005.

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Corporate and Consolidation

Year Ended December 31, 2005 compared to Year Ended December 31, 2004

The following table shows our corporate level expenses and our results on a consolidated basis for the years ended December 31, 2005 and 2004:

Corporate and consolidation	Years ended December 31,
($ thousands)	2005			2004
External sales—elimination		—			(18,075	)
Inter-segment revenue elimination (1)		(80,101	)		(489	)
Interest revenue		1,831			382
Other unallocated revenue		528			196
Total segment revenue		(77,742	)		(17,986	)
Cost of sales and operating expenses elimination (1)		(80,101	)		(15,500	)
Office and administration and other expenses (2)		6,193			6,773
Depreciation and amortization (3)		(80	)		90
Interest expense (4)		600			1,899
Loss from ordinary activities before income taxes		(4,354	)		(11,248	)
Income tax expenses		(76	)		25
Non-controlling interest		368			70
Total net loss		(4,062	)		(11,153	)

(1)	Represents the elimination upon consolidation of our refinery sales to other segments and other minor inter-company product sales.
(2)	Includes the elimination of inter-segment administration service fees.
(3)	Represents the amortization of a portion of costs capitalized to assets on consolidation.
(4)	Includes the elimination of interest accrued between segments.

Expenses

Our total corporate office and administration and other expenses were $6.2 million for the year ended December 31, 2005, compared to $6.8 million for the same year ended December 31, 2004. The decrease in expenses is primarily due to the administrative and legal costs incurred in connection with our issuance of debentures in 2004 which were not incurred in 2005. Interest expense decreased by $1.3 million for the year ended December 31, 2005 compared to the year ended December 31, 2004 as a result of the conversion of the debentures to equity in December 2004.

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Consolidated income taxes

The combined income tax expense in the consolidated statements of operations reflects an effective tax rate which differs from the expected statutory rate (combined federal and provincial rates). Differences for the years ended December 31, 2005 and 2004 were accounted for as follows:

Consolidated Income Taxes	Years ended December 31,
($ thousands)	2005			2004
Loss before income taxes and non controlling interest		(36,818	)		(51,135	)
Statutory income tax rate		35.10	%		35.12	%
Computed tax expense (benefit)		(12,923	)		(17,959	)
Effect on income tax of:
Non-deductible losses in foreign jurisdictions		2,835			2,274
Non-deductible stock compensation expense		586			425
Gains and losses on foreign exchange		269			59
Tax rate differential in foreign jurisdictions		1,224			(342	)
Over provision for tax in prior years		(114	)		(43	)
Tax losses for which no future tax benefit has been recognized		9,845			2,696
Temporary differences for which no future tax benefit has been recognized		1,123			14,553
Temporary differences recognized on acquisition of subsidiary		(35	)		(488	)
Other—net		22			700
Income tax expense		2,832			1,875

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Summary of Quarterly Results

The following table and discussion in this section and the table containing quarterly financial information included under “Non-GAAP Measures” have been derived from our interim 2005 consolidated financial statements. These interim financial statements have not been subject to audit, review or any quarterly procedures in accordance with generally accepted auditing standards.

The following table summarizes financial information for the fourth quarter of 2005 and the preceding seven quarters:

Quarters ended	2005												2004
($ thousands, except per
share data) (unaudited)	Dec 31			Sept 30			June 30			Mar 31(1)			Dec 31			Sep 30(2)			Jun 30(3)			Mar 31
Sales and operating revenues		130,200			124,481			125,275			103,584			22,151			36,226			12,691			156
Upstream		—			—			—			—			—			—			—			—
Midstream		108,488			115,203			114,734			97,996			—			26,310			—			—
Downstream		43,741			27,470			30,062			23,588			39,811			10,134			12,954			—
Corporate & Consolidated		(22,029	)		(18,192	)		(19,521	)		(18,000	)		(17,660	)		(218	)		(264	)		156
Earnings before interest, taxes, depreciation and amortization (4)		(7,848	)		11,634			(13,812	)		(4,769	)		(40,306	)		(3,534	)		(1,856	)		(1,597	)
Upstream		(5,262	)		6,105			(9,770	)		(603	)		(37,395	)		(360	)		(1,883	)		(482	)
Midstream		(6,470	)		6,001			(6,778	)		(3,461	)		(2,684	)		(1,538	)		(205	)		(82	)
Downstream		3,673			2,527			2,448			629			3,441			1,734			1,451			(32	)
Corporate & Consolidated		211			(2,999	)		288			(1,334	)		(3,668	)		(3,370	)		(1,219	)		(1,001	)
Net income (loss) per segment (5)		(14,207	)		5,251			(19,972	)		(10,354	)		(43,856	)		(4,917	)		(2,522	)		(1,645	)
Upstream		(5,352	)		5,890			(9,774	)		(608	)		(37,405	)		(362	)		(1,879	)		(492	)
Midstream		(11,887	)		1,017			(12,155	)		(8,443	)		(3,840	)		(1,400	)		(334	)		(91	)
Downstream		2,515			1,465			1,857			255			2,347			761			938			(32	)
Corporate & Consolidated		517			(3,121	)		100			(1,558	)		(4,960	)		(3,916	)		(1,247	)		(1,030	)
Net income (loss) per share (5)
Per share—Basic		(0.49	)		0.18			(0.69	)		(0.36	)		(1.73	)		(0.19	)		(0.10	)		(0.07	)
Per share—Diluted		(0.49	)		0.18			(0.69	)		(0.36	)		(1.73	)		(0.19	)		(0.10	)		(0.07	)

(1)	Practical completion of our refinery occurred in the first quarter of 2005. For quarterly comparative purposes as well as for the years ended December 2005 and the 2004, 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.
(2)	It was identified in the fourth quarter 2004 that the statement of operations for the quarter ending September 30, 2004 included sales and cost of sales of our refined products sold by our downstream business segment during the commissioning of our refinery. These sales and costs of sales were adjusted to plant and equipment in the fourth quarter of 2004. For comparative purposes, the September 30, 2004 amounts in the table include subsequent period adjustments of revenue ($11,336,839) and cost of sales ($9,397,373). The net impact of these adjustments has increased the net loss by $1,939,466.
(3)	We acquired our downstream business on April 28, 2004. For quarterly comparative purposes as well as for the years ended December 2005 and 2004, the date we acquired our downstream business segment should be taken into account when analyzing the respective financial statements.
(4)	Earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA, represents our net income (loss) 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 “Non-GAAP Measures” below.
(5)	We did not have any discontinued operations or extraordinary items during the periods covered by this table.

InterOil Corporation
Page 17 of 29

Our consolidated net loss after tax for the quarter ended December 31, 2005 was $14.2 million compared to a loss of $43.8 million for the same period in 2004. Our consolidated net loss after tax decreased primarily because of a change in the treatment of our exploration impairment expenses as described under “—Upstream—Exploration and Production.”

During the fourth quarter of 2005, our revenues were reduced due to a drop in export sales related to our crude optimization efforts yielding a lower production of naphtha and low sulfur waxy residue and our net income was reduced due to:

• the testing and processing of a new crude feedstock during the fourth quarter of 2005 which produced a poor yield; and

• a reduction in throughput as a result of unplanned shutdowns due to delays in receiving crude feedstocks that were beyond our control;

• increased prices for crude feedstocks acquired during the third and early in the fourth quarter of 2005 which were used to produce the refined products sold during the fourth quarter of 2005 and, consequently, reduced our refining margins; and

• higher crude feedstock financing fees as a result of higher crude prices.

Net income from our downstream business segment was $2.5 million during the fourth quarter of 2005 compared to a net income of $2.0 million for the same period in 2004. The increase is primarily attributable to the general increase in refined product prices during 2005. The average sales price of products sold by our downstream business segment was $0.72 per liter during the fourth quarter of 2005, compared to $0.68 per liter during the fourth quarter of 2004. During the fourth quarter of 2005, the volume of products sold by our downstream business segment also increased slightly. Our downstream business segment sold 60.24 million liters of product during the fourth quarter of 2005, compared to 58.54 million liters of product during the fourth quarter of 2004.

The net loss for our upstream business segment of $5.4 million during the fourth quarter of 2005 compared to a loss of $37.4 million in the same quarter of 2004 is primarily due to drilling and related expenses incurred as a result of obligations under our indirect participation interest agreement having been paid for by our indirect participation investors. As a result, these amounts have not been recognized as expenses as they were during 2004. The majority of expenses during the fourth quarter of 2005 consisted of the accretion expense related to the amortization of the discount calculated on the non-financial portion of the indirect participation interest liability.

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Non-GAAP Measures

Earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA, represents our net income (loss) plus total interest expense (excluding amortization of debt issuance costs), income tax expense, depreciation and amortization expense. We believe that EBITDA provide shareholders with useful information with which to analyze and compare our operating performance with other companies in our industry. EBITDA does not have a standardized meaning prescribed by 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 Canadian generally accepted accounting principles. Further, EBITDA is not a measure of cash flow under Canadian generally accepted accounting principles and should not be considered as such.

The following tables reconcile net income (loss), a Canadian generally accepted accounting principles measure, to EBITDA, a non-GAAP measure.

Summary Annual Results (unaudited)	Years ended December 31,
($ thousands)	2005			2004			2003
Earnings before interest, taxes, depreciation and amortization (unaudited)		(14,794	)		(47,293	)		(3,326	)
Upstream		(9,530	)		(40,119	)		(686	)
Midstream		(10,708	)		(4,509	)		(222	)
Downstream		9,278			6,593			(25	)
Corporate & Consolidated		(3,834	)		(9,258	)		(2,393	)
Subtract:
Interest expense		10,987			3,203			105
Upstream		—			5			—
Midstream		10,162			844			—
Downstream		225			455			—
Corporate & Consolidated		600			1,899			105
Income taxes & non-controlling interest		2,464			1,805			14
Upstream		—			—			—
Midstream		—			—			—
Downstream		2,756			1,900			—
Corporate & Consolidated		(292	)		(95	)		14
Depreciation & amortization		11,037			639			73
Upstream		314			13			10
Midstream		10,598			312			8
Downstream		205			224			—
Corporate & Consolidated		(80	)		90			55
Net income/(loss) per segment		(39,282	)		(52,940	)		(3,518	)
Upstream		(9,844	)		(40,137	)		(696	)
Midstream		(31,468	)		(5,665	)		(230	)
Downstream		6,092			4,014			(25	)
Corporate & Consolidated		(4,062	)		(11,152	)		(2,567	)

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Quarters ended	2005												2004
($ thousands) (unaudited)	Dec 31			Sept 30			June 30			Mar 31			Dec 31			Sep 30			Jun 30			Mar 31
Earnings before interest, taxes, depreciation and amortization		(7,847	)		11,634			(13,812	)		(4,769	)		(40,306	)		(3,534	)		(1,856	)		(1,597	)
Upstream		(5,262	)		6,105			(9,770	)		(603	)		(37,395	)		(360	)		(1,883	)		(482	)
Midstream		(6,470	)		6,001			(6,778	)		(3,461	)		(2,684	)		(1,538	)		(205	)		(82	)
Downstream		3,674			2,527			2,448			629			3,441			1,734			1,451			(32	)
Corporate & Consolidated		211			(2,999	)		288			(1,334	)		(3,668	)		(3,370	)		(1,219	)		(1,001	)
Subtract:
Interest expense		2,989			2,454			2,997			2,547			2,605			573			23			2
Upstream		(6	)		2			2			2			5			—			—			—
Midstream		2,755			2,320			2,736			2,351			844			—			—			—
Downstream		43			42			140			—			423			31			1			—
Corporate & Consolidated		197			90			119			194			1,333			542			22			2
Income taxes & non-controlling interest		673			984			635			172			687			622			496			—
Upstream		—			—			—			—			—			—			—			—
Midstream		—			—			—			—			—			—			—			—
Downstream		1,061			965			571			159			772			625			502			—
Corporate & Consolidated		(388	)		19			64			13			(85	)		(3	)		(6	)		—
Depreciation & amortization		2,698			2,945			2,528			2,866			258			188			147			46
Upstream		96			213			2			3			5			2			(4	)		10
Midstream		2,662			2,664			2,641			2,631			312			(138	)		129			9
Downstream		55			55			(120	)		215			(103	)		317			10			—
Corporate & Consolidated		(115	)		13			5			17			44			7			12			27
Net income (loss) per segment		(14,207	)		5,251			(19,972	)		(10,354	)		(43,856	)		(4,917	)		(2,522	)		(1,645	)
Upstream		(5,352	)		5,890			(9,774	)		(608	)		(37,405	)		(362	)		(1,879	)		(492	)
Midstream		(11,887	)		1,017			(12,155	)		(8,443	)		(3,840	)		(1,400	)		(334	)		(91	)
Downstream		2,515			1,465			1,857			255			2,347			761			938			(32	)
Corporate & Consolidated		517			(3,121	)		100			(1,558	)		(4,960	)		(3,916	)		(1,247	)		(1,030	)

Capital Resources

Operating Activities

For the year ended December 31, 2005, cash used in our operating activities was $22.7 million compared with $79.8 million for the year ended December 31, 2004. For the year ended December 31, 2005, we had a consolidated net loss of $39.3 million compared to a consolidated net loss of $52.9 million for 2004. Our primary uses of cash for operating activities during 2005, other than the activity related to deriving net income (loss), were $16.5 million attributable to an increase in crude feedstock prices and a small increase in our physical inventory, less an $8.7 million decrease in our trade receivables. For the year ended December 31, 2004, our primary uses of cash for operating activities were $24.2 million for increases in inventory balances of crude and refined product and $50.5 million for increases in trade receivables.

Investing Activities

For the year ended December 31, 2005, cash received from our investing activities was $15.5 million compared with a use of $29.0 million for the year ended December 31, 2004. During 2005, cash received from investing activities mainly consisted of $80.4 million in proceeds from the $125 million indirect participation interest agreement. Cash used in investing activities consisted primarily of $11.2 million for oil and gas exploration, $4.1 million for purchases of plant and equipment, $31.8 million for expenditures

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applied against the indirect participation interest, $1.1 million for restricted cash to support the working capital facility and $12.2 million for the acquisition of our downstream business. For the year ended December 31, 2004, cash used in investing operations consisted primarily of $19.1 million for oil and gas exploration, $15.5 million for restricted cash to support the working capital facility and $39.0 million for refinery plant and equipment investments. During 2004, cash used in investing activities was offset by cash received of $24.7 million from short term investments, $0.4 million from the sale of assets and $4.6 million in cash balances received upon the acquisition of our downstream business.

Financing Activities

For the year ended December 31, 2005, cash received from our financing activities was $38.3 million compared with $128.1 million for the year ended December 31, 2004. During 2005, amounts received from financing activities included $22.7 million of net proceeds from the indirect participation interest agreement, $21.5 million in proceeds from a short term loan, and $5.5 million in proceeds from the issuance of common shares upon the exercise of options and warrants. Cash received from financing proceeds were offset by a $4.5 million principal repayment on the OPIC loan, $5.8 million in repayment to our working capital facility, and $1.1 million in related party repayments to Petroleum Independent and Exploration Corporation for the loans discussed under “Transactions with Related Parties” below. Amounts received from financing activities in during 2004 consisted of $2.0 million in loans from the Overseas Private Investment Corporation, net proceeds of $41.7 million from the issuance of senior convertible debentures, net proceeds of $76.5 million from borrowings under our working capital facility, $6.3 million of net proceeds from the indirect participation interest agreement and $2.0 million from the issuance of common shares upon exercise of options. Cash received from financing activities during 2004 was partially offset by $2.2 million in related party repayments to Petroleum Independent and Exploration Corporation for the loans discussed under “Transactions with Related Parties” below.

Upstream Capital Expenditure

During 2005, our capital expenditures for exploration in Papua New Guinea totaled $43.8 million compared with $19.2 million during 2004. Our capital expenditures during 2005 consisted of $22.9 million for the drilling of exploration wells, $11.0 million for seismic, airborne gravity and magnetic surveys, $7.6 million for the purchase of our drilling rig, and $2.3 million for the construction of offices and warehouses, the acquisition of inventory and other capital purchases.

Midstream Capital Expenditures

During 2005, capital expenditures for our refining and marketing business segment were $3.3 million compared with $40.5 million during 2004. Our 2005 capital expenditures related to work initiated in connection with our refinery optimization program.

Downstream Capital Expenditures

During 2005, capital expenditures for our wholesale and retail distribution business segment were approximately $14.0 million compared with $2.3 million during 2004. Our 2005 capital expenditures consisted of the payment of $12.1 million to BP International for the acquisition of InterOil Products Limited and $1.9 million for a storage tank, a barge facility and a number of other smaller capital items.

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Liquidity

Sources of Capital

Upstream

In February 2005, we entered into an agreement with institutional accredited investors in which the investors paid us $125 million and we agreed to drill eight exploration wells in Papua New Guinea. When we choose to test or complete any of these wells, the investors have the right to acquire up to a 25% working interest by paying their share of a budgeted testing amount. If the tested or completed well is a commercial success, the investors, by continuing to pay their 25% share of all future development costs, such as seismic, development drilling, production facilities and pipelines, retain their right to earn a 25% working interest in the resulting field and production. In addition, between June 15, 2006 and the later of 90 days after the drilling of the eighth exploration well and December 15, 2006, each investor may elect to convert its interest under the agreement into our common shares. An investor’s interest, or any portion thereof, may be converted into a number of common shares equal to the amount paid by the investor for its interest divided by $37.50. If all of the investors converted their entire indirect participation interest into common shares, we would be obligated to issue 3,333,334 common shares.

Midstream

In August 2005, we entered into a $150 Million Secured Revolving Crude Import Facility with BNP Paribas, Singapore Branch. The facility, which is up for renewal on June 30, 2006, is used to finance purchases of crude feedstocks for our refinery. The facility provides for the issuance of up to $120 million of letters of credit with a maximum term of 30 days and short terms loans relating to previously issued letters of credit with a maximum term of 60 days. The short term loans bear interest at LIBOR plus 2.5% per annum. In addition, the facility provides for up to $40 million in borrowings that are secured by our receivables or cash deposits. The actual interest rate for borrowings under the $40 million portion of the facility is dependent upon the type of security used but in all cases is lower than the interest rates charged for short-term loans. As of December 31, 2005, the maximum aggregate principal amount permitted to be outstanding at any one time under the facility was $150 million and $44 million remained available for use under the facility. This credit limit is subject to adjustment at the discretion of BNP Paribas. Borrowings from BNP under this facility are secured by our crude and refined product inventories, receivables and specified cash deposits. During 2005, the weighted average interest rate under this facility was 5.8%.

Downstream

Our downstream working capital and capital programs are funded by cash provided by operating activities.

Corporate

On January 28, 2005, we obtained a $20 million term loan facility. Amounts under this loan were disbursed in two installments of $10 million each on January 31, 2005 and February 25, 2005. On July 21, 2005, the facility was increased from $20 million to $25 million. The additional funds are to be used for capital expenditures related to our refinery optimization initiatives. During the third and fourth quarters of 2005, we received a further drawdown on this facility of $1.5 million to support this activity. The loan has an interest rate equal to 5% per annum, payable quarterly in arrears, and includes a 1% arrangement fee on the original $20 million face amount. The term of the loan is fifteen months from the disbursement dates, and is repayable at any time prior to expiration with no penalty. In addition, we have provided the lender under the term loan facility with an irrevocable right to participate in a future equity or debt financing for an amount of up to $40 million.

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Capital Requirements

Upstream

We are obligated under our indirect participation interest agreement to drill eight exploration wells. Two of these wells were drilled during 2005. The remaining six wells are scheduled to be drilled in 2006 and 2007. We believe that the $125 million raised from investors pursuant to this agreement is sufficient to meet these obligations. As of December 31, 2005, approximately $16 million of the funds raised pursuant to this program were committed to restricted cash accounts which support our midstream operations. We have received waivers from some, but not all, of the participants in the indirect participation interest agreement to temporarily place the proceeds of this agreement in these restricted cash accounts. The amount of cash currently available from the proceeds of our indirect participation interest agreement is expected to be sufficient to fund our estimated capital expenditures for our exploration and production business segment for 2006 of $31.6 million. During 2006, we expect to complete our current seismic acquisition program and airborne gravity and magnetic surveys, and drill two exploration wells. These expenditures will be funded using the proceeds of our $125 million indirect participation interest agreement financing.

We are engaged in negotiations for debt financing which we believe will be sufficient to fulfill the restricted cash requirements discussed above and, if necessary, to fund our remaining obligations to drill a total of eight exploration wells under our $125 million indirect participation interest agreement. However, no assurance can be given that we will be successful in obtaining this new debt financing or other sources of capital.

Midstream

Since 2004, the price of crude oil that we use as feedstocks for our refinery has risen dramatically. As a result of these price increases, we have been required to use increasing amounts of our available liquidity to finance the purchase of crude feedstocks. In addition, the costs associated with our refinery optimization efforts have further reduced our available liquidity. As discussed above, this lack of liquidity has required us to allocate funds raised under our upstream indirect participation interest agreement to restricted cash accounts that support our crude purchase facility.

Most of our budgeted capital expenditures for 2006 for our refining and marketing business segment are related to our refinery optimization initiatives and are expected to be incurred during the second and third quarters of 2006. Our estimated capital expenditures for our refining and marketing business segment for 2006 are $10.0 million. We believe that the debt financing we are currently negotiating to obtain will enable us to pay for these capital expenditures. However, no assurance can be given that we will be successful in raising the needed additional capital.

Downstream

We believe that our cash flows from operations will be sufficient to meet our estimated capital expenditures for our wholesale and retail distribution business segment during 2006 of $2.4 million. In order to complete the acquisition of Shell’s downstream distribution business in Papua New Guinea, we will be required to obtain debt or other financing.

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Contractual Obligations and Commitments

The following table contains information on payments for contracted obligations as of December 31, 2005 that we have over the next five years and it should be read in conjunction with our financial statements and the notes thereto:

Payments Due by Period
			Less than		1 - 2		2 - 3		3 - 4		4 - 5		More than
Contractual obligations	Total		1 year		years		years		years		years		5 years
Long-term debt obligations	$	80,500	$	9,000	$	9,000	$	9,000	$	9,000	$	9,000	$	35,500
Indirect participation interest (non-current) (1)	$	5,500		—	$	5,500		—		—		—		—
Indirect participation interest (current)	$	65,259	$	35,093	$	30,166		—		—		—		—
Unsecured term loan	$	21,453	$	21,453		—		—		—		—		—
Capital expenditure commitments relating to refinery optimization program	$	4,600	$	4,600		—		—		—		—		—
Petroleum prospecting and retention licenses (2)	$	160	$	160		—		—		—		—		—
Total	$	177,472	$	70,306	$	44,666	$	9,000	$	9,000	$	9,000	$	35,500

(1)

The terms of the indirect participation interest agreement provide for various conversion options. The amount provided is the maximum amount that can be converted to debt and differs from the amount presented in the December 31, 2005 Consolidated Balance Sheet due to conversion requirements into our fully paid common shares.

(2)

The amount pertaining to the petroleum prospecting and retention licenses represents the amount we are required to spend over the next two years to maintain the exploration licenses. The committed amount can be spent in any proportion over the two years. In addition, we have an obligation to drill an exploration well in Petroleum Prospecting License 237 prior to the end of March 2007. The costs to drill this well are not included in the above table because they cannot be estimated at this time.

Off-Balance Sheet Arrangements

As of December 31, 2005, we did not have any off balance sheet arrangements and did not enter into any during the twelve month period ended December 31, 2005, including any relationships with unconsolidated entities or financial partnerships to enhance perceived liquidity.

Transactions with Related Parties

Petroleum Independent and Exploration Corporation, a company owned by Mr. Mulacek, our Chairman of the Board of Directors and Chief Executive Officer, was paid a management fee of $150,000, $150,410 and $150,000 during 2005, 2004 and 2003, respectively. This management fee relates to Petroleum Independent and Exploration Company being appointed the General Manager of our subsidiary, S.P. InterOil, LDC.

We also made interest payments of $9,376, $246,745 and $105,374, and loan principal payments of $1.1 million, $2.2 million and $1.4 million to Petroleum Independent and Exploration Corporation during 2005, 2004 and 2003, respectively. As of December 31, 2005 we had repaid all amounts that we owed to Petroleum Independent and Exploration Company. The loans outstanding to Petroleum Independent and Exploration Corporation were for amounts loaned by lending institutions to Petroleum Independent and Exploration Company. These loans were collateralized by barges legally owned by Petroleum Independent and Exploration Company but beneficially owned by us and common shares of ours owned by Petroleum Independent and Exploration Company that were used as collateral to assist us. All of the proceeds of these loans were passed through to us and the interest rates charged to us by Petroleum Independent and Exploration Company reflected the actual interest rates paid by Petroleum Independent and Exploration Company to the lending institutions.

Breckland Limited provides technical and advisory services to us on normal commercial terms. Roger Grundy, one of our directors, is also a director of Breckland and he provides consulting services to us as an employee of Breckland. Breckland was paid $179,608, $120,426 and $131,250 during 2005, 2004 and 2003, respectively.

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On November 22, 2005, we acquired Direct Employment Services Corp. for $1,000. Christian Vinson, our Chief Operating Officer and a director, was paid $500, the par value of his shares of Direct Employment Services Corp. Prior to November 22, 2005, the services of certain of our executive officers and senior management were provided under a management services agreement with Direct Employment Services Corp. Direct Employment Services Corp. was established for the purposes of providing non-profit management services to us for our U.S. employees. Direct Employment Services Corp. invoiced us for its direct costs in providing the services of these employees but did not recognize any income from providing these services to us. Direct Employment Services Corp. was paid $549,978, $708,104, and $535,855 during 2005, 2004 and 2003, respectively.

Share Capital

Our authorized share capital consists of an unlimited number of common shares with no par value. As of March 16, 2006, we had 29,163,320 common shares outstanding and 33,990,325 common shares on a fully diluted basis.

Share Capital	Number of shares
Balance, December 31, 2002		20,585,943
Shares issued for cash		3,817,500
Shares issued for debt		31,240
Shares issued on exercise of options		381,278
Balance, December 31, 2003		24,815,961
Shares issued for debt		3,184,828
Shares issued on exercise of options		310,095
Balance, December 31, 2004		28,310,884
Shares issued on exercise of options		781,268
Shares issued on exercise of warrants		19,168
Shares issued for debt		52,000
Balance December 31, 2005		29,163,320
Shares issued from January 1, 2006 to March 16, 2006		—
Balance March 16, 2006		29,163,320
Remaining stock options authorized		911,068
Remaining shares issuable upon exercise of warrants		340,247
Remaining conversion rights authorized (1)		3,570,690
Other		5,000
Balance March 16, 2006 Diluted		33,990,325

(1) In 2003 and 2005, we sold indirect participation working interests in our exploration program. Some of the investors under our indirect participation interest agreements still have the right to convert, under certain circumstances, their interest to our common shares. If 100% of the investors under all of out indirect participation interest agreements choose to convert their interests, we would be required to issue an additional 3,570,690 common shares.

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Financial and Derivative Instruments

With the exception of cash and cash equivalents and temporary investments, all financial assets are non-interest bearing. Cash and cash equivalents earned average interest rates on bank term deposits of 1.3%, 1.6%, and 1.5% per annum during 2005, 2004 and 2003, respectively. All other components of cash and cash equivalents are non-interest bearing. Temporary investments are comprised of the following:

Restricted cash	Years ended December 31,
As at December 31, 2005	2005		2004
Cash deposit on working capital facility (2.9%)		16,452,216		15,497,127
Cash deposit on secured loan (2.1%)		106,266		—
Bank term deposits on Petroleum Prospecting licenses (1.3%)		103,786		102,096
Total		16,662,268		15,599,223

Credit risk is minimized as all cash amounts and certificates of deposit are held with large banks which have acceptable credit ratings as determined by a recognized rating agency. The carrying values of cash and cash equivalents, trade receivables, all other assets, accounts payable and accrued liabilities, all short-term loan facilities and amounts due to related parties approximate fair values due to the short term maturities of these instruments.

Cash held as a deposit on the working capital facility secures our working capital facility with BNP Paribas. The required balance, which can be satisfied with cash, inventory and accounts receivable, is initially based on 20% of the outstanding balance of the facility. The cash held as a deposit on the secured loan provides a portion of the security for our secured loan borrowings with the Overseas Private Investment Corporation.

Foreign Currency Hedge Contracts

We had no outstanding foreign currency forward contracts at December 31, 2005 and 2004.

Commodity Hedge Contracts

From time to time, we enter into derivative instruments to reduce the risks of changes in the relative prices of our crude feedstocks and refined products. The derivatives reduce our exposure on the hedged volumes based on timing differences and also to decreases in refining margins. However, these derivatives limit the benefit we might otherwise have received from any increases in refining margins on the hedged volumes. We use derivative commodity instruments to manage exposure to price volatility on a portion of its refined product and crude inventories.

As of December 31, 2005, we had entered into jet fuel crack spread swap agreements to hedge a portion of the anticipated 2006 sales of this product. We also entered into crude swap agreements to hedge a portion of our anticipated first quarter 2006 diesel, naphtha and low sulfur waxy residue sales. The unrealized gain on unsettled hedge contracts deemed to be effective at December 31, 2005 was $1,016,998 and is recognized in the financial statements as a deferred hedge gain liability.

As of December 31, 2005, we had a net receivable of $1,482,798 relating to commodity hedge contracts. Of this total, $897,798 relates to hedges deemed effective as of December 31, 2005 and $585,000 relates to derivative contracts that were closed and for which hedge accounting has been discontinued. The gain on the closed derivative contracts is included in general and administrative expenses for the year ended December 31, 2005.

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The following table summarizes our effective hedge contracts by derivative type which were unsettled and not priced out as of December 31, 2005:

Outstanding Hedging Contracts
Derivative	Type	Notional Volumes (Bbls)
Crude swap	Sell crude		300,000
Crude swap	Buy crude		250,000
Jet fuel/ kerosene crack spread swap	Sell jet/ buy crude		249,999

Critical Accounting Estimates

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The following accounting policies involve estimates that are considered critical due to the level of sensitivity and judgment involved, as well as the impact on our consolidated financial position and results of operations. The information about our critical accounting estimates should be read in conjunction with Note 2 of the notes to our consolidated financial statements for the year ended December 31, 2005, which summarizes our significant accounting policies.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. A valuation allowance is provided against any portion of a future tax asset which will more likely not be recovered. If actual results differ from the estimates or we adjust the estimates in future periods, we may need to record a valuation allowance. The net deferred income tax assets as of December 31, 2005 and 2004 were $1.1 million and $1.3 million, respectively.

Oil and Gas Properties

We use the successful-efforts method to account for our oil and gas exploration and development activities. Under this method, costs are accumulated on a field-by-field basis with certain exploratory expenditures and exploratory dry holes being expensed as incurred. We continue to carry as an asset the cost of drilling exploratory wells if the required capital expenditure is made and drilling of additional exploratory wells is underway or firmly planned for the near future, or when exploration and evaluation activities have not yet reached a stage to allow reasonable assessment regarding the existence of economical reserves. Capitalized costs for producing wells will be subject to depletion using the units-of-production method. Geological and geophysical costs are expensed as incurred. If our plans change or we adjust our estimates in future periods, a reduction in our oil and gas properties asset will result in a corresponding increase in the amount of our exploration expenses. The net costs of drilling exploratory wells carried as an asset as of December 31, 2005 and 2004 were $1.3 million and $1.3 million.

Asset Retirement Obligations

Estimated costs of future dismantlement, site restoration and abandonment of properties are provided based upon current regulations and economic circumstances at year end. Management estimates that there are no material obligations associated with the retirement of the refinery or with its normal operations relating to future restoration and closure costs. The refinery is located on land leased from the Independent State of Papua New Guinea. The lease expires on July 26, 2097. Future legislative action and regulatory initiatives could result in changes to our operating permits which may result in increased capital expenditures and operating costs.

Interoil Corporation
Page 27 of  29

Environmental Remediation

Remediation costs are accrued based on estimates of known environmental remediation exposure. Ongoing environmental compliance costs, including maintenance and monitoring costs, are expensed as incurred. Provisions are determined on an assessment of current costs, current legal requirements and current technology. Changes in estimates are dealt with on a prospective basis. We currently do not have any amounts accrued for environmental remediation obligations. Future legislative action and regulatory initiatives could result in changes to our operating permits which may result in increased capital expenditures and operating costs.

Impairment of Long-Lived Assets

We are required to review the carrying value of all property, plant and equipment, including the carrying value of oil and gas assets, for potential impairment. We test long-lived assets for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable by the future undiscounted cash flows. If impairment is indicated, the amount by which the carrying value exceeds the estimated fair value of the long-lived asset is charged to earnings. In order to determine fair value, our management must make certain estimates and assumptions including, among other things, an assessment of market conditions, projected cash flows, investment rates, interest/equity rates and growth rates, that could significantly impact the fair value of the asset being tested for impairment. Due to the significant subjectivity of the assumptions used to test for recoverability and to determine fair value, changes in market conditions could result in significant impairment charges in the future, thus affecting our earnings. Our impairment evaluations are based on assumptions that are consistent with our business plans. However, providing sensitivity analysis if other assumptions were used in performing the impairment evaluations is not practicable due to the significant number of assumptions involved in the estimates.

Fair value of Financial Instruments

We utilize derivative financial instruments in the management of our price exposures for our refined products and crude feedstocks. We disclose the estimated fair value of outstanding hedging contracts as of the end of a reporting period. The estimation of the fair value of certain hedging derivatives requires considerable judgment. The estimate of fair value for our derivative contracts is determined primarily through quotes from financial institutions. Accounting rules for transactions involving derivative instruments are complex and subject to a range of interpretation. The Financial Accounting Standards Board has established the Derivative Implementation Group Task Force, which, on an ongoing basis, considers issues arising from interpretation of these accounting rules. The potential exists that the task force may promulgate interpretations that differ from ours. In this event, our policy would be modified and our deferred hedge gain may be adjusted with a corresponding increase to revenues and expenses. The deferred hedge gains as of December 31, 2005 and 2004 were $1.0 million and $0.5 million, respectively.

We accounted for $125,000,000 in proceeds received under the indirect participation interest agreement signed in February 2005 as a non financial liability with an equity component. In determining the split between liabilities and equity, our management estimated the fair value of the liability and equity components and allocated the $125,000,000 in proceeds from the agreement based on the pro rata share of the fair market value of each component. The calculation of the fair market value of each component was based on a wide range of variables, including the expected timing of expenditures, total overall expenditure, and applicable interest rates. If the liability and equity components were allocated in different amounts, our December 31, 2005 accounts may have presented a different interest expense and/or increased amounts of exploration expenditures.

Legal and other contingent matters

We are required to determine whether a loss is probable based on judgment and interpretation of laws and regulations and whether that the loss can reasonably be estimated. When the amount of a contingent loss is determined it is charged to earnings. Our management must continually monitor known and potential contingent matters and make appropriate provisions by charges to earnings when warranted by circumstances.

Interoil Corporation
Page 28 of  29

New Accounting Standards

Non-Monetary Transactions

In June 2005, the AcSB issued CICA section 3831, “Non-monetary Transactions” which replaced section 3830 of the same name. The new recommendations require that all non-monetary transactions are measured based on fair value unless the transaction lacks commercial substance or is an exchange of product or property held for sale in the ordinary course of business. The guidance is effective for all non-monetary transactions initiated in periods beginning on or after January 1, 2006. We do not believe that the application of CICA section 3831 will have a material impact on our financial statements.

Pending Accounting Standards

In April 2005, the CICA released three new Handbook sections which deal with the recognition and measurement of financial instruments:

• Section 1530, Comprehensive Income;

• Section 3855, Financial Instruments — Recognition and Measurement; and

• Section 3865, Hedges.

The new standards are an attempt to harmonize Canadian GAAP with U.S. GAAP. Initial measurement of all financial instruments is to be based on their fair values. The subsequent measurement of the financial instrument will depend on whether it is classified as a loan or receivable; held to maturity investment; available for sale financial asset; held for trading asset or liability; or, other financial liability. Available for sale financial assets and held for trading assets or liabilities are measured at fair value on an ongoing basis. The other financial instruments are recognized at amortized cost using the effective interest method. The gains and losses on held for trading financial instruments are recognized immediately in net income. The gains and losses on available for sale financial assets will be recognized in other comprehensive income and are transferred to net income when the asset is derecognized.

Other comprehensive income is a new equity category where revenues, expenses, gains and losses are temporarily presented outside of net income but included in comprehensive income. Unrealized gains or losses on qualifying hedging instruments and available for sale financial assets are included in other comprehensive income and reclassified to net income when realized.

Hedge accounting continues to be an option and the new Handbook section provides detailed guidance on the application of hedge accounting and the required disclosures.

These new standards are effective for fiscal years beginning on or after October 1, 2006. We expect to adopt the pending accounting standards on January 1, 2007. Management at this time is still in the process of assessing the impact of these standards.

Public Securities Filings

You may access additional information about us, including our Annual Information Form, which is filed with the Canadian Securities Administrators at www.sedar.com, and our Form 40-F, which is filed with the U.S. Securities and Exchange Commission at www.sec.gov.

Interoil Corporation
Page 29 of  29

EX-99.4

PricewaterhouseCoopers
ABN 52 780 433 757

Freshwater Place

2 Southbank Boulevard

SOUTHBANK VIC 3006

GPO Box 1331L

MELBOURNE VIC 3001

DX 77

Website:www.pwc.com/au

Telephone

Facsimile

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Annual Report on Form 40-F and the incorporation by reference in the Registration Statements on Form S-8 (No. 333-124167), Form F-10/A (No. 333-120383) and Form F-10/A (No. 333-124641) of Interoil Corporation of our report dated March 31, 2006 relating to the consolidated balance sheet as of December 31, 2005 and the consolidated statements of operations, shareholders’ equity and cash flows for the year ended December 31, 2005, which are incorporated by reference to Exhibit 4 of the Annual Report on Form 40-F dated March 31, 2006.

/s/ PricewaterhouseCoopers

PricewaterhouseCoopers
Melbourne, Australia
March 31, 2006

EX-99.5

Consent of Independent Registered Public Accounting Firm

We consent to the use of our report dated March 4, 2005 included in this annual report on Form 40-F, to be filed with the United States Securities and Exchange Commission pursuant to the Securities and Exchange Act of 1934, as amended, and as incorporated by reference in registration statements (No. 333-120383 and No. 333-124641) on Form F-10 and registration statement on Form S-8 (file No. 333-124617) of InterOil Corporation.

(signed) KPMG

Sydney, Australia
March 31, 2006

EX-99.6

InterOil Corporation
C/- PO Box 6567
Suite 2, Level 2
Orchid Plaza
79 Abbott Street
Cairns, Qld 4870
Phone: (61) 7 4046 4600
Fax: (61) 7 4031 4565
www.interoil.com

To the Employees, Officers and Directors of

   InterOil Corporation and its Subsidiaries:

     InterOil Corporation (the “Company”) is committed to maintaining the highest legal and ethical standards in the conduct of its business. The Company seeks success in all of its business endeavours, but any success the Company may achieve at the expense of high ethical standards would be hollow. An awareness of the Company’s general policies regarding business conduct is vital to the Company and to each employee, officer and director in the achievement of the Company’s mission.

     For the Company’s employees, officers and directors, proper business conduct requires strict compliance with the spirit and the letter of the laws and regulations that apply to the Company’s business, but proper conduct means more than that. It means adherence to the highest business and personal ethics in dealings involving the Company or its reputation. The policies summarized in this booklet go beyond the strict requirements of the law. Although it cannot answer every question of conduct that may arise in the course of he Company’s business, this booklet should alert you to situations that may require extra caution, concern or guidance. It is also Company practice to encourage everyone to ask questions, seek guidance, and express any concerns they may have. When in doubt, the Company’s employees, officers and directors should ask themselves the following questions:

• Would my action inspire trust? Is it fair and just?

• Is my action legal? If legal, is it also ethical? Are my actions honest in every respect?

• Is anyone’s life, health or safety endangered by this action?

• Can I defend this action with a clear conscience before my supervisor, fellow employees, and the general public?

• Would my supervisor act this way? Would it be helpful to ask my supervisor about this matter before I act?

• Would I be proud to read about my action in the newspaper?

• Does the action violate Company policy?

• Is the action consistent with the Company’s values?

• What would I tell my child to do?

• Would I want to tell my parents or children about my action?

     You may consult your supervisor, upper management or a Company attorney to seek advice. In addition, you may seek advice on a confidential basis by contacting the Company’s General Counsel or the Chairperson of the Nominating and Governance Committee of the Company’s Board of Directors. Please see the procedures set forth under Section XVI. If you are unsure about what to do, ask questions and keep asking until you are certain you are doing the right thing. The Company expects these policies to be observed. It is not an excuse that questionable conduct is well-motivated or intended to “benefit” the Company. The Company may be exposed to significant civil and criminal penalties and the Company’s reputation may be severely damaged. In addition, violating certain standards in this booklet may subject such violator to personal fines and jail terms. In any event, violating the standards of business conduct outlined in this booklet may subject a violator to severe disciplinary action, up to and including immediate termination.

     You are urged to read and understand this booklet. This booklet, together with the related policies, procedures and educational efforts comprises the Company’s internal compliance program as contemplated by the U.S. Federal Sentencing Guidelines for corporations. As an integral part of this program you may be required to submit an annual certification of compliance on the form at the end of this booklet.

Sincerely,
By:	/s/ Phil E. Mulacek
	Phil Mulacek, Chief Executive Officer

InterOil Corporation

Code of Ethics

and

Business Conduct

CODE OF ETHICS AND BUSINESS CONDUCT

TABLE OF CONTENTS

		Page
I.	ETHICS AND COMPLIANCE		1
II.	COMPLIANCE WITH LAWS, RULES AND REGULATIONS		1
III.	CONFIDENTIAL INFORMATION		1
	Disclosure of Company’s Confidential Information		1
	Patents, Copyrights, Trademarks and Proprietary Information		2
	No Inadvertent Disclosures		2
	Competitive Information		2
IV.	CONFLICTS OF INTEREST AND CORPORATE OPPORTUNITY		3
V.	CUSTOMER, SUPPLIER AND COMPETITOR RELATIONS		4
	Permissible Payments		4
	Bribes		4
	Gifts		4
VI.	ENTERTAINMENT		4
	Government Representatives		5
	Compliance with Antitrust Laws		5
VII.	INSIDER TRADING		6
VIII.	RECORD MANAGEMENT		6
IX.	RECORDING TRANSACTIONS		7
	Company Records		7
X.	USE OF COMPANY ASSETS		7
	Electronic Communications		7
	Third Party Software		8
	Intellectual Property		8
XI.	FAIR DISCLOSURE POLICY		8
XII.	FINANCIAL CODE OF ETHICS		9
XIII.	DISCRIMINATION AND HARASSMENT		9
XIV.	HEALTH AND SAFETY		9
XV.	REPORTING VIOLATIONS OF COMPANY POLICIES		9
XVI.	WAIVER		10

I. ETHICS AND COMPLIANCE

     InterOil Corporation (the “Company”) operates in accordance with the highest ethical standards and relevant laws. The Company places the highest value on the integrity of each of its employees, officers, directors and representatives. The Company’s culture demands not only legal compliance, but also responsible and ethical behavior. Unless otherwise specifically noted, the policies outlined in this booklet apply to all directors, officers and employees of the Company and its subsidiaries, in all states, regions and countries. This booklet doesn’t cover all Company policies or all laws, but sets out basic principles to guide employees, officers and directors. The Code should also be provided to and followed by the Company’s agents and representatives, including consultants.

     If a local law conflicts with a policy in this Code, then you must comply with the law. If local custom or practice conflicts with this Code, then you must comply with this Code. If your line of business or region has a policy or practice that conflicts with this Code then you must comply with this Code. If your line of business or region has policies or practices that require more of you than is required by the Code or if local law requires more, then you must follow the stricter policy, practice or law. Think of this Code as a baseline, or a minimum requirement, which must always be followed. The only time you can go below the baseline is if a law absolutely requires you to do so or if a written exception has been obtained in the manner provided herein.

     Those who violate the standards in this Code will be subject to disciplinary action, up to and including termination of employment. If you are in a situation which you believe may violate or lead to a violation of this Code, follow the guidelines described in Section XVI of this Code.

II. COMPLIANCE WITH LAWS, RULES AND REGULATIONS.

     Obeying the law, both in letter and in spirit, is the foundation on which this Company’s ethical standards are built. All employees, officers and directors must respect and obey the laws of the cities, states and countries in which the Company operates. Although not all employees are expected to know the details of these laws, it is important to know enough to determine when to seek advice from supervisors, managers or other appropriate personnel.

III. CONFIDENTIAL INFORMATION

     The Company believes its confidential proprietary information is an important asset in the operation of its business and prohibits the unauthorized use or disclosure of this information. Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company, its customers, representatives or other business partners, if disclosed. It also includes information that suppliers, customers, representatives and other parties have entrusted to the Company. The Company respects the property rights of other companies to their confidential proprietary information and requires its employees, officers and directors to fully comply with Canadian, U.S. and foreign laws and regulations protecting such rights. The obligation to preserve confidential information continues even after employment ends. The Company’s success is dependent upon the strict adherence by employees, officers and directors to this policy and all applicable standards and procedures.

Disclosure of Company’s Confidential Information

     Information is the lifeblood of any business. Open and effective dissemination of this information is critical to the Company’s success. However, much of the information concerning the Company’s business activities is confidential. The disclosure of this information outside the Company would seriously damage the Company’s interests.

     To protect this information, it is Company policy that:

• Confidential information of the Company should be disclosed within the Company only on a need-to-know basis;

• Confidential information of the Company (paper or electronic) should be marked with additional handling instructions designated by the General Counsel; and

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• Confidential information of the Company should be disclosed outside the Company only when required by law or when necessary to further the Company’s business activities and in accordance with the Company’s disclosure guidelines.

     Under no circumstances are employees, officers or directors to provide confidential Company documents to any third party, without express consent of the Company’s Disclosure Review and Control Committee. This restriction on the disclosure of confidential information includes, but is not limited to, any confidential Company documents relating to customers, competitors, suppliers or representatives of the Company.

Patents, Copyrights, Trademarks and Proprietary Information

     Protection of the Company’s intellectual property—including its patents, copyrights, trademarks, scientific and technical knowledge, processes, know-how and the experience developed in the course of the Company’s activities—is essential to maintaining the Company’s competitive advantage. This information should be protected by all Company personnel and should not be disclosed to outsiders.

     Much of the information the Company develops related to research, trade secrets, production, marketing, strategies, engineering, contract negotiations, and business methods and practices is original in nature and its protection is essential to the Company’s continued success. Such proprietary/confidential information and trade secrets may consist of any formula, pattern, device or compilation of information maintained in secrecy which is used in the Company’s business, and which gives that business an opportunity to obtain an advantage over competitors who do not know about it or use it. This information should be protected by all Company employees, officers and directors and not disclosed to outsiders. Its loss through inadvertent or improper disclosure could be harmful to the Company.

No Inadvertent Disclosures

     Employees, officers and directors should be especially mindful in the use of the telephone, fax, telex, electronic mail, and other electronic means of storing and transmitting information.

     Employees, officers and directors should take every practicable step to preserve the Company’s confidential information. For example, employees should not discuss material information in elevators, hallways, restrooms, restaurants, airplanes, taxicabs or any place where they can be overheard; read confidential documents in public places or discard them where they can be retrieved by others; leave confidential documents in unattended conference rooms; or leave confidential documents behind when the conference is over. Also, employees should be aware of the carrying quality of conversations conducted on speaker telephones in offices, and of the potential for eavesdropping on conversations conducted on mobile, car or airplane telephones, and other unsecured means of communication.

     Many employees are required to sign agreements reminding them of their obligation not to disclose the Company’s proprietary confidential information, both while they are employed and after they leave the Company. The loyalty, integrity and sound judgment of the Company’s employees both on and off the job are essential to the protection of such information.

     Questions Employees Should Ask Themselves

• Am I conversing in a place where my conversation can be overheard?

• Have I received the express consent of the Company’s Disclosure Review and Control Committee that authorizes the release of confidential information?

Competitive Information

     Collecting information on the Company’s competitors from legitimate sources is proper and often necessary. However, there are limits to the ways information should be acquired. Practices such as industrial

2

espionage, stealing and seeking confidential information from a new employee who recently worked for a competitor are not permitted.

     Questions Employees Should Ask Themselves

• If the president of the competitor knew I was using this means of obtaining information about his/her company, would he/she believe it was proper?

• If I changed jobs and went to work for a competitor, would it be appropriate for me to disclose to the competitor the Company confidential information?

IV. CONFLICTS OF INTEREST AND CORPORATE OPPORTUNITY

     Conflicts of interest result from situations or activities which may benefit the employee, officer or director by virtue of his position with, or at the expense of, the Company. A conflict situation can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his or her Company work objectively and effectively. A conflict of interest may also exist if a family member’s interest interferes with a person’s independent exercise of sound judgment. Employees, officers and directors should avoid any action which may involve, or may appear to involve, a conflict of interest with the Company. Employees, officers and directors should not have any financial or other business relationships with suppliers, customers, contractors, competitors or other third parties with which the Company has relationships that might impair, or even appear to impair, the independence of any judgment they may need to make on behalf of the Company. In addition, actions of family members may create a conflict of interest. For example, doing business with an organization that is partially or fully owned by members of your family may create a conflict of interest.

     Therefore, it is Company policy that unless a written waiver is granted (as explained below), employees, officers and directors may not:

• Perform services for a public or private company, or have a financial interest in a private company or more than a 5% financial interest in a public company, that is, or may become, a supplier, customer, contractor or competitor of the Company.

• Perform outside work or otherwise engage in any outside activity or enterprise that may create a conflict with the Company’s best interests.

• Take for themselves personally, opportunities that are discovered through the use of Company property, information and position;

• Use Company property, information or position for personal gain; or

• Compete with the Company.

     Non-employee directors are not prohibited from, and the Company renounces any interest or expectancy in, pursuing any opportunity that is presented to a non-employee director other than primarily in such person’s capacity as a director of the Company.

     In addition, the Company’s employees, officers and directors may not acquire any interest in outside entities, properties or assets in which the Company has an interest or potential interest. This includes securities in businesses being considered for acquisition, or real estate at or near possible new or expanded Company facilities. Solicitation of vendors or employees for gifts or donations shall not be allowed except with the permission of the Chief Financial Officer or General Counsel. If a family member of the employee, officer or director engages in an activity that would be considered a “conflict of interest” if the related employee, officer or director were to undertake it, then a “conflict of interest” shall be deemed to exist with respect to such employee, officer or director.

     Employees are under a continuing obligation to disclose to their supervisors any situation that presents the possibility of a conflict or disparity of interest between the employee and the Company. An employee’s conflict of interest may only be waived if both the General Counsel and the employee’s supervisor waive the conflict in

3

writing. Officers and directors are under a continuing obligation to disclose to the Board of Directors any situation that presents the possibility of a conflict or disparity of interest between such officer or director and the Company. An officer’s or a director’s conflict of interest may only be waived if the Board of Directors approves the waiver. Disclosure of any potential conflict is the key to remaining in full compliance with this policy.

     Questions Employees, Officers and Directors Should Ask Themselves

• Could my outside business or financial interests adversely affect my job performance or my judgment on behalf of the Company?

• Can I reasonably conduct my business outside of normal Company work hours and prevent my outside customers, clients or affiliates from contacting me at work?

• Will I be using Company equipment, materials, or proprietary information in my outside business?

V. CUSTOMER, SUPPLIER AND COMPETITOR RELATIONS

     The Company believes that the Company, the economy, and the public benefit if businesses compete vigorously. The Company, its employees, officers, directors and representatives will treat customers, business allies, competitors and suppliers fairly and will not engage in anticompetitive practices that unlawfully restrict the free market economy. Anticompetitive practices include taking unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice.

Permissible Payments

     The payment of normal discounts and allowances, commissions, fees, sales promotion activity, entertainment and the extension of services and other customary courtesies in the ordinary course of business is permissible so long as they have been authorized and properly recorded. If a customer, supplier, vendor or government agency has adopted a more stringent policy than the Company’s regarding gifts and gratuities, then the Company’s representative must comply with that more stringent policy when dealing with that person or entity. (See below for a discussion of gifts to government representatives.)

Bribes

     No illegal payment in any form (whether funds or assets) shall be made directly or indirectly to anyone for the purpose of obtaining or retaining business or to obtain any other favorable action. It is imperative that each and every person who does business with the Company understands that the Company will not, under any circumstances, give or accept bribes or kickbacks. A violation of this policy will subject the employee or officer to disciplinary action as well as potential criminal prosecution.

Gifts

     No gift should be accepted from a supplier, vendor or customer unless the gift has insubstantial value and a refusal to accept it would be discourteous or otherwise harmful to the Company. In general, a gift in excess of US$ 200 is considered substantial. However, depending on the circumstances, gifts of lesser amounts may also be considered substantial. The key is to keep an arms length relationship and avoid excessive or lavish gifts or events that may give the appearance of undue influence. This applies equally to gifts to suppliers or vendors or non-governmental customers. (See below for a discussion of gifts to government representatives.)

VI. ENTERTAINMENT

     Appropriate business entertainment of non-government employees occurring in connection with business discussions or the development of business relationships is generally deemed appropriate in the conduct of official business. This may include business-related meals and trips, refreshments before or after a business meeting, and occasional athletic, theatrical or cultural events. Entertainment in any form that would likely result in a feeling or

4

expectation of personal obligation should not be extended or accepted. This applies equally to giving or receiving entertainment.

     Questions Employees Should Ask Themselves

• Am I offering something in order to obtain special treatment for the Company?

• Will I favor this supplier because he gives me a gift?

• If my supervisor knew about the gift a supplier/vendor/customer gave to me, would he/she approve?

• How often this year have I provided gifts to this customer?

• Are the gifts I am providing customary in the industry?

• How often this year have I taken gifts from this supplier/vendor?

• If this gift or payment were disclosed to the public, would it embarrass the Company?

• When you give a gift or if you accept a gift is there a sense of obligation created as a result of the gift?

Government Representatives

     What is acceptable practice in the commercial business environment may be against the law or the policies of national, state or local governments. Therefore, no gifts or business entertainment of any kind may be given to any government employee without the prior approval of the General Counsel, except for items of nominal value (i.e., pens, coffee mugs, etc.).

     In addition, a U.S. law, the Foreign Corrupt Practices Act (FCPA) prohibits the Company or anyone acting on behalf of the Company from making a payment or giving a gift to a non-U.S. government official for purposes of obtaining or retaining business. The FCPA applies to the Company everywhere in the world where the Company does business and even applies to you if you are not a U.S. citizen.

     Facilitating Payments

     In addition, the FCPA recognizes that in a number of countries, tips and gratuities of a minor nature are customarily required by lower level governmental representatives performing ministerial or clerical duties to secure the timely and efficient execution of their responsibilities (e.g., customs clearances, visa applications, installation of telephones, and exchange transactions). If you encounter a situation where an expediting or facilitating payment is requested in order to expedite or advance a routine performance of legitimate duties, then you need to contact the General Counsel for its analysis by legal counsel under the FCPA.

     Third Party Agents

     The Company’s business may involve the use of agents, consultants, brokers or representatives in connection with its dealing with governmental entities, departments, officials and employees. Such arrangements may not be employed to channel payoffs to government entities or officials or otherwise violate the FCPA.

     Questions Employees Should Ask Themselves

• Has a third party working on behalf of the Company told you not to worry because he or she will take care of the demands of the local culture?

• If this payment were disclosed to the public, would it embarrass the Company?

Compliance with Antitrust Laws

     All Company employees, officers and directors are expected to comply with applicable Canadian, U.S. and foreign antitrust laws. All mergers, acquisitions, strategic alliances, and other types of extraordinary business

5

combinations which raise concerns of market domination or abuse, should receive timely legal review to assure that the Company competes aggressively, but not unlawfully. When any doubt exists as to the legality of any action or arrangement, the matter should be discussed with the General Counsel.

     Agreements with Competitors

     Formal or informal agreements with competitors that seek to limit or restrict competition in some way are often illegal. Unlawful agreements include those which seek to fix or control prices; allocate products, markets or territories; or boycott certain customers or suppliers. To ensure compliance with antitrust laws, discussions with competitors regarding any of these potential agreements is a violation of Company policy and will subject the employee or officer to disciplinary action as well as the potential for criminal prosecution.

     Agreements with Customers

     Certain understandings between the Company and a customer are also considered anti-competitive and illegal. These include agreements that fix resale prices or that result in discriminatory pricing between customers for the same product. These types of restrictive understandings must not be discussed or agreed to with a customer.

     International Application

     International operations of the Company may be subject to the antitrust laws of the United States. Advice on this subject as well as similar requirements under other applicable jurisdictions should be sought from the General Counsel.

     Questions Employees Should Ask Themselves

• Are my discussions with the competitor directly or indirectly touching on pricing considerations or other terms and conditions of sale?

• Could my actions be used as evidence that I unlawfully agreed upon prices or price changes with a competitor, even though no formal agreement or understanding was made?

• Does the pricing or promotional program I am formulating discriminate unfairly against any of the resellers of the Company?

VII. INSIDER TRADING

     Canadian and U.S. laws as well as Company policy prohibits employees, officers and directors, directly or indirectly through their families or others, from purchasing or selling Company securities while in the possession of material, non-public information concerning the Company. This same prohibition applies to trading in the securities of other publicly held companies on the basis of material, non-public information. All employees, officers and directors shall follow the Insider Trading Policy which is attached hereto as Addendum A and incorporated herein by reference.

VIII. RECORD MANAGEMENT

     The General Counsel has Company wide responsibility for developing, administering and coordinating the record management program, and issuing retention guidelines for specific types of documents. Records should be maintained to comply with applicable statutory, regulatory or contractual requirements, as well as those pursuant to prudent business practices. It is Company policy that no records that are the subject of or related to litigation or an ongoing or impending investigation shall be destroyed by any employee, officer, director or agent of the Company. Employees, officers and directors should contact the General Counsel for specific information on record retention.

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IX. RECORDING TRANSACTIONS

     The integrity of the Company’s record-keeping and reporting systems is of the utmost importance. The Company shall make and keep books, invoices, records and accounts that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company. Each employee, officer and director shall maintain accurate and fair records of transactions, time reports, expense accounts, and other Company records. Employees, officers and directors must use special care to make sure that records are accurately and completely prepared and reviewed, whether they are intended for internal use or for an external party, including any governmental authorities. The Company shall devise and maintain a system of internal controls sufficient to provide reasonable assurances that transactions are properly authorized, executed, and recorded.

Company Records

     All Company books, records, accounts, funds and assets must be maintained to reflect fairly and accurately the underlying transactions and disposition of Company business in reasonable detail. No entries will be made that intentionally conceal or disguise the true nature of any Company transaction.

     In this respect, the following guidelines must be followed:

• No unrecorded or “off the books” funds or assets should be established for any purpose;

• No false, misleading or fictitious invoices should be paid or created;

• No false or artificial entries should be made or misleading reports issued;

• Assets and liabilities of the Company shall be recognized and stated in accordance with the Company’s standard practices and GAAP;

• No material failure to make entries should be permitted; and

• The documentation evidencing each transaction and each payment on behalf of the Company shall fairly represent the nature of such transaction or the purpose of such payment.

     If an employee, officer or director believes that the Company’s books and records are not being maintained in accordance with these requirements, the employee should immediately report the matter directly to their supervisor or to the Chief Financial Officer, and officers and directors should report the mater to the Board of Directors.

     Questions Employees Should Ask Themselves

• Does the report I am planning to submit mischaracterize in any way the transaction or the purpose of the transaction?

• Am I being asked to make an entry I feel uncomfortable making?

X. USE OF COMPANY ASSETS

     The Company’s assets are to be used only for the legitimate business purposes of the Company and its subsidiaries and only by authorized employees or their designees. This includes both tangible and intangible assets. The use of Company time, materials, assets or facilities for purposes not directly related to Company business, or the removal or borrowing of Company property without permission, is prohibited. You should use and maintain the Company’s assets with care and respect, while guarding against waste and abuse.

Electronic Communications

     The Company’s electronic mail (e-mail) system should be restricted primarily to Company business. Highly confidential information should be handled appropriately. The Company reserves the right at any time to monitor and inspect, without notice, all electronic communications data and information transmitted on the network

7

and electronic files located on personal computers owned by the Company or computers on the premises used in Company business. The use of the Company’s internet services should be restricted primarily to Company business.

Third Party Software

     Third Party Software is provided as a productivity tool for employees to perform their job functions. Please note that, just because third party product or utility software is located on a corporate utility server, it does not necessarily mean that it is licensed for use as a standalone software product. “Software” includes programs, routines, and procedures that cause a computer system to perform a predetermined function or functions, as well as the supporting documentation. Employees and Company representatives have an obligation to protect and manage the Company’s software. All software use must be in compliance with applicable laws and contractual obligations assumed by the Company, including copyright laws and necessary licensing. Employees may be liable as individuals for illegal software use.

Intellectual Property

     To the extent permitted under applicable law, employees, contractors and temporary employees shall assign to the Company any invention, work of authorship, composition or other form of intellectual property created during the period of employment.

     Questions Employees Should Ask Themselves

• Would the e-mail I am thinking about drafting embarrass me or the Company if it became public? Does the e-mail I am sending relate to the business of the Company?

• Do I safeguard the assets of the Company entrusted to me?

XI. FAIR DISCLOSURE POLICY

     The Company is committed to fair disclosure of information to its shareholders, the financial community, and the public.

     The Company and its management team believe it is in the Company’s best interest to maintain an active and open communication with shareholders and potential investors regarding the Company’s historical performance and future prospects. The Company can create shareholder value by publicly articulating its strategies, business strengths, and growth opportunities. The Company is also aware of its need for confidentiality about details of key business and operating strategies.

     In addition, any reports or information provided on the Company’s behalf to U.S., Canadian or other national state or local governments should be true, correct and accurate. Any omission or misstatement could result in a violation of the reporting laws, rules and regulations.

     Authorized Spokespersons

     The Company speaks to the financial community and its shareholders through authorized representatives. Subject to the Company’s Disclosure Review and Control Procedures, the following officers are authorized to communicate on behalf of the Company to analysts, securities market professionals and major stockholders of the corporation:

• the Company’s Chief Executive Officer

• the Company’s Chief Financial Officer

• the Company’s Vice President of Investor Relations

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     Other officers, directors or employees of the corporation may from time to time communicate with analysts and investors as part of the Company’s investor relations program. In such instances, the disclosure will be made in accordance with the Company’s Disclosure Review and Control Procedures and an authorized representative will also be present. No employee, officer or director is authorized to communicate business or financial information about the Company that is non-public, material information, except through Company sanctioned public disclosure or for business purposes under a non-disclosure agreement.

     General

     Employees will be notified that, except as specified in this policy they shall not communicate to analysts and investors and shall refer all questions to the Vice President of Investor Relations or, in his or her absence, another authorized representative.

     The Company endeavors to make appropriate announcements and to conduct interviews with the media about its business and significant developments. Appropriate training will be provided to each authorized representative on compliance with the policy, review of public statements regarding material information, and procedures for disclosing non-public information.

XII. FINANCIAL CODE OF ETHICS

     The Company’s Code of Ethics for the Chief Executive Officer and Senior Financial Officers contains the ethical principles by which the Chief Executive Officer, Chief Financial Officer, principal accounting officer or Controller, or, if no person holds any such offices, the person or persons performing similar functions, are expected to conduct themselves when carrying out their duties and responsibilities. The Code of Ethics for the Chief Executive Officer and Senior Financial Officers is attached hereto as Addendum B and is incorporated herein by reference.

XIII. DISCRIMINATION AND HARASSMENT

     The Company is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment of any kind. Examples include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances.

XIV. HEALTH AND SAFETY

     The Company strives to provide each employee with a safe and healthy work environment. Each employee has a responsibility for maintaining a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions.

     Violence and threatening behavior are not permitted. Employees should report to work in condition to perform duties, free from the influence of illegal drugs or alcohol. The use of illegal drugs in the workplace will not be tolerated.

XV. REPORTING VIOLATIONS OF COMPANY POLICIES

     There are no easy answers to many ethical issues the Company faces in its daily business activities. In some cases the right thing to do will be obvious, but in other more complex situations, it may be difficult for an employee to decide what to do. When an employee is faced with a tough ethical decision or whenever they have any doubts as to the right thing to do, they should talk to someone else such as their supervisor, another manager, or the General Counsel. The Company has also established a system for reporting violations of any of the Company policies, as well as any suspected illegal activity or misconduct by any employee or representative of the Company. This may be done anonymously in writing to:

Attention: General Counsel

InterOil Corporation

9

Suite 2, Level 2

Orchid Plaza, 79-88 Abbot Street

Cairns, QLD 4870, Australia

     In the event the violation involves the conduct of an officer or director of the Company, the violation should be reported to Chairperson of the Nominating and Governance Committee. This may be done anonymously in writing to:

Attention: Chairperson of the Nominating and Governance Committee

c/o General Counsel

InterOil Corporation

Suite 2, Level 2

Orchid Plaza, 79-88 Abbot Street

Cairns, QLD 4870, Australia

     The Company will not permit any form of retribution against any person, who, in good faith, reports known or suspected violations of Company policy. It is a violation of this Code for anyone to be discriminated against or harassed for contacting his or her supervisor, upper management, the General Counsel, the Chief Financial Officer, or the Chairperson of the Nominating and Governance Committee with a good faith report of a suspected violation of law or policy. If you feel that you are being retaliated against in violation of this policy, please follow the procedures for reporting violations. Employees, officers and directors are expected to cooperate in internal investigations of misconduct.

XVI. WAIVER

     Waivers of any provision of this Code shall be made by the Board of Directors. Persons seeking a waiver should be prepared to disclose all relevant facts and circumstances, respond to inquiries for additional information, explain why a waiver is necessary, appropriate or in the best interest of the Company and comply with any procedures that may be required to protect the Company in connection with the waiver. If a waiver of this Code is granted for an executive officer or director, appropriate disclosure will promptly be made in accordance with applicable laws, rules and regulations (including the listing standards of the American Stock Exchange).

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ADDENDUM A
INTEROIL CORPORATION
INSIDER TRADING POLICY

Overview — InterOil Corporation Insider Trading Policy

Under U.S. and Canadian securities laws and the rules and regulations of the U.S. Securities and Exchange Commission, Australian Securities Investment Commission (ASIC) and the Ontario Securities Commission (OSC), it is illegal for any person, either personally or on behalf of others, to trade in securities on the basis of material, non-public information. It is also illegal to communicate or “tip” material, non-public information to others so that they may trade in securities on the basis of that information. These illegal activities are commonly referred to as “insider trading.”

The Board of Directors of InterOil Corporation, (the “Company”) has adopted this Insider Trading Policy (the “Policy”) to provide guidelines to members of its Board of Directors and its officers, employees, consultants contractors and any other party retained by the Company in any capacity (collectively referred to in this Policy as “employees”) with respect to transactions in the Company’s securities. The objective of the Policy is to help prevent any actual or apparent impropriety, either of which could lead to allegations of insider trading and the potential for significant liability on the part of any implicated parties. This Policy does not replace your responsibility to understand and comply with applicable insider trading laws. Because insider trading laws are technical, and changes and new interpretations are frequent, this Policy should not be relied upon in any particular instance.

Compliance with this Policy is of the utmost importance to you and the Company. If you have any questions about any of the matters discussed in this Policy, a particular transaction or insider trading laws generally, please contact a member of the Compliance Committee (described below). Advice from a member of the Compliance Committee should not be regarded as investment advice or as a guarantee that your transaction will not violate insider trading laws. You are ultimately responsible for compliance with the Policy and all applicable laws.

The Company takes its obligations under the securities laws very seriously, and any violation or suspected violation of this or any other Company policy could subject you to disciplinary action, up to and including termination of your employment for cause.

Scope of this Policy

Material Information Defined.

Information is deemed “material” if it could affect the market price of a security (i.e., stock, option, bond, etc.) or if a reasonable investor would attach importance to the information in deciding whether to buy, sell or hold a security. Material information can include information that something is likely to happen — or just that it might happen. Examples of some types of Company information that can be material are:

• Financial and operating performance, especially quarterly and year-end earnings and significant changes in financial performance, outlook or liquidity.

• A significant change in the Company’s debt ratings.

• Estimates or projections by the Company’s officers of future earnings or losses, especially Company projections that significantly differ from external expectations.

• Events or business operations which are likely to affect future revenues or earnings (for example, mergers and acquisitions, the acquisition or divestiture of significant assets, subsidiaries or business units, exploration drilling progress, discoveries of oil and gas, and the execution, or loss, of important contracts with partners or other parties).

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• Plans for substantial capital investments.

• Stock splits or other recapitalizations, capital restructuring, public or private securities offerings, or changes in Company dividend policies or amounts.

• Redemptions or repurchases by the Company of its securities.

• Actual or threatened major litigation, developments in major litigation or the resolution of such litigation.

• Significant changes in senior management.

• Any other information which is likely to have a significant impact on the Company’s financial results or share price.

Non-public Information Defined

“Non-public information” is information about the Company that is not known to the general public. Information is considered to be non-public until it has been effectively disclosed to the public and there has been adequate time for the market as a whole to digest that information (generally, the third trading day after disclosure). Examples of effective disclosure include the Company’s Edgar filings with the U.S. Securities and Exchange Commission (the “SEC”), filings on SEDAR required by Canadian securities regulatory agencies, and press releases. Generally, no transactions should take place until 24 hours after the release of easily understood earnings information or the third trading day after the disclosure of other material information.

Prohibited Transactions

Transactions in Company Securities.

When an employee knows material, non-public information about the Company, he or she may not:

• Trade in Company securities. Buying or selling securities of the Company, whether in the form of common shares, options or any other type of security, is prohibited. Indirectly trading in Company securities through a corporation or other entity that you control, family or any other trust, private superannuation fund, 401(K) plan, IRA trust or otherwise, is also prohibited.

• Advise others to buy, hold or sell Company securities. Even if no material, non-public information is actually disclosed, employees may not suggest buying or selling any Company securities while in possession of material, non-public information.

• Have others trade for him or her in Company securities. Employees may not authorize any member of his or her immediately family or anyone acting on his or her behalf to trade in Company securities.

• Disclose the information to anyone else who might then trade (“tipping”). Passing material, non-public information on to a friend, relative or anyone else that buys or sells a security on the basis of that information is prohibited.

• Assist anyone in any of these activities.

Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency) are not an exception to the prohibition on insider trading.

Transactions in the Securities of Other Companies.

Employees also become aware of material, non-public information about other companies from time to time as a result of their jobs. The Company’s prohibitions against insider trading in the Company’s securities apply equally to transactions in those companies’ securities while the employee is in possession of their material, non-public information.

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Short Sales; Trading in Options or Speculative Trading.

It is Company policy that any investing in the Company’s securities, or the securities of any company that has a significant relationship with the Company, be on a “buy and hold” basis. Active trading, or short term speculation, is improper. Short-term speculation can harm the Company by sending inappropriate or potentially misleading signals to the market. As a matter of Company policy, employees, regardless of whether or not they are aware of material, non-public information about the Company, may not at any time (1) sell Company securities short, (2) engage in any transaction in publicly traded options on Company shares, including put or call options, or (3) engage in short-term, speculative trading in Company securities. Short selling is the act of borrowing securities to sell with the expectation of the price dropping and the intent of buying the securities back at a lower price to replace the borrowed securities. The prohibition against engaging in transactions in options on Company shares does not include employee share options granted by the Company.

Trading Window

Transactions in Company Securities.

In an attempt to assist employees’ compliance with the Company’s Policy and applicable laws, and avoid inadvertent violations, the Company has implemented the following compliance program which all employees will be required to observe. All sales, purchases and other transactions of any kind (other than those in which the Company is the buyer or seller for its own account or transactions made pursuant to an approved, Rule 10b5-1 Trading Plan as described below) in the Company’s common shares or other Company securities can only be made by an employee if all of the following conditions are met:

• The director or employee must instruct his or her broker to purchase or sell shares during the period beginning two trading day after the Company issues a press release disclosing its most recent annual or quarterly earnings and ending on the earlier of (1) 45 days after the issuance of such earnings release, or (2) 5 trading days prior to the end of the annual or quarterly period following the period for which such earnings were released (“window period”);

• The employee is not then in possession of “material, non-public information;”

• The employee, other than Covered Persons (as described below), receives prior authorization (pre-clearance) to conduct the transaction from the Compliance Committee (as described below); and

• In the case of Covered Persons, the Covered Person receives prior authorization (pre-clearance) to conduct the transaction from the Compensation Committee of the Company’s Board of Directors (“Compensation Committee”).

Covered Transactions.

The transactions covered by the foregoing trading restrictions include not only purchases and sales of, and other transactions in, Company common shares or other Company securities made by employees privately or through a broker, but also: (1) so called “cashless exercises” of share options where an employee arranges with a broker to sell the shares acquired upon the exercise of the employee’s share options to pay the purchase price, (2) an employee’s election to purchase or sell Company securities or units representing Company securities in a pension or superannuation fund or 401(k) Plan set-up or adopted by the Company, (3) transactions in common shares acquired for the employee’s account under a share purchase plan (if any) of the Company, and (4) transactions in common shares which were awarded an employee pursuant to an equity incentive plan of the Company.

Excluded Transactions.

Transactions by employees that are not covered by the foregoing trading restrictions are: (1) stock option exercises where the employee holds onto the shares acquired in the exercise, (2) purchases or sales of Company securities in a pension or superannuation fund, 401(k) Plan or similar plan of the Company effected pursuant to an election made

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by the employee during the window period, and (3) elections to participate in or withdraw from a share purchase plan (if any) of the Company.

Special Situations

Rule 10b5-1 Trading Plans.

The Company Policy permits employees to trade in Company securities regardless of their awareness of inside information if the transaction is made pursuant to a pre-arranged trading plan that was entered into when the employee was not in possession of material, non-public information (a “Rule 10b5-1 Trading Plan”). The Company Policy requires Rule 10b5-1 Trading Plans to (1) be written, (2) specify the amount of, date(s) on, and price(s) at which the securities are to be traded, or establish a formula for determining such items, and (3) receive prior approval from the Compliance Committee, or, in the case of Covered Persons, the Compensation Committee.

Rule 10b5-1 Trading Plans may not be adopted when the employee is in possession of material, non-public information about the Company. Furthermore, an employee may amend or replace his or her Rule 10b5-1 Trading Plan only during periods when trading is permitted in accordance with this Policy.

Additional Rules for Directors, Executive Officers, Vice Presidents and Managers

The Company believes that, in order to align the interests of Company management with shareholders, directors, executive officers, vice presidents and managers (“Covered Persons”) should maintain a significant equity interest in the Company. In light of this position, and because trading in the Company’s securities by Covered Persons may send inappropriate or potentially misleading signals to the market, it is the Company’s policy that any increase or decrease in a Covered Person’s position in the Company’s securities, other than increases that occur as a result of a grant of Company securities pursuant to Company stock incentive plans, must receive prior approval by the Compensation Committee.

Hardship and Special Circumstance Cases.

The Compliance Committee or, in the case of a Covered Person, the Compensation Committee, may, on a case-by-case basis, authorize trading in Company securities by employees outside of the applicable window period due to financial hardship or other hardships or because of other special circumstances, but only if: (1) the employee who wishes to trade has, at least ten days prior to the anticipated trade date, notified a member of the Compliance Committee in writing of the circumstances of the hardship or other special circumstances and the amount and nature of the proposed trade(s) and (2) the person trading is not in possession of material, non-public information concerning the Company and has certified that fact in writing to the Compliance Committee or, in the case of a Covered Person, the Compensation Committee.

Compliance Committee.

The Board of Directors has established a Compliance Committee to assist employees in complying with this Policy. Current members of the Compliance Committee are Mr. Tom Donovan, Mr. Daniel Lloyd and Mr. Anesti Dermedgoglou.

If you plan to request an exception to this Policy under the circumstances described under “Hardship Cases” above, you should contact a member of the Compliance Committee. Approval of each member of the Compliance Committee is required to approve a waiver of this Policy. In addition, Covered Persons who desire to notify the Compensation Committee of the Board of Directors of a proposed purchase or sale of securities of the Company should contact a member of the Compliance Committee. The Compliance Committee will collect relevant information about the purchase and sale, assess the circumstances and make recommendations to the Compensation Committee.

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Additional Black-Out Periods.

The U.S. Sarbanes-Oxley Act of 2002 also requires the Company to prohibit absolutely all purchases, sales or transfers of Company securities by directors and executive officers during a pension fund blackout period. A pension fund blackout period exists whenever 50% or more of the plan participants are unable to conduct transactions in their accounts for more than three consecutive days. These blackout periods typically occur when there is a change in the retirement plan’s trustee, record keeper or investment manager. Affected officers and directors will be contacted when these or other restricted trading periods are instituted from time to time.

Applicability of this Policy to Employees’ Family Members and Other Related Parties

This Policy applies not only to Company employees but also to Company employees’ spouses, minor children, other relatives who live in their households and trusts and similar entities with respect to which employees are trustees or otherwise are beneficial owners (each, a “Related Party”). For example, (1) a Related Party of a Company employee may not purchase Company securities while the employee is in possession of material, non-public information, even if the employee does not actually “tip” the Related Party regarding such information, and (2) a Related Party is subject to the trading window restrictions set forth in this Policy. Employees are expected to be responsible for the compliance with this Policy of their Related Parties.

Applicability of this Policy to Former Employees

This Policy’s prohibitions against insider trading in Company securities while in possession of material, non-public information will continue to apply to transactions in Company securities by former employees and their Related Parties.

Reporting Violations

Any employee who becomes aware of a violation of this Policy should (1) report such violation to a member of the Compliance Committee, or (2) submit an anonymous report to the Company’s General Counsel or a Director.

Legal Review

Whenever an employee has any questions about a transaction or compliance with this Policy or seeks an exception from this Policy, he or she should consult with a member of the Compliance Committee before the transaction takes place. Although their advice should not be considered investment advice or a guarantee that no liability will arise, all decisions by members of the Compliance Committee or the Compensation Committee with respect to this Policy will be final.

Penalties for Insider Trading

An employee’s failure to comply with this Policy may subject the employee to Company-imposed sanctions, including dismissal, regardless of whether or not the employee’s failure to comply with this Policy results in a violation of law. In addition, Company employees who engage in insider trading (1) could be subject to imprisonment for up to 20 years (25 years if their actions constitute fraud), civil fines of up to three times the profit gained or loss avoided through the trade, and criminal fines of up to $5 million and (2) may subject the Company and its managers to a civil fine of up to the greater of $1 million or three times the profit gained or loss avoided as a result of the employee’s insider trading violations and a criminal penalty of up to $25,000,000.

The dealing of securities on any one or more of the exchanges on which InterOil securities trade are deemed to fall under the InterOil Insider Trading Policy.

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ADDENDUM B

INTEROIL CORPORATION

Code of Ethics for the Chief Executive Officer
and Senior Financial Officers

     The Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or Controller, and other senior financial officers performing similar functions (collectively, the “Officers”) of InterOil Corporation (the “Company”) each have an obligation to the Company, its shareholders, the public investor community, and themselves to maintain the highest standards of ethical conduct. In recognition of this obligation, the Company has adopted the following standards of ethical conduct for the purpose of deterring wrongdoing and promoting:

• Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

• Full, fair accurate, timely and understandable disclosure in the reports and documents that the Company files with, or submits to, the Securities and Exchange Commission (the “SEC”), and in other public communications made by the Company;

• Compliance with applicable governmental laws, rules and regulations;

• The prompt internal reporting to an appropriate person or persons identified herein of violations of this Code of Ethics; and

• Accountability for an adherence to this Code of Ethics.

     The Company has a Code of Ethics and Business Conduct applicable to all directors and employees of the Company. The Officers are bound by all of the provisions set forth therein, including those relating to ethical conduct, conflicts of interest and compliance with law. In addition to the Code of Ethics and Business Conduct, the Officers are subject to the additional specific policies described below. Adherence to these standards is integral to achieving the objectives of the Company and its shareholders. The Officers shall not commit acts contrary to these standards nor shall they condone the commission of such acts by others within the Company.

Competence

     The Officers have a responsibility to:

• Maintain an appropriate level of professional competence through the ongoing development of their knowledge and skills.

• Perform their professional duties in accordance with relevant laws, regulations, and technical standards.

• Prepare accurate and timely financial statements, reports and recommendations after appropriate analyses of relevant and reliable information.

Confidentiality

     The Officers have a responsibility to protect the Company by:

• Refraining from disclosing confidential information (regarding the Company or otherwise) acquired in the course of their work except when authorized, unless legally obligated to do so.

• Informing subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitoring their activities to assure the maintenance of that confidentiality.

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• Refraining from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through third parties.

Integrity

     The Officers have a responsibility to:

• Comply with laws, rules and regulations of national, state and local governments, and appropriate private and public regulatory agencies or organizations, including insider trading laws.

• Act in good faith, responsibility, without misrepresenting material facts or allowing their independent judgment to be subordinated.

• Protect the Company’s assets and insure their efficient use.

• Avoid actual or apparent conflicts of interest with respect to suppliers, customers, contractors and competitors and report potential conflicts as required in the Company’s Code of Ethics and Business Conduct.

• Refrain from engaging in any activity that would prejudice their ability to carry out their duties ethically.

• Refuse any gift, favour or hospitality that would influence or would appear to influence their actions.

• Refrain from either actively or passively subverting the attainment of the organization’s legitimate and ethical objectives.

• Protect the Company’s assets and assure their efficient use.

• Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.

• Report to senior management and the Audit Committee any significant information they may have regarding judgments, deficiencies, discrepancies, errors, lapses or any similar matters relating to the Company’s or its subsidiaries’ accounting, auditing or system of internal controls. The Officers must communicate unfavorable as well as favorable information and professional judgments or opinions.

• Refrain from engaging in or supporting any activity that would discredit their profession or the Company and proactively promote ethical behavior within the Company.

Objectivity

     The Officers have a responsibility to:

• Communicate information fairly and objectively.

• Disclose all material information that could reasonably be expected to influence intended user’s understanding of the reports, comments and recommendations presented.

Oversight and Disclosure

     The Officers have a responsibility to:

• Ensure the preparation of full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by the Company with Canadian Securities Administrators and the SEC. Accordingly, it is the responsibility of the Officers to promptly bring to the attention of the Audit Committee and the Company’s Disclosure Review and Control Committee any material information of which he or she may become aware that affects the disclosures made by the Company in its public filings or otherwise assist the Audit Committee in fulfilling its responsibilities of overseeing the Company’s financial statements and disclosures and internal control systems.

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• Promptly bring to the attention of the Audit Committee any information he or she may have concerning (1) significant deficiencies in the design or operation of internal controls which could aversely affect the Company’s ability to record, process, summarize and report financial data or (2) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s financial reporting, disclosures or internal controls.

• Promptly bring to the attention of the General Counsel and to the Audit Committee any information he or she may have concerning any violation of the Company’s Code of Ethics and Business Conduct, including any actual or apparent conflicts of interest between personal and professional relationships, involving any management or other employees who has a significant role in the Company’s financial reporting, disclosures or internal controls.

• Promptly bring to the attention of the General Counsel and to the Audit Committee any information he or she may have concerning evidence of a material violation of the securities or other laws, rules or regulations applicable to the Company and the operation of its business, by the Company or any agent thereof, or of violation of the Code of Ethics and Business Conduct or of these additional procedures.

Enforcement

     The Board of Directors shall determine, or designate appropriate persons to determine, appropriate actions to be taken in the event of violations of the Code of Ethics and Business Conduct or of these additional procedures by the Officers. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to the Code of Ethics and Business Conduct and to these additional procedures, and shall include written notices to the individual involved that the Board has determined that there has been a violation, censure by the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits (as determined by the Board) and termination of the individual’s employment. In determining what action is appropriate in a particular case, the Board of Directors or such designee shall take into account all relevant information, including the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of action and whether or not the individual in question had committed other violations in the past.

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     IN WITNESS WHEREOF, the undersigned Officer certifies that he or she has read the above Code of Ethics for the Chief Executive Officer and Senior Financial Officers and agrees to abide thereby.

(Signature)

(Print Name)

Date:                                         , 2003

EX-99.7

Purchase and Sale
Agreement

Shell Overseas Holdings Limited

as Vendor

and

InterOil Products Limited

as Purchaser

Allens Arthur Robinson

Stock Exchange Centre

530 Collins Street

Melbourne 3000 Australia

Tel 61 3 9614 1011

Fax 61 3 9614 4661

pjsm M0111766070v9 304458504 PJSM

^© Copyright Arthur Robinson & Hedderwicks 2006

Purchase and Sale Agreement

Table of Contents
1.	Definitions and interpretation	1
	1.1 Definitions	1
	1.2 Interpretation	6
	1.3 Method of payment	7
	1.4 Interest on amounts payable	7
	1.5 Consents or approvals	8
2.	Sale and purchase of Shares	8
	2.1 Sale and purchase	8
	2.2 Title and property	8
3.	Purchase Price	8
	3.1 Payment of Purchase Price	8
	3.2 Deposit	8
4.	Warranties	9
	4.1 Warranties	9
	4.2 When Warranties given	10
5.	Liabilities, indemnities and notification of warranty breach	10
	5.1 Liabilities prior to Transfer Date	10
	5.2 Notification of warranty breach or indemnity claim	10
6.	Limitation of Vendor’s liability	12
7.	Environmental Warranties	14
	7.1 Environmental Warranties	14
	7.2 When Environmental Warranties given	15
	7.3 Conditions of payment and claims	15
	7.4 Purchaser’s release of Vendor	17
	7.5 Notification of Authorities	17
	7.6 Indemnity for breach of Environmental Warranties	18
	7.7 Environmental Warranties to cease on disposal of Premises	18
	7.8 Vendor’s right to undertake remediation works	19
8.	Statutory actions and third party claims	20
	8.1 Procedure when a third party claim is made	20
	8.2 Other warranties and conditions excluded	21
9.	Obligations of the Vendor prior to the Transfer Date	21
10.	Rights of the Vendor prior to Transfer Date	22
	10.1 Minor acquisitions and dispositions of Assets	22
	10.2 Material acquisitions and expenditures	22
11.	Completion	23

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Purchase and Sale Agreement

	11.1 Completion place	23
	11.2 Obligations of Vendor on Completion	23
	11.3 Payment of Estimated Purchase Price	24
	11.4 Obligations of Purchaser and Company after Completion	24
12.	Conditions precedent to Completion	25
	12.1 Conditions precedent	25
	12.2 Conditions precedent exist for the benefit of the parties	25
	12.3 Parties must cooperate	25
	12.4 Specific obligations of cooperation	25
13.	Adjustments to the Estimated Purchase Price	26
	13.1 Completion Accounts	26
	13.2 Review by Auditor	26
	13.3 Access to information	26
	13.4 Parties’ response to review	27
	13.5 Dispute resolution procedure	27
	13.6 Dispute limit	28
	13.7 Payment of Adjustment Amount	28
	13.8 Payment Date	29
14.	Change of Name	29
	14.1 Change of Name	29
15.	Ongoing access to corporate records	30
16.	Confidentiality	31
	16.1 Purchaser to keep information confidential	31
	16.2 No disclosure of purchase price or terms	31
	16.3 Permitted disclosures	31
17.	Enurement	32
18.	Disputes	32
19.	Termination	33
20.	Costs and stamp duty	33
21.	Merger	34
22.	Assignment	34
23.	Further assurances	34
24.	Entire agreement	34
25.	Waiver	34
26.	Notices	34
27.	Governing law and jurisdiction	35

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28.	Counterparts	36
29.	Information Technology	36
Schedule 1		37
	Warranties	37
Schedule 2		40
	List of approved auditors	40
Schedule 3		41
	State Lease and disclosures in relation to them	41
Schedule 4		43
	Part A: Commercial Leases	43
Schedule 6		52
	Accounting Principles for preparation of the Completion Accounts	52

Purchase and Sale Agreement

Date	January 4, 2006
Parties
	Shell Overseas Holdings Limited (registration number 596107) incorporated in England of the Shell Centre, London, SE17NA, England (the Vendor)
	InterOil Products Limited incorporated in Papua New Guinea of Section 34, Lot 23, Speybank Street, Lae, Papua New Guinea (the Purchaser).
Recitals
	The Vendor is the registered holder of 4,999,999 of the Shares (as defined below) and The Asiatic Petroleum Company Limited (registration number 403645) of the Shell Centre, London SE1 7NA, England, a corporation duly established and existing under the laws of England , (TAPCL) is the registered holder of 1 of the Shares.
	The Vendor is the beneficial owner of all of the Shares, which are the only issued shares in the capital of the Company.
	The Purchaser wishes to acquire and the Shell Group, which includes the Vendor and TAPCL, wishes to dispose of the Company.
	Accordingly, the Vendor and TAPCL have agreed to sell the Shares to the Purchaser or to an affiliate of the Purchaser nominated by it and approved by the Vendor, and the Purchaser has agreed to buy the Shares from the Vendor, on the terms of this Agreement.

It is agreed as follows.

1. Definitions and interpretation

1.1 Definitions

The following definitions apply unless the context requires otherwise.

A$ means the lawful currency of Australia.

Accounting Principles means the principles and methodology to be applied in preparing the Completion Accounts, as set out in Schedule 6.

Accounts means the unaudited management accounts of the Company disclosed by the Vendor to the Purchaser.

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Adjustment Date means the date which is 20 Business Days after the delivery of the report on the Completion Accounts by the Auditor to the Vendor and the Purchaser in accordance with Clause 13.2.

Affiliate means:

(a)	in relation to the Vendor, Royal Dutch Shell plc and any body corporate or other entity which is for the time being directly or indirectly controlled by Royal Dutch Shell plc; and
(b)	in relation to the Purchaser, any body corporate which is for the time being directly or indirectly controlled by the Purchaser.

For this purpose:

(i)	a company is directly controlled by another company beneficially owning shares (or other ownership interests) carrying more than 50% of the votes at a general meeting of shareholders, members or partners (or their equivalent) of the first mentioned company; and
(ii)	a particular company is indirectly controlled by a company if a series of companies can be specified, beginning with that company and ending with the particular company, so related that each company in the series is directly controlled by one or more of the companies earlier in the series.

Assets means all of the assets, other than the Excluded Assets, owned and used by the Company at the Transfer Date.

Auditor has the meaning ascribed to such term in Clause 13.2.

Authorisation means any authorisation, permit, licence, consent, grant, certificate, sealing or other approval.

Authority means any government or any governmental, semi-governmental, city, local, municipal, provincial, state, federal, national, civic, administrative, fiscal, statutory or judicial body, instrumentality, department, commission, authority, tribunal, agency or other similar entity, including any self-regulatory organisation established by statute and any stock exchange.

Business Day means a day on which trading banks are open for the transaction of banking business in Melbourne, Australia, Port Moresby, Papua New Guinea and Houston, United States of America.

Central Bank Act means the Central Banking Act 2000 (PNG).

Claim Cut Off Date has the meaning given in Clause 6.1.

Commercial Leases means the leases referred to in Part A of Schedule 4.

Commercial Lessors means the lessors or landlords under the Commercial Leases.

Companies Act means the Companies Act 1997 (PNG).

Company means Shell Papua New Guinea Limited of Level 10, Pacific Place, Musgrave Street, Port Moresby, Papua New Guinea.

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Completion means completion by the parties of the sale and purchase as provided in Clauses 11.1, 11.2 and 11.3.

Completion Accounts has the meaning ascribed to such term in Clause 13.1.

Contamination, in relation to any land, means the presence in, on or under that land (or surface water on or groundwater under that land) of any substance at a concentration (i) above the concentration at which the substance is normally present in, on or under land in the same locality or (ii) which otherwise contravenes any Environmental Law, and Contaminated and Contaminant have equivalent meanings.

Deposit means the amount referred to in Clause 3.1(a).

Deposit Holder means Allens Arthur Robinson, Solicitors, of Level 27, 530 Collins Street, Melbourne.

Disclosure Material means written materials (which phrase includes electronically communicated materials) provided to the Purchaser by the Vendor pursuant to the Purchaser’s investigation of the Company in connection with the transactions contemplated by this Agreement.

Economic Return means the economic return as defined or determined in accordance with the principles set out in Schedule 10.

Environmental Claim Cut-Off Date has the meaning given in Clause 7.3.

Environmental Law means any law, whether statute or common law (including the laws of negligence and nuisance), rule, regulation, ordinance, decree or order of any governmental entity, tribal entity, quasi-governmental entity or other governmental instrumentality, concerning the environment and by which the Company is bound or which lawfully applies to the Company, and includes such laws concerning:

(a)	emissions of substances into the atmosphere, waters and land;
(b)	pollution and contamination of the atmosphere, waters and land;
(c)	production, use, handling, treatment, storage, transportation, discharge, release, emission or disposal of:

(i)	solid, gaseous or liquid waste;
(ii)	hazardous substances; and
(iii)	dangerous goods;

(d)	conservation, heritage and natural resources;
(e)	threatened, endangered and other flora and fauna species; and
(f)	the health and safety of people, including exposure to hazardous, toxic or other substances alleged to be harmful.

Environmental Liabilities means any unsatisfied claims or obligations incurred in connection with any of the Premises as a direct consequence of any Contamination or Environmental Law.

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Environmental Notice means any administrative, regulatory or judicial action, suit, demand, demand letter, claim, obligation, order, direction, notice of non-compliance or violation, investigation, request for information, proceeding, consent order, consent agreement or other requirement by any Authority for Remediation of any Contamination of any land, or the enforcement of, or other actions or damages pursuant to, any Environmental Law.

Environmental Warranties means the representations and warranties contained in Clause 7.1 and Environmental Warranty means any of them.

Estimated Purchase Price means US$10.0 million plus an amount equal to the US$ value of the Net Current Assets of the Company as set out in the Year End Accounts.

Excluded Assets means:

(a)	Intellectual Property of the Shell Group (or any member of it);
(b)	all physical signage of the Company in relation to which any Intellectual Property of the Shell Group (including the Company) forms a physical part of such signage; and
(c)	all assets and rights of the Company in or in respect of the Joint User Hydrant Installation under the JUHI Contract.

Expert, in relation to a dispute, means a person of appropriate reputation, standing and relevant experience in accounting who has no direct or indirect personal interest in the outcome of the dispute or the issue in respect of which they are consulted pursuant to this Agreement agreed by the parties or, failing agreement within five Business Days after they commence to discuss the selection of the Expert, nominated at the request of either the Vendor or the Purchaser by the President of the Institute of Chartered Accountants in Australia.

ICCC means the Independent Consumer and Competition Commission of Papua New Guinea.

Income Tax Act means the Income Tax Act 1959 (PNG).

Intellectual Property means any intellectual or industrial property including:

(a)	patents, trade marks and service marks, copyright, registered designs, trade secrets and confidential information; and
(b)	licences or other rights to use or to grant the use of any of the foregoing or to be the registered proprietor or user of any of the foregoing.

Interest Rate means the daily buying rate displayed at or about 10.30am (Melbourne time) on the Reuters screen BBSW page for Australian bank bills of a three month duration.

InterOil Group means the Purchaser and its Affiliates.

JUHI Contract means the contract between the Company and Mobil Oil New Guinea Ltd (executed on 13 March 2003 by the Company and on 6 March 2003 by Mobil Oil New Guinea Ltd) for the joint ownership,

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operation and maintenance of the Joint User Hydrant Installation at Jacksons Airport at Port Moresby, Papua New Guinea.

Kina or K means the lawful currency of Papua New Guinea.

Last Financial Year means the financial year of the Company immediately prior to the financial year of the Company in which the Transfer Date falls.

Liabilities means any unsatisfied claims or obligations of any kind (other than Environmental Liabilities) of the Company arising prior to, or arising from acts or omissions of the Company prior to, the Transfer Date, and Liability has a corresponding meaning.

Minor, in relation to an acquisition or disposition, means an acquisition or disposition having a value of up to US$10,000.

Net Current Assets means net current assets of the Company as determined in accordance with Schedule 6.

Premises means all of the real property and other premises owned or leased by the Company (other than any Excluded Assets), all of which are described in Parts A and B of Schedule 7.

Purchase Price, being the price to be paid by the Purchaser to the Vendor as consideration for the sale of the Shares, means the Estimated Purchase Price adjusted in accordance with Clause 13.7.

Purchaser has the meaning ascribed to such term in the preamble.

Remediation means the investigation, response, clean-up, removal, disposal, control, containment, encapsulation or other treatment of Contamination on a property or to cause a property to comply with Environmental Law.

Remediation Works means works undertaken for the purpose of achieving Remediation of Premises.

Security Interest means all security interests, claims, escrows, encumbrances, options, rights of first refusal, agreements, arrangements, contracts, commitments, understandings, obligations, or other interests or powers, whether written or oral:

(a)	reserved in or over any interest in any asset including any retention of title; or
(b)	created or otherwise arising in or over any interest in any asset under a bill of sale, mortgage, indenture, security agreement, charge, lien, pledge, judgment, trust or power,

by way of security for the payment of debt or any other monetary obligation or the performance of any other obligation and whether existing or agreed to be granted or created.

Shares means 5,000,000 ordinary shares of K1.00 each in the capital of the Company (being all the issued shares in the capital of the Company) together with the benefit of all rights (including dividend rights) attached or accruing to those shares as at the Transfer Date.

Shell Group means Royal Dutch Shell plc and its Affiliates.

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SPNG Deed of Acknowledgment & Release means the deed so titled entered into by the Company and SOHL on or about the date of this Agreement, in the form of the draft deed so titled and initialled on behalf of each of the Vendor and the Purchaser for purposes of identification.

State means The Independent State of Papua New Guinea.

State Leases means the leases referred to in Schedule 3.

TAPCL has the meaning ascribed to such term in the recitals.

Tax means any income tax, capital gains tax, recoupment tax, land tax, sales tax, payroll tax, fringe benefit tax, group tax, withholding tax, municipal rates, stamp duties and other charges, levies and impositions, assessed or charged, or assessable or chargeable, by or payable to any governmental taxation or excise authority and includes any additional tax, interest, penalty, charge, fee or other amount imposed or made on or in relation to a failure to file a relevant return or to pay a relevant tax.

Transaction Documents means this Agreement and

the SPNG Deed of Acknowledgement & Release.

Transfer Date means the date on which Completion is to take place, which date will be (a) the date nominated by the Vendor by not less than 30 days’ notice to the Purchaser and which is the last Business Day of a month between the second month and the six month (each inclusive) following the month in which the last of the conditions precedent set out in Clause 12.1 to be satisfied or waived is satisfied or waived, or (b) such other date falling on the last Business Day of a month mutually agreed upon by the Purchaser and the Vendor.

UNCITRAL Rules means the arbitration rules adopted by UNCITRAL on 28 April 1976 and by the United Nations General Assembly on 15 December 1976 and entitled ‘Arbitration Rules of the United Nations Commission on International Trade Law’, as those rules may be amended from time to time.

US$ means the lawful currency of the United States of America.

Vendor has the meaning ascribed to such term in the preamble.

Warranties means the representations and warranties contained in Schedule 1.

Year End Accounts means the management accounts of the Company as at and for the 12 months’ period ending 31 December 2005 as reviewed by the Company’s auditor.

1.2 Interpretation

Headings are for convenience only and do not affect interpretation. The following rules apply unless the context requires otherwise.

(a)	The singular includes the plural and conversely.
(b)	A gender includes all genders.

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(c)	If a word or phrase is defined, its other grammatical forms have a corresponding meaning.
(d)	A reference to a person, corporation, trust, partnership, limited liability company, unincorporated body or other entity includes any of them.
(e)	A reference to a Clause or Schedule is a reference to a clause of or a schedule to this Agreement.
(f)	A reference to an agreement or document (including a reference to this Agreement) is to the agreement or document as amended, varied, supplemented, novated or replaced except to the extent prohibited by this Agreement or that other agreement or document.
(g)	A reference to a party to this Agreement or another agreement or document includes the party’s successors and permitted substitutes or assigns (and, where applicable, the party’s legal personal representatives).
(h)	A reference to legislation or to a provision of legislation includes a modification or re-enactment of it, a legislative provision substituted for it and a regulation or statutory instrument issued under it.
(i)	A reference to writing includes a facsimile transmission and any means of reproducing words in a tangible and permanently visible form.
(j)	The meaning of general words is not limited by specific examples introduced by including, or for example, or similar expressions.

1.3 Method of payment

All payments required to be made under this Agreement must be tendered at the recipient’s option either by:

(a)	drafts or cheques to be drawn by a bank as defined in the Banking Act 1959 (Cth); or
(b)	by way of direct transfer of immediately available funds to the bank account nominated in writing by the party to whom the payment is due,

and by not later than 2pm local time on the due date for payment in the place where payment is to be received. Any payment tendered under this Agreement after 2pm on any date will be taken to have been made on the next succeeding Business Day (the deemed payment date) after the date on which payment was tendered, and if the deemed payment date is after the relevant due date for payment, interest will accrue under Clause 1.4 accordingly.

1.4 Interest on amounts payable

If any party fails to pay any amount payable by it under or in accordance with this Agreement, that party must, if demand is made, pay simple interest on that amount from the due date for payment until that amount is paid in full at

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Purchase and Sale Agreement

the rate per annum which is the sum of the Interest Rate on the date on which the payment was due, plus a margin of 3%, calculated daily. The right to require payment of interest under this clause is without prejudice to any other rights the non-defaulting party may have against the defaulting party at law or in equity.

1.5 Consents or approvals

If the doing of any act, matter or thing under this Agreement is dependent on the consent or approval of a party or is within the discretion of a party, the consent or approval may be given or the discretion may, unless otherwise provided in this Agreement, be exercised conditionally or unconditionally or withheld by the party in its absolute discretion.

2. Sale and purchase of Shares

2.1 Sale and purchase

The Vendor agrees to sell the Shares to the Purchaser and the Purchaser agrees to buy the Shares from the Vendor free from all Security Interests.

2.2 Title and property

Title to and property in the Shares:

(a)	until Completion, remains solely with the Vendor; and
(b)	subject to the provisions of this Agreement, passes to the Purchaser with effect from Completion.

3.	Purchase Price
3.1	Payment of Purchase Price

The Purchase Price must be paid as follows:

(a)	a deposit of US$2.5 million on the date of this Agreement in accordance with Clause 3.2;
(b)	a payment of US$2.0 million to the Vendor, on account of part of the balance of the Estimated Purchase Price, on the second Business Day following the day on which the condition precedent set out in Clause 12.1(a) is satisfied;
(c)	the balance of the Estimated Purchase Price on the Transfer Date in accordance with Clause 11.3; and
(d)	the amount (if any) payable under Clause 13.7, at the time determined under and in accordance with Clause 13.8.

3.2 Deposit

The Purchaser must pay the Deposit to the Deposit Holder to be dealt with as follows:

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Purchase and Sale Agreement

(a)	the Vendor shall cause the Deposit Holder to deposit the Deposit in an interest bearing deposit account with a bank (within the meaning of the Banking Act 1959 (Cth));
(b)	if Completion occurs, the Vendor is entitled absolutely to the Deposit and the Deposit must be paid to the Vendor;
(c)	if Completion does not occur on the Transfer Date, the Deposit must be paid:

(i)

to the Purchaser if Completion does not occur (A) because of a default of the Vendor under this Agreement and the Purchaser lawfully terminates this Agreement, (B) because the Vendor under Clause 12.1(a) unreasonably fails or refuses to approve a condition affecting the Vendor and either the Vendor or the Purchaser lawfully terminates this Agreement, (C) because of a failure or inability of the Vendor to obtain an Authorisation required under Clause 12.1(b) and either the Vendor or the Purchaser lawfully terminates this Agreement, (D) this Agreement is terminated by the Vendor under Clause 5.2(b), or (E) this Agreement is terminated by the Vendor or the Purchaser pursuant to Clause 19(a)(ii) (unless Completion has not occurred as the result of a breach of any of the Purchaser’s obligations under this Agreement); or

(ii)

to the Vendor if Completion does not occur for any other reason and either the Vendor or the Purchaser lawfully terminates this Agreement;

(d) interest earned on the Deposit less bank charges and other moneys paid or payable in respect of the placement of the Deposit in accordance with paragraph (a) will not form part of the Deposit but will be the entitlement of (i) the Purchaser if in accordance with paragraph (c)(i) the Deposit is payable to the Purchaser (and will be paid by the Deposit Holder to the Purchaser upon payment of the Deposit in accordance with paragraph (c)(i)), or (ii) the Vendor if in accordance with paragraph (b) or (c)(ii) the Deposit is payable to the Vendor (and will be paid by the Deposit Holder to the Vendor upon payment of the Deposit in accordance with paragraph (b) or paragraph (c)(ii) (as applicable)).

4.	Warranties
4.1	Warranties

The Vendor represents and warrants to the Purchaser that except as expressly (i) disclosed to the Purchaser in the Accounts, in this Agreement or in the Disclosure Material prior to Completion or (ii) consented to by the Purchaser in writing, each of the Warranties is correct in all material respects.

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4.2 When Warranties given

Each of the Warranties is given as at the time immediately before Completion and remains in full force and effect after the Transfer Date despite Completion.

5.	Liabilities, indemnities and notification of warranty breach
5.1	Liabilities prior to Transfer Date

(a) Subject to Clauses 5.2, 6, 8 and this Clause 5.1, the Vendor agrees to indemnify the Company against any losses, damages or costs arising out of a Liability but only to the extent that:

(i)

the Liability, or the act or omission of the Company that gives or will give rise to the Liability, has not been disclosed in the Accounts, in this Agreement or in the Disclosure Material by or on behalf of the Vendor or the Company to the Purchaser prior to the date of this Agreement (and for this purpose the matters referred to in Schedule 5 will be taken to be Liabilities or applicable acts or omissions which have been so disclosed by or on behalf of the Vendor and the Company); and

(ii)

adequate provisions, reserves or accruals for or in respect of the Liability are not provided for or made in the Accounts and, as applicable, the Completion Accounts.

(b)

Despite any other provision of this Agreement, the Purchaser is not entitled to make a claim under or in respect of the indemnity in Clause 5.1(a), and the Vendor will not be liable to make any payment to the Purchaser under or in respect of the indemnity in Clause 5.1(a), to the extent that such claim or payment is for or in respect of any consequential or indirect loss or damage (including loss of profits, loss of opportunity or costs of business interruption) suffered or incurred by the Purchaser or any other member of the InterOil Group (including the Company).

(c)

If consequential or indirect loss or damage suffered by a person other than the Purchaser or any other member of the InterOil Group (including the Company) constitutes or forms part of loss or damage in respect of which, despite paragraph (b) of this Clause 5.1, the Purchaser is entitled to make a claim under or in respect of the indemnity in Clause 5.1(a), then nothing in paragraph (b) of this Clause 5.1 will be read or construed as limiting or qualifying the entitlement of the Purchaser to make such claim in respect of such third party or parties’ loss or damage.

5.2 Notification of warranty breach or indemnity claim

(a) If the Purchaser becomes aware of any breach or potential breach of any representation, warranty or obligation, or any claim or potential

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claim under any indemnity, under this Agreement, the Purchaser must:

(i)	give notice to the Vendor, within 60 days after becoming so aware of a breach or claim, with details of the breach or the claim;
(ii)	give notice to the Vendor, within 60 days after becoming so aware of a potential breach or potential claim that the Purchaser reasonably determines, to be material, with details of the potential breach or the potential claim; and
(iii)	allow the Vendor up to 60 days (or such longer period as the Vendor and the Purchaser agree) to:

(A)	remedy the breach or potential breach or the cause of the claim or potential claim; or
(B)	agree with the Purchaser the process by which the Vendor will remedy the breach or potential breach or the cause of the claim or potential claim,

before taking any action against the Vendor in respect of it.

Notwithstanding the foregoing, the failure to notify the Vendor of any breach, potential breach, claim or potential claim as required by this Clause 5.2(a) shall not of itself relieve the Vendor from any liability that it may have to the Purchaser pursuant to this Agreement except to the extent of any actual prejudice to the Vendor resulting from the Purchaser’s failure.

(b) If, in respect of any notice pursuant to paragraph (a) given by the Purchaser prior to the Transfer Date:

(i)	the Vendor does not remedy the breach or potential breach or the cause of the claim or potential claim within the time permitted under paragraph (a); or
(ii)	the Purchaser does not, in its reasonable opinion, accept the result as a remedy; or
(iii)	the Vendor and the Purchaser, within the time permitted under paragraph (a), do not agree on the process for remedying the breach or potential breach or the cause of the claim or potential claim,

and the breach or claim would expose the Vendor to a liability exceeding an amount equal to 25% of the Estimated Purchase Price, the Vendor prior to the Transfer Date may give notice of termination of this Agreement to the Purchaser.

(c) If the Vendor gives notice of termination to the Purchaser pursuant to paragraph (b), within 30 days after receipt of that notice the Purchaser may by notice to the Vendor elect to refuse to accept the Vendor’s notice of termination and request the Vendor to pay to the Purchaser an amount up to 25% of the Estimated Purchase Price.

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(d) If the Purchaser gives notice to the Vendor pursuant to paragraph (c):

(i)	on or within 10 days after the Transfer Date the Vendor must pay to the Purchaser the amount set out in that notice from the Purchaser (such amount to be paid in US$, determined at the K/US$ exchange rate for selling US$ to buy Kina as published by ANZ Banking Group (PNG) Limited in Port Moresby, Papua New Guinea on the Business Day immediately preceding the day of payment);
(ii)	upon payment of that amount to the Purchaser:

(A)	the Vendor will cease to have any further liability under this Agreement or otherwise to the Purchaser or any other member of the InterOil Group in respect of the subject matter of the notice given by the Purchaser pursuant to paragraph (a); and
(B)	in consideration of that payment, the Purchaser (for itself and on behalf of each other member of the InterOil Group) releases and forever discharges the Vendor from all actions, claims, demands, causes of action or proceedings of whatever nature and however, whenever and wherever arising in respect of that matter; and

(iii) subject to paragraph (d)(ii), this Agreement continues in effect in accordance with its terms.

(e) If the Purchaser does not give notice to the Vendor pursuant to paragraph (c), the notice of termination given by the Vendor pursuant to paragraph (b) will be effective, and this Agreement is terminated, on the day which is 31 days after the date of receipt by the Purchaser of that notice of termination.

6. Limitation of Vendor’s liability

Despite any other provision of this Agreement (but, except to the extent expressly provided otherwise, not in relation to the Environmental Warranties, which are to be dealt with in accordance with Clause 7):

(a)

the Vendor is not liable to make any payment (whether by way of damages or otherwise) for any breach of any representation, warranty or obligation, or in respect of any indemnity, unless a claim is made in writing by the Purchaser with respect to it (setting forth in reasonable detail the nature of the claim and the damages or indemnification sought to the extent the amount can reasonably be determined) on or before the third anniversary of the Transfer Date (the Claim Cut-Off Date);

(b)

the Vendor is not liable to make any payment (whether by way of damages or otherwise) for any breach of any representation, warranty or obligation (including the Warranties and the Environmental

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Warranties), or in respect of any indemnity, which when aggregated with all other payments so made exceeds 100% of the Purchase Price;

(c)	the Purchaser is not entitled to make a claim for any breach of any representation, warranty or obligation, or in respect of any indemnity, until the total of all such claims exceeds K500,000 (or its equivalent at the time of the claim expressed in A$ or US$) and no claim of less than K10,000 (or its equivalent at the time of the claim expressed in A$ or US$) may be included in or aggregated with any other amount claimed by the Purchaser;
(d)	the Purchaser is not entitled to make a claim for any breach of any representation, warranty or undertaking, or in respect of any indemnity, and the Vendor’s liability in respect of any claim by the Purchaser for any breach of any representation, warranty or obligation, or in respect of any indemnity, will be reduced or extinguished (as the case may be), to the extent that the claim has arisen as a result of any act or omission after the Transfer Date by or on behalf of the Purchaser or by or on behalf of the Company;
(e)	if after the Vendor has made any payment to the Purchaser for any claim for any breach of any representation, warranty or obligation, or in respect of any indemnity, the Purchaser or the Company receives any benefit or credit by reason of matters to which the claim relates and if that benefit or credit is received by the Purchaser or the Company on or before the third anniversary of the Claim Cut-Off Date, then the Purchaser must immediately repay to the Vendor a sum corresponding to the amount of the payment or (if less) the amount of the benefit or credit;
(f)	the Purchaser is not entitled to make a claim for any breach of any representation, warranty or obligation, or in respect of any indemnity, and the Vendor will not be liable to make any payment (whether by way of damages or otherwise) to the Purchaser for any claim for any breach of any representation, warranty or obligation, or in respect of any indemnity:

(i)	where the claim is as a result of any legislation not in force at the date of this Agreement, including legislation which takes effect retrospectively; or
(ii)	where the claim is as a result of or in respect of a change in the judicial interpretation of the law in any jurisdiction after the date of this Agreement;

(g) the Purchaser is not entitled to make a claim for any breach of any representation, warranty or undertaking, or in respect of any indemnity, and the Vendor will not be liable to make any payment (whether by way of damages or otherwise) to the Purchaser for any claim for any breach of any representation, warranty or obligation, or in respect of any indemnity, to the extent that adequate reserves, provisions or accruals were made or provided for by the Company in respect of that matter in the Completion Accounts;

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(h) the Purchaser is not entitled to make a claim for any breach of any representation, warranty or undertaking, or in respect of any indemnity, and the Vendor will not be liable to make any payment (whether by way of damages or otherwise) to the Purchaser, for any claim for any breach of any representation, warranty or obligation, or in respect of any indemnity, to the extent that the Purchaser or the Company recovers from a person other than the Vendor in respect of any loss or damage arising out of the claim whether by way of contract, indemnity or otherwise, provided that where the Purchaser or the Company has the right to claim an indemnity against or otherwise recover from a third person but fails or declines to recover its losses or damages from such third person, the Vendor may subrogate itself to that right by claiming the indemnity against or recovering from the third person in the name of the Purchaser or the Company (as applicable) and the Purchaser and the Company (as applicable) must fully co-operate with the Vendor (including providing access to documentation and officers and employees) to facilitate the Vendor exercising that right, and the Vendor must reimburse the Company for all expenses reasonably incurred by it (including legal and other professional fees) in so doing.

7.	Environmental Warranties
7.1	Environmental Warranties

The Vendor represents and warrants to the Purchaser that except as expressly consented to in writing by the Purchaser, each of the following representations and warranties is correct in all material respects:

(a) at the Transfer Date there are no Environmental Liabilities of the Company as a result of:

(i)	the service of an Environmental Notice by any Authority on the Company; or
(ii)	a claim against the Company by, or obligation of the Company to, a person other than the Purchaser or another member of the InterOil Group,

in relation to Contamination present in, on or under or migrating from any of the Premises; and

(b) there will be no Environmental Liabilities of the Company after the Transfer Date and prior to the Environmental Claim Cut Off Date as a result of either:

(i)	the service of an Environmental Notice by any Authority on the Company; or
(ii)	a claim against the Company by, or an obligation of the Company to, a person other than the Purchaser or another member of the InterOil Group,

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in relation to Contamination present in, on or under or that has migrated from any of the Premises prior to the Transfer Date or in relation to Contamination present in, on or under any of the Premises prior to the Transfer Date and migrating from any of the Premises after the Transfer Date and prior to the Environmental Claim Cut-Off Date.

7.2 When Environmental Warranties given

Each of the Environmental Warranties is given:

(a)	as at the time immediately before Completion; and
(b)	on each anniversary of the Transfer Date up to the Environmental Claim Cut-Off Date;

and, subject to Clause 7.7, remains in full force and effect after the Transfer Date despite Completion.

7.3 Conditions of payment and claims

Despite any other provision of this Agreement:

(a)	the Vendor is not liable to make any payment (whether by way of damages or otherwise) for any breach of any Environmental Warranty unless a claim is made in writing by the Purchaser with respect to it (setting forth in reasonable detail the nature of the claim and the damages sought to the extent the amount can reasonably be determined) on or before the third anniversary of the Transfer Date (the Environmental Claim Cut-Off Date);
(b)	the Vendor is not liable to make any payment (whether by way of damages or otherwise) for any breach of any Environmental Warranty which, when aggregated with all other payments so made and all payments made (whether by way of damages or otherwise) for any breach of any other representation, warranty or undertaking (including the Warranties), or in respect of any indemnity, under this Agreement, exceeds 100% of the Purchase Price;
(c)	the Purchaser is not entitled to make a claim for any breach of any Environmental Warranty until the total of all such claims exceeds K500,000 (or its equivalent at the time of the claim expressed in A$ or US$) and no claim of less than K10,000 (or its equivalent at the time of the claim expressed in A$ or US$) may be included in or aggregated with any other amount claimed by the Purchaser;
(d)	the Purchaser is not entitled to make a claim for any breach of any Environmental Warranty, and the Vendor’s liability in respect of any claim by the Purchaser for any breach of any Environmental Warranty, will be reduced or extinguished (as the case may be), to the extent that the claim has arisen as a result of any act or omission after the Transfer Date by or on behalf of the Purchaser or by or on behalf of the Company;

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(e)

if after the Vendor has made any payment to the Purchaser for any claim for any breach of any Environmental Warranty the Purchaser or the Company receives any benefit or credit by reason of matters to which the claim relates and if that benefit or credit is received by the Purchaser or the Company on or before the third anniversary of the Environmental Claim Cut-Off Date, then the Purchaser must immediately repay to the Vendor a sum corresponding to the amount of the payment or (if less) the amount of the benefit or credit;

(f)

the Purchaser is not entitled to make a claim for any breach of any Environmental Warranty, and the Vendor will not be liable to make any payment (whether by way of damages or otherwise) to the Purchaser for any claim for any breach of any Environmental Warranty:

(i)	where the claim is as a result of any legislation not in force at the date of this Agreement, including legislation which takes effect retrospectively; or
(ii)	where the claim is as a result of or in respect of a change in the judicial interpretation of the law in any jurisdiction after the date of this Agreement;

(g)	the Purchaser is not entitled to make a claim for any breach of any Environmental Warranty, and the Vendor will not be liable to make any payment (whether by way of damages or otherwise) to the Purchaser for any claim for any breach of any Environmental Warranty, to the extent that adequate reserves, provisions or accruals were made or provided for by the Company in respect of that matter in the Completion Accounts;
(h)	the Purchaser is not entitled to make a claim for any breach of any Environmental Warranty, and the Vendor will not be liable to make any payment (whether by way of damages or otherwise) to the Purchaser for any claim for any breach of any Environmental Warranty, to the extent that the Purchaser or the Company recovers from a person other than the Vendor in respect of any loss or damage arising out of the claim whether by way of contract, indemnity or otherwise, provided that where the Purchaser or the Company has the right to claim an indemnity against or otherwise recover from a third person but fails or declines to recover its losses or damages from such third person, the Vendor may subrogate itself to that right by claiming the indemnity against or recovering from the third person in the name of the Purchaser or the Company (as applicable) and the Purchaser and the Company (as applicable) must fully co-operate with the Vendor (including providing access to documentation and officers and employees) to facilitate the Vendor exercising that right, and the Vendor must reimburse the Company for all expenses reasonably incurred by it (including legal and other professional fees) in so doing; and
(i)	the Purchaser is not entitled to make a claim for any breach of any Environmental Warranty, and the Vendor will not be liable to make

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any payment (whether by way of damages or otherwise) to the Purchaser for any claim for any breach of any Environmental Warranty, to the extent that the claim is as a result of any amendment or change to the zoning of any Premises from the zoning at the date of this Agreement.

7.4 Purchaser’s release of Vendor

Except in relation to the Environmental Warranties or as otherwise provided in Clauses 1.1, 5.2, 7.1, 7.2, 7.5, 7.6, 7.7, 7.8 or 8.1 of this Agreement, on and from the Transfer Date the Purchaser irrevocably releases and waives any right to take any action or make any claim or demand against the Vendor in relation to or in connection with the presence of any Contamination in, on, under or migrating from any of the Premises.

7.5 Notification of Authorities

(a) The Vendor and the Purchaser must not, and the Purchaser shall procure that the Company does not, voluntarily notify or initiate communications with any Authority or third party potential claimant in respect of any Contamination in, on or under or migrating from any of the Premises, but if the Vendor, the Purchaser or the Company is subject to any enforceable obligation to so notify, or has to respond to a communication initiated by any Authority or third party potential claimant, the Vendor or the Purchaser, as applicable, (the Notifying Party) must as soon as reasonably practicable:

(i)	notify the other of that proposal or obligation;
(ii)	consult with the other concerning the terms of any such notification or communication (including giving due and proper consideration to all submissions made by or on behalf of the other in respect of the subject matter of the notification or communication and, as far as reasonably practicable, taking all steps to avoid any liability of any party arising under this Agreement); and
(iii)	cooperate with the other in good faith so that the other is able to participate as fully as reasonably practicable with the Notifying Party in all notifications to or communications with any Authority or third party potential claimant in that regard and continue to consult with the other concerning all actions taken by the Notifying Party in respect of the subject matter of the notification or communication.

(b)	Without limiting Clause 7.5(a), the Vendor and the Purchaser each must keep the other informed of any material communications with any Authority or third party potential claimant concerning Contamination or suspected Contamination in, on, under or migrating from any of the Premises.
(c)	Nothing contained in this Clause 7.5 shall prevent the Vendor or the Purchaser from complying with any obligations or requirements

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under any Environmental Law or other legal or contractual obligations that, in the reasonable opinion of the party making the notification or disclosure referred to in Clause 7.5(a), is required.

7.6 Indemnity for breach of Environmental Warranties

(a)	Subject to Clauses 5, 6, 7.3 to 7.5 (each inclusive) 7.7, 8 and this Clause 7.6, and except as expressly consented to in writing by the Purchaser, the Vendor agrees to indemnify the Purchaser against all claims, losses, costs or expenses (including costs or expenses associated with any litigation in relation to Environmental Liabilities against the Company) suffered or incurred by the Purchaser or the Company as a result of any Environmental Warranty not being correct in all material respects when given.
(b)	Despite any other provision of this Agreement (including paragraph (a) of this Clause 7.6), the Purchaser is not entitled to make a claim for breach of any representation, warranty or obligation, or in respect of any indemnity, and the Vendor will not be liable to make any payment (whether by way of damages or otherwise) to the Purchaser for any claim for any breach of any representation, warranty or obligation, or in respect of any indemnity, to the extent that such claim or payment is for or in respect of any consequential or indirect loss or damage (including loss of profits, loss of opportunity or costs of business interruption) suffered or incurred by the Purchaser or any other member of the InterOil Group (including the Company).
(c)	If consequential or indirect loss or damage suffered by a person other than the Purchaser or any other member of the InterOil Group (including the Company) constitutes or forms part of loss or damage in respect of which, despite paragraph (b) of this Clause 7.6, the Purchaser is entitled to make a claim for breach of any representation, warranty or obligation, or in respect of any indemnity, then nothing in paragraph (b) of this Clause 7.6 will be read or construed as limiting or qualifying the entitlement of the Purchaser to make such claim in respect of such third party or parties’ loss or damage.

7.7 Environmental Warranties to cease on disposal of Premises

(a)	The Environmental Warranties and the indemnity in Clause 7.6 will cease to apply, and the Purchaser will cease to be entitled to make any claim for or in respect of any breach of any Environmental Warranty (including any claim under Clause 7.6), in respect of Premises upon the sale, transfer or other disposal by the Company of its proprietary interest in the applicable Premises.
(b)	Paragraph (a) of Clause 7.7 does not apply to the extent:

(i) that a claim has been made by the Purchaser in respect of particular Premises pursuant to Clause 7.1 or Clause 7.6 prior to the time at which the Company sells, transfers or otherwise disposes of its proprietary interest in those Premises; or

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(ii) the Company has sold, transferred or otherwise disposed of its proprietary interest in particular Premises in order to comply with a condition imposed by the ICCC as part of its authorisation to the Purchaser in respect of the acquisition of the Shares by the Purchaser and either:

(A)

the ICCC has directed or otherwise compelled the sale, transfer or other disposal of the Company’s proprietary interest in those particular Premises; or

(B)

if the ICCC has not directed or otherwise compelled the sale, transfer or other disposal of the Company’s proprietary interest in those particular Premises, for the most recent period of 12 months’ continuous operation preceding the time at which the Company first commenced to sell, transfer or otherwise dispose of its proprietary interest in those particular Premises, the Economic Return derived by the Company from the business conducted by the Company at those Premises was the lowest Economic Return derived by the Company from the conduct of business conducted by the Company at all of the Premises during that period (or, if the proposed sale, transfer or other disposal is in respect of more than one Premises, the Economic Return derived by the Company from each of the businesses conducted by the Company at each of those Premises that the Company is disposing of or intends to dispose of during the most recent period of 12 months’ continuous operation was lower than the Economic Return derived by the Company from the conduct of business at each of its other Premises during that period).

7.8 Vendor’s right to undertake remediation works

(a)

The Purchaser acknowledges that the Vendor or other members of the Shell Group have undertaken environmental assessments of the sites described in Schedule 8 and that it is the intention of the Vendor to procure that further environmental assessment of certain of those sites is undertaken in accordance with the procedures set out in Schedule 8 prior to the Transfer Date.

(b)

The Purchaser agrees to procure the Company to permit any member or members of the Shell Group (and their respective officers, employees, agents and contractors) to have all reasonable access required by them up to the Environmental Claim Cut-Off Date to all or any of the sites described in Schedule 8 for the purpose of undertaking Remediation Works at such sites. The Purchaser acknowledges that the undertaking of Remediation Works may involve the destruction, dismantling and removal of fixtures, equipment and other assets on the sites and agrees to procure the Company to permit all such works to be undertaken as reasonably

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required by the relevant member of the Shell Group, subject to the replacement or restoration of all fixtures, equipment and other assets on the sites affected by such works.

(c) The Vendor agrees to indemnify the Purchaser against all claims, losses, liabilities, costs and expenses suffered or incurred by the Purchaser or the Company as a result of the undertaking of all such Remediation Works by members of the Shell Group but this indemnity does not extend to include, and the Purchaser is not entitled to make any claim in respect of, any consequential or indirect loss or damage suffered or incurred by the Purchaser or any other member of the InterOil Group (including the Company) as a result of or in connection with such Remediation Works being undertaken.

8.	Statutory actions and third party claims
8.1	Procedure when a third party claim is made

If a claim or demand of any kind is made by any person against the Purchaser or the Company which would or might result in a loss, liability, cost or expense for which the Vendor may be liable or responsible under this Agreement then:

(a)	the Purchaser, within 30 days after the making of that claim or demand against it or the Company, must give notice of the claim or demand to the Vendor;
(b)	the Vendor may within 60 days after receipt of that notice either:

(i)	pay to the Purchaser or the Company sufficient funds to satisfy or pay the claim or demand; or
(ii)	by notice to the Purchaser direct the Purchaser or the Company not to satisfy or pay the claim or demand in whole or in part but at the expense and direction of the Vendor to take such action (including legal proceedings) as the Vendor reasonably may direct to avoid, dispute, defend, appeal or compromise the claim or demand and any adjudication of it and the Vendor must also pay to the Purchaser or the Company sufficient funds in sufficient time to pay all reasonable costs and expenses of the action directed by the Vendor; or
(iii)	by notice to the Purchaser direct the Purchaser or the Company not to satisfy or pay the claim or demand in whole or in part and the Vendor, at its expense, and in its own name or in the name of (as applicable) all or any of the Purchaser or the Company, may take such action (including legal proceedings) as the Vendor reasonably considers necessary or desirable to avoid, dispute, defend, appeal or compromise the claim or demand and any adjudication of it; and

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(c)

if the Vendor gives notice to the Purchaser under Clause 8.1(b)(ii) or (iii), the Purchaser must comply and must procure the Company to comply with the directions of the Vendor so given and the Purchaser must procure that the Vendor is given all such access to the books, records, registers, returns and other documents and papers, and to the officers and employees, of the Purchaser or the Company (as applicable) as the Vendor reasonably requires in order properly to exercise its rights under Clause 8.1(b)(ii) or (iii) (as applicable).

(d)

Notwithstanding the foregoing provisions of this Clause 8.1, the failure to notify the Vendor of any claim or demand as required by this Clause 8.1 shall not of itself relieve the Vendor from any liability that it may have to the Purchaser pursuant to this Agreement except tot the extent of any actual prejudice to the Vendor resulting from the Purchaser’s failure.

8.2 Other warranties and conditions excluded

All warranties and conditions which would otherwise be implied in this Agreement are excluded to the maximum extent permitted by law and the Vendor disclaims all liability in relation to them to the maximum extent permitted by the law. The Purchaser acknowledges that neither the Vendor nor any person acting on its behalf has made any representation or given any warranty in relation to the Company other than the Warranties and the Environmental Warranties.

9. Obligations of the Vendor prior to the Transfer Date

Prior to the Transfer Date, except as expressly disclosed in or contemplated by this Agreement or any other Transaction Document or consented to by the Purchaser, the Vendor must procure that:

(a)	the business of the Company is conducted only in the ordinary course, consistent with past practice, which includes the maintenance of all existing insurance policies;
(b)	the Assets are maintained and kept in good working order (having regard to their condition at the date of this Agreement), fair wear and tear excluded;
(c)	the Company will not merge or consolidate with any other corporation or acquire any of the shares or the business or assets of any other person, firm, association, corporation or business organisation, or agree to do any of the foregoing;
(d)	no change is made to the constituent documents of the Company;
(e)	the Company will not allot or issue any shares or any securities or loan capital convertible into shares, or purchase, redeem, retire or acquire any such shares or securities, or agree to do so, or sell or give any option, right to purchase, mortgage, charge, pledge, lien or other form of security or encumbrance over any such shares or securities;

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(f)	the Company will not enter into a material capital commitment or, other than in the ordinary course of business, dispose of or deal with any property, plant or equipment of the Company;
(g)	the Company will not dispose of or deal with any property, plant or equipment of the Company in the ordinary course of business except to the extent that all such disposals or other dealings have an aggregate market value of less than K250,000;
(h)	the Company will not enter into or terminate any contract or commitment or engage in any activity or transaction not in the ordinary course of business;
(i)	the business of the Company is conducted so as to comply in all material respects with all applicable laws and regulations;
(j)	the business of the Company continues to be conducted in accordance with applicable health, safety and environment standards of the Shell Group;
(k)	any necessary consents from any of the Commercial Lessors to the sale of the Shares is obtained; and
(l)	any dividend declared by the Company is paid by the Company on or prior to the Transfer Date.

Nothing in this Clause 9 or Clause 10 applies to or in relation to any of the Excluded Assets.

10.	Rights of the Vendor prior to Transfer Date
10.1	Minor acquisitions and dispositions of Assets

Despite Clause 9, in the period prior to the Transfer Date the Vendor may permit the Company to:

(a)	make any Minor disposition of any property, plant or equipment in the ordinary course of business and for full market value (provided that the Vendor complies with limits specified in paragraph (g) of Clause 9 and the consideration received by the Company for such assets is either retained by the Company until Completion or applied by the Company pursuant to paragraph (b) or Clause 10.2(a) ; or
(b)	make any Minor acquisition of any property, plant or equipment in the ordinary course of business at market value.

10.2 Material acquisitions and expenditures

(a) Despite Clause 9 and subject to paragraph (b) below, in the period prior to the Transfer Date, the Company may undertake material acquisitions of assets or expenditure provided that such assets or the product of such expenditure forms part of the Assets at the Transfer Date.

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(b) Prior to any material acquisition or material expenditure being undertaken by the Company in the period prior to the Transfer Date, the Vendor and Purchaser must negotiate in good faith with a view to agreeing whether that material acquisition or expenditure should be made and, if so, an appropriate adjustment to the financial arrangements between them.

11.	Completion
11.1	Completion place

Subject to each of the conditions precedent set out in Clause 12.1 having been satisfied or waived, completion of the sale and purchase of the Shares will take place on the Transfer Date at the offices of the Vendor’s solicitors in Melbourne, Australia or at any other place as the Vendor and the Purchaser may agree.

11.2 Obligations of Vendor on Completion

Subject to each of the conditions precedent set out in Clause 12.1 having been satisfied or waived, on the Transfer Date the Vendor must:

(a) ensure that a duly convened board meeting of the Company is held at which a quorum of directors is present and acting throughout at which:

(i)	such persons as the Purchaser may nominate by notice to the Vendor are appointed as directors of the Company, subject to the receipt of duly signed consents to act of such persons;
(ii)	such persons as the Purchaser may nominate by notice to the Vendor are appointed as the secretaries and public officers of the Company, subject to the receipt of duly signed consents to act of such persons;
(iii)	the signatories of any bank account maintained by the Company are changed to those specified in writing by the Purchaser;
(iv)	such persons as the Purchaser or Vendor may nominate by notice to the other party resign as directors, secretaries and public officers of the Company; and
(v)	the transfer of the Shares to the Purchaser (subject to the payment of stamp duty on the instruments of transfer which must be borne by the Purchaser), the cancellation of the existing share certificates for the Shares and the sealing and delivery by the Company to the Purchaser of new share certificates for the Shares in the name of the Purchaser are each approved;

(b) deliver to (or at the direction of) the Purchaser the minute books, statutory books and registers, books of account, financial records,

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asset register, copies of taxation returns and other documents and papers for the seven years prior to the Transfer Date, and any common seal, duplicate seal or official seal, of the Company; and

(c) deliver to the Purchaser duly executed instruments of transfer of the Shares in favour of the Purchaser together with the share certificates relating to the Shares.

11.3 Payment of Estimated Purchase Price

Subject to each of the conditions precedent set out in Clause 12.1 having been satisfied or waived, on the Transfer Date the Purchaser must:

(a)		pay the Estimated Purchase Price (less the amount of the deposit already paid by the Purchaser under Clause 3.2) to the Vendor; and
(b)		if the Company has not already done so, ensure that the Company delivers to the Vendor a duly executed counterpart of the SPNG Deed of Acknowledgement & Release.
11.4	Obligations of Purchaser and Company after Completion
	(a)	The Purchaser undertakes that for a period of not less than 12 months after the Transfer Date, the terms and conditions of employment (including any right, entitlement or legitimate expectation of any officer or employee with respect to the implementation of a salary review and/or the payment of any bonus) of the officers and employees of the Company at the Transfer Date that the Company, in its sole discretion, elects to continue to employ, will be observed and applied by the Company to such of those persons who were officers or employees of the Company at the Transfer Date and remain officers or employees of the Company after the Transfer Date.
	(b)	The Vendor agrees that, if requested to do so by the Purchaser or the Company, the Vendor will procure the applicable employer member of the Shell Group to second to the Company for a period of 6 months after the Transfer Date each of the persons who at the date of this Agreement holds or occupies the position with the Company of General Manager, Finance Manager and Operations Manager (together, the seconded employees). Paragraph (a) of this Clause 11.4 will apply to and in respect of the seconded employees as if the seconded employees each were an officer or employee of the Company. The Vendor agrees that if a seconded employee resigns or retires from service with the Shell Group during that period of 6 months after the Transfer Date, the Vendor will use all reasonable endeavours to second an appropriately experienced and qualified employee of the Shell Group to the Company for the balance of that period of 6 months (and paragraph (a) of this Clause will apply accordingly to any such replacement secondee as if that replacement secondee were an officer or employee of the Company).

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12.	Conditions precedent to Completion
12.1	Conditions precedent

Each of the following is a condition precedent to Completion and, subject to Clause 12.2, Completion will not take place unless and until:

(a)	the ICCC has formally granted an authorisation to the Purchaser in respect of the acquisition of the Shares by the Purchaser on conditions (if any) approved by the Purchaser and, to the extent such conditions affect the Vendor, the Vendor; and
(b)	each party to a Transaction Document has obtained all Authorisations from:

(i)	the Central Bank of Papua New Guinea;
(ii)	the Commissioner General of Taxation; and
(iii)	the Papua New Guinea Investment Promotion Authority,

necessary to be obtained by it to execute, and perform its material obligations under, each such document to which it is a party.

12.2 Conditions precedent exist for the benefit of the parties

(a)	The conditions precedent set out in Clause 12.1 are for the joint benefit of both the Vendor and the Purchaser.
(b)	A condition precedent set out in Clause 12.1 may be waived (in whole or in part) only in writing by the parties jointly by notice.

12.3 Parties must cooperate

Each party must cooperate with the other and do all things reasonably necessary to procure that each of the conditions precedent set out in Clause 12.1 is satisfied.

12.4 Specific obligations of cooperation

Without limiting the generality of Clause 12.3:

(a)	the Vendor and the Purchaser must, and the Vendor must cause the Company to, make all necessary and appropriate applications and supply all necessary and appropriate information for the purpose of enabling each of the conditions precedent set out in Clause 12.1 to be satisfied.
(b)	the Vendor and the Purchaser must not withdraw or procure the withdrawal of any application made or information supplied under paragraph (a) of this Clause 12.4; and
(c)	the Vendor and the Purchaser must, and the Vendor must cause the Company to, supply to each other copies of all applications made and all information supplied for the purpose of enabling each of the conditions precedent set out in Clause 12.1 to be satisfied.

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13.	Adjustments to the Estimated Purchase Price
13.1	Completion Accounts

The Vendor must as soon as reasonably practicable after the Transfer Date (and, in any event, within 20 Business Days after that date) prepare financial statements for the Company as at the Transfer Date (Completion Accounts):

(a)	in the format of the Year End Accounts; and
(b)	in accordance with the Accounting Principles.

The Purchaser acknowledges that the Vendor will be dependent upon the Company’s officers and employees to prepare or to assist in the preparation of the Completion Accounts and the Purchaser must procure for the Vendor the full co-operation of the Company’s officers and employees for this purpose. The Purchaser further acknowledges that the Vendor will require full and free access to the books, records, registers, returns and other documents and papers of the Company for the preparation of the Completion Accounts and the Purchaser must procure such access for the Vendor.

13.2 Review by Auditor

(a)	The Vendor must deliver the Completion Accounts (together with all of the Vendor’s working papers) to a member firm of one of the international firms of auditors set out in Schedule 2 (the Auditor) within two Business Days of their preparation under Clause 13.1.
(b)	The Vendor must procure that the Auditor performs a review (or other procedure agreed between the Vendor and the Purchaser) of the Completion Accounts and reports in writing (attaching a copy of the Completion Accounts) to the Vendor and the Purchaser within 180 days after the date of receipt of the Completion Accounts under paragraph (a) either that:

(i)	the Completion Accounts have been drawn up in accordance with this Clause 13 and no adjustments to the Completion Accounts need to be made; or
(ii)	the Completion Accounts need to be adjusted (in which case the Auditor must also set out in writing the adjustments that need to be made to the Completion Accounts) to comply with this Clause 13.

(c) The costs and expenses of the Auditor in performing the review or other agreed procedures must be borne equally by the Purchaser and the Vendor.

13.3 Access to information

The Vendor and the Purchaser must in connection with the performance of the review by the Auditor:

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(a)	provide or ensure the provision of all information and assistance which may be requested by the Auditor; and
(b)	permit the Auditor and its representatives to have access to and take extracts from or copies of any books, accounts or other records relating to the Company in its possession, custody or power.

13.4 Parties’ response to review

(a) If the Completion Accounts:

(i)	as confirmed by the Auditor under Clause 13.2(b)(i); or
(ii)	as adjusted by the Auditor under Clause 13.2(b)(ii),

are not disputed by the Vendor or the Purchaser by notice under Clause 13.5 prior to the Adjustment Date, they will be taken to be final.

(b) If the Completion Accounts:

(i)	as confirmed by the Auditor under Clause 13.2(b)(i); or
(ii)	as adjusted by the Auditor under Clause 13.2(b)(ii),

are disputed by the Vendor or the Purchaser by notice under Clause 13.5 prior to the Adjustment Date, the dispute will be determined under Clause 13.5.

13.5 Dispute resolution procedure

(a) If there is any difference of opinion or dispute between the Vendor and the Purchaser regarding the Completion Accounts, the Vendor or the Purchaser (Disputing Party) may give a notice (Dispute Notice) to the other party prior to the Adjustment Date setting out:

(i)	details of each of the matters in dispute;
(ii)	a separate dollar value for each of those matters; and
(iii)	full details of the reasons why each of those matters is disputed.

(b)	A Disputing Party may only give one Dispute Notice.
(c)	Within 20 Business Days of the Disputing Party having delivered a Dispute Notice to the other party, the other party must deliver to the Disputing Party a response in writing on the disputed matters (Response). If the other party does not deliver a Response within that time, the Completion Accounts will be deemed to be amended as required by the Disputing Party and will be taken to comprise the final Completion Accounts.
(d)	If the dispute is not resolved within 10 Business Days of the delivery of the Response to the Disputing Party, then the Disputing Party must promptly refer the dispute to the Managing Director (or their appointed nominee) of each of the Vendor and the Purchaser for them to attempt to resolve the dispute.

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(e)	If the Managing Directors (or their appointed nominees) have not resolved the dispute within 10 Business Days of it being referred to them, the dispute must promptly be submitted for determination to an Expert who will determine the matter or matters in dispute.
(f)	The disputed matters must be referred to the Expert by written submissions from the parties which must include only:

(i)	the Completion Accounts (together with any working papers);
(ii)	the report issued by the Auditor under Clause 13.2;
(iii)	the Dispute Notice;
(iv)	the Response; and
(v)	an extract of the relevant provisions of this Agreement.

(g)	The Expert must also be instructed to decide the matters of disagreement and finish its determination and provide it to the Vendor and the Purchaser no later than 20 Business Days after receipt of the submissions (or such other period agreed by the parties having regard to the matters in dispute).
(h)	The parties must promptly supply the Expert with any information, assistance and co-operation requested in writing by the Expert in connection with its determination. All correspondence between the Expert and a party must be copied to the other party.
(i)	The Expert must apply the Accounting Principles.
(j)	In the absence of agreement between the Vendor and the Purchaser, the Expert will decide the procedures to be followed to resolve the matters of disagreement.
(k)	The Expert must act as an expert and not as an arbitrator. The Expert’s written determination will be final and binding on the parties in the absence of manifest error and the Completion Accounts will be deemed to be amended accordingly and will be taken to comprise the final Completion Accounts.
(l)	The cost of a determination by the Expert must be borne by the Vendor and the Purchaser in such manner as the Expert determines (having regard to the merits of the dispute).

13.6 Dispute limit

Despite any other provision of this Agreement, neither party is entitled to dispute the Completion Accounts unless the total amount disputed is greater than K10,000.

13.7 Payment of Adjustment Amount

(a) If the amount of the Net Current Assets of the Company set out in the Completion Accounts exceeds the amount of the Net Current Assets of the Company set out in the Year End Accounts by more than K500,000, then the Purchaser must pay the amount of that

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Purchase and Sale Agreement

excess to the Vendor by way of an addition to the Estimated Purchase Price.

(b) If the amount of the Net Current Assets of the Company set out in the Completion Accounts is less than the amount of the Net Current Assets of the Company set out in the Year End Accounts by more than K500,000, then the Vendor must pay the amount of that deficiency to the Purchaser by way of repayment of part of the Estimated Purchase Price.

13.8 Payment Date

(a)

If the Completion Accounts are not disputed by the Purchaser or the Vendor prior to the Adjustment Date, the amount payable pursuant to Clause 13.7, plus simple interest on that amount from (and including) the Transfer Date to (and including) the date of payment calculated daily at the rate per annum which is the sum of the Interest Rate and a margin of 3%, must be paid to the Vendor or the Purchaser (as the case requires) within five Business Days after the Adjustment Date.

(b)

If the Completion Accounts are disputed by the Purchaser or the Vendor prior to the Adjustment Date, the portion of the amount payable pursuant to Clause 13.7 not in dispute, plus simple interest on that amount from (and including) the Transfer Date to (and including) the date of payment calculated daily at the rate per annum which is the sum of the Interest Rate on the date of payment and a margin of 3%, must be paid to the Vendor or the Purchaser (as the case requires) within five Business Days after the Adjustment Date and the balance of the amount payable pursuant to Clause 13.7, plus simple interest on that amount from (and including) the Transfer Date to (and including) the date of payment calculated daily at the rate per annum which is the sum of the Interest Rate on the date of payment and a margin of 3%, must be paid to the Vendor or the Purchaser (as the case requires) within five Business Days after the date upon which the dispute is determined by the Expert or otherwise resolved by the parties.

14.	Change of Name
14.1	Change of Name

(a) Prior to the Transfer Date:

(i)	the Purchaser must apply to the Registrar of Companies under the Companies Act for reservation of a new name for the Company (being a name that does not include the word ‘Shell’ or any similar word or any mark or logo of the Shell Group (or any member of it)) (the new name) and must notify the Vendor of the reservation of that new name; and
(ii)	the Vendor must:

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Purchase and Sale Agreement

(A)	pass a special resolution resolving to change of the name of the Company to the new name; and
(B)	apply to the Registrar of Companies under the Companies Act for approval of the change of name of the Company to the new name.

(b)

After Completion, the Purchaser must implement the branding and debranding program set forth in Schedule 9 and, except in accordance with that program, must ensure that the Company does not carry on any business using the name ‘Shell’ or any similar word or any mark or logo of the Shell Group (or any member of it). The Vendor and the Purchaser must bear the costs of that branding and rebranding program as contemplated in Schedule 9. Without limiting the obligations of the Purchaser under this Clause 14, the Purchaser, if requested by the Vendor so to do from time to time within the period of 6 months after the Transfer Date, must procure that the Company and any other applicable member of the InterOil Group and their respective agents, contractors, representatives or dealers grants to any nominated member or members of the Shell Group such access to any Premises in the possession or under the control of that person as may reasonably be required for the purpose of dismantling or removing any signage or other physical manifestation of the name “Shell” or any mark or logo of the Shell Group (or any member of it).

(c)

After Completion, the Purchaser must ensure that the Company does not create, send, distribute or enter into (as the case may be) any:

(i)	letter, envelope, facsimile, e-mail or other form of correspondence;
(ii)	advertising, sales or marketing material; or
(iii)	document, deed or agreement,

that includes the word ‘Shell’ or any similar word, or any mark or logo of the Shell Group (or any member of it).

15. Ongoing access to corporate records

(a) The Purchaser must ensure that the Vendor has an ongoing right of access during regular business hours of the Company after the Transfer Date, exercisable on reasonable notice by the Vendor, to the minute books, statutory books and registers, books of account, trading and financial records, copies of taxation returns and other documents and papers of the Company as the Vendor reasonably may require in connection with the exercise of its rights or the performance of its obligations under this Agreement or any other Transaction Document or in connection with the satisfaction or discharge of any obligation (whether imposed by statute, stock exchange or other financial market, or otherwise) of the Vendor or any member of the Shell Group. The Purchaser must furnish or must procure that the Company furnishes to the Vendor all such

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Purchase and Sale Agreement

information concerning the Company as the Vendor may reasonably request and all such access to officers, employees and secondees of the Company as the Vendor reasonably may require in connection with the exercise of its rights or the performance of its obligations under this Agreement or any other Transaction Document.

(b) The Vendor may make copies of any of the documents referred to in Clause 15(a).

16.	Confidentiality
16.1	Purchaser to keep information confidential

The Purchaser undertakes to the Vendor that prior to the Transfer Date it and its officers, employees, agents and advisers will keep entirely secret and confidential all information concerning the Company and the business of the Company and will not disclose, or cause or permit any of its Affiliates or their officers, employees, agents or advisers to disclose, the information to any person other than the Vendor or other members of the Shell Group and will not make any use of, or enable any other person to make use of, that information (other than as required by or for the purposes of the Transaction Documents) without the prior written consent of the Vendor.

16.2 No disclosure of purchase price or terms

Neither party may make any disclosure or public announcement in relation to the terms or conditions of this Agreement or the transactions contemplated by it without the prior consent of the other party.

16.3 Permitted disclosures

Clauses 16.1 and 16.2 do not apply to disclosure:

(a)	to the extent required in any proceedings arising out of or in connection with any Transaction Document;
(b)	to the extent required under a binding order of a court or any procedure for discovery in any proceedings;
(c)	to the extent required under any law or any rules of any applicable securities exchange or stock exchange;
(d)	as required or permitted under any Transaction Documents;
(e)	to legal advisors and consultants, who undertake to keep the information confidential;
(f)	to a bank or financial institution, provided that bank or financial institution undertakes to keep the information confidential and to use it only for bona fide purposes related to the actual or proposed provision of financial accommodation to a member or members of the InterOil Group (not including the Company) or a member or members of the Shell Group;
(g)	to any member of the Shell Group or of the InterOil Group; or

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Purchase and Sale Agreement

(h) to the extent information is already in the public domain (other than as a result of a breach of Clause 16.1 or 16.2).

The Vendor and the Purchaser agree to consult with each other, so far as it is reasonably practicable to do so, before making any disclosure pursuant to this Clause.

17. Enurement

The provisions of this Agreement will enure for the benefit of and be binding on the parties and their respective successors and permitted substitutes and assigns and (where applicable) legal personal representatives.

18. Disputes

(a)	Any dispute or difference between the Vendor and the Purchaser arising in connection with this Agreement will be submitted by the parties to arbitration in a location agreed between the Vendor and Purchaser (or failing such agreement will be submitted to arbitration in Melbourne) in accordance with, and subject to, the UNCITRAL Arbitration Rules.
(b)	Subject to any contrary provision in the UNCITRAL Arbitration Rules:

(i)	there must be three arbitrators, being one arbitrator appointed by the Purchaser, one arbitrator appointed by the Vendor and one arbitrator appointed independently by, and in accordance with, the rules of the relevant appointing and administering body;
(ii)	all three arbitrators must be present when a decision of the arbitrators is made and any decision supported by at least two of the three arbitrators will be final and binding on the parties to that dispute; and
(iii)	the language of the arbitration must be in English.

(c) A party may commence proceedings or take any action it deems necessary in any jurisdiction (except in any State or territory of the United States of America) to enforce a decision of the arbitrators, whether pursuant to:

(i)	the general law or legislation of that jurisdiction;
(ii)	the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958; or
(iii)	any other treaty making such enforcement possible.

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Purchase and Sale Agreement

19. Termination

(a) The Vendor or the Purchaser may terminate this Agreement by notice in writing to the other if:

(i)	the conditions precedent set out in Clause 12.1 have not been satisfied or waived on or before 31 March 2006; or
(ii)	if the conditions precedent set out in Clause 12.1 have been satisfied or waived, Completion has not occurred by the date which is the first Business Day of the seventh month following the month in which the last of the conditions precedent set out in Clause 12.1 to be satisfied or waived is satisfied or waived.

(b) The Vendor or the Purchaser may terminate this Agreement by notice in writing to the other party if, prior to the Transfer Date:

(i)	the other party stops or suspends or threatens to stop or suspend payment of all or a class of its debts;
(ii)	the other party is insolvent (within the meaning of the law of such party’s formation);
(iii)	an administrator, controller, receiver, receiver and manager, trustee, mortgagee in possession or similar officer is appointed over, to or in respect of all or any of the assets or undertaking of the other party; or
(iv)	an order is made or a resolution is passed for the winding up, deregistration or dissolution of the other party or for it to enter an arrangement, compromise or composition with or assignment for the benefit of its creditors, a class of them or any of them.

(c)	Nothing in this Clause limits or restricts any termination of this Agreement by the Vendor pursuant to paragraph (b) of Clause 5.2.
(d)	If this Agreement is terminated prior to the Transfer Date for any reason, the amount paid by the Purchaser to the Vendor under Clause 3.1(b) must be repaid in full by the Vendor to the Purchaser.

20. Costs and stamp duty

(a)	Each party must bear its own costs arising out of the negotiation, preparation and execution of this Agreement.
(b)	All stamp duty and registration fees (including fines, penalties and interest) which may be payable on or in connection with this Agreement and any instrument executed under this Agreement must be borne by the Purchaser.

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Purchase and Sale Agreement

21.	Merger
	The rights and obligations of the parties will not merge on the completion of any transaction contemplated by this Agreement. They will survive the execution and delivery of any assignment or other document entered into for the purpose of implementing any such transaction.
22.	Assignment
	The rights and obligations of each party under this Agreement are personal. They cannot be assigned, encumbered or otherwise dealt with and no party may attempt, or purport, to do so without the prior written consent of all parties.
23.	Further assurances
	Each party agrees to do all such things and execute all such deeds, instruments, transfers or other documents as may be necessary or desirable to give full effect to the provisions of this Agreement and the transactions contemplated by it.
24.	Entire agreement
	This Agreement contains the entire agreement between the parties with respect to its subject matter and supersedes all prior agreements and understandings between the parties in connection with it.
25.	Waiver
	No failure to exercise nor any delay in exercising any right, power or remedy by a party operates as a waiver. A single or partial exercise of any right, power or remedy does not preclude any other or further exercise of that or any other right, power or remedy. A waiver is not valid or binding on the party granting that waiver unless made in writing.
26.	Notices
	Any notice, demand, consent or other communication (a Notice) given or made under this Agreement:

(a)	must be in writing and signed by a person duly authorised by the sender;
(b)	must be delivered to the intended recipient by prepaid post (if posted to an address in another country, by registered airmail) or by hand or fax to the address or fax number below or the address or fax number last notified by the intended recipient to the sender:

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Purchase and Sale Agreement

(i)	to the Vendor:	Shell Overseas Holdings Limited Shell Centre London, SE17NA England Attention: Company Secretary Fax No: +44 2079 3470 43; and Copy to:
		The Shell Company of Australia Ltd 8 Redfern Rd East Hawthorn Victoria 3123 Attention: Company Secretary Fax No: +61 3 88234039; and
(ii)	to the Purchaser:	InterOil Corporation Suite 2, Level 2, Orchid Plaza, 79-88 Abbot Street, Cairns, QLD 4870, Australia Attention: General Counsel Fax No: +61 7 4031 4565; and

(c) will be taken to be duly given or made:

(i)	in the case of delivery in person, when delivered;
(ii)	in the case of delivery by post two business days after the date of posting (if posted to an address in the same country) or seven business days after the date of posting (if posted to an address in another country);
(iii)	in the case of fax, on receipt by the sender of a transmission control report from the despatching machine showing the relevant number of pages and the correct destination fax machine number and indicating that the transmission had been made without error,

	but if the result is that a Notice would be taken to be given or made on a day which is not a business day in the place to which the Notice is sent or is later than 4.00pm (local time) it will be taken to have been duly given or made at the commencement of business on the next business day in that place.
27.	Governing law and jurisdiction
	This Agreement is governed by the laws of Victoria, Australia. Each party submits to the non-exclusive jurisdiction of courts exercising jurisdiction there in connection with matters concerning this Agreement.

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Purchase and Sale Agreement

28.	Counterparts
	This Agreement may be executed in any number of counterparts. All counterparts will be taken to constitute one instrument.
29.	Information Technology
	The Vendor will ensure that at Completion the information technology infrastructure and applications enabling the day-to-day transactional operation of the Company are capable of carrying on the day-to-day transactional operation of the Company as a stand-alone entity after Completion. The Vendor and the Purchaser agree to share equally the cost of building this capability but the Purchaser is solely responsible for and for all costs and expenses of:

(a)	procuring the relevant licenses associated with enabling this capability; and
(b)	procuring, developing and integrating its own management information system (interface, hardware and software) required for the extraction and processing of transactional data into management reports.

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Purchase and Sale Agreement

(Schedule 1 — Warranties)

Schedule 1

Warranties

Ownership of the Shares

1. The Vendor:

(a)	is the beneficial owner, and the Vendor and TAPCL are the legal owners (unless TAPCL has transferred its legal ownership to the Vendor prior to Completion, in which case the Vendor is the legal owner), of the Shares free from all Security Interests; and
(b)	has full power and authority to transfer or to procure the transfer to the Purchaser of good legal and equitable title to the Shares free from all Security Interests.

Incorporation and Qualification

2. The Company is duly registered and validly existing under the laws of Papua New Guinea and has full corporate power to own its assets and to carry on its business as now conducted.

3. The constitution of the Company produced to the Purchaser at Completion and signed on behalf of the Vendor for the purposes of identification is the constitution of the Company incorporating all amendments made to it and including all resolutions affecting it. The constitution contains all details of the rights which attach to the Shares.

Shares

4. There are no outstanding subscription agreements, options, rights or other analogous entitlements of any description to acquire from the Company any unissued shares or stock of any class of the Company, or any securities convertible into or exchangeable for or which otherwise confer on the holder of it any right (whether or not upon the happening of any contingency or after any lapse of time and whether or not upon the payment or delivery of any consideration) to acquire any unissued shares or stock of any class of the Company nor is the Company committed to grant or issue any such option, right or security.

5. The Shares are the only issued shares in the capital of the Company and are validly issued and fully paid. The share register of the Company is an accurate record of the members of the Company and transfers of the Shares.

Assets

6. The Assets, viewed as a whole, are generally suitable for the conduct of a domestic petroleum products distribution business in Papua New Guinea.

7. The Assets are generally suitable for undertaking the activity for which they were constructed.

Page 37

Purchase and Sale Agreement
(Schedule 1 — Warranties)

8. All material entries made in the asset register of the Company referred to in Clause 11.2(b) were correct at the time such entries were made and, at the time details of Assets were entered in the asset register, those Assets were owned by the Company and were in existence at the location (if any) described in the asset register and have not been sold or transferred by the Company.

Leases

9. The Company is the lessee under the State Leases described in Schedule 3 and, to the best of the Vendor’s knowledge after reasonable investigation, the Company holds its interest under the State Leases free from all competing interests (including sub-leases, licences and restrictive covenants except as disclosed in the instruments of State Lease or in Schedule 3 or in Schedule 5 or as would be disclosed by a search at the relevant land titles office).

10. To the best of the Vendor’s knowledge after reasonable investigation, the Commercial Leases are all in good standing and, except as disclosed in Part A of Schedule 4 or in Schedule 5, there are no claims or disputes under or in relation to them in respect of which the Company may have any liability exceeding K10,000.

Subsidiaries

11. The Company has no subsidiaries.

Accounts and Completion Accounts

12. The Accounts have been and, subject to the Accounting Principles, the Year End Accounts and the Completion Accounts will be, prepared in accordance with accounting principles and practices generally accepted in Papua New Guinea and the Accounts do and, subject to the Accounting Principles, the Year End Accounts and the Completion Accounts will, comply with the requirements of the Companies Act and all other applicable statutes and regulations.

Solvency

13. The Company satisfies the solvency test within the meaning of the Companies Act.

Taxation

14. Tax returns required by law to be lodged or filed by the Company have been duly lodged or filed.

15. All Taxes as at the balance date of the Last Financial Year (other than those which may still be paid without penalty or interest and which are disclosed in the Accounts or the Year End Accounts) payable by the Company have been paid or adequate provisions, reserves or accruals for their payment (whether or not assessed) have been made or provided for in the balance sheet appearing in the Year End Accounts of the Company for that year.

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Purchase and Sale Agreement

(Schedule 1 — Warranties)

16. To the best of the knowledge of the Vendor after reasonable investigation, there are no outstanding disputes or Tax audits by or with the Commissioner.

17. General of Taxation or any other authority or instrumentality or officer concerning the liability of the Company to any Tax.

Statutory Requirements

18. The Company has observed and complied in all material respects with the provisions of all laws and regulations the non-compliance with which may have a material adverse effect on the conduct of its business.

Legal Proceedings

19. To the best of the knowledge of the Vendor after reasonable investigation and except as disclosed in Schedule 5:

(a)	there is no suit, cause of action, proceeding, application, arbitration, claim or investigation current, pending or threatened in writing against the Company which may involve a claim for any judgment, decree, order or liability which is or may be materially prejudicial to the financial or trading condition or position of the Company;
(b)	no resolution has been passed for the winding up of the Company;
(c)	no resolution has been passed for the appointment of an administrator to the Company;
(d)	there is no unsatisfied judgment of a material amount against the Company; and
(e)	the Vendor is not aware of any facts, matters or circumstances which give any person the right to apply to wind up the Company or to appoint a controller, administrator, inspector or similar officer under the Companies Act in respect of the Company.

Employees

20. To the best of the knowledge of the Vendor after reasonable investigation, the Company has no material liabilities outstanding to its employees other than as disclosed in or taken into account in the Accounts or as will be disclosed in or taken into account in the Year End Accounts or the Completion Accounts.

Material Agreements

21. To the best of the knowledge of the Vendor after reasonable investigation, except as referred to in or contemplated by the Transaction Documents or as described in Part B of Schedule 4 or in Schedule 5, there are no material agreements relating to the business of the Company in respect of which the Company is in breach, or under which the Company is obliged to pay any amount or incur any liability exceeding K10,000 on termination or non-renewal, or which have an unexpired term exceeding 3 years from the Transfer Date. For the purpose of this warranty, States Leases and Commercial Leases do not constitute material agreements.

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Purchase and Sale Agreement

(Schedule 2 — List of approved auditors)

Schedule 2

List of approved auditors

PricewaterhouseCoopers
KPMG
Deloitte
Ernst & Young

Page 40

Purchase and Sale Agreement

(Schedule 3 — State Leases)

Schedule 3

State Lease and disclosures in relation to them

No	Name	Location	Region	COT	Landlord	Expiry	Rent	Underlying Interests	Comments
1	Lae Autoport (Coronation)	Lae	Mom/Hinds	Retail	State	8/3/2061	K2775	Unknown
2	Madang Autoport	Madang	Mom/Hinds	Retail	State	2/10/2052	K3940	Unknown	Part of the Madang terminal
3	Hohola Autoport	Port Moresby	NCD	Retail	State	2/7/2099	K3445	Unknown
4	Manu Autoport	Port Moresby	NCD	Retail	State	23/6/2064	K4320	Unknown
5	Waigani Autoport	Port Moresby	NCD	Retail	State	12/3/2090	K2550	Unknown
6	Badili Autoport	Port Moresby	NCD	Retail	State	11/3/2103	Nil	Unknown
7	Lae Installation	Lae	Mom/Hinds	Depot	State	28/2/2089	K16,795	Unknown
8	Madang Installation	Madang	Mom/Hinds	Depot	State	14/10/2052	K3,940	Unknown	Pipeline and hosting agreement with Mobil
9	Idubada Installation	Port Moresby	NCD	Depot	State	5/2/2095	K177	Unknown	Ongoing dispute with landowners. Pipeline agreement with Mobil
10	Kavieng Installation	New Ireland	NGI	Depot	State	25/2/2009 (Lot 8)	K50	Unknown	Pipeline lease @ K30.0 pa
						30/11/2003 (Lot 3)			The State Lease over Allotment 3 specifically provides that Lessee is not to assign or sublet the land without the Minister’s consent. Allotment 8 has no prohibitions specified in its State Lease.

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Purchase and Sale Agreement

(Schedule 3 — State Leases)

No	Name	Location	Region	COT	Landlord	Expiry	Rent	Underlying Interests	Comments
11	Rabaul Installation	Rabaul	NGI	Depot	State	12/01/2104	K4000	Unknown	Pipeline license agreement with Mobil
12	Kimbe Installation	Kimbe	WNB	Depot	State	15/3/2071	K1100	Unknown	Pipeline and hosting agreement with InterOil Products Limited
13	Wewak Installation	Wewak		Depot	State	Unknown	Unknown	Unknown
14	Michael Sapau- Momote Av	Manus	NGI	Agent	State	24/2/2011	K30	Unknown
15	Bindon Plantations-Hagen	Mt Hagen	Mom/Hinds	Agent	State	5/8/2086	K350	Unknown
16	Kagamuga Aviation	Mt Hagen	Mom/Hinds	Agent	State	22/2/2065	K775	Premises subleased to agent, Wamp Nga.

Page 42

Purchase and Sale Agreement

(Schedule 4 — Commercial Leases)

Schedule 4

Part A: Commercial Leases

No

Name

Location

Region

COT

Landlord

Comm

Expiry

Options

Index

Rent

Underlying Interests

Remarks

1

Faniufa Service Station

Goroka

Mom/Hinds

Retail

Obed Pupune

6/9/1993

5/9/2003

2X5

7% CPI

K25,246

Property is subleased to Bindon Plantations Pty Ltd. However, Bindon’s possession is on the basis of monthly tenancy as sublease term has expired.

SPNG may hold property on basis of monthly tenancy, with Lessor’s consent, upon expiry of Lease.

2

Goroka Autoport

Goroka

Mom/Hinds

Retail

Ela Motors

1/10/1997

29/9/2012

None

NA

K13,405

Ela Motors (BPT PNG Pty Ltd) is in possession of the premises pursuant to the unexecuted headlease.

Head Lease has not been executed. Lease provides that SPNG may hold property, with consent of Lessor, on basis of monthly tenancy after expiry of Lease. Lease also provides that BPT granted sublease over property simultaneously with execution of the Lease.

SPNG pays no rent, but receives netted off amount from sublease arrangements.

Page 43

Purchase and Sale Agreement

(Schedule 4 — Commercial Leases)

No

Name

Location

Region

COT

Landlord

Comm

Expiry

Options

Index

Rent

Underlying Interests

Remarks

3

Kainantu Service Station

Kainantu

Mom/Hinds

Retail

Tyofi Investments

1/7/2000

30/6/2005

3X5

7% CPI

K99,461

Property subleased back to Lessor for a term of 5 years, expiring 31 March 2004.

Ministerial approval of head lease not yet obtained due to Lands Department losing Land Admin File. (SPNG’s lawyers presently seeking to rectify this.)

SPNG may hold the property on a monthly tenancy after the expiration of the Lease.

The Lease provides that SPNG may not assign or sublease the land without the prior written consent of the Lessor, which the Lessor may give subject to certain conditions.

4

Kimbe — Ela Motors

Kimbe

NGI

Retail

Ela Motors

1/10/1997

30/9/2012

None

7% CPI

K5,743

Lease provides that SPNG will grant a sublease of the property to Ela Motors (BPT PNG Pty Ltd) simultaneously with the execution of the head lease. Ela Motors in possession of premises pursuant to unexecuted head lease.

Unexecuted Lease. Lease provides that SPNG may not assign Lease or sublet property without prior written consent of Lessor. Shell pays no rent it receives the netted amount off sublease

5

Talina Service Station

Kimbe

NGI

Retail

NGIP

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

see schedule 5

6

West New Britain AP

Kimbe

NGI

Retail

B&D Patiliu

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

see schedule 5

7

Bugandi Autoport

Lae

Mom/Hinds

Retail

Sambure Pty Ltd

18/4/1994

17/4/2009

1X5

7% CPI

k28,546

Unknown

SPNG may hold property on basis of monthly tenancy upon expiry of Lease.

Page 44

Purchase and Sale Agreement

(Schedule 4 — Commercial Leases)

No

Name

Location

Region

COT

Landlord

Comm

Expiry

Options

Index

Rent

Underlying Interests

Remarks

8

Four Mile Service Station

Port Moresby

NCD

Retail

Steamships Automotive P/L

1/1/2000

31/12/2002

1x3

7% CPI

K66,496

Premises are subleased to Kukundi Trading.

Lease provides that SPNG not to assign, part with possession of or sublease property without prior written consent of Lessor.

Provision for monthly rollover on expiry

To the best of my knowledge there is no formal lease agreement for this site. Due to the widening of the road part of this site (including a tank) is no longer on the property. Legal advice is currently being sought.

9

Konedobu Autoport

Port Moresby

NCD

Retail

Dadi Toka

10/4/1991

9/4/2011

2X5

CPI

K26,917

Unknown

Upon expiry, SPNG may hold property on a basis of monthly tenancy.

10

Highlander S/Station

Mt Hagen

Mom/Hinds

Retail

Moge Numbuga Milimb

1990

2010

Unknown

Unknown

Unknown

Unknown

Site reopened 21/10/2005. Rent now being paid.

11

Volcano Town (Turagil A/P — AQ Pty Ltd)

Rabaul

NGI

Retail

JD Enterprises

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Page 45

Purchase and Sale Agreement

(Schedule 4 — Commercial Leases)

No

Name

Location

Region

COT

Landlord

Comm

Expiry

Options

Index

Rent

Underlying Interests

Remarks

12

Mt Hagen

Mt Hagen

Mom/Hinds

Depots

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

13

Buka Aviation

Buka

NGI

Depots

OCA

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Situated on temp site

14

Kerema Aviation

Kerema

Papua

Depots

OCA

Unknown

Unknown

Unknown

Unknown

K392

Unknown

15

Tokua Airport

Kokopo

NGI

Depots

OCA

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Situated on temp site

16

Madang Aviation

Madang

Mom/Hinds

Depots

OCA

Unknown

Unknown

Unknown

Unknown

K552

Unknown

SPNG currently paying annual rentals to CAA however neither CAA or SPNG have copies of any lease.

17

Nadzab Airport

Nadzab

Mom/Hinds

Depots

OCA

Unknown

Unknown

Unknown

Unknown

K14,400

Unknown

SPNG currently paying annual rentals to CAA however neither CAA or SPNG have copies of the lease

18

Hoskins Airport

Hoskins

NGI

Depots

OCA

Unknown

Unknown

Unknown

Unknown

K4,650

Unknown

SPNG currently paying annual rental based upon a document referenced as 603 of which neither SPNG or CAA have copies.

19

Manus Aviation

Manus

NGI

Agents

CAA

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

20

Trans Melanesian Marine

Port Moresby

NCD

Agents

RPYC

1-Jul-95

30-Jun-20

none

none

K1,500

Unknown

The existing arrangements was established by way of a letter dated 8 June 1995. There was no formal agreement. 25 years rent was prepaid in 1995

21

Tabubil Airfield Company operated

Tabubil

Papua

Agents

OTML

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Not classified as an airfield and is admin by Lands Dept. No other details of SPNG tenure are known.

22

Kavieng Airport

Kavieng

NGI

Unknown

OCA

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

SPNG currently paying annual rental based upon a document referenced as 46/622 of which neither SPNG or CAA have copies.

Page 46

Purchase and Sale Agreement

(Schedule 4 — Commercial Leases)

No

Name

Location

Region

COT

Landlord

Comm

Expiry

Options

Index

Rent

Underlying Interests

Remarks

23

Wewak Av

Wewak

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Bought from Mobil — status of transaction unknown

24

Kiunga Airport

Kiunga

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Unknown

Page 47

Purchase and Sale Agreement

(Schedule 5 — Legal Proceedings)

				Max. Potential
Case	Address	Issue	Other Party	Liability		Provision?	Latest	Legal Firm Used	Outcome
PNG				$US’000		$US’000
Mobil Moitaka SC 767 of 2004 and WS 1442 of 1999	Port Moresby	SPNG taken to trial by Speko on the basis that they were misled by Shell in providing 15k worth of equipment towards a DODO site to be operated by Speko.	Speko		8	8 (contingent liability)	Speko won the court case and subsequent appeal by SPNG to the Supreme Court.	Posman Kua Aisi	supreme court ruled in favour of SPNG and dismissed Speko’s claims.
Manu/Gerehu	Port Moresby	Fairhaven ran two sites and racked up a debt after failing to pay rent and fuel	Fairhaven (Former dealer)		25	25 (Bad debt)	Fairhaven to be written off as bad debt. Directors have no assets (fully provisioned from 2003). US100k. Not worth pursuing and incurring legal costs.	Posman Kua Aisi
Waigani	Port Moresby	Narra as operator of Waigani on exiting site owed 25k for unpaid fuel and rent bills.	Narra (Former dealer)		8	8 (Bad debt)	Final documents being prepared for lawyers to press for full recovery of debt.	Posman Kua Aisi
Taraka	Lae	SPNG left site in mid 2001 before expiry of headlease at the end of 2001.Owner suing SPNG for damages to site and unpaid utility bills as well as loss of rent.	Site Owner (Details TBA)		15	No	Site owner wont allow SPNG on site to remove tanks. Requires all communications via lawyer.	Posman Kua Aisi
Hungo	Wewak	SPNG had a clause in the headlease arrangement with Francis Segenau to provide a 60m square shop. Hungo as operator brought out Segenau and took up the clause as well as claim for 26k for cost of site maintenance. Shell owed 14k in unpaid bills.	Hungo (Operator)		30	No	Intending to negotiate for tank cost replacement to settle out of court.	OBriens

Page 48

Purchase and Sale Agreement

(Schedule 5 — Legal Proceedings)

					Max. Potential
Case	Address		Issue	Other Party	Liability		Provision?		Latest	Legal Firm Used	Outcome
West New Britain Autoport WS No 1402 of 1999	Kimbe		Malama workshop was KDR’d on a verbal deal. Malama operated site then decided that they were the rightful leaseholders on the property and began paying a lease to Patiliu the landowners. SPNG had a tripartite agreement with the Patilius to lease the prope	Malama (former dealer)		15		15	Site currently shut. Court case complete and ruling made.	OBriens	Decision that Plaintiff’s lease with Patilius is valid and enforceable. Plaintiff is entitled to rental payments in the sum of K30, 732. Plaintiff is liable to the Defendant in the sum of K60,000 in compensation for demolition of old Service station; Defendent to deliver possession of the Service Station to the Plaintiff forthwith;
Idubada Landowner Claim		1996	Some people have claimed to be the owners of a few portions of the tank farm area. Any problem landowners need to be addressed to the State. The traditional ownership of all the portions are before the courts at the moment and there is an injunction in place restraining Shell from paying any money to any landowners (one of the portions is still customary land — the tank farm) until the ownership of the land is determined.	Other land owners		20		20	So called landowners are still disputing the property of the land. Ownership study may take more than a year.

Page 49

Purchase and Sale Agreement

(Schedule 5 — Legal Proceedings)

				Max. Potential
Case	Address	Issue	Other Party	Liability	Provision?	Latest	Legal Firm Used	Outcome
WS No 48 of 1997	Port Moresby	Action for breach of Agreement. The plaintiff claims that Shell offered it a lease of Popondetta Service Station on a number of conditions. Plaintiff accepted all the terms and conditions of the offer however Shell did not contact the Plaintiff again and engaged another party to operate the service station. Claim for K269,742.00 and interest and costs.	GG Trading Pty Ltd			Last document on file — notice of intention to defend filed on 28 January 1997	Gadens
WS No 1765 of 2000	Hohola	The plaintiff brings this action against the defendent for loss and damage suffered as a result of the defendant’s alleged unlawful termination of a service station lease (“the agreement”) it had signed with the defendant. Claimed K22,884.26 and K25, 769.82 in respect of the Shell Card System and damages, interest and costs	Midland Holdings Limited			Both parties issued notices for discovery in 2001 and nothing else appears to have happened.	Posman Kua Aisi
WS No 974 of 2001		The Plaintiff brings this action against the defendant for allegedly breaching the terms and condtions of a contract entered into by the parties for the provision of transport services. K58, 936.00 plus interest and costs	Corporate Transport Niugini Limited			In October of 2003 the defendents issued notices to produce documents and to admit facts but nothing has been filed in response.	Posman Kua Aisi
WS No 893 of 2004	Western Province	Action by the Plaintiff to recover principal debt of k19, 228 for stevedoring and wharf services rendered to the defendant. Claimed K19,228, interest and costs.	North Fly Development Corporation			Promise by Mr R. Peni on 15 Sept. 04 to settle debt. Affidavit of service filed 10/12/04 stating that Notice of motion for default judgement served on the Defendant. Nothing else has happened since then.

Page 50

Purchase and Sale Agreement

(Schedule 5 — Legal Proceedings)

				Max. Potential
Case	Address	Issue	Other Party	Liability	Provision?	Latest	Legal Firm Used	Outcome
WS No 1285 of 2004	Port Moresby	Action by the Plaintiff for wrongful termination by the Defendant.	Albert Frank Tulia			Matter currently on foot. List of documents filed on 29/03/05.	Gadens
WS No. 1290 of 2004	East New Britain	The Plaintiffs challenge the validity of the lease agreements entered into with the defendant while the Shell has filed a cross claim to recover unpaid rental and to remove the cross defendants (Plaintiffs) from the premises.	Joe Bakom and Talina Autoport Ltd			Notice of motion filed by SPNG’s lawyers for default judgement to be entered against Plaintiff’s on the cross-claim and for Plaintiff’s action to be dismissed.	OBriens

Page 51

Purchase and Sale Agreement
(Schedule 6 — Accounting Principles)

Schedule 6

Accounting Principles for preparation of the Completion Accounts

Part 1: General principles

The Completion Accounts must be prepared in accordance with the following accounting principles and methodology:

(a)	applying the principles, policies and rules set out in part 2 of this schedule;
(b)	subject to paragraph (a), in accordance with the accounting policies adopted by the Company in the preparation of its Year End Accounts, applied:

(i)	on a consistent basis and on the presumption that the Company continues as a going concern in the ordinary course; and
(ii)	consistently with the way they were applied in the preparation of the Year End Accounts; and

(c) having no regard to the transactions contemplated by this Agreement or any plans of the Purchaser after Completion.

Part 2: Specific principles

1. Net Current Assets shall be determined as follows:

(a)	Current assets, which shall be determined as per current practice in the Company’s management accounts and correspond to that figure calculated as the sum of that at lines 35 and 51 of the attached table 1, below (actual Q2, 05 shown as example only), MINUS
(b)	Current liabilities, which shall be determined as per current practice in the Company’s management accounts and correspond to that figure calculated at line 47 of the attached table 1, below (actual Q2, 05 shown as example only)

2. The quantity of Inventory for purposes of calculating Net Current Assets will be determined at 11:59 p.m. on the day before the Transfer Date based on a physical stock take as of such date.

(a)	Inventory, for purposes of this Schedule, means all stock-in-trade (including, but not limited to, refined petroleum products) in use or intended for use in connection with the Company’s business, including items owned or paid for by the Company which are in transit to the Company or on consignment with any customer of the Company.
(b)	The unit price of each item of Inventory will be determined on a first in first out basis based on the import parity price (within the meaning of the Domestic Supply Agreement between InterOil Limited and the Company) for lifting of such Inventory from InterOil Limited refinery located at Napa Napa in the Port Moresby National Capital

Page 52

Purchase and Sale Agreement

(Schedule 6 — Accounting Principles)

District and Central Province, Papua New Guinea, plus primary freight to seaboard terminals.

     Table 1: Company Management Accounts — Example

	Balance
Line Item	Sheet
4	USD mlns
5		Actual
6			2Q/2005
7
8	Fixed Assets		7.260
9
10	PP&E Opening Balance		25.715
11	Adj to OB		(0.181	)
12	PP&E Additions		0.032
13	PP&E Sales IG Transfers Other Movts		(4.915	)
14	PP&E CCTD Mov’t		(0.008	)
15
16	PP&E Closing Balance		20.643
17
18	Acc. Depn Opening Balance		(17.842	)
19	Adj to OB
20	Dep’n for the period		(0.286	)
21	Acc. Depn Other Movts/ Adjustments
22	Acc. Depn Disposals		4.740
23	Acc. Depn CCTD Mov’t		0.005
24
25	Acc. Depn Closing Balance		(13.383	)
26
27	Software Closing Balance		0.000
28
29	Stock		25.053
30	Trade Receivables		9.304
31	Intra Gp Receivables		0.261

Page 53

Purchase and Sale Agreement

(Schedule 6 — Accounting Principles)

	Balance
Line Item	Sheet
32	Deferred Charges & Prepayments	1.472
33	Deferred Tax	1.757
34
35	Current Assets	37.847
36
37	Third Party Payables	(2.819	)
38	FEC Reval’n
39	Interoil Creditor	(14.995	)
40	Accruals	0.000
41	IG Payables	(1.833	)
42	SCOA Payable	0.000
43	Payables Tax & Govt Duties	0.430
44	Provisions	(0.891	)
45	Taxation Payable	(1.584	)
46
47		(21.691	)
48
49	Working Capital	16.156
50
51	Cash at Bank	(0.767	)
52
53	Capital Employed	22.649
54
55	IG Financing — STCE
56
57	Other Long Term Assets
58
59	Net assets	22.649
60
61	Share Capital	4.879
62
63	Retained Earnings OB	41.456
64	Dividends
65	Other Movts
66	P&L for the period	2.482

Page 54

Purchase and Sale Agreement

(Schedule 6 – Accounting Principles)

	Balance
Line Item	Sheet
67
68	Retained Earnings CB	43.938
69
70	CCTD OB	(26.164	)
71	CCTD on Dividends
72	CCTD on Retained Earnings	(0.003	)
73
74		(26.166	)
75
76	Total Equity	22.651

Page 55

Purchase and Sale Agreement

(Schedule 7 — Premises (land demised from the State)

Schedule 7

Part A: Premises (land demised from the State)

No	Name
1	Lae Autoport (Coronation)
2	Madang Autoport
3	Hohola Autoport
4	Manu Autoport
5	Waigani Autoport
6	Badili Autoport
7	Lae Installation
8	Madang Installation
9	Idubada Installation
10	Kavieng Installation
11	Rabaul Installation
12	Kimbe Installation
13	Wewak Installation
14	Michael Sapau -Momote Av
15	Bindon Plantations-Hagen
16	Kagamuga Aviation

Purchase and Sale Agreement

(Schedule 7 — Premises (land demised from the State)

Part B: Premises (land demised from persons other than the State)

No	Name	Location
1	Faniufa Service Station	Goroka
2	Goroka Autoport	Goroka
3	Kainantu Service Station	Kainantu
4	Kimbe — Ela Motors	Kimbe
5	Talina Service Station	Kimbe
6	West New Britain AP	Kimbe
7	Bugandi Autoport	Lae
8	Four Mile Service Station	Port Moresby
9	Konedobu Autoport	Port Moresby
10	Highlander S/Station	Mt Hagen
11	Volcano Town	Rabaul
12	Mt Hagen Installation	Mt Hagen
13	Buka Aviation	Buka
14	Kerema Aviation	Kerema
15	Tokua Airport	Kokopo
16	Madang Aviation	Madang
17	Nadzab Airport	Nadzab
18	Hoskins Airport	Hoskins

Purchase and Sale Agreement

(Schedule 7 — Premises (land demised from the State)

No	Name	Location
19	Manus Aviation	Manus
20	Trans Melanesian Marine	Port Moresby
21	Tabubil Airfield Company operated	Tabubil
22	Kavieng Airport	Kavieng
23	Wewak Airfield	Wewak
24	Kiunga Airport	Kiunga

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for Premises)

Schedule 8

Part A: Environmental Program — Process

Figure 1: Environmental Process Overview

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for Premises)

Figure 2: Environmental Process Steps Summary

TIER 1

PRELIMINARY ENVIRONMENTAL ASSESSMENT

Tier 1 is a screening level assessment across the entire portfolio.

WHICH SITES: ALL sites must undergo the Tier 1 Assessment. Exceptions to this are sites that for various reasons proceed directly to Tier 2 (Business as Usual).

WHY: The purpose of the Tier 1 assessment is to identify the majority of likely environmental risks, and to rank relative site risk across the entire Emperor portfolio. Tier 1 also provides the basis for environmental due diligence disclosure.

WHAT: Tier 1 Assessment consists of the following mandatory activities:

• Complete a Preliminary Environmental Assessment (PEA) for all sites using information already available in the businesses;

• Apply an Emperor-specific risk-ranking tool comprising a two step filter to identify relevant environmental risks and rank all sites as High, Medium or Low;

• Identify any sites which are known or suspected not to comply with current environmental regulations, legislation or contractual agreements

• Review the results for each site and if appropriate revise the risk ranking.

• Identify any facilities where known or suspected issues or scenarios exist that may present higher risks than indicated by the PEA.

• Identify any sites where known information indicates a lower risk than indicated by the PEA (eg groundwater flows away from the nearby water source).

• Identify sites that are ranked high risk due to a lack of data in the PEA. IF the missing data can be obtained without using intrusive testing methods, consider obtaining the missing data and reviewing the ranking prior to proceeding to Tier 2.

• Compile all information suitable for data room and full disclosure.

HOW: The Tier 1 assessment must be completed as per the requirements defined below.

WHAT NEXT: After completing the Tier 1 Assessment, proceed to Tier 2 Assessment if the site is ranked HIGH risk. If the site is ranked MED or LOW, no further action is required.

TIER 2

DETAILED
ENVIRONMENTAL
ASSESSMENT

Tier 2 is a site-specific targeted assessment to improve the quantity and/or quality of information at particular sites, using intrusive testing of soil &/or groundwater

WHICH SITES: Tier 2 is completed only for HIGH risk sites, or sites that for various reasons were taken directly to physical testing rather than undergoing a Tier 1 assessment.

WHY: The purpose of the Tier 2 assessment is to reduce uncertainty associated with the environmental condition of particular sites. This will allow a more accurate estimate of environmental exposures.

WHAT: Tier 2 Assessment consists of any or all of the following activities as appropriate:

• Phase I environmental site assessment (ESA I) to determine the extent of soil and groundwater contamination;

• Phase II environmental site assessment (ESA II) to further define the extent of soil and groundwater contamination where existing data may be out of date or inadequate;

At the completion of these activities, the site risk ranking must be re-assessed based on the new data. Site contaminant levels are compared with relevant Screening Levels, taken generally from the industry recognised guidelines of the World Health Organisation, the Dutch standards and Australian and New Zealand Environment and Conservation Council (ANZECC). The references for the derivation of these screening levels are detailed below. The site will be given a Tier 2 risk ranking of High or Compliant.

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for Premises)

WHAT NEXT: After completing the Tier 2 Assessment, proceed to Tier 3 if the site is ranked HIGH risk. If the site is ranked Compliant, no further action is required.

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for Premises)

TIER 3

RISK
MANAGEMENT

Tier 3 is site-specific targeted risk management to ensure that Shell’s potential future environmental liabilities are appropriately managed for higher risk sites.

WHICH SITES: An Environmental Risk Management Plan (ERMP) must be developed for all HIGH risk sites, either as individual sites, or in bundles appropriate to the transaction. ERMP may also be developed for other sites where additional risk management is considered appropriate such as those sites which are key to the transaction or portfolio, or where equipment has failed an EIT or visual inspection.

WHY: The objective of Tier 3 is to manage environmental risks appropriately.

WHAT: The ERMP must include any or all of the following:

• Shell completes a detailed risk assessment and determines that the site may be transferred as is to the purchaser. Assessment is consistent with the international standard RBCA and follows the methods of the Australian Oil Industry Environmental Working Group (references below) ;

• Equipment integrity tests (EIT) to determine if installed underground equipment could be the source of the identified contamination

• Shell completes remediation of the site to a level suitable for continuation of the current use prior to handover;

• Shell completes remediation of the site after handover to a level suitable for continuation of the current usewith sufficient access provided by the new owner;

• The site is excluded from immediate disposal until Shell completes remediation of the site handover to a level suitable for continuation of the current use; and/or

• The site is compartmentalized (this may involve sub-division or other contractual agreements with the purchaser) to separate areas of High risk (e.g. off-site plumes) from areas of lower risk, and these High risk areas must be dealt with as described above.

HOW: The ERMP method is consistent with Australian Oil Industry Environmental Working Group guidelines.

WHAT NEXT: After completing the Tier 3 Assessment, proceed to transaction stage.

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Environmental Risk Ranking Tool Tier 1

RER (relative environmental risk)

= risk of SOURCE being present x risk of RECEPTOR being impacted

Risk of a significant SOURCE being present is represented by the Facility Index (FI)	Risk of a sensitive RECEPTOR being impacted is represented by Potential Consequence Index (PCI)
FI = probability of contamination x severity of contamination	PCI = probability of impacting a receptor x sensitivity of the receptor

Probability (FIP )		Consequence (FIC )		Probability (PCIP )		Consequence (PCIC )
How likely is it that		How severe is the		How likely is it that a		How severe is that
there is contamination		contamination likely		receptor is		impact likely to be
at the site?		to be?		impacted?		(how sensitive is the
						receptor)?
The following risk		The following risk		The following risk		The following risk
factors will be		factors will be		factors will be		factors will be
considered:		considered:		considered:		considered:
•	Pressure pipelines (age & condition)	•	Type of products stored at site	•	Depth to groundwater	•	Groundwater quality & use
•	UST /semi-buried tank (age & condition)	•	Throughput	•	Distance to surface water	•	Surface water quality & use
•	Historical losses			•	Soil type	•	Adjacent land use
•	Contamination					•	Reputation issues
•	Failed equipment

PEA Questionnaire for Tier 1 Tool (Filter 1) — choose the MOST correct response

Question		Responses for HIGH Risk		Responses for MED Risk		Responses for LOW Risk
FIP — How likely is it that there is contamination at the site?
•	What is the age & condition of any pressure pipelines at the site (including in off-site easements).	•	Pressure pipeline is > 10 years old and has not passed an integrity test in the last year	•	Pressure pipeline is > 10 years old but has passed an integrity test in the last year	• •	No pressure pipelines Pressure pipelines are known to be in good condition
		•	Pressure pipeline is known to be in poor condition or is not regularly inspected	•	Pressure pipeline is <10 years old
		•	Dont know
•	What is the age & condition of any UST, or semi-buried tank, and associated pipework at the site?	•	Oldest UST is > 20 years old and has not passed an integrity test in the last 2 years	•	Oldest UST is > 20 years old but has passed an integrity test in the last 2 years	•	No USTs
		•	Don’t know	•	Oldest UST is < 20 years
•	Has any equipment at the site failed an			•	Yes — the equipment was	•	No — all equipment has

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

	integrity test in the last 5 years? (including tanks, pipelines, drains etc, and including equipment which has since been repaired or replaced)				repaired or is still in use, and was not removed		passed integrity tests
				•	No — integrity tests have not been done on any equipment
				•	Yes — but the equipment was removed during replacement
				•	Don’t know
•	Is there any history of significant losses at the site (e.g. known LOC events, losses from WSM etc)	•	Yes — significant losses in the past 5 years	•	Yes — significant losses but more than 5 years ago	• •	No Don’t know
				•	Yes — but minor losses only
•	Is there any reason to suspect that soil or groundwater at the site, or off-site is contaminated?	•	Yes — environmental testing has confirmed presence of contamination (at any level)	•	Yes — but the contamination has previously been cleaned up	• •	No Don’t know
		•	Yes — contamination has been observed as significant surface staining or during other civil works, or as seepage after rain etc.
		•	Yes — unusual product odours have been noted which cannot be explained by normal site operations (e.g. venting, deliveries etc)
		•	Yes — liquid and/or solid wastes are known to be have been disposed on-site
		•	The site has experienced earthquakes in last 5 years
FIC — How severe is the contamination likely to be?
•	What type of products are currently stored at the site or have been stored at the site in the past?	• • •	Any product with MTBE Gasoline Other	• • •	Diesel /dieseline /gasoil Boatmix Kerosene	• • •	LPG Waste oil /used oil Packed products only
		•	Don’t know	•	Heating oil	•	Dry site
•	What is the total annual throughout at the site?	• •	> 4000 kL Don’t Know (Dist / Aviation)	• •	1000— 4000 kL Don’t Know (Retail)	• •	< 1000 kL Don’t Know (Comm/Marine)
PCIP — How likely is it that a receptor is impacted?

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

•	What is the depth to groundwater at the site?	• •	< 5m don’t know	•	5 — 15m	•	> 15m
•	What is the distance to the nearest surface water body (e.g. ocean, bay, harbour, river, creek, lake etc)	• •	< 100m don’t know	•	100m — 300m	•	> 300m
•	What is the main soil type beneath the site in the top 5m?	• •	Fractured rock Sand / coastal sediments	•	Silt, silty sands, sandy silts etc	• •	Silty clay, sandy clay Clay
		•	Gravel / cobbles	•	Clayey sands etc	•	Rock (unfractured)
		•	Fill / imported fill
		•	Don’t know
PCIC — How severe is that impact likely to be (how sensitive is the receptor)?
•	What is the quality of the groundwater beneath the site and what is it currently used for? (within 1000m radius of site)	•	Groundwater is currently extracted for some use (e.g. domestic use, stock watering, irrigation etc)	•	Groundwater is not currently extracted but it is of good or reasonable quality (i.e. not saline).	•	Groundwater has no current extractive use and is of poor quality (e.g. saline).
		•	Don’t know
•	What is the quality of the surface water closest to the site and what is it currently used for? (within 500m radius of site)	•	Surface water is currently used for swimming, near shore fishing or other recreational, tourist or food-based uses	•	Surface water is used for boating and aesthetic values only	•	Surface water has no specific use.
		•	Surface water is a recognised sensitive ecosystem (e.g. coral reefs etc)	•	Surface water is used for commercial fishing
		•	Don’t know
•	What is the use of the land adjacent to the site (on all four boundaries, or immediately across the adjacent roads)?	• •	Low rise residential Don’t know	• •	Recreational park School or child care	• •	High rise residential Crops or other farms, including market gardens
				•	Sensitive cultural or historical sites	• •	Sensitive habitats Commercial
						•	Industrial
						•	Vacant land
						•	Open space — no spec use
•	With regard to potential reputational risks, are there any sensitivities associated with the site in terms of local regulators, media or the community, or any environmentally related legal issues?	•	Yes			• •	No Don’t know

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Environmental Scoring and Risk Ranking Tool (Filter 1)

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for Premises

RER (relative environmental risk) = risk of SOURCE being present x risk of RECEPTOR being impacted

RER is scored in a scale of 1 — 25 with 1 being lowest risk, and 25 being highest risk.

HIGH risk is RER > 14; MED risk is 13 > RER > 4; LOW risk is RER < 5

The scores are a function of FI and PCI as follows.

5

5

10

15

20

25

4

4

8

12

16

20

PCI

3

3

6

9

12

15

2

2

4

6

8

10

1

1

2

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for Premises

Risk of a significant SOURCE being present is				Risk of a sensitive RECEPTOR being impacted is
represented by the Facility Index (FI)				represented by the Potential Consequence Index (PCI)
FI = probability of contamination (FIP)				PCI = probability of impacting a receptor
x severity of contamination (FIC)				x sensitivity of the receptor
FI is scored as 1, 2, 3, 4, 5, with 1 lowest risk, & 5				PCI is scored as 1, 2, 3, 4, 5, with 1 lowest risk, & 5 highest
highest risk. The scores are a function of FIP and FIC				risk. The scores are a function of PCI P and
as follows.				PCIC as follows.
		H				H
		3				3
		4				4
		5				5
			FIC				PCI C
		M				M
		2				2
		3				3
		4				4
		L				L
		1				1
		2				2
		3				3
		L				L
		M				M
		H				H
	FIP				PCIP
Probability (FIP)			Consequence (FIC)	Probability (PCIP)			Consequence (PCIC)

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for Premises

How likely is it that there	How severe is the		How severe is that impact likely
is contamination at the	contamination likely t•	How likely is it that a	to be (how sensitive is the
site?	be?	receptor is impacted?	receptor)?
Each of 5 risk factors will be scored as H, M, L based on defined criteria (see Table x).	Each of 2 risk factors will be scored as H, M, L based on defined criteria (see Table x).	Each of 3 risk factors will be scored as H, M, L based on defined criteria (see Table x).	Each of 4 risk factors will be scored as H, M, L based on defined criteria (see Table x).
FIP will be scored as H, M, L based on the following rules:	FIP will be scored as H, M, L based on the following rules:	PCIP will be scored as H, M, L based on the following rules:	PCIC will be scored as H, M, L based on the following rules:
•   H for 2 risk factor	•   H for 2 risk factor	•   H for 2 risk factor	•   H for any risk factor
means H for FIP	means H for FIC	means H for PCIP	means H for PCIC
•   H for 1 risk factor	•   H for 1 risk factor	•   H for 1 risk factor	•   M for any risk
means M for FIP	means M for FIC	means M for PCIC	factors means M for PCIC
•   M for 3 or more risk	•   M for 2 risk factor	•   M for 2 or 3 risk	•   L for all risk
factors means M for FIP	means M for FIC	factors means M for PCIP	factors means L for PCIC
•   M for 1 or 2 risk	•   M for 1 risk factors	•   M for 1 risk factors
factors means L for FIP	means L for FIP	means L for PCIP
•   L for all risk factors	•   L for all risk	•   L for all risk
means L for FIP	factors means L for FIC	factors means L for PCIP

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for Premises

Environmental Scoring and Risk Ranking Tool (Filter 2)

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for Premises

Filter 2 is applied to sites ranked as Medium or Low in Filter 1.

Facilities where at least one question in each of Group 1 AND 2 is answered ‘true’ are reclassified as High.

Group 1

A

B

C

none

none

a

b

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for Premises

If the answer to any question from Group 1 is ‘Yes’, AND the answer t•any question in Group 2 is also ‘Yes’,
then the site will be scored as High.

	Group 1		Group 2
	Probability of Contamination		Probability of Impacting Receptor
A.	Has had known losses or equipment failure reported	a.	Less than 100 m from surface water
B.	Has UST’s > 20 years of age and not passed integrity tests in the last two years	b.	Less than 5m above groundwater
	Sensitivity of Receptor	c.	Less than 100m from groundwater extraction well (any use)
C.	Is located where high value is placed on surface water or groundwater	d.	Where any one or more of a, b or c are UNKNOWN

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Management Review — Examples of issues that may allow for re-classification of site risk-ranking based on professional judgment.

RER (relative environmental risk)
Risk of a significant SOURCE being present		Risk of a sensitive RECEPTOR being impacted
Probability (FIP)	Consequence (FIC)	Probability (PCIP)	Consequence (PCIC)
How likely is it that there			How severe is that impact
is contamination at the	How severe is the	How likely is it that a	likely to be (how sensitive
site?	contamination likely to be?	receptor is impacted?	is the receptor)?
The following issues may be considered to confirm Tier 1 risk ranking results:	The following issues may be considered to confirm Tier 1 risk ranking results:	The following issues may be considered to confirm Tier 1 risk ranking results:	The following issues may be considered to confirm Tier 1 risk ranking results:

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

RER (relative environmental risk)
Risk of a significant SOURCE being present		Risk of a sensitive RECEPTOR being impacted
Probability (FIP)	Consequence (FIC)	Probability (PCIP)	Consequence (PCIC)
How likely is it that there			How severe is that impact
is contamination at the	How severe is the	How likely is it that a	likely to be (how sensitive
site?	contamination likely to be?	receptor is impacted?	is the receptor)?
•    Pressure pipelines (age & condition) — above ground pipeline with no observed losses, line has full automatic leak detection systems, line has recently been repaired etc. •   UST /semi-buried tank (age & condition) — tank is double walled with interstitial monitors, tank has automatic tank gauging which is known to be operated continuously, recent soil and groundwater testing has shown no concerns, tank has been relined, tank passed integrity test > 2 yr ago but has been continuously monitored since etc.	•   Type of products stored at site — historical product mix has changed etc •   Throughput — historical throughput has changed etc	•   Depth to groundwater — groundwater depth varies seasonally, groundwater is confined etc •   Distance to surface water — surface water body is known to be upstream of site or not connected to groundwater discharge from beneath site etc •   Soil type — soil type is known to be varied on—site or heterogeneous, preferential pathways are known to exist, clay liners or surface pavements are in use etc	•   Groundwater quality & use — extraction wells are known to be upstream or extracting from deeper unconnected aquifer or too far away to be of concern, groundwater quality is known to be very poor for other reasons, number of people using ground-water is known to be minimal or only ad hoc basis, wells are known to be out of use etc •   Surface water quality & use — surface water body is known to be well flushed, uses are known to be away from potential discharge points etc
•   Historical losses — losses are minor, have already been investigated etc. •   Contamination — contamination has already been investigated or is deemed minor or insignificant (include evidence supporting this judgement) etc •   Failed equipment — failure was with equipment unlikely to cause significant contamination, already repaired or remediated etc remediated etc			•   Adjacent land use — adjacent sensitive uses are known to be upstream or some distance from likely contamination sources, testing has confirmed no off-site migration or unlikely, presence of surface coverings, fences or other mechanisms would limit potential exposure, land use restrictions etc •   Reputation issues — site specific issues not considered relevant within context of overall deal etc

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Screening Levels for use in the Pacific Islands

Soil	•	Ministry of Housing, Spatial Planning and Environment, Environmental Quality Objectives in the Netherlands (2000) - Intervention Levels
	•	World Health Organisation (WHO) Guidelines for Drinking Water Quality (2003) – where groundwater is/may be extracted for drinking water
	•	Ministry of Housing, Spatial Planning and Environment, Environmental Quality Objectives in the Netherlands (2000) - Intervention Levels
	•	Australian and New Zealand Environment and Conservation Council (ANZECC) and Agricultural and Resource Management Council of Australia and New Zealand (ARMCANZ) Water Quality Guidelines for Fresh and Marine Waters (2000) – for compounds/water usage where screening levels are not available in the WHO Guidelines
Management Planning	Assessment and management planning undertaken consistent with AOIEWG and RBCA.
	•	Australian Oil Industry Environmental Working Group (AOIEWG) Guidelines for the Management of Petroleum Hydrocarbon Impacted Land (1999) – adaptation of Figure 3.1: Exposure Pathway Checklist
	•	Risk Based Corrective Action (RBCA): American Society for Testing and Materials (ASTM), November 1995. Standard guide for risk-based corrective action applied at petroleum release sites. ASTM E 1739-95, West Conshohocken, PA.

Exclusions

There may be some cases where the policy cannot be readily applied. These are likely to include:

1.	equipment ownership is unclear
2.	site is owned by a third party suitable access to complete works is not granted
3.	sites that are exceptionally remote
4.	locations posing high safety or security risks for Shell or contractors

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Part B: Sites

Site number	Site Name
444	Clough Niugini Limited
445	Hornibrook NGI Ltd — POM
446	Andersons Foodland (Butcher’s Shop) — Madang
447	Associates Mills Ltd — Lae
448	Associates Mills Ltd — POM
449	Avis Rent a Car Limited — Hoskins
450	Bank of South Pacific — POM
451	Baptist International Mission
452	Barclays Bros (PNG) Ltd
453	Best Buy Super Market
454	Bismark Industries — Madang — Uligan
455	Bismark Industries — Silovuti
456	Brent Bino
457	British American Tobacco (PNG) Ltd
459	Catholic Diocese Wewak
460	Catholic Mission Arhdiocese — Madang
461	Catholic Mission Kiunga
462	Christian Light Training Centre
463	Coconut Products — Gunanur Plantation
464	Coconut Products — Taboona
465	Coconut Products — Tobi Mill
466	Coconut Products — Ulaveo
467	Coconut Products — Vunabang
468	Colorpak Pty Ltd
469	Concord Pacific Ltd
470	Curtain Brothers PNG Ltd — Kaivuna (Rabaul)
471	Curtain Brothers PNG Ltd — Raburua ( Kokopo)
472	DCA — Tokua Rabaul
473	Dekanai Construction LTD — Kundiawa
474	Dekanai Constructions LTD — Goroka
475	Dekanai Constructions LTD — Hagen
476	Dekanai Constructions LTD — Kundiawa

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Site number	Site Name
477	Dekanai Constructions LTD — Lae
478	Dekanai Constructions LTD — Upulima
479	Delta Kikori Pty Ltd
480	Department of Works — Madnag
481	East New Britian Port Services
482	Garamut Enterprises (Sepik Coastal)
483	Garden Service Station
484	Garom Timber
485	Gazelle Restoration Authority
486	Guard Dog Security — Lae
487	Gum Trading
488	H.T.T.C
489	Hamamas Hotel
490	Hastings Deering (PNG) Ltd — Lae
491	Hastings Deering (PNG) Ltd — POM
492	Highlands Pacific
493	IBSA of PNG Incorporated — Shellcard
494	Ilimo Poultry Products Ltd
495	International Food Corp Ltd
496	John Talwart
497	Jomba Store
498	Kabuga Trading
499	Kiripia Catholic Church
500	Kiunga fuel Distributors Limited
501	Koibuga Services Station
502	Kokopo Village Resort Rabaul
503	Lamana Motel Ltd
504	M & C Seeto — Rabaul
505	Macoes (PNG) Limited
506	Madang Country Club Inc
507	Madang Timbers Ltd — Erima (Madang)
508	Madang Timbers Ltd — Madang
509	Madang Timbers Ltd — Sogeram (Madang)
510	Metals Refining Operations Ltd
511	Moore Business Systems Ltd

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Site number	Site Name
512	Mountain Fuel Freigthers Ltd — Lae
513	Mountain Fuel Freigthers Ltd — Mt Hagen
514	National Capital District Commission
515	NG Island Produce
516	Ningerum Transport Ltd
517	Niolam Security Takubar- Rabaul
518	North Fly Rubber Ltd
519	O.K. Corporation
520	OPIC Bialla
521	OPIC Nahavio
522	Pacific Industries — Rabaul
523	Pacific Wood contractor
524	Papindo — Takubar (Rabaul)
525	Paul Pupu
526	Placer PNG Ltd
527	PNG Coconut Commodities Ltd
528	PNG Maritaime College
529	PNG University of Technology
530	PNGCC
531	Port Moresby Transport Ltd
532	Progress Ltd
533	Protect Security & Communication Ltd
534	R. Imaroto
535	Ramu Sugar Limited — Leron
536	Ramu Sugar Limited — Gusap
537	Ramu Sugar Limited — Gusap Downs
538	Ravalley Transport — Ramale, Rabaul
539	RD Fishing — Madang Cannery
540	RD Fishing — Vidar
541	Rumion Pty Ltd
542	Shorncliffe (PNG) Ltd — Nazab
543	Shorncliffe (PNG) Ltd Highlands — Mt Hagen
544	Shorncliffe (PNG) Ltd (Takubar) Rabaul
545	Shorncliffe (PNG) Ltd (Warongoi) Rabaul
546	So Tech Engineering — Takubar (Rabaul)
547	South Pacific Brewery Ltd Lae

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Site number	Site Name
548	SPI (208) Limited
549	Starwest Construction Ltd
550	Sunrise Group of Companies
551	Swiss Mission
552	Talita Service Station
553	Tanam Store
554	Tavilo Timbers
555	Togoba Service Station
556	Tokua Plantation — Rainau, Rabaul
557	Tolukuma Goldmines Limited — Camp 38
558	Tropicana
559	Voco Point Trading Ltd — Voco Point
560	Voco Point Trading Ltd — Market Shop
561	W R Carpenters
562	Wadau Service Station
563	Wamp Nga Holdings Limited -Mt Hagen (Kiminiga Lodge)
564	Wamp Nga Holdings Limited — Petrohaul (Lae)
565	Andersons Foodland Kokopoo
566	Atlas Steel Ltd
567	Avis Rent a Car Limited — POM
568	Curtain Brothers PNG Ltd — Motukea
569	Dekenai Constructions Ltd — POM
570	Douglas Properties
571	Downer Construction PNG Ltd (Now Omni)
572	Hebou Constructions Ltd
573	Hohola Supermaket Limited
574	Hugo Canning Company Ltd
575	J D Hayes Ltd
576	Ling’s Freezer — Rabaul
577	Loloata Island Resort Ltd
578	Nings Agencies
579	Northern District Sawmilling
580	Port Moresby Golf Club inc
581	Rouna Quarries
582	South Pacific Brewery Ltd — POM

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Site number	Site Name
583	Spic-N-Span Ltd
584	TNT Air Cargo
585	Tolukuma Goldmines Limited — Tolukuma Minesite
586	Woo Textiles
587	ACHU (FANGALAVA) Kavieng
588	Armsec
589	Coconut Oil Production Madang
591	District Administration Residence Namatanai
592	East West
593	Fisoa Technical School
594	GFI Lae
595	Gazelle Restoration Authority Rabaul
596	Higlands Kainantu Ltd Ramu
597	Huris Namatanai
598	John Palang Rabaul
599	Kavieng Power House
600	Konos Sub District New -Ireland
601	Kulau Lodge Beach Resort Rabaul
603	Mungop High School Kavieng
604	Namatanai Thermal
605	Plant and Transport Pool Kavieng
606	RD Canning Factory Madang
607	Smugglers Inn Madang
608	Sohun Hydro Power Station Namatanai
609	Spirit of Kokopo Rabaul
610	Steamships (Port services) Kavieng
611	Unitech Lae
612	Works and Supply (PTB) Madang
613	Works Department Transport Pool Namatanai
614	Works Dept Laydown /Storage yard Kavieng
615	Air Nuigini (Ground Transport)
616	Bomana Pumping Station (Water Supply)
617	Cameron Cousins
618	Goodman Fielder International
619	Hari Pty Ltd

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Site number	Site Name
620	Hideaway Hotel
622	Omni Limited
623	TGM
624	Curtain Brothers Dockyard
625	Mis Trading Ltd — Sagalau (Madang)
626	Tavilo Timber — Keravat, Rabaul
627	Kiunga Stevedoring Co — Kiunga
628	Tabubil — Tabubil (Western Province)
629	Kiunga — Kiunga (Western Province)
630	SHELL POKAPIN — Lorengau (Manus Province)
684	Wewak Terminal
695	Port Moresby Yacht Club
696	RD Canning — Vidar Plantation Madang
753	SHELL AQ
754	SHELL BADILI — Hubert Murray H’way, Badili (National Capital District)
755	SHELL BOROKO — Hubert Murray H’way, Boroko (National Capital District)
756	SHELL BUGANDI — Highlands Highway, Lae (Morobe Province)
757	SHELL CORONATION — Coronation Drive, Lae (Morobe Province)
758	SHELL ELA HAGEN — Highlands H’way, Mt Hagen (Western Highlands Province)
759	SHELL FANIUFA — Highlands H’way, Goroka (Eastern Highlands Province)
760	SHELL GATEWAY — Hubert Murray H’way, Jacksons Airport (National Capital District)
761	SHELL GEREHU — Hubert Murray H’way, Gerehu Airport (National Capital District)
762	SHELL GORDONS — Hubert Murray H’way, Gordons (National Capital District)
763	SHELL GOROKA
764	SHELL HIGHLANDER — Highlands H’way, Mt Hagen (Western Highlands Province)
765	SHELL HOHOLA — Hubert Murray H’way, Hohola (National Capital District)
766	SHELL KAINANTU — Highlands H’way, Kainantu (Eastern Highlands Province)
767	SHELL KIMBE — Kimbe (West New Britian Province)

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Site number	Site Name
768	SHELL KONEDOBU — Hubert Murray H’way, Konedobu (National Capital District)
769	SHELL MADANG (SEA BREEZE) — Modilon Road, Madang (Madang Province)
770	SHELL MANU — Gavamani Road, Korobosea (National Capital District)
771	SHELL PIUNDE — Highlands H’way, Kundiawa (Simbu Province)
772	SHELL TALINA — Williams Road, Kokopo (East New Britian Province)
773	SHELL WAIGANI — Waigani Drive, Waigani Drive (National Capital District)
774	SHELL AITABU
775	SHELL BUMAYONG — Bumayong Road, Bumayong, Lae (Morobe Province)
776	SHELL LEONG MANG
777	SHELL LONIU BRIDGE
778	SHELL NAVUNARAM
779	SHELL NEW CAMP — Bulolo (Morobe Province)
780	SHELL OMORONG — Williams Road, Kokopo (East New Britian Province)
781	SHELL REGENT — Kavieng (New Ireland Province)
782	SHELL WAMPS DRIVEWAY
783	Kwikila — Magi Highway, Kwikila (Central Province)
784	Gazelle Service Station — Sulphur Creek Road, Rabaul (East New Britian Province)
785	Dobel — Highlands H’way, Mt Hagen (Western Highlands Province)
786	Ela Madang — Madang (Madang Province)
787	Ela Haus Bensin — Modilon Road, Madang (Madang Province)
788	WNB — Kimbe (West New Britian Province)
789	Amala Service Station
831	Idubada Terminal
832	Kavieng Terminal
833	Kimbe Terminal
835	Lae Terminal
839	Lorengau Depot (Manus Is)
840	Madang Terminal

Purchase and Sale Agreement

(Schedule 8 — Environmental assessment program for
Premises

Site number	Site Name
842	Mt Hagen Depot
847	Rabaul Terminal
857	Goroka Depot
858	Kainantu Depot
859	Taraka Service Station
861	Buka
862	Hoskins
863	Kagamagu
864	Kerema
865	Kavieng
866	Madang
867	Tabubil
868	Tokua
869	Wewak
870	Kiunga
872	Nazdab (Lae)
873	Tolokuma Airport

Purchase and Sale Agreement

(Schedule 9 — Branding and Debranding program

Schedule 9

Debranding and Rebranding Program

The Vendor and the Purchaser undertake to jointly develp a comprehensive debranding and rebranding program prior to Completion. The program will detail site-by-site de- and re-branding requirements.

The Purchaser will undertake the debranding and rebranding program during the 6 months’ period after Completion, where all Shell Group signage and livery will be removed and replaced with InterOil Group signage and livery.

The debranding and rebranding costs of this program will be shared on the following basis:

“Acrylics”: (physical signage) and pumps:
	-	Labour costs to be shares, including travel and accommodation
	-	New Signage / hardware to be the Purchaser’s account
Plant / Livery:
	-	Labour costs to be shared, including travel and accommodation
	-	Paint
		*	undercoat to be to the Vendor’s account
		*	overcoat / new colours to be the Purchaser’s account

Without limiting Clause 14, if any remaining Shell Group signage or livery remains at or on any sites after the end of the 6 months’ period referred to above, the Vendor, at its absolute discretion and on the cost basis described above, will be granted access to remove all remaining Shell Group signage and livery at all retail, commercial and distribution sites as identified in the debranding and rebranding program.

Purchase and Sale Agreement

(Schedule 10 — Economic Return

Schedule 10

Economic Return in respect of any Premises is to be determined by reference to the average monthly volume of fuel sold during the most recent period of 12 months’ continuous operation of the applicable Premises.

Purchase and Sale Agreement

Executed as an agreement.

Each attorney executing this Agreement states that he or she has no notice of revocation or suspension of his or her power of attorney.

Signed for Shell Overseas Holdings
Limited by its attorney under power of
attorney dated          2005 in the
presence of:

/s/ Ann Darioli	/s/ Peter John Weston
Witness Signature	Attorney Signature
Ann Darioli	Peter John Weston
Print Name	Print Name

Executed by InterOil Products Limited

/s/ Christian Vinson	/s/ Peter Diezman
Director Signature	Director/Secretary Signature
Christian Vinson	Peter Diezman
Print Name	Print Name

Signed for InterOil Products Limited
by its attorney under power of attorney
dated          2005 in the
presence of:

Witness Signature	Attorney Signature
Print Name	Print Name

EX-99.8

12 August 2005

E.P.  InterOil, Ltd
C/o InterOil Australia Pty Ltd
PO Box 6567
Suite 2, Level 2 79-87 Abbott Street
Cairns QLD 4870
Australia

Attn: Mr Christian Vinson, Chief Operating Officer
Mr Tom Donovan, Chief Financial Officer

Dear Sirs

RE: USD 150,000,000.00 (UNITED STATES DOLLARS ONE HUNDRED AND FIFTY MILLION ONLY) SECURED REVOLVING CRUDE OIL IMPORT FACILITY

We, BNP PARIBAS, Singapore branch (the “Bank”) are pleased to offer you the following credit facilities (the “Facilities”) up to a maximum of USD 150,000,000.00 (United States Dollars One Hundred and Fifty Million Only) subject to the terms and conditions contained in this letter (the “Letter Agreement”) and the Standard Terms and Conditions Governing Banking Facilities (Ref: BNPP 11/2004-GeneralCorp-EPI Modified) together with the Addendum thereto (as may be ammended, revised or supplemented from time to time) attached hereto (collectively, the “Standard Terms”) as attached in Schedule 1 of this Letter Agreement.

The terms and conditions of this Letter Agreement shall, with effect from the date of receipt by the Bank of the Borrower’s acceptance of this Letter Agreement, substitute those terms and conditions in the Letter Agreement dated 31 May 2004 as supplemented from time to time (the “Previous Facility Letter”). In the event that this Letter Agreement is not accepted or lapses and is not extended by the Bank, the terms and conditions in the Previous Letter Agreement shall continue to apply, save for any revision or amendments to the Interest Rate and any reduction in the amount of the Facilities as stated herein.

1.	Borrower
	E.P.  InterOil, Ltd C/o InterOil Australia Pty Ltd PO Box 6567 Suite 2, Level 2 79-87 Abbott Street Cairns QLD 4870 Australia
	(the “Borrower”)
2.	Amount
	USD 150,000,000.00 (United States Dollars One Hundred and Fifty Million only), subject to the Price Escalation Provision defined in Clause 10(a) below.
3.	Facilities
	The purpose of the Facilities is to finance the Borrower’s ongoing purchase of crude oil/petroleum products pre-sold to InterOil Limited (the “Refiner” or “IOL”), including related hedging requirements. The Refiner will process the crude oil into petroleum products (the “Products”) in its refinery located at Napa Napa, Fairfax Harbour near Port Moresby, Papua

BNP PARIBAS Incorporated in France with Limited Liability
20 Collyer Quay, Tung Centre, Singapore 049319. Tel: (65) 6210 1288 Fax: (65) 6224 3459
Registered Office: 16, bid des Italiens, 75009 Paris, France - 662 042 449 RCS Paris - www.bnpparibas.com

1

New Guinea (the “IOL Refinery” which expression shall include all storage facilities located therein). The Products will be subsequently sold to:

(i)	all distributors in the Independent State of Papua New Guinea (the “State”) that distribute the petroleum products (the “Products”) to retailers of the Products.
(ii)	The Borrower under the IOL Export Contract.

The Facilities comprise the following:

Facility 1:

USD120,000,000.00 (United States Dollars One Hundred and Twenty Million only) for the issuance of documentary letters of credit and / or stand by letters of credit (each an “LC” and collectively “LCs”) (maximum payment terms of 30 days after bill of lading), followed by secured loans in the form of short-term advances and advances on merchandise (“AOM”) (collectively, the “Short Term Loans”). The maximum tenor for each Short Term Loan to which an LC relates, shall not exceed 60 days from the date of the first Advance under such Short Term Loan (“Maturity Date”).

Sublimit under Facility 1: USD 6,500,000.00 (United States Dollars Six Million Five Hundred Thousand only) for Hedging Transactions via BNP Paribas Energy Indexed Transaction Group or other acceptable counter parties

Issuance of standby letters of credit (“SBLC”) and / or bank guarantees to cover hedging transactions with acceptable counter parties (max tenor: 9 months) to protect the refinery margins and / or such other accommodation (including but not limited to commodity derivatives facility). Subject to clause 20(a), any commodity derivatives facility may be granted by the Bank through its New York facility office (or such other facility office as the Bank may select) and shall be subject to such further documentation as may be required by such facility office.

Facility 2:

USD 40,000,000.00 (United States Dollars Forty Million only) for fully cash-secured short term advances and for discounting of any monetary receivables acceptable to the Bank.

The purpose of Facility 2 is for:

(a) the extension of cash-secured short-term advances (“Advances”) on a fully cash-covered basis at the sole discretion of the Bank for such period(s) as the Bank may deem fit, provided that the Bank is in full receipt of additional pledged cash deposits equivalent to 100% of such Advance made by Interoil Corporation, to be utilised to refinance any outstanding under Facility 1. Such additional pledged cash deposits shall be subject to the Charge on Cash Amounts dated 31 May 2004 executed by IOC in favour of the Bank and placed in such account(s) of IOC as the Bank may deem fit; and

(b) the discounting of any monetary receivables (“Discount”) arising pursuant to or in connection with the SIETCO Export Contract and the SIETCO Naphtha Contract, or such other sales contracts which are acceptable to the Bank.

Provided That the maximum aggregate principal outstandings under the Facilities shall not at any time exceed USD150,000,000.00 (United States Dollars One Hundred and Fifty Million only).

Without prejudice to the foregoing discretion of the Bank and to the Bank’s right of review under any other provision herein, it is hereby acknowledged, agreed and accepted by the Borrower that the credit limit, nature and purpose of the Facilities granted herein, or any part

2

	thereof, may be reduced, increased added to or otherwise adjusted and reviewed by the Bank from time to time at the Bank’s sole and absolute discretion (whether pursuant to the Borrower’s request or otherwise and whether subject to such additional collateral pricing and conditions as the Bank may deem fit to impose) (the “Adjustment”). Accordingly, any notice issued by the Bank to the Borrower advising on an Adjustment shall take effect in accordance with such notice (which is in any event, no later than thirty (30) days from the date of such notice, unless otherwise agreed by the Bank and the Borrower in writing), which shall be fully binding upon the Borrower and automatically constitute a supplement to this Letter Agreement upon such issuance by the Bank.
	In the event of any reduction in the credit limit of the Facilities or any part thereof pursuant to an Adjustment, the Borrower undertakes to make such repayment of the outstandings under the Facilities as the Bank may require to comply with the reduced credit limits. In the event of any increase in the Facilities or any part thereof or any additional credit limit granted pursuant to an Adjustment, the grant and utilisation of such increased or additional credit limit shall be subject to the terms and conditions of this Letter Agreement. The Borrower further undertakes to comply with the additional collateral and conditions imposed by the Bank in the said notice relating to an Adjustment provided that any additional collateral to be given shall be subject to the Inter-creditor Deed (defined below).
4.	Commission & Charges
	The Borrower shall pay to the Bank the fees set out in the fee letter of the even date issued by the Bank together with this Letter Agreement (the “Fee Letter”). The Borrower’s acceptance of this Letter Agreement shall be deemed as also acceptance of the Fee Letter.
5.	Interest for Short Term Loans
(a)	The rate of interest applicable to any Advance under the Short Term Loans during each Interest Period relating thereto shall be 2.5% per annum above LIBOR. Interest on each Advance shall be payable at the end of such Interest Period to which that Advance relates.
(b)	The Interest Period for each Advance under the Short Term Loans to which an LC relates, shall be 1 (one) week, or any other period as notified by the Borrower to the Bank in writing not less than 2 (two) Business Days prior to the date of drawing or (as the case may be) expiry of the current Interest Period and agreed by the Bank. Any Interest Period of any Advance under a Short Term Loan to which an LC relates which ends after the Maturity Date of that Short Term Loan or which ends after the Demand Date, shall be automatically abridged to end on the earlier of that Maturity Date of that Short Term Loan or (as the case may be) the Demand Date.
(c)	All interest (including default interest) shall be calculated on the basis of a year of 365 days for Singapore Dollar and Sterling Pound, and on the basis of a year of 360 days for all other currencies.
	“LIBOR” means, in respect of any interest period or other period and in relation to any Advance or unpaid sum, the rate per annum determined by the Bank to be the rate which appears under the Reuters “LIBOR01” or Telerate “Page 3750” (or such other page or service as may replace the Reuters, Telerate or such other system) at or about 11 am, London time, two (2) London Business Days prior to the commencement of such interest period or other period.
	In the absence of the above mentioned rate for determining LIBOR and at the Bank’s sole discretion, “LIBOR” means, in respect of any Interest Period or other period and in relation to any Advance or unpaid sum, the rate per annum determined by the Bank to be the rate at which deposits denominated in the currency of the Advance or unpaid sum for the relevant Advance or other such sum (as the case may be) were offered to the Bank by leading banks in the London

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	Interbank Market at or about 7 pm, Singapore time, two (2) Business Days prior to the commencement of such Interest Period or other period.
5A.	Interest for Advances and Discounts under Facility 2
(a)	The rate of interest applicable to any Advance under Facility 2 during each applicable Interest Period relating thereto shall be LIBOR. The rate of interest applicable to each Discount under Facility 2 shall be 0.50% per annum above LIBOR calculated on the amount of the relevant Receivables for the period commencing on the proposed value date of the discounting until the date of actual receipt by the Bank of full payment of the Receivables from the relevant counterparty. Interest on each Advance under Facility 2 shall be payable at the end of such Interest Period to which that Advance relates. Interest and fees from each Discount may either be (1) deducted upfront from the funds made available by the Bank under the relevant Discount; or (II) from the proceeds of the Receivable received from the relevant counterparty, such deduction to be made at the Bank’s sole discretion.
(b)	The Interest Period for each Advance under Facility 2 shall be 1 (one) week, or any other period as notified by the Borrower to the Bank in writing not less than 2 (two) Business Days prior to the date of drawing or (as the case may be) expiry of the current Interest Period and agreed by the Bank.
6.	Currency
	In United States Dollars (USD) only.
7.	Availability and Tenor; Repayment
(a)	The Facilities shall be available from the date of acceptance hereof subject to fulfilment of all conditions precedent and Clause 10 until 30 June 2006 (the “Availability Period”). No drawings or utilisation shall be permitted after the Availability Period. Notwithstanding the foregoing, the Bank may within its sole discretion decide whether to extend the Availability Period. For the avoidance of doubt, any utilisation under the Facilities requested within the Availability Period but which has a maturity date ending beyond the Availability Period shall, subject to the terms of this Letter Agreement, be permitted so long as that utilisation is fully repaid by such maturity date.
(b)	Without prejudice to the Bank’s right of review:

(i)	the Borrower shall repay each Advance under the Short Term Loans on the last day of the Interest Period relating to that Advance together with all unpaid interest accrued on that Advance, unless otherwise earlier demanded by the Bank in which event the Borrower shall pay such Advance upon such demand (the “Demand Date”). Any Advance so repaid prior to the Maturity Date of the Short Term Loan to which such Advance relates, may be reborrowed during the Availability Period subject to fulfilment of the conditions in Clause 10(b) which shall apply to such reborrowing; and
(ii)	all outstandings under the Facility 1 (other than the Short Term Loans ) shall mature and be repayable upon the respective maturity dates, being (in relation to each transaction financed and LC issued) on later than 90 days from bill of lading date to which that LC relates. No amount repaid may be reborrowed.
(iii)	the Borrower shall repay each Advance under Facility 2 on the last day of the Interest Period relating to the Advance, unless otherwise earlier demanded by the Bank in which case the Borrower shall pay such Advance on the Demand Date. Any amount repaid may not be reborrowed.

(c) No later than 3 months before the end of the Availability Period, the Bank and the Borrower shall meet to consider and discuss the renewal of the Facilities for another 12 months beyond

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the Availability Period and the Borrower and the Bank shall endeavour to reach such an agreement no later than 1 month prior to the end of the Availability Period.

(d) Notwithstanding any provision to the contrary herein, nothing herein shall oblige the Bank to grant or continue to grant the Facilities unless the Bank in its sole discretion agrees. The Facilities granted herein shall be deemed to be granted on a fully uncommitted basis. In particular but without prejudice to the foregoing, each utilisation under the facilities for any transaction is subject to the Bank’s approval of that transaction.

8. Review

Notwithstanding any other provisions to the contrary, the availability of the Facilities and the terms and conditions described herein are subject to the Bank’s periodic review and the Facilities may be immediately cancelled in writing at the Bank’s sole discretion. Upon any cancellation of the Facilities, whether pursuant to a review or otherwise, the Bank may by notice in writing to the Borrower.

(a)	declare all or any part of the unutilised portions of the Facilities to be immediately cancelled whereupon they shall become so cancelled;
(b)	declare all or any part of the amounts outstanding under such Facilities to be immediately due and payable whereupon they shall become so due and payable;
(c)	enforce its rights under any security documents; and/or
(d)	if the Bank’s obligations under any notes or bills (accepted, endorsed or discounted), bonds, guarantees, indemnities, documentary or other credits or any instruments issued by the Bank have not been fully discharged, require the Borrower to immediately pay to the Bank such amount of monies as may be necessary to enable the Bank to apply the same to obtain a full discharge of its liabilities, actual or contingent, under such notes, bills, bonds, guarantees, indemnities, documentary or other credits or any instruments.

9. Security; Collateral and Security Margin

The Facilities shall be secured by the following Security Documents (and consents, notices or acknowledgements required thereunder), each duly executed by relevant parties thereto in form and substance satisfactory to the Bank:

From the Borrower

(a)	Deed of Charge (limited debenture) dated 9 June 2004.
(b)	Deed of Assignment of Proceeds dated 9 June 2004 in respect of:

(i)	hedging contracts between the Borrower and acceptable counter parties for the protection of the refinery crack spreads (the “Hedging Contracts”), including all proceeds thereunder;
(ii)	crude oil sale and purchase contracts between the Borrower (as seller) and the Refiner (as buyer) dated 31 May 2004 (the “IOL Crude Oil Contract”), including all proceeds thereunder,
(iii)	petroleum products sale and purchase contract between the Borrower (as buyer) and the Refiner (as seller) dated 31 May 2004 (the “IOL Export Contract”), including all proceeds thereunder.
(iv)	Export Marketing and Shipping Agreement between the Borrower and Shell International Eastern Trading Company dated 23 March 2001 (the “SIETCO Export Contract”), including all proceeds thereunder.

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(v)	Agreement for the Sale and Purchase of Naphtha between the Borrower and Shell International Eastern Trading Company dated 8 February 2001 (the “SIETCO Naphtha Export Contract”) including ail proceeds thereunder,
(vi)	all other sale contracts entered into by the Borrower with any other buyers, in respect of the Products, including all proceeds thereunder.

(c) Charge On Cash Amounts dated 9 June 2004 on all account(s) held by the Borrower with the Bank, including but not limited to the EPI Collection Account and the EPI Security Margin Account.

From InterOil Limited (“IOL”)

(d)	Corporate guarantee from IOL
(e)	Mortgage of Contractual Rights in respect of;

(i)	the Domestic Sales Contract between the Refiner and Shell Papua New Guinea Limited dated 9 April 2001 (the “Shell Domestic Contract”), including all proceeds thereunder.
(ii)	the Domestic Sales Contract between the Refiner and BP Papua New Guinea Limited (now known as “InterOil Products Limited” since 29 April. 2004) dated 27 April 2004 (the “BP Domestic Contract”), including all proceeds thereunder.
(iii)	sale and purchase contract between the Refiner and Niugini Oil Services Limited dated 28 May 2004 (the “Niugini Domestic Contract”), including all proceeds thereunder.
(iv)	the IOL Export Contract, including all proceeds thereunder.
(v)	the IOL Crude Oil Contract, including all proceeds thereunder.
(vi)	all other sale contracts entered into by the Refiner with any other buyers in respect of the Products (including but not limited to the sale and purchase contract between the Refiner and Mobil Oil New Guinea Limited. (the “Mobil Domestic Contract”)), including all proceeds thereunder.

(f)	Fixed Charge over acceptable insurance policy covering any losses to crude oil and the Products located in the Refiner’s storage facilities, with the Bank nominated as sole named loss payee including all proceeds thereunder.
(g)	Fixed or floating charge dated 9 June 2004 on all crude oil and the Products located in the Refiner’s IOL Refinery, as the case may be.
(h)	Fixed Charge over all amounts standing to the credit of the IOL Collection Account and IOL Operating Account dated 9 June 2004.
(i)	Charge On Cash Amounts of all accounts(s) held by the Refiner with the Bank, including but not limited to the IOL Account dated 9 June 2004.
(j)	Deposit Agreement between the Bank, IOL and the Australia and New Zealand Banking Group (PNG) Limited (“ANZ PNG”).
(k)	Irrevocable Letter of Authorisation in respect of the IOL Account dated 10 June 2004.

From InterOil Corporation (“IOC”)

(l) Corporate guarantee dated 9 June 2004 from InterOil Corporation (“IOC”).

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(m) Charge on Cash Amounts of all account(s) held by IOC with the Bank, including but not limited to the IOC Security Margin Account dated 9 June 2004.

From Other Parties/Other Documents

(n)	Corporate guarantee dated 9 June 2004 from SP InterOiL LDC.
(o)	Original bills of lading made to the order or endorsed to the Bank.
(p)	Intercreditor Agreement between the Borrower, the Refiner, Overseas Private Investment Corporation (“OPIC”) and the Bank.
(q)	Letter of Acknowledgement by Petrofac Niugini Limited in respect of the Bank’s security interest in and to the crude oil and Products in the Refinery dated 9 June 2004.
(r)	Notice of Priority Charge by OPIC to ANZ PNG dated 10 June 2004 notifying the Bank’s priority security and interest inrespect of the IOL Operating Account pursuant to the Intercreditor Agreement.
(s)	Any other security which may be reasonably requested by the Bank or advised by the Bank’s legal counsels.

IOL, IOC and SP InterOil, LDC shall collectively be referred to as the “Guarantors”.

The Borrower confirms and agrees that all security given pursuant to this Letter Agreement is or shall be in full force and effect and subsists and applies to and in respect of all liabilities under this Letter Agreement and if necessary the Borrower shall execute and procure the execution of such further documents as required to render each such security effective.

Security Margin

The Borrower undertakes to maintain and ensure that the Security Margin shall at all times be notless than 20% of the outstandings under Facility 1, until all outstandings under Facility 1 are fully and unconditionally repaid.

“Security Margin” means, expressed as a percentage, the aggregate of:

(a)	all current and not overdue USD receivables under the SIETCO Export Contract and the SIETCO Naphtha Export Contract and any other USD receivables, in each case acceptable and assigned to the Bank to be deposited into the EPI Collection Account; and
(b)	all USD cash deposits standing to the credit of the IOC Security Margin Account, EPI Security Margin Account, EPI Collection Account the IOL Account. (the “Cash Deposit”),

as determined by the Bank, divided by the total outstandings under Facility 1, provided always that the aggregate Cash Deposit shall at all times be not less than USD2,000,000,00 (United States Dollars Two Million only) (the “Minimum Cash Deposit”).

The Bank’s determination of the Security Margin shall, in the absence of manifest error, be final and conclusive on the Borrower.

Collateral Value Ratio (“CVR”)

The Borrower further undertakes to maintain and ensure that the CVR shall at all times be not less than 1.20 until all outstandings under Facility 1 are fully and unconditionally repaid.

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“CVR” means:

IV + AR + CH + HGS

LC + LN + HGD

where:
IV	=	aggregate of marked-to-market value of crude oil and the Products inventories financed under Facility 1.
AR	=	aggregate of all current and not overdue receivables of (a) the Refiner under the shell Domestic Contract, the BP Domestic Contract, the Mobil Domestic Contract and the Niugini Domestic Contract, and all other domestic sate contracts entered into by the Refiner with any other buyers from time to time in respect of the Products and (b) all receivables of the Borrower under the SIETCO Export Contract and the SIETCO Naphtha Export Contract and all other sale contracts entered into by the Borrower with any other buyers from time to time in respect of the Products, in each case to be acceptable to the Bank at its sole discretion (including the USD receivables).
CH	=	aggregate of all credit balances in the IOC Security Margin Account, EPI Security Margin Account, EPI Collection Account, the IOL Collection Account and the IOL Account.
LC	=	aggregate of all principal outstandings (whether actual or contingent) under or pursuant to all documentary letters of credit and / or standby letters of credit / bank guarantees issued by the Bank under facility 1.
LN	=	aggregate of all principal outstandings under the Short Term Loans.
HGS	=	aggregate of all marked-to-market hedging gains under the Hedging Contracts.
HGD	=	aggregate of all marked-to-market hedging losses under the Hedging Cotratcts.

The Bank’s determination of the CVR shall, in the absence of manifest error, be final and conclusive on the Borrower.

10. Utilisation of the Facilities

Each utilisation under Facilities shall be subject to the Bank’s approval, the completion of all legal documentation and to the fulfilment of all Conditions Precedent including but not limited to the Conditions Precedent set out in Schedule 2 hereto and the following:-

(a) the issuance of each LC shall be subject to:-

(i)	receipt in advance of the Bank’s standard application form from the Borrower, duly executed and lodged with the Bank no later than 3 Business Days before the date of issuance of each LC;
(ii)	receipt in advance of satisfactory provisional economics related to the LC lodged with the Bank no later than 3 Business Days before the date of issuance of each LC, which takes into account any dead stock in the IOL Refinery;
(iii)	receipt by the Bank of the Minimum Cash Deposit;
(iv)	the Security Margin being complied with at all times;
(v)	the CVR being at least equal to 1.20 at all times;

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(vi)	receipt by the Bank of such sale contracts and other documents at such time and in such form as the Bank may require in respect of the transaction to be financed by the Bank under each utilisation; and
(vii)	notwithstanding the Facility Amount set out in Clause 2, the face amount of the LC shall be subject to the price escalation provision as defined in the price formula in the LC and in such event, the Facility Amount shall be automatically increased to include such price escalation (the “Price Escalation Provision”);

(b) drawings of the Short Term Loans shall be subject to:-

(i)	receipt by the Bank of not less than two (2) Business Days’ prior written drawing notice in the form of Annex A or such other From acceptable to the Bank, prescribed in the Standard Terms of each proposed drawing date;
(ii)	the Minimum Cash Deposit being complied with at all times;
(iii)	the Security Margin being complied with at all times;
(iv)	the CVR being at least equal to 1.20 at all times;
(v)	the Short Term Loans being used only for the purpose of refinancing any LC / SBLC/ bank guarantee issued by the Bank under this Letter Agreement; and
(vi)	the amount of each drawing under the Short Term Loan shall not exceed the amount drawn in relation to any LC/SBLC/bank guarantee to which such drawing relates.

(c) Issuance of each SBLC and / or bank guarantees shall be subject to:

(i)	receipt in advance of the Bank’s standard application form from the Borrower, duly executed and lodged with the Bank no later than 3 Business Days before the date of issuance of each SBLC / bank guarantee;
(ii)	receipt by the Bank of acceptable hedging contracts with acceptable counter parties;
(iii)	the Minimum Cash Deposit being complied with at all times;
(iv)	the Security Margin being complied with at all times; and
(v)	the CVR being at least equal to 1.20 at all times.

Subject to the other terms herein, any amount repaid shall remain available for redrawing so long as the Facilities continue to be made available by the Bank, PROVIDED THAT the aggregate amount of outstanding under the Facilities shall not at any time exceed the total relevant amount of the Facilities set out in Clause 2.

(d) Utilisation of any commodity derivatives facility is subject to the Bank’s receipt of the following documents in form and substance satisfactory to the Bank;

(i)	duly executed Consent for Disclosure Form as per the Bank’s prescribed form;
(ii)	duly executed Risk Disclosure Statement as per the Bank’s prescribed form; and
(iii)	such other documents as the Bank may require or request.

(e) Advance under Facility 2 shall be subject to;

(i) receipt by the Bank of not less than two (2) Business Days’ prior written drawing notice in the form of Annex A prescribed in the Standard Terms of each proposed drawing date; and

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(ii) full receipt by of the Bank of additional new pledged cash deposits equivalent to at least 100% of the amount of each drawing and estimated interest payable under each relevant drawing.

(f) Discounting shall be subject to:

(i)	Receipt by the Bank of an acceptable commercial invoice and respective copy bills of lading issued by the Borrower to SIETCO with respect to deliveries of the Products under the SIETCO Export Contract and the SIETCO Naphtha Export Contract, or any other commercial invoice acceptable to the Bank, as determined by the Bank at its sole discretion; and
(ii)	Execution of request for Discount, in the form and substance satisfactory to the bank.

11. Additional Covenants & Undertakings

(a)	The Borrower undertakes that, in the event the IOL Refinery’s capacity utilisation at any time is less than 50% (excluding planned shutdowns for which prior notice is given to the Bank) for more than a period of 10 consecutive days, it shall hedge or procure the Refiner to hedge, all crude oil sold to the Refiner by the Borrower in such manner acceptable to the Bank so as to mitigate any potential adverse oil price exposure that may result from the Refinery’s non-operation.
(b)	The Borrower undertakes to provide to the Bank a reconciliation of the provisional economics related to each crude oil cargo financed, in accordance to Clause to 14.2 below.
(c)	The Borrower undertakes to ensure that the Refinery Contractor and / or an acceptable inspection company (including but not limited to SGS PNG) issues weekly reports directly to the Bank, confirming the volume (among other information) of the crude oil and the Products located in the IOL Refinery and charged to the Bank.
(d)	The Borrower undertakes to provide to the Bank its weekly receivables ageing report.
(e)	The Borrower undertakes to provide to the Bank the Refiner’s weekly receivables ageing report.
(f)	In addition to any other accounts required to be furnished by the Borrower set out in the Standard Terms, the Borrower undertakes to provide to the Bank;

(i)	at the end of each quarter of each calendar year, a copy of the Borrower’s consolidated accounts including the auditors Report of Factual Findings and certified by the Chief Financial Officer of the Borrower; and
(ii)	at the end of each calendar year, a copy of the Borrower’s audited accounts duly certified by its auditors.

(g)

The Borrower undertakes to provide, and procure that the Refiner provides, to the Bank at the beginning of each quarter of each calendar year, an operating expenses budget (for expenses denominated in Kina, USD and any other currency) for the following quarter.

(h)

The Borrower undertakes not to create any future charge, mortgage, pledge or lien in respect of any of the properties or assets charged or to be charged to the Bank under the Security Documents nor assign any of its account receivables which have been or are to be charged to the Bank under the Security Documents, without the prior written consent of the Bank, save and except for such existing security interest in favour of OPIC and notified to the Bank as at the date of this Letter Agreement.

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(i)	The Borrower shall not, and shall procure that the Refiner and each of the Guarantors shall not, whether by a single transaction or by a number of transactions, whether related or not (other than in the ordinary course of business and at arm’s length for valuable consideration), sell, transfer, assign, lease out, grant licenses over, alienate, lend or otherwise dispose of (whether outright by a sale-and-repurchase or sale-and-lease-back arrangement or otherwise) or cease to exercise direct control over all or any part of its assets, without the prior written consent of the Bank.
(j)	The Borrower undertakes to immediately notify the Bank of any notice of default or termination it receives from OPIC or from any party under the Project Agreement.
11A. Additional Terms Relating to the Discounting under Facility 2
(a)	Any Discount shall be subject to a right of limited recourse giving the Bank the right to require the Borrower to repay the Bank (in full or in part, as the Bank may in its sole discretion determine) any Receivable which is the subject of any Discount, if any of the following events occurs in relation to such Receivable (each, a “Recourse Event”);

(i)	the relevant counterparty fails or Refuses or is unable to pay the Receivable or any part thereof, or such Receivable or any part thereof is not received by the Bank on its relevant due date, for any reason whatsoever (including but not limited to whether due to force majeure or a right of set-off or a contractual breach, etc. or otherwise and whether due to a default by the Borrower or any party or otherwise);
(ii)	the relevant counterparty has paid the relevant Receivable or any part thereof to the Borrower;
(iii)	the relevant sales contract to which such Receivable relates is terminated, aborted, repudiated, invalid, illegal or otherwise unenforceable for any reason whatsoever, or the relevant counterparty makes any prepayment of such Receivable which has the effect of decreasing the amount of such Receivable;
(iv)	the Borrower has been or is in breach of any of its representations or undertakings under this Letter Agreement or an Event of Default or a Potential Event of Default has occurred;
(v)	the monetary value of the Receivable as calculated by the Borrower, or otherwise notified (in whatever manner) to the Bank by the Borrower, prior to any Discount of such Receivable (the “Initial Receivable Value”) is less than the amount of such Receivable which is actually received by the Bank on its due date (the “Actual Receivable Value”), provided that the recourse of the Bank in such event shall only be in respect of the amount equal to the difference between the Initial Receivable Value and the Actual Receivable Value (the “Excess Payment”).

(b) On the occurrence of any Recourse Event, the Borrower shall by no later than two (2) Business Days of the demand by the Bank:

(i)	pay in full, the amount equal to the relevant Receivable or (where the Recourse Event solely relates to Clause 11A(v)) the Excess Payment, which is the subject of any Discount and to which such Recourse Event relates (such amount, the “Recourse Amount”); and
(ii)	indemnify the Bank against any cost, expenses (including legal expenses on a full indemnity basis), loss or liability incurred by the Bank as a result of the occurrence of any Recourse Event (including, without limitation, any costs of funding and related charges).

(c) If the Borrower does not pay the Recourse Amount on the due date pursuant to Clause 11A(b), then interest shall accrue on the Recourse Amount (or part outstanding) from such date up to

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	the date of its actual payment at a rate equal to the aggregate of the interest rate as set out in Clause 5A(a) applicable to the Discounting Facility and the margin of 5.5% per annum. Such interest shall be immediately due and payable by the Borrower to the Bank, whether demanded or not.
(d)	The Borrower hereby irrevocably undertakes to the Bank that:

(i)	it shall at the request of the Bank, take all such steps, actions and/or proceedings as shall be necessary, including but not limited to the institution of legal proceedings against the relevant counterparty in the name of the Bank or in its own name or otherwise, and in such manner and at such time as the Bank shall deem necessary, with a view to assisting the Bank to recover the Receivable due by the relevant counterparty under the relevant sales contracts to which a Discount relates;
(ii)	in the event that the Borrower recovers, directly or indirectly, from the relevant counterparty any Receivable to which a Discount relates, by whatever means (including but not limited to legal proceedings, set-off, counterclaim or any other form of compensation or through any other method whatsoever), the Borrower shall hold these amounts in trust for the Bank and shall forthwith pay/refund the Bank any amounts so recovered, up to the amount of the relevant Receivable which is the subject of such Discount;
(iii)	it shall take such actions and execute such documents and deeds as the Bank may require to enable the Bank to obtain full and unencumbered rights to each relevant Receivable from the relevant counterparty;
(iv)	it will duly perform all its obligations under each relevant sales contract to which a Discount relates;
(v)	it has not and will not create any security interest over any Receivable which is the subject of a Discount or any of its rights, title and interest and to such Receivable, save in favour of the Bank;
(vi)	it shall not make any amendment to or release any counterparty under any relevant sale contract to which a Discount relates, from such counterparty’s obligations to pay the Receivable or any part thereof, or otherwise enter into any compromise with such counterparty in respect of such obligation, without the prior written consent of the Bank; and
(vii)	it shall forthwith inform the Bank if any Recourse Event occurs or will occur.

12.	Demand Under LC
(a)	If any demand is made of the Bank under any LC, the Borrower shall upon receipt of the Bank’s notice make immediate payment to the Bank or any account as directed by the Bank, of an amount equal to the amount so demanded or as otherwise stipulated by the Bank.
(b)	The Bank shall at all times be entitled to make any payment under any LC for which a demand has been made without further investigation or enquiry and need not concern itself with the propriety of any claim made or purported to be made under and in the manner required by the terms of such LC. Accordingly it shall not be a defence to any demand made on the Borrower under this Letter Agreement, nor shall the Borrower’s obligations hereunder be affected or impaired by the fact that the Bank was or might have been justified in refusing payment in whole or in part of the amounts so claimed.

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13. Prepayment

The Borrower may upon giving the Bank not less than 2 Business Days’ prior written notice prepay the outstandings (in whole or in part) under the Facilities. If a prepayment is effected on the last day of any Interest Period, no prepayment fee shall be charged. If a prepayment is effected on a date other than an interest payment date, the Borrower shall indemnify the Bank in accordance with Clause B 1(ii) of the Standard Terms or such other relevant clause as may replace Clause B 1(ii).

14.	Accounts
14.1	General
(a)	Until such time that all actual and contingent obligations and liabilities of the Borrower hereunder have been fully discharged, no amount standing to the credit of each of the accounts set out in Clauses 14.2 to 14.9 (collectively referred to as the “Accounts”) shall be repayable to the Borrower or the Refiner, unless prior written consent is given by the Bank.
(b)	Subject to the following provisions in this clause 14, the Bank shall at all times be entitled (but not obliged) to apply the whole or any part of amounts standing to the credit of the Accounts or any one or more of them, in or towards payment or satisfaction of any sums at any time due under this Letter Agreement or any other liabilities (whether actual or contingent, present or future and expressed in whatever currency) owing from the Borrower under this Letter Agreement.
14.2	EPI Collection Account
(a)	The Borrower shall open with the Bank a USD account to be designated as the EPI Collection Account in the name of the Borrower for the purpose of this Letter Agreement.
(b)	The Borrower shall ensure that all payments and sales proceeds under the IOL Crude Oil Contract, the SIETCO Export Contract, the SIETCO Naphtha Export Contract and any other contract entered into by the Borrower with any other buyer for the sale of the Products, are paid into the EPI Collection Account.
(c)	Prior to the occurrence of an Event of Default (including but not limited to any of the additional Events of Default as defined in Schedule 3 of this Letter Agreement), without prejudice to the Borrower’s repayment obligations under this Letter Agreement, the credit balance of the EPI Collection Account shall be applied at the end of each Interest Period or the date on which the Borrower requests a transfer pursuant to Clause 14.2(d) or any other date as selected by the Bank, in the following priority:

(i)	Settlement of hedging contracts financed under this Letter Agreement;
(ii)	Fees and expenses due and payable under the Letter Agreement including the all in financing fee and any other costs;
(iii)	Interest (including default interest) due and payable under this Letter Agreement;
(iv)	Outstanding principal amount of the Facilities which is due and payable under this Letter Agreement (excluding any Short Term Loans which are reborrowed pursuant to the terms of this Letter Agreement);
(v)	For transfer as Cash Deposit only to the EPI Security Margin Account solely for the purpose of complying with the Security Margin; and
(vi)	Any other sums due to the Bank under this Letter Agreement.

(d) Prior to the occurrence of an Event of Default (including but not limited to any of the additional Events of Default as defined in Schedule 3 of this Letter Agreement), after the application of the credit balances in the order of priority indicated in Clause 14.2(c) above, and strictly conditional upon:

(i) the CVR being at least equal to 1.20 at all times (whether prior to, at the time of or following the transfer mentioned hereafter);

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(ii)	the Security Margin being complied with at all times (whether prior to, at the time of or following the transfer mentioned hereafter);
(iii)	the provisions of this Letter Agreement being fully complied with;
(iv)	no Event of Default has occurred or will occur as a result of the transfer mentioned hereafter;

the Borrower may from time to time pursuant to this Clause 14.2(d) make a request to the Bank for the transfer of the Net Available Cash Profit (“NACP”) related to each crude oil cargo financed under this Letter Agreement, from and to the extent of, the balance amount standing to the credit of, the EPI Collection Account into the EPI Operational Account.

“NACP” shall mean, at the time of the request for transfer, the aggregate of;

(aa)	all net receivables and net sales proceeds derived from that crude oil cargo to which it relates (being the gross receivables less an amount equal to the amount transferred under clause 14.5(c )(i) but excluding excise duties and Goods and Service Tax; and
(bb)	all hedging gains under the Hedging Contracts to which that crude oil cargo relates, less the aggregate of the following:

(cc)	the costs of the crude oil financed under the Facilities to which that crude oil cargo relates;
(dd)	any losses/consumption of crude in the refining process to which that crude oil cargo relates;
(ee)	any foreign exchange losses to which that crude oil cargo relates;
(ff)	all financing costs related to the procurement of that crude oil cargo; and
(gg)	all hedging losses under the Hedging Contracts to which that crude oil cargo relates.

The Borrower will calculate the NACP as soon as possible once all sales proceeds from the domestic sales of the Products derived from a particular cargo of crude are received by the Refiner but, in any event, no later than 90 days after the bill of lading date referable to that cargo to which the NACP relates. The Borrower will deliver the NACP calculation to the Bank together with a reconciliation of the actual economics versus the provisional economics in accordance with Clause 11(b) above.

The Bank will confirm the NACP to the Borrower within 5 days after it receives the calculation and the documents referred to above. Thereafter, the Borrower shall use its best endeavours to ensure that any request for the transfer of the NACP pursuant to this Clause 14.2(d) is made by it not later than the date following three (3) days after such confirmation by the Bank. In the event that not all proceeds relating to a particular NACP calculation have been received, the Borrower may make additional requests to transfer such proceeds pursuant to this Clause 14.2(d) from time to time as such proceeds are received. Subject to the terms of, and upon receipt of the requests made in compliance with, this Clause 14.2(d), the Bank shall permit the transfers so requested.

For the avoidance of doubt, subject to this Clause 14, any credit balances (including the NACP) in the EPI Collection Account may ONLY be transferred to the EPI Operational Account or the EPI Security Margin Account.

(e) Upon the occurrence of an Event of Default, the manner of allocation set out in Clause 14.2(c ) and Clause 14.2(d) shall forthwith automatically cease and the Bank shall be entitled to utilise all amounts standing to the credit of the EPI Collection Account towards sole satisfaction of the Facilities in such manner and at such time(s) as the Bank may in its sole discretion deem fit.

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(f)

There shall be no withdrawal of EPI Collection Account save as provided expressly in this Letter Agreement.

(g)

At the end of every quarter commencing from 30 June 2005, the Borrower shall submit to the Bank a report on the reconciliation of the aggregate of the actual cash profit and the respective NACP of all cargoes financed by the Bank pursuant to the Facilities during the immediately preceding quarter that identifies and includes the amount standing to the credit of the EPI Security Margin Account to be transferred to the EPI Collection Account, to the extent that such NACP had not previously been taken into account in the calculation made pursuant to Clause 14.2(d). Upon the Bank’s approval of such report and amount, and prior to the occurrence of an Event of Default (including but not limited to any of the additional Events of Default as defined in Schedule 3 of this Letter Agreement) and strictly conditional upon:

(i)	the CVR being at least equal to 1.20 at all times (whether prior to, at the time of or following the transfer mentioned hereafter);
(ii)	the Security Margin being complied with at all times (whether prior to, at the time of or following the transfer mentioned hereafter);
(iii)	the provisions of this Letter Agreement being fully complied with;
(iv)	no Event of Default has occurred or will occur as a result of the transfer mentioned hereafter.

the Bank shall upon the Borrower’s request transfer such approved amount to the EPI Collection Account for the purposes set out in Clause 14.2. Upon the completion of the said transfer, the Borrower may further request the Bank to transfer such approved amount from the EPI Collection Account to the EPI Operational Account.

(h) Upon the occurrence of an Event of Default, the manner of allocation set out in Clause 14.2(g) shall forthwith automatically cease and the Bank shall be entitled to utilise all amounts standing to the credit of the EPI Security Margin Account towards sole satisfaction of the Facilities in such manner and at such time(s) as the Bank may in its sole discretion deem fit.

14.3 EPI Operational Account

(a)	The Borrower has opened, and shall maintain, a USD account no. 1001517679 with Wells Fargo Bank Texas, N.A. (the “EPI Operational Account”).
(b)	The Borrower shall ensure that all USD operating expenses and repayments of principal and interest as required under the Loan Agreement between the Borrower and OPIC dated as of 12 June 2001, and all amendments, supplemental agreements thereafter (the “OPIC Agreement”) are paid from the EPI Operational Account.

14.4 EPI Security Margin Account

(a)	The Borrower has opened and shall maintain a USD account no: 00050-038065-002-31USD with the Bank to be designated the EPI Security Margin Account for the purpose of receiving the Cash Deposit to be deposited by the Borrower as part of the Security Margin, including but not limited to the Minimum Cash Deposit.
(b)	Provided that:

(i)	the Security Margin being complied with at all times (whether prior to, at the time of or following the transfer mentioned hereafter);
(ii)	the provisions of this Letter Agreement being fully complied with;
(iii)	no Event of Default has occurred or will occur as a result of the transfer mentioned hereafter,

the Bank shall upon the Borrower’s request transfer any credit balances in the EPI Security Margin Account to the EPI Collection Account for the purposes of clause 14.2.

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(c)	There shall be no withdrawal from the EPI Security Margin Account save as provided expressly in this Letter Agreement (including, for the avoidance of doubt, Clauses 14.4(b) and 14.2(g).
14.5	IOL Collection Account
(a)	The Borrower shall procure that the Refiner opens and maintains in the Refiner’s name a Kina account with ANZ Papua New Guinea Branch (existing account number 11895250), to be designated as the IOL Collection Account for the purpose of this Letter Agreement. Additional IOL Collection Accounts may also be maintained by the Refiner with another bank or financial institution acceptable to the Bank, subject to such further documentation as the Bank may require. All such IOL Collection Accounts maintained by the Refiner shall be subject to the terms of this Letter of Agreement and, in particular, this Clause 14.5, and all references herein to “the IOL Collection Account” shall be deemed to be references to each IOL Collection Account maintained by the Refiner from time to time. The Borrower shall procure IOL’s compliance with this Clause.
(b)	The Borrower shall procure that the Refiner direct the following payments to the IOL Collection Account:

(i)	all payments under any domestic sales contract for the sale of the Products by the Refiner to any buyer, including but not limited to the respective Shell Domestic Contract, the BP Domestic Contract, the Mobil Domestic Contract and the Niugini Domestic Contract; and
(ii)	all payments under any other contract entered into by the Refiner with any other buyer acceptable to the Bank, for the sale of the Products for consumption in the Papua New Guinea market.

(c) Prior to the occurrence of an Event of Default (including but not limited to any of the additional Events of Default as defined in Schedule 3 of this Letter Agreement, the credit balance of the IOL Collection Account shall be applied at least once a week as follows;

(i)

95% of the accumulated sales proceeds from IOL’s commercial sales invoice (net of goods and services tax (“GST”) and duties) related to the sales of the Products by IOL; to be converted from Kina to USD and transferred to the EPI Collection Account for purposes defined in Clause 14.2(c) above.

(ii)

the aggregate of (aa) 5% of the accumulated sales proceeds from the IOL’s commercial sales invoice (net of GST and duties) related to the sales of the Products by IOL; and (bb) accumulated GST and duties related to the sales of the Products by IOL, to be transferred to the IOL Operating Account for settlement of Kina operating expenses pre-approved by the Bank, GST and duties, related to the sales of the Products by IOL, Any transfer of amounts in excess of the amounts defined in this Clause 14.5(c)(ii) is subject to the prior written approval of the Bank.”

(d)	Upon occurrence of an Event of Default, the above manner of allocation shall cease and the Bank shall be entitled to utilise all amount standing to the credit of the IOL Collection Account towards sole satisfaction of the Facilities in such manner as the Bank may in its sole discretion deem fit.
(e)	The Borrower shall procure that there shall be no withdrawal of IOL Collection Account save as provided expressly in this Letter Agreement.

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14.6	IOL Account
(a)	The Borrower shall procure that the Refiner open in its name a USD account with the Bank to be designated the IOL Account for the purpose of this Letter Agreement.
(b)	The Borrower shall procure that the Refiner directs all payments under the IOL Export Contract into the IOL Account.
(c)	The Borrower shall procure that, on the same day as payments are made into the IOL Account pursuant to Clause 14.6(b) above, the Refiner transfers all outstanding credit balances in the IOL Account to the EPI Collection Account for purposes defined in Clause 14.2 above.
(d)	There shall be no withdrawal from the IOL Account save as provided expressly in this Letter Agreement.
14.7	IOL Operating Account
(a)	The Borrower shall procure that the Refiner opens and maintains in the Refiner’s name an account in Kina with ANZ Papua New Guinea Branch (the “IOL Operating Account”) (account no. 1096477) for the sole purpose of settlement of Kina domestic expenses preapproved by the Bank.
(b)	At the end of every quarter commencing from the date of this Letter Agreement, the Borrower shall procure that IOL submits to the Bank a report on the reconciliation of the aggregate of the actual cash profit and the respective NACP of all cargoes financed by the Bank pursuant to the Facilities during the immediately preceding quarter to identify the amount standing to the credit of the IOL Operating Account to be transferred to the EPI Collection Account, to the extent that such NACP had not previously been taken into account in the calculation made pursuant to Clause 14.2(d). Upon the Bank’s approval of such report and amount, and prior to the occurrence of an Event of Default (including but not limited to any of the additional Events of Default as defined in Schedule 3 to this Letter Agreement) and strictly conditional upon:

(i)	the CVR being at least equal to 1.20 at all times (whether prior to , at the time of or following the transfer mentioned hereafter);
(ii)	the Security Margin being complied with at all times (whether prior to at the time of or following the transfer mentioned hereafter);
(iii)	the provisions of this Letter Agreement being fully complied with;
(iv)	no Event of Default has occurred or will occur as a result of the transfer mentioned hereafter,

the Bank shall upon IOL’s request permit the transfer of such approved amount to the EPI Collection Account for the purposes set out in Clause 14.2 Upon the completion of the said transfer into the EPI Collection Account, the Borrower may request the Bank to transfer such approved amount from the EPI Collection Account to the EPI Operational Account.

(c)	Upon the occurrence of an Event of Default, the manner of allocation set out in Clause 14.7(b) shall forthwith automatically cease and the Bank shall be entitled to utilise all amounts standing to the credit of the IOL Operating Account towards sole satisfaction of the Facilities in such manner and at such time(s) as the Bank may in its sole discretion deem fit.
(d)	The Borrower shall procure that there shall be no withdrawal of IOL Operating Account save as provided expressly in this Letter Agreement,
14.8	IOC Security Margin Account
(a)	The Borrower shall procure that InterOil Corporation open in its name a USD account with the Bank to be designated the IOC Security Margin Account for the purpose of receiving the funds referred to in Clause 14.9(b).

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(b)

To the extent that credit balances in the DPI Security Margin Account, together with any credit balances in the IOC Security Margin Account, do not in aggregate equal the required Cash Deposit for the purpose of compliance with the Security Margin, the Borrower shall procure that InterOil Corporation make additional deposits (including but not limited to the Minimum Cash Deposit) into the IOC Security Margin Account in order for the Security Margin to be complied with.

(c)

To the extent that credit balances in the EPI Security Margin Account and the IOC Security Margin Account are in excess of the amount required under Clause 14.8(b) and strictly conditional upon:

(i)	the CVR being at least equal to 1,20 at all times (whether prior to, at the time of or following the transfer mentioned hereafter);
(ii)	the Security Margin being complied with at all times (whether prior to, at the time of or following the transfer mentioned hereafter);
(iii)	the provisions of this Letter Agreement being fully complied with;
(iv)	no Event of Default has occurred or will occur as a result of the transfer mentioned hereafter,

the Bank shall upon IOC’s request, transfer any such funds from the IOC Security Margin Account to an account nominated by the Borrower.

(d) Upon the occurrence of an Event of Default, the manner of allocation set out in Clause 14.8(c) shall forthwith automatically cease and the Bank shall be entitled to utilise all amounts standing to the credit of the IOC Security Margin Account towards sole satisfaction of the Facilities in such manner and at such time(s) as the Bank may in its sole discretion deem fit.

(e) There shall be no withdrawal of IOC Security Margin Account save as provided expressly in this Letter Agreement (including for the avoidance of doubt, Clause 14.8(c)).

14.9 IOC Account

(a) The Borrower shall procure that InterOil Corporation open in its name a USD account with the Bank to be designated the IOC Account for the purposes of receiving the additional pledged cash deposits referred to in Facility 2 in Clause 3. The IOC Account shall be subject to the Charge on Cash Amounts dated 31 May 2004 executed by IOC in favour of the Bank.

(b) To the extent that the credit balances in the IOC Account are in excess of the principal and interest payable under all outstanding Advances under Facility 2 and that conditions stipulated in Clause 14.8(c)(i) to (iv) have been fulfilled, the Bank shall upon IOC’s request, transfer any such funds from the IOC Account to an account nominated by the IOC.

(c) Upon the occurrence of an Event of Default, the manner of allocation set out in Clause 17.9(b) shall forthwith automatically cease and the Bank shall be entitled to utilise all amounts standing to the credit of the IOC Account towards sole satisfaction of the Facilities in such manner and at such time(s) as the Bank may in its sole discretion deem fit.

(d) There shall be no withdrawal of IOC Account save as provided expressly in this Letter Agreement (including for the avoidance of doubt, Clause 14.9(b)).

15. Additional Indemnity; Expenses

(a) The Borrower further unconditionally and irrevocably agrees with the Bank that it will at all times fully indemnify and save harmless the Bank from and against any claims, demands, losses, damages, charges, costs and expenses of whatever nature which the Bank may at any time and from time to time sustain, incur or suffer by reason of the issue of any LC or its payment of any claim or liability hereunder or otherwise in connection with or arising in any

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way whatsoever out of any LC, unless arising by reason of the Bank’s fraud, gross negligence or wilful misconduct.

(b)

The Borrower shall pay all stamp duties (if any) in connection with this Letter Agreement, the Security Documents and any related instruments, shall reimburse the Bank for all costs and expenses (including but not limited to legal costs on a full indemnity basis) in preparing, negotiating, executing, perfecting, administering and/or enforcing any of the foregoing, and shall indemnify and hold harmless the Bank form and against all other cost, losses, damages, liabilities and expenses incurred or suffered by the Bank in connection with the Facilities, this Letter Agreement and the Security Documents, but excluding such costs, losses damages, liabilities and expenses (including fines and penalties) arising by reason of the Bank’s fraud, gross negligence or wilful misconduct.

16. Business Day Adjustment

If the date on which a payment is due or on which any interest period would otherwise end is not a Business Day, such date shall be changed to the next succeeding Business Day (or to the first preceding Business Day if the next succeeding Business Day is in another calendar month of the year).

17. Rights Cumulative Waivers

(a) The Bank’ rights under this Letter Agreement are cumulative, which may be exercised as often as the Bank considers appropriate, and are in addition to the Bank’s rights under the general law.

(b) The Bank’s rights (whether arising under this Letter Agreement, any LC or any related documents, or under the general law) shall not be capable of being waived or varied otherwise than by an express waiver or variation in writing.

(c) Any failure by the Bank to exercise any of its rights under this Letter Agreement or any delay in exercising such right shall not operate as a waiver or variation of that or any other such right.

18. Agent for Service of Process

The Borrower shall at all times maintain a registered office/an agent for service of process in Singapore. Any writ, judgment or notice of legal process shall be sufficiently served on the Borrower if delivered to such registered office or agent at its address for the time being.

Where an agent for service of process has been appointed pursuant to this Clause, the Borrower undertakes not to revoke the authority of such agent and if, for any reason, any such agent no longer serves as agent of the Borrower to receive service of process, the Borrower shall promptly appoint another such agent, shall advise the Bank thereof and shall deliver promptly to the Bank the acceptance by such agent of its appointment. In the event of any failure by the Borrower to appoint such process agent, the Bank shall have thee right (but shall be under no obligation) to appoint such process agent at the cost and expense of the Borrower.

19. Standard Terms

The Standard Terms as attached hereto shall apply to and form an integral part of this Letter Agreement and shall be deemed to be incorporated herein as if the same were set out specifically in this Letter Agreement save that in the event of any conflict between the terms thereof and this Letter Agreement, the terms in this Letter Agreement shall prevail and the terms as stipulated in the Standard Terms shall be deemed to be varied to the extent of such conflict. The Bank reserves the right to further revise and modify its Standard Terms from time to time.

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20. Additional Terms Relating to the Commodity Derivative Facility

(a) For the avoidance of doubt, the Borrower may enter into commodity derivative facilities with any third party provided that:

(i)	the Borrower has granted to the Bank a “right of first refusal” to tender for such commodity derivative facilities, as long as it does not affect the competitiveness of the market; and
(ii)	such third party is acceptable to the Bank and the commodity derivative facilities entered into with such third party are on terms no more favourable than those offered to the Bank pursuant to the right of first refusal under Clause 20(a)(i).

(b) The terms and conditions governing any commodity derivative facility shall also include that set forth in (amongst other agreements), the International Swaps and Derivatives Association Inc. (ISDA) Master Agreement 1992 (Multicurrency Cross Border) (or such other derivative documentation as the Bank may determine) which the Borrower and the Bank hereby undertake to negotiate in good faith as soon as possible and in any event within six (6) months from the date of this Letter Agreement.

(c) The Borrower hereby acknowledges that it has understood and has considered the various risks involved in any transaction/contract entered or to be entered into under a commodity derivative facility, including but not limited to the risks set out in the Risk Disclosure Statement signed or to be signed by the Borrower, and further confirms that it is willing to assume (financially and otherwise) those risks.

21. Full and Final Agreement

This Letter Agreement and the documents referred to herein constitute the full and final agreement between the Borrower and the Bank on the Facilities and are intended as a complete and exclusive statement of the terms and conditions thereof.

22. Consent to Disclosure

The Borrower hereby irrevocably and expressly in writing consents to, authorises and permits the Bank and its employees and agents at any time to disclose such information relating to the Borrower and/or the Facilities (including but not limited to details of the Borrower’s account relationship with the Bank) and any other customer information (as defined in the Banking Act, (Cap. 19) of Singapore (the “Banking Act”) to its head office, other branches, regional offices, representative offices or affiliated companies or any governmental agencies or authorities or supranational entity or body, administrative, fiscal or judicial body, courts and tribunals or any other authorities of whatsoever nature (in each case whether within or outside Singapore) or any potential assignee or transferee or persons who have entered into or who are proposing to enter into contractual arrangements with the Bank in relation to the banking facilities between the Borrower and the Bank, including without limitation, any Sureties (as defined in the Standard Terms) or any other person from time to time as the Bank shall in its sole discretion deem fit. Nothing in this paragraph shall constitute, nor be deemed to constitute, an express or implied agreement by the Bank and the Borrower for a higher degree of confidentiality than that prescribed in Section 47 of the Banking Act and in the Third Schedule thereto. This consent shall survive and continue in full force and effect for the benefit of the Bank notwithstanding the repayment, cancellation or termination of the Facilities or any part thereof and/or the termination of one or more types of banker-customer relationships between the Borrower and the Bank.

This Letter Agreement is only effective upon our receipt of

(a) your acceptance hereunder and the written confirmation of each of (i) IOC, (ii) IOL and (iii) SP Interoil, LDC as set out below and

(b) the written consent of Overseas Private Investment Corporation to the Letter Agreement as abovementioned, in form and substance satisfactory to the Bank.

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If the foregoing is acceptable to you, please sign and return the enclosed duplicate copy of the Letter Agreement together with a certified true copy of your corporate approval of the Letter Agreement no later than 30 days from the date hereof.

Yours faithfully
For and on behalf of
BNP Paribas, Singapore Branch

Antoine Fagniez	Philippe De Gentile
Head	Regional Head for Asia Pacific
Commodity Structure Finance, Asia Pacific	Energy Commodities Export Project

Without prejudice to the generality or the wider scope of any other consent given by us to you in any other document, we hereby further irrevocably [and jointly and severally] consent to, authorise and permit your Bank and its employees and agents at any time to furnish and disclose the Security Document and any information relating to me/us (including but not limited to customer information (as defined in the Banking Act, Cap. 19 of Singapore), any transactions entered into or handled by you on our behalf or for our account and the amounts secured under the Security Document to your head office, other branches, regional offices, representative offices or affiliated companies or any governmental or regulatory agencies or authorities or supranational entity or body, administrative, fiscal or judicial body, courts and tribunals or any other authorities of whatsoever nature (in each case whether within or outside Singapore) or any potential assignees or transferees or any persons who have entered into or who are proposing to enter into contractual arrangements with your Bank in relation to the Security Document and/or the credit facilities referred or contemplated therein, in such manner and for such purpose as you may in your discretion deem fit. This consent shall survive and continue in full force and effect for the benefit of the Bank notwithstanding the repayment, cancellation or termination of the Facilities or any part thereof and/or the termination of one or more types of banker-customer relationships between the Borrower and the Bank.

ACCEPTANCE

We, E.P. InterOil, Ltd, hereby unconditionally accept the terms and conditions of the Letter Agreement dated 12 August 2005.

For and on behalf of
E.P. InterOil, Ltd

/s/ Christian Vinson Name of Authorised Signatories

Designation:

Company’s Stamp

Date: 12 August 2005

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AGREEMENT AND CONFIRMATION

We, InterOil Limited, hereby refer to the Security Documents executed by us in favour of BNP Paribas. Without prejudice to the generality of the provisions in the said Security Documents, we hereby irrevocably and unconditionally consent to the Letter Agreement as stated herein above and agree that all our liabilities and obligation under the said Security Documents shall continue to apply and be in full force and effect.

Agreed and confirmed
For and on behalf of
InterOil Limited

/s/ Christian Vinson Name:

Designation:

Date: 12 August 2005

We, InterOil Corporation, hereby refer to the Security Documents executed by us in favour of BNP Paribas. Without prejudice to the generality of the provisions in the said Security Documents, we hereby irrevocably and unconditionally consent to the Letter Agreement as stated herein above and agree that all our liabilities and obligation under the said Security Documents shall continue to apply and be in full force and effect.

Agreed and confirmed
For and on behalf of
InterOil Corporation

/s/ Christian Vinson Name:

Designation:

Date: 12 August 2005

We, SP InterOil, LDC hereby refer to the Security Documents executed by us in favour of BNP Paribas. Without prejudice to the generality of the provisions in the said Security Documents, we hereby irrevocably and unconditionally consent to the Letter Agreement as stated herein above and agree that all our liabilities and obligation under the said Security Documents shall continue to apply and be in full force and effect.

Agreed and confirmed
For and on behalf of
SP InterOil, LDC

/s/ Christian Vinson Name:

Designation:

Date: 12 August 2005

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SCHEDULE 1

STANDARD TERMS AND CONDITIONS GOVERNING BANKING FACILITIES (REF: BNPP 11/2004-GeneralCorp-EPI Modified)

A	GENERAL TERMS AND CONDITIONS
1	INTEREST

1.1	All interest (including default interest) shall be calculated on the basis of a year of 360 days unless otherwise stated in the Facility Letter.
1.2	Interest on an Overdraft Facility (the “Overdraft Facility”) shall accrue from day to day and shall be calculated on the basis of the actual number of days elapsed and a year of 360 days. Interest accrued on the Overdraft Facility at the applicable rate shall be added to the Overdraft Facility and shall be debited to the overdraft account on the last Business Day of each calendar month in accordance with the normal practice of the Bank or on any earlier date on which the Overdraft Facility is cancelled in whole. In addition, if the Borrower shall fail to pay to the Bank any other sum payable by it in relation to or in connection with the Overdraft Facility when due, the Bank shall have the right forthwith and at any time thereafter without any notice to the Borrower and without any restriction whatsoever to debit any such overdue sum to the overdraft account without prejudice to any other rights and remedies of the Bank against the Borrower and also without prejudice to the rights of the Bank to enforce any security held by the Bank.
1.3	The Bank’s prime lending rate is subject to fluctuation without prior notice but changes are featured in the Bank’s statements of account.
1.4	The interest rates (including additional interest) and Interest Periods (whether in respect of interest of additional interest) may be varied by the Bank from time to time at its sole discretion.

2 ADDITIONAL INTEREST

2.1	Additional interest shall be charged on all overdue sums ( whether of principal, interest or otherwise) which shall be payable from time to time on demand on the whole of such unpaid amount calculated from the due date thereof up to and including the date of actual payment (as well after as before judgment) at the rate of 5.5% per annum above LIBOR or such other rate or rates as may be determined by the Bank at its sole discretion from time to time for such successive periods as the Bank may determine from time to time at its sole discretion. Any unpaid interest or additional interest shall be added onto all overdue sums and itself bear interest on a compounded basis.
2.2	For overdraft not paid on demand and utilisation in excess of the approved limit, interest shall be charged at 5.5% per annum over LIBOR or such other rate or rates as the Bank may determine from time to time at its sole discretion.
2.3	Notwithstanding any provision to the contrary and without prejudice to the Bank’s other rights and remedies, the Bank reserves the right to debit the current account of the Borrower for all or any unpaid interest or additional interest and upon such debiting, the same shall accrue interest at the applicable rate chargeable to such current account and for such successive periods as the Bank may in its sole discretion determine from time to time.

3 REPAYMENT AND PAYMENTS

3.1	Subject to Clause 3.2, all payments to be made under the Facility Letter or hereunder must be made in the currency in which the drawing was denominated (“Currency of Drawing”), and shall be remitted in that currency to the account and bank which are specified by the Bank from time to time.
3.2	All payments to be made under the Facility Letter or hereunder shall be made in freely transferable and convertible funds, free and clear of and without any set-off, counterclaim, deduction or withholding whatsoever. Should there be any restrictions imposed whether by changes in law or otherwise, or any changes in national or international financial or political or economic conditions which affect the transferability and/or the convertibility of the Currency of Drawing or any monies which have become due and payable under the Facility Letter or hereunder then the Advance(s) to which the Currency of Drawing relates or such monies due and payable for which payments are to be made may at the option of the Bank be converted in accordance with Clause 4.3. The Borrower shall at the request of the Bank repay or make all payments under the Facility Letter or hereunder in the currency so selected by the Bank.
3.3	If under any applicable law whether as a result of a judgment or an order of Court of any jurisdiction against the Borrower or the liquidation of the Borrower or for any other reason any payment under or in connection with the Facility Letter or the Security Documents is made or is recovered in a currency (“the Other Currency”) other than the Currency of Drawing, then to the extent that, the payment (when converted at the Rate of Exchange on the date of payment or in the case of liquidation the latest date for the determination of liabilities permitted by the applicable law) falls short of the amount in the Currency of Drawing remaining unpaid under the Facility Letter or the Security Documents, the Borrower shall as a separate and independent obligation fully indemnify the Bank against the amount of shortfall.
	This indemnity shall give rise to a separate and independent cause of action and shall apply irrespective of any indulgence granted by the Bank and shall continue in full force and effect despite any judgment, order, claim or proof for a liquidated amount in respect of any sum due under the Facilities or any judgment or order. “Rate of Exchange” means the rate at which the Bank is able on the relevant date to purchase the Currency of Drawing in such foreign exchange market as it may reasonably select with the Other Currency.

4 AVAILABILITY AND ALTERNATE CURRENCIES

4.1	In this Clause, “Reference Currency” means the currency in which the Facility or Facilities are denominated and “Alternate Currency” and “Alternate Currencies” mean a currency or currencies other than the Reference Currency.
4.2	Where the Bank has agreed that the Borrower may make drawings in Alternate Currencies.

(i) drawings or utilisation of the Facilities in Alternate Currencies are subject to the availability of funds, and subject to the Borrower giving to the Bank, not less than two(2) Business Days prior to the date of drawing written notice of drawing, specifying the amount, date of drawing and Interest and Interest Period;

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(ii)	drawings will be in the amount of the relevant Alternate Currency converted from the Reference Currency at the relevant rate of exchange, as determined by the Bank, on the date of drawing;
(iii)	if at any time the sums outstanding under the Facilities in any Alternate Currency(ies), when converted into the Reference Currency at the relevant rate of exchange determined by the Bank, exceed the amount of the Facilities in the Reference Currency, the Borrower shall forthwith upon demand by the Bank, repay the amount in excess thereof;
(iv)	the Bank’s calculations as to amounts outstanding and/or the rate of exchange used by the Bank for purposes of conversion shall, in the absence of manifest error, be conclusive and binding upon the Borrower; and
(v)	the Borrower shall on demand indemnify the Bank against all losses, costs and expenses incurred by the Bank in liquidating or employing deposits in an Alternate Currency acquired or contracted for by the Bank in order to fund the drawing.

4.3 In the event the Bank is unable or it is impracticable for the Bank to grant or continue to grant all or any part of the Facility or Facilities in the Reference Currency by reason of any of the following:

(i)	changes in national or international financial, political or economic conditions or currency availability or exchange rates or exchange controls; or
(ii)	it becomes unlawful, illegal or contrary to or additional conditions have been imposed by any laws, regulations, directives, ruling or guidelines of any governmental or non-governmental or statutory authority in Singapore or elsewhere for the Bank to grant or continue to grant the Facility or Facilities in the Reference Currency;

then without prejudice to the Bank’s right under Clause 9 and Clause 10, the Bank shall have the right in its absolute discretion to convert the Reference Currency into an Alternate Currency as selected by the Bank. For this purpose, the amount outstanding in the Reference Currency shall be converted into the said Alternate Currency selected by the Bank at such rate as the Bank deems to be most appropriate and Clause 4.2 (iii) to (v) shall apply mutatis mutandis to the Facility or Facilities.

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SECURITY MARGIN In the event that the cumulative value of the assets of the Borrower or Surety covered by the Security Documents at any time and subject to Schedule 3 of the Facility Letter, as conclusively determined by the Bank, falls below the Security Margin, the Bank shall be entitled without prejudice to any other rights that the Bank may have, to reduce the credit limits and/or withhold further disbursement and/or to require repayment of such amount as the Bank may specify including prepayment of any Advance(s) and/or to require additional security (acceptable to the Bank) to be furnished.

6

CONDITIONS PRECEDENT

6.1 No request for the utilisation of any Facility shall be made by the Borrower unless all the following documents are delivered to the Bank and found satisfactory by the Bank:-

(i)	(where the Borrower is a corporation) a copy, certified as a true copy by a duly authorised officer of the Borrower, of the Memorandum and Articles, of Association together with all other documents evidencing the legality of the existence of the Borrower and its activities as may be required by the Bank;
(ii)	(where the Borrower is a corporation) a copy, certified as a true copy by a duly authorised officer of the Borrower, of the corporate Resolutions of the Borrower for the transactions contemplated herein, authorising the acceptance of the offer comprised in the Facility Letter and the execution hereof and of the Security Documents and all other related documents;
(iii)	a certified list of the specimen signatures of the authorised signatories to operate the Facilities;
(iv)	(where the Surety is a corporation) a copy, certified as a true copy by a duly authorised officer of the Surety, of the Memorandum and Articles of Association together with all other documents evidencing the legality of the existence of the Surety and its activities as may be required by the Bank;
(v)	(where the Surety is a corporation) a copy, certified as a true copy by a duly authorised officer of the Surety, of the Corporate Resolutions of the surety for the transactions contemplated herein, authorising the provision by the Surety of the security, for the repayment of all sums owing under the Facilities by the Borrower;
(vi)	a certified list of the specimen signatures of the authorised signatories to execute and deliver the Security Documents and to take any action contemplated in the Security documents;
(vii)	the Security Documents duly executed by the Borrower and by the Surety and duly stamped and registered, if necessary with the relevant authorities in Singapore and/or in other relevant jurisdiction(s);

PROVIDED ALWAYS the bank reserves the right to waive or defer compliance with the whole or any part of this Clause 6.1.

6.2 The utilisation of any Facilities is further conditional upon, at the proposed date of the utilisation:-

(i)	no Event of Default or Potential Event of Default has occur and is continuing or will occur as a result of the making of the Facility or each Advance by the Bank;
(ii)	all representations and warranties remaining true and correct in all respects by reference to the circumstances then existing; and
(iii)	the Bank being satisfied that there is no material adverse change in the operations or financial condition of the Borrower and the Surety.

7 REPRESENTATIONS AND WARRANTIES

7.1 The Borrower acknowledges that the Bank has made available all facilities contemplated in the Facility Letter in full reliance on the following representations and warranties of Borrower:-

(a)	all approvals of any governmental or other authority which are required to authorise the Borrower to own its assets, carry on its business as it is being conducted as of the date of the Facility Letter have been duly and unconditionally obtained and are in full force and effect;
(b)	all acts, conditions and things required to be done and performed by the Borrower precedent to the acceptance of the Facility Letter and execution of the Security Documents to constitute them valid obligations of the

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	Borrower in accordance with their respective terms have been done and performed in due and strict compliance with all applicable laws and regulations;
(c)	each of the Facility Letters when accepted and the Security Documents when executed will constitute the legal, valid and binding obligations of the Borrower and the Surety (as the case may be) and be enforceable in accordance with its terms;
(d)	(where the Borrower is a corporation) the execution, delivery and performance by the Borrower of the transactions contemplated in the Facility Letter and the Security Documents are within the Borrower’s corporate powers and have been duly authorized by all necessary corporate action;
(e)	(where the Borrower is a corporation) the certified true copies of the Memorandum and Articles of Association, or other corporate constitutional documents, of the Borrower and the Shareholders, and Board Resolutions of the Borrower relating to the approval and acceptance of the Facility Letter and execution of the Security Documents, are true and accurate copies of the corporate records of the Borrower;
(f)	the acceptance and performance of the Facility Letter and the Security Documents do not and will not:-

(i)	contravene or constitute a default or breach under any provision contained in any agreement, instrument, law, judgment, order, licence, permit or consent by which the Borrower or any of its assets is bound or affected;
(ii)	cause any limitation on the Borrower or the powers of its directors (where applicable), whether imposed by or contained in any law, order, judgment, agreement, instrument or otherwise to be exceeded; or
(iii)	result in the creation or imposition of any lien, charge, security, interest or other encumbrance over any assets of the Borrower other than those created by the Security Documents.

(g)	neither the Borrower nor any Surety is in default in the payment or performance of any of their respective obligations for borrowed money or under any instrument or agreement binding on the Borrower or any Surety or any of their respective assets which may have a material adverse effect on their respective business, assets or financial condition or their ability to perform or observe their respective obligations under the Facility Letter or the Security Documents;
(h)	there are no litigation, arbitration or other proceedings or claims pending or threatened against the Borrower or any Surety or any of their assets which may have a material adverse effect on their respective business assets, or financial condition or ability to perform their respective obligations under the Facility Letter or the Security Documents;
(i)	no steps have been taken or are being taken to appoint a receiver and/or manager or judicial manager, liquidator of the Borrower or the Surety or (where the Surety is an individual) trustee in bankruptcy or official assignee or any other such official of the Surety or over any part of the assets of the Borrower or the Surety or to wind up the Borrower or the Surety;
(j)	the Borrower has fully disclosed in writing to the Bank all facts and information relating to the Borrower which the Borrower knows or should reasonably know and which are material for disclosure to the Bank in the context of the Facility Letter;
(k)	the Borrower has not acted and is not acting in contravention of any law which may result in third parties obtaining priority over the Bank in respect of the security granted herein or such security being illegal, unenforceable, altered, affected, discharged or revoked;
(l)	the Borrower has the power and authority to own assets and to conduct the business which the Borrower conducts and/or purports to conduct; and
(m)	there exists no Event of Default or Potential Event of Default.

7.2

The Borrower agrees that the above mentioned representations and warranties shall be deemed to be repeated upon each drawing of the Facilities.

7.3

Each of the representations and warranties contained in this Clause 7 shall survive and continue in full force and effect after the acceptance of the Facility Letter and the Execution of the Security Documents and the Borrower hereby warrants to the Bank that the above representations and warranties will be true and correct and fully observed at all times during the continuance of the Facility(ies) as if repeated during such period by reference to the then existing circumstances.

8 COVENANTS

8.1 The Borrower hereby covenants with the Bank for as long as any of the Facilities are available or any sum remains payable or unpaid under the Facility Letter that it shall:-

(a)	deliver to the Bank at the end of each fiscal year a duly signed certificate that the Borrower has not committed any default in relation to any of its obligations;
(b)	deliver to the Bank (i) audited balance sheets, profit and loss account and annual report of the Borrower and the Surety (as the case may be) every year within 180 days of the end of the fiscal year, such balance sheets and accounts shall have been duly audited by the auditor, (ii) a statement of the Borrower’s preliminary financial figures not later than 90 days after the end of each financial year, (iii) receivables listing/aging list;
(c)	furnish such other financial information and information on the operations of the Borrower as may be reasonably required by the Bank from time to time;
(d)	notify the Bank of the occurrence of any Event of Default or Potential Event of Default immediately upon becoming aware of it and from time to time on request deliver to the Bank a certificate confirming that no Event of Default or Potential Event of Default has occurred or, if it has occurred, setting out the details thereof and the action taken or proposed to be taken to remedy it;
(e)	maintain its corporate existence in good standing in compliance with all applicable laws and maintain the present character of its business and conduct its business and operations in accordance with all applicable laws and other governmental directives, guidelines and policies applicable to it, and shall pay all of its indebtedness

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	and perform all of its contractual obligations promptly pursuant to all agreements and instruments by which it is bound at any time during the term of the Facility Letter and the Security Documents;
(f)	ensure that all its obligations under the Facility Letter rank and will rank at least pari passu in priority of payment and all other respects with all its other present and future unsecured and unsubordinated obligations;
(g)	immediately notify the Bank of any material adverse change in the conditions (financial or otherwise) of the Borrower or the Surety and of any litigation or proceedings initiated against the Borrower or the Surety before any court or administration agency, which might materially affect the operations of financial condition of the Borrower or the Surety;
(h)	Immediately inform the Bank of any change in the shareholding of the Borrower or the beneficial holding thereof, exceeding twenty percent (20%) of the total share equity of the Borrower and in such event, the Bank hereby reserves the right to review and if necessary cancel the Facilities, in which case, all outstanding monies shall become due and payable immediately;
(i)	not without the prior written consent of the Bank undertake or permit any arrangement or reconstruction of the present constitution or directorship of the Borrower or any other scheme or compromise or arrangement affecting the Borrower;
(j)	not without the prior written consent of the Bank either in a single transaction or in a series of transactions whether related or not and whether voluntarily or involuntarily, sell, transfer or otherwise dispose of all or a substantial part of its assets save in; the normal and ordinary course of its business;
(k)	shall perform and observe all of the undertakings obligations, covenants, terms and conditions on its part to be performed and observed herein;
(l)	if so required, make any disclosure, announcement or report pursuant to any legislation, laws, rules and regulations or otherwise to the relevant authorities; and
(m)	Deleted.

8.2 Negative Pledge: The Borrower shall not create any future charge, mortgage, pledge or lien in respect of any of its properties and assets nor factor nor assign any of its accounts receivable without the prior consent of the Bank, such consent not to be unreasonably withheld.

9 EVENTS OF DEFAULT

9.1 if any of the following events shall occur:-

(a)	the Borrower fails to pay any sum due within three (3) Business Days from its due date under the Facility Letter;
(b)	any representation, warranty, covenant or undertaking made by the Borrower or the Surety, herein or in the Facility Letter, the Security Documents or otherwise shall prove to have been incorrect in any material respect when made or when deem to be repeated with reference to the facts and circumstance then existing;
(c)	there occurs any breach of provisions or conditions herein or in the Facility Letter or any default in the performance by the Borrower or the Surety of any other provisions herein or in the Facility Letter or the Security Documents;
(d)	any other indebtedness of the Borrower or the Surety for amounts equal to or greater than USD 500,000.00 in aggregate (i) is not paid when due or within any applicable grace period in any agreement relating to that indebtedness or (ii) becomes due and payable before its normal maturity by reason of any actual or potential default or event of default or the like, however described;
(e)	any event has occurred which could, in the reasonable opinion of the Bank, prejudice the ability of the Borrower or the Surety to perform their respective obligations under the Facility Letter or the Security Documents;
(f)	the Borrower or the Surety takes any corporate action or other steps are taken or legal proceedings are started for its winding-up, dissolution, administration or bankruptcy (as the case may be) or reorganization or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of the Borrower or of any or all of its revenues and assets;
(g)	the Borrower or the Surety is (or could be, deemed by law or a court to be) insolvent or unable to pay its debts, stops, suspends or threatens to stop or suspend payment of all or a material part of (or of a particular type of ) its indebtedness, begins negotiations or takes any other step with a view to the deferral, rescheduling or other readjustment of all of (or all of a particular type of) its indebtedness (or of any part which it will or might otherwise be unable to pay when due), proposes or makes a general assignment or an arrangement or composition with or for the benefit of the relevant creditors or a moratorium is agreed or declared in respect of or affecting all or a material part of (or of a particular type of) the indebtedness of the Borrower of the Surety;
(h)	a distress, attachment, execution or other legal process is levied, enforced or sued out on or against the assets of the Borrower or the Surety for amounts equal to or greater than USD 500,000.00 in aggregate and is not discharged or stayed within 14 days;
(i)	any security on or over the assets of the Borrower or the Surety becomes enforceable;
(j)	the Borrower ceases or threatens to cease to carry on the business it carries on at the date hereof;
(k)	the Borrower repudiates the Facility Letter or the Surety repudiates any of the Security Documents or does or causes to be done any act or thing evidencing an intention to repudiate the facility Letter or any of the Security Documents;
(l)	any provision of the Facility Letter or the Security Documents is or becomes for any reason invalid or unenforceable;
(m)	in the reasonable opinion of the Bank, any security created under any of the Security Documents is in jeopardy;
(n)	it is or will become unlawful, illegal or contrary to any laws, regulations, directives, ruling or guidelines of any governmental or statutory authority in Singapore or elsewhere for the Bank to grant or continue to grant the Facility to the Borrower;

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(o)

where the Borrower or the Surety is an individual, the Borrower or the Surety dies or is declared by a court of competent jurisdiction to be of unsound mind or becomes incapacitated to such an extent as to give the Bank reasonable grounds for believing that the Borrower or the Surety may not (or may be unable to) perform or comply with its obligations under the Facility Letter, the Security Documents or herein as the case may be; or

(p)

any of the events stipulated in Clause 11.4, Clause 11.5 and Clause 11.6 shall occur and/or the Bank exercises any of its rights under one or more of such aforesaid Clauses.

then at any time thereafter, whether or not any Event of Default is continuing, the Bank may by notice to the Borrower.

(i)	declare the Facility of Facilities to be cancelled or terminated whereupon it shall be cancelled or terminated;
(ii)	declare all monies owing under the Facility Letter or hereunder to be immediately due and payable, whereupon they shall become so due and payable;
(iii)	enforce its rights under the Security Documents; and
(iv)	if the Bank’s obligation under any notes or bills (accepted, endorsed or discounted), bonds guarantees, indemnities, documentary or other credits or any instruments issued by the Bank have not been fully discharged, require the Borrower to immediately pay to the Bank such amount of monies as may be necessary to enable the Bank to apply the same to obtain a full discharge of its liabilities, actual or contingent, under such notes, bills, bonds, guarantees, indemnities, documentary or other credits or any instruments.

9.2

Each decision of the Bank with respect to Clause 9.1(e) and (m) shall be binding and conclusive on the Borrower.

9.3

Upon the occurrence of any Event of Default as specified herein and or the Security Documents, the Bank shall have the overriding right (without any obligation) to cover and/or revise any or all transactions outstanding under the Facilities at such rate of exchange as the Bank is able on the relevant date to obtain in such foreign exchange market as it may reasonable select which rates shall be binding and conclusive on the Borrower.

10 CHANGES IN APPLICABLE LAW OR CIRCUMSTANCES OR MARKET CONDITIONS

10.1

Illegality: If the Bank shall have determined that the introduction of, or a change in, any applicable law or regulation or a change in the interpretation or application thereof by any governmental or other regulatory authority charged with the administration thereof or a court of competent jurisdiction makes it unlawful for the Bank to make or maintain the whole or any part of the Facilities or otherwise to give effect to or maintain its obligations as contemplated by the Facility Letter or the Bank is prevented, hindered or delayed by any of the foregoing changes to perform its obligations under the Facility letter or hereunder or additional conditions are imposed on the Bank by such changes with respect to the Facility or Facilities, the available Facility or Facilities (if any) shall at the option of the Bank be cancelled forthwith and all monies owing hereunder may at the option of the Bank be declared immediately due and payable, whereupon they shall become so due and payable and the Security Documents shall immediately become enforceable by the Bank and if the Bank’s obligations under any notes or bills (accepted, endorsed or discounted), bonds, guarantees, indemnities, documentary or other credits or any instruments issued by the Bank have not been fully discharged, the Borrower shall immediately pay to the Bank such amount of monies as may necessary to enable the Bank to apply the same to obtain a full discharge of its liabilities, actual or contingent, under notes, bills, bonds, guarantees, indemnities, documentary or other credits or any instruments.

10.2

Increased Costs: If the Bank shall have determined that the introduction of, or a change in, any applicable law or regulation (whether having the force of law or not) or a change in the interpretation or application thereof by any governmental or other regulatory authority charged with the administration thereof or court of competent jurisdiction or that compliance by it with any request or directive (whether having the force of law or not) of any governmental or other regulatory authority:-

(i)	subjects the Bank to taxation or changes the basis of taxation of the Bank (other than on the overall net income of the Bank imposed by the jurisdiction in which its principal office or lending office is situated) in respect of payments of principal, interest of other sums under the Facility Letter and/or any of the Security Documents;
(ii)	imposes, modifies or deems applicable any reserve or deposit requirements against any assets or liabilities of, deposits with or for the account of, or loans by the Bank; or
(iii)	imposes on the Bank any other condition with respect to loans and commitments generally;

and the result of the foregoing is to:-

(a)	increase the cost of the Bank of making, maintaining of funding the whole or any part of the Facilities; or
(b)	reduce the whole or any part of any amount of principal, interest or other sum received of receivable by the Bank under the Facility Letter and/or any of the Security Documents; or
(c)	reduce the rate of return on its overall capital as the result of a change in the manner in which its capital resources are allocated to its obligations under the Facility Letter; or
(d)	otherwise reduce the profitability to the Bank in relation to the Facilities granted under the Facility Letter, then and in any such case, the Borrower shall pay to the Bank from time to time on demand such amount as the Bank certifies to be the amount which will compensate it for such additional cost or reduction and if the Bank’s obligations under any notes or bills (accepted, endorsed or discounted), bonds, guarantees, indemnities, documentary or other credits or any instruments issued by the Bank have not been fully discharged the Borrower shall immediately pay to the Bank such amount of monies as may be necessary to enable the Bank to apply the same to obtain a full discharge of its liabilities actual or contingent, under notes, bills, bonds, guarantees indemnities documentary or other credits or any other instruments. The Borrower shall have the option in such event to pre-pay in whole or in part of the loan within 30 days of receiving such certification.

10.3 Market Disruption: If in relation to any Interest Period, the Bank determines (which determination shall be conclusive and binding) that:

(a) by reason of circumstances affecting the relevant interbank market generally, adequate and fair means do not exist for ascertaining the Bank’s cost of funding the Advance(s) or any part thereof for the relevant Interest Period; or

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(b)	deposits in the Currency of the Advance in the required amount for the relevant Interest Period are not available to the Bank in the relevant interbank market; or
(c)	the relevant interbank rate does not represent its effective cost of funding the Advance(s) or any part thereof,

the applicable rate of interest on the affected Advance shall be the rate per annum determined by the Bank to be the aggregate of the margin and the cost to the Bank of funding from whatever source of sources it may select of such Advances during such Interest Period.

11 INDEMNITY & DISCRETIONS OF THE BANK

11.1 Without prejudice to any of the foregoing provisions, the Borrower shall indemnify the Bank on demand against any claim, cost, loss, expense, demand, liability, proceeding and action whatsoever sustained or incurred by the Bank (as conclusively certified by the Bank) howsoever arising from or otherwise in connection with:-

(i)	the making, funding and maintaining by the Bank of any of the Facilities;
(ii)	any default by the Borrower in relation to any of its obligations;
(iii)	the occurrence of any Event of Default or Potential Event of Default; and/or
(iv)	any Facility not being made for any reason after request for the utilization thereof has been given;

11.2	The Borrower shall also indemnify and hold the Bank harmless against any and all costs and expenses (including any goods and services or other similar taxes payable on such costs and expenses) incurred by the Bank in connection with the preservation or enforcement of the Facility Letter and the Security Documents including those incurred in the collection of monies owed by the Borrower to the Bank and in the preservation or enforcement of the rights of the Bank under the Facility Letter and the Security Documents as well as any present or future stamp duties, notarial fees, lawyer’s fees, registration fees or similar fees, and the Borrower will pay all such sums to the Bank forthwith upon demand.
11.3	The Borrower shall on demand reimburse the Bank for all costs and expenses (including any goods and services or other similar taxes payable on such costs and expenses) incurred by the Bank in the negotiation, preparation, execution and perfection of the Facility Letter and the Security Documents.
11.4	The Borrower shall fully indemnify and keep indemnified the Bank (at its head office and any and all branches of the Bank), its agents, sub-agents, Affiliates and every director, officer, employee or agent of any of the foregoing against any and all losses, damages, reasonable costs and expenses (including but not limited to legal costs on a full indemnity basis), charges, actions, suits, proceedings, orders, warrants, injunctions, claims or demands which may be brought against any of them or which any of them may suffer or incur in connection with or arising from (i) the provision of any Facilities or the Borrower’s accounts(s) held with the Bank or its Affiliates, or (ii) any transaction referable to, involving or relating to the Borrower or the Facilities or the Borrower’s account(s) held with the Bank or its Affiliates (“Borrower Transaction”), including but without limitation, any forfeiture, restraint or seizure of any funds of the bank made or issued pursuant to the USA PATRIOT Act (or any equivalent or similar law, regulation or legislation made pursuant to or which revises or replaces such Act) applicable to or affecting the Borrower, the Facilities or the Borrower Transaction(s) save where the same arises directly from their respective gross negligence, willful misconduct or fraud. Each of the terms “law” and “regulation” when used herein shall include sanctions, directives governmental notices or declarations (whether having the force of law or not). For this purpose, the Bank may at its sole discretion debit any of the Borrower’s account(s) held with the Bank or its Affiliates at any time without prior notice to the Borrower.
11.5	In the case where:

(a)

the Bank is served with or notified of or otherwise in any way affected by any law, directive, regulation, rule, judicial or administrative order, judgment, injunction, government act, sanction, decree, writ or other form of judicial or administrative process (including, but not limited to, orders of attachment or forfeiture, confiscation, garnishment, freezing or restraining orders, warrants or injunctions or levies of any form or stays of whatsoever nature and whether having the force of law or not) (collectively, the “Process”), which may affect or relate or referable to, or appear to affect or relate or referable to, the Borrower, the Borrower Transaction (s), or its account(s) held with the Bank or its Affiliates or any interbank account of the Bank or its Affiliates; or

(b)

the Bank in its opinion considers that it is necessary under any applicable Process to which the bank or its Affiliates are subject or affected by or under any non-statutory practice, procedures or guidelines (whether having the force of law or not) with which it is the Bank’s or its Affiliate’s practice or policy to comply, the Bank and its Affiliates may, and the Borrower hereby irrevocably authorise them to comply therewith in any manner or to take any action in relation thereto as it or its lawyers deem appropriate, including freezing, blocking and/or suspending or withholding payment of all or any amount(s) standing to the credit of the Borrower’s account(s) held with the Bank or such Affiliates and /or terminating or suspending the Facilities or any part thereof, Neither the Bank nor any of its Affiliates shall be liable to the Borrower or any other person or entity in any manner whatsoever for such compliance or taking such action even if such Process or non-statutory practice, procedures or guidelines may be subsequently modified or vacated or determined to have been without legal force or binding effect or not referable to the Borrower or not required to be complied by the Bank.

11.6 Neither the Bank nor any of its Affiliates shall be required to do anything or refrain from doing anything which would in its opinion infringe any applicable laws, directives, rules, decrees, orders, sanctions, government act, custom, procedure, practice, policy, regulations or guidelines. Further, neither the Bank nor any of its Affiliates shall be obliged in any way whatsoever to take or refrain from taking any action which is beyond its power to take or refrain from taking, in whole or in part as a result of any event or state of affairs of any kind whatsoever which is beyond its reasonable power to avoid. In particular but without prejudice to the generality of the foregoing, the Bank and/or any of its Affiliates may at their sole discretion suspend any dealing or withdrawal from any of the Borrower’s account(s) and/or terminate or suspend the availability of the Facilities or any part thereof notwithstanding any instruction to the contrary given by the Borrower. Neither the Bank nor any of its Affiliates shall be liable to the Borrower or any other person of entity in any manner whatsoever for any action or omission taken by the Bank or its Affiliates pursuant to this Clause.

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12 TAXES

12.1

All payments to be made by the Borrower under the Facility Letter and all payments to be made by the Borrower under each of the Security Documents shall be made without any set-off or counterclaim and free and clear of and without deduction for all present or future taxes, levies, deductions or withholdings or charges whatsoever (all such taxes, levies, deductions, withholdings and charges being hereinafter referred to as “Taxes”). If the Borrower is required by any law to deduct any Taxes from any amount payable under the Facility Letter and/or any of the Security Documents, the amount payable by the Borrower shall be increased as may be necessary so that after making all required deductions, the Bank receives an amount equal to the amount it would have received had no such deductions been made and the Borrower shall furnish to the Bank within the period for payment permitted by the applicable law an official receipt of the relevant taxation or other authorities for the amounts deducted or withheld as aforesaid.

12.2

If at any time the Borrower is required by law to make any deduction or withholding from any sum payable by it under the Facility Letter and/or any of the Security Documents (or if subsequently there is any change in the rates at which or the manner in which such deductions or withholdings are calculated), it shall:-

(i)	promptly notify the Bank upon becoming aware of the same;
(ii)	pay the full amount required to be deducted or withheld to the relevant authorities within the time allowed for such payment under the applicable law; and
(iii)	within thirty (30) days after any such deduction or withholding, furnish to the Bank evidence, including original or authenticated copies of tax receipts, that it has made the required deductions or withholdings.

12.3

The obligations of the Borrower under this Clause 12 shall survive and be and remain in full force and effect notwithstanding the repayment of all sums owing under or in connection with the Facilities.

12.4

The amounts stated in the Facility Letter and/or Security Documents to be payable by the Borrower are exclusive of Singapore goods and services tax (“GST”) which shall be for the account of the Borrower and accordingly the Borrower shall pay and indemnify the Bank against any GST chargeable in respect of or under or in connection with the Facility Letter and/or Security Documents at any time arising and howsoever arising.

13	SET-OFF AND CONSOLIDATION
	The Bank shall, so long as any part of the obligations and liabilities of the Borrower to the Bank (whether under the Facility Letter or otherwise) remains unpaid or undischarged, have a lien or a right of set-off over all or any of the accounts of the Borrower (whether solely or jointly with any other person or persons and whether current or deposit or of whatsoever type or nature) with the Bank whether in Singapore or elsewhere, and the Bank may at any time without notice to the Borrower combine, consolidate or merge all or any of such accounts with, and liabilities to, the Bank and may set-off, apply or transfer any sum standing to the credit of any such accounts (notwithstanding that any fixed deposit has not matured or any of the special conditions applicable to the deposit have not been satisfied) in or towards the satisfaction of such obligations and liabilities, and may do so whether such obligations and liabilities be present, future, actual, contingent, primary, collateral, several or joint and notwithstanding that the balances in such accounts and such obligations and liabilities may not be expressed in the same currency, and the Bank is hereby authorised to effect any necessary conversions at the Bank’s own rate of exchange then prevailing. In addition, the Bank shall also have a lien over all securities from time to time in the possession of the Bank, whether the same be held for safe custody or otherwise, and if the Borrower defaults in punctual payment of any of its obligations and liabilities to the Bank as aforesaid when due, the Bank shall have a power of sale in respect of such securities, to the extent permitted by applicable law, and shall be entitled to apply the proceeds of such sale in or towards the satisfaction of such obligations and liabilities. The rights of the Bank under this Clause 13 shall be in addition to any other right of lien and set-off which the Bank may be entitled under law, agreement or otherwise.
14	CHANGE IN CONSTITUTION
	The obligations of the Borrower shall continue to be valid and binding notwithstanding any change in its constitution, whether by, if it is a corporation, amalgamation, consolidation, reconstruction or otherwise, and if it is a firm, by retirement, expulsion, death, admission, accession or change of any partner or otherwise.
15	APPLICATION OF MONEYS
	If any sum paid or recovered in respect of the Borrower’s liabilities is less than the amount then owing, the Bank shall be entitled to apply that sum to interest, fees, charges, expenses, principal or any amount due in such proportions and order and generally in such manner as the Bank shall in its sole discretion think fit or to credit the same or part thereof to a suspense account as the Bank shall in its sole discretion think fit.
16	JOINT BORROWERS
	Where there are more than one Borrower, the liabilities of all the Borrowers for all monies owing to the Bank shall be joint and several and all the terms relating to each of the Facilities shall apply to the Borrowers jointly and severally.
17	AUTHORISATION
	The Borrower hereby irrevocably and expressly in writing consents to, authorises and permits the Bank and its employees and agents at any time to disclose such information relating to the Borrower and/or the Facilities (including but not limited to details of the Borrower’s account relationship with the Bank) and any other customer information (as defined in the Banking Act. (Cap. 19) of Singapore (the “Banking Act”) to its head office, other branches, regional offices, representative offices or affiliated companies or any governmental or regulatory agencies or authorities or supranational entity or body, administrative, fiscal or judicial body, courts and tribunals or any other authorities of whatsoever nature (in each case whether within or outside Singapore) or any potential assignee or transferee or persons who have entered into or who are proposing to enter into contractual arrangements with the Bank in relation to the banking facilities between the Borrower and the Bank, including without limitation, any Sureties (as defined in the Standard Terms) or any other person from time to time as the Bank shall in its sole discretion deem fit. Nothing in this paragraph shall constitute, nor be deemed to constitute, an express or implied agreement by the Bank and the Borrower for a higher degree of confidentiality than that prescribed in Section 47 of the Banking Act and in the Third Schedule thereto.

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18	EVIDENCE
	A written statement, including reasonable supporting documentation, from the Bank duly signed by its authorised officer shall in any proceedings arising from or in connection with the Facility Letter and/or the Security Documents, in the absence of manifest error, constitute conclusive and binding evidence of any amount appearing therefrom to be due and outstanding thereunder.
19	ASSIGNMENT AND FACILITY OFFICES

19.1

The Borrower may not assign or otherwise transfer any of its rights, benefits or obligations under the Facility Letter and/or any of the Security Documents.

19.2

The Bank may at any time without the consent of the Borrower assign and/or transfer and/or novate all or any of its rights, benefits and obligations hereunder, under the Facility Letter and/or any of the Security Documents and may for this purpose disclose to a potential assignee or transferee such information about the Borrower as may have been available to the Bank. The Bank may also from time to time change its facility office in relation to all or a specified part of the Facilities outstanding or committed herein by notifying the Borrower thereof.

20	REMEDIES AND WAIVERS
	No failure, delay or indulgence of whatsoever nature by the Bank in exercising any right, power or remedy herein or under the Facility Letter and/or the Security Documents or in respect of the Borrower’s obligations hereunder and hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. The rights, powers and remedies provided are cumulative and do not exclude any other rights, powers and remedies provided by law generally.
21	COMMUNICATIONS
	Any communication, notice or document to be made or delivered by one party to the other party under the Facility Letter shall be in writing and shall be made or delivered to that other party at the address mentioned below and shall be deemed to have been made or delivered when despatched (in the case of any communication made by facsimile or telex) or (in the case of any communication made by letter) when left at that address or as the case may be one day (if within Singapore) or five days (if outside Singapore) after being deposited in the post, postage prepaid, in an envelope addressed to it at that address or such change of address as the parties hereto may notify of in writing, in the manner described above, to one another Provided that any communication, notice or document to be made or delivered by the Borrower to the Bank shall be effective only when received by the Bank.

Address of the Bank	:		BNP PARIBAS
			TUNG CENTER
			20 COLLYER QUAY
			SINGAPORE 0493
Address of the Borrower	:	such address is specified in the Facility Letter or last known to the Bank

	Any service of process on the Borrower in respect of any legal proceedings in Singapore shall be deemed to be sufficiently served if sent by registered mail to the Borrower’s registered address or address last known to the Bank, provided nothing herein shall limit the right of the Bank to effect service of process in any other manner permitted by law.
22	SEVERANCE
	If at any time any of the provisions herein or in the Facility Letter is or becomes illegal, invalid or unenforceable in any respect under any law or regulation, the validity, legality and enforceability of the remaining provisions shall not be in any way affected or impaired.
23	LAW AND JURISDICTION
	The Facility Letter shall be governed, interpreted and construed in accordance with the laws of Singapore and the Borrower hereby submits to the non-exclusive jurisdiction of the courts of Singapore but agrees that the Bank will be at liberty to proceed against the Borrower in any court in any other jurisdiction.
24	REVIEW
	Deleted.
25	SURVIVING PROVISIONS
	Clauses 11, 12, 13 and 17, and this Clause 25, shall survive and continue in full force and effect for the benefit of the Bank notwithstanding the repayment, cancellation or termination of the Facilities or any part thereof and/or the termination of one or more types of banker-customer relationships between the Borrower and Bank.
B TERMS AND CONDITIONS RELATING TO SPECIFIC FACILITIES
1.	LOANS

(i) ROLLOVER

(a)	Subject to the terms of the Facility Letter and such other terms as stated herein, each Advance may be renewed for a further period as may be selected by the Borrower upon written notice in substantially the form in ANNEX B or such form as may be required by the Bank and given at least two (2) clear business days prior to the last day of the preceding Interest Period relating to such Advance.
(b)	All the terms and conditions herein and in the Facility Letter relating to the making of an Advance and/or the selection of an Interest Period shall apply mutatis mutandis to a renewed Advance and the new Interest Period relating thereto.
(c)	For any late notification of the Selected Interest Period the Borrower shall indemnify the Bank for all losses, fees ad expenses incurred by the Bank, arising from the disruption in its funding. A certificate by an officer of the Bank as to the amount of such funding losses shall be binding and conclusive on the Borrower.

(ii) PREPAYMENTS

(a) Upon giving notice of not less than the number of days indicated in the Facility Letter to that effect to the Bank, the Borrower may prepay any part of the Loan in whole or in part on any Interest Payment Date relating to that Loan in accordance with the provisions of this Clause I together with accrued interest thereon up to the date of prepayment and a prepayment fee at the rate indicated in the Facility Letter on the amount prepaid.

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(b)	No partial prepayment of the Loan shall relieve the Borrower of its obligation under the Facility Letter except to the extent of the amount repaid.
(c)	Notice of prepayment once having been given by the Borrower shall be irrevocable and it shall be obligatory on the Borrower to make prepayment in accordance with the notice.
(d)	Save as expressly provided in this Clause 1, no prepayment of the Loan or part thereof is allowed.
(e)	Without prejudice to sub-Clause (a) above, the Borrower shall on demand indemnify the Bank against any funding or other cost, loss, expense or liability sustained or incurred by the Bank (including without limitation, any cost, loss, expense or liability incurred in liquidating or otherwise re-employing deposits from third parties acquired to fund the making of the Loan at rates lower than the cost of such funds and any such costs, losses, expenses and liabilities suffered by any third party for which the Bank is liable) in the event of a prepayment pursuant to this Clause 1.

2	OVERDRAFT
	The Overdraft Facility shall be subject to periodic review and all sums outstanding under this Facility shall be repayable on demand notwithstanding anything contained herein or in the Facility Letter or in the Security Documents.
3	GUARANTEES, LETTERS OF CREDIT AND ALL OTHER TRADE FACILITIES
	The Borrower hereby unconditionally and irrevocably undertakes to and agrees with the Bank that it will at all times fully indemnify and save harmless the Bank from and against any and all actions, proceedings, liabilities, claims, demands, losses, damages, charges, costs and expenses of whatever nature which the Bank may at any time and from time to time directly or indirectly sustain, incur or suffer (a) by reason of the issue of any Banker’s Guarantee of Letter of Credit or Performance Bond or shipping Guarantee or its payment of any claim or liability thereunder or otherwise in connection with or arising in any way whatsoever out of any Banker’s Guarantee or Letter of Credit or Performance Bond or Shipping Guarantee and (b) by reason of the Facility letter. Without prejudice to the generality of the foregoing, the Borrower covenants and undertakes to pay to the Bank by way of indemnity at any time and from time to time immediately upon first demand by the Bank all moneys and liabilities whatsoever which may from time to time be claimed or demanded from the Bank or which the Bank may pay or which it determines it may be or become liable to pay or sustain, incur or suffer under or by reason of or in connection with any Banker’s Guarantee or Letter or Credit or Performance Bond or Shipping Guarantee. The Borrower shall make payment to the Bank following such claim or demand notwithstanding that at the time of the claim or demand the Bank is not liable under or required by law to make any payment under or in connection with the Banker’s Guarantee or Letter of Credit or Performance Bond or Shipping Guarantee and notwithstanding any other fact or circumstances which may constitute a defence or discharge to the Bank in respect of the claim or demand made against it under or in connection with the Banker’s Guarantee or Letter of Credit or Performance Bond or Shipping Guarantee.
	The Bank hereby shall have the right to, at any time, without notice to the Borrower, debit the current account of the Borrower and set aside the amount debited to cover the contingent liabilities of the Borrower to the Bank whether on performance guarantees, bonds, trust receipts, term bills, letters of credit or in any other manner whatsoever.

C DEFINITIONS AND INTERPRETATIONS

(a)	Unless the context otherwise requires, the following words and expressions used herein shall have the following meanings:-
	“Advance” means an advance made or to be made by the Bank to the Borrower under the Facility Letter or as the case may be the outstanding principal amount.
	“Affiliates” means any branch of BNP Paribas, and any company in which BNP Paribas from time to time, directly or indirectly, has or controls a shareholding which represents 10% or more of the issued share capital of such company and any company in which any of them is beneficial owner.
	“Business Day” means a day (other than a Saturday or Sunday) on which commercial banks are open for business in Singapore and if on that day a payment or transfer of funds is to be made in United States Dollars, commercial banks and foreign exchange markets are open for business in New York City and Singapore and/or if on that day a payment or transfer of funds to be made in an Alternative Currency, commercial banks and foreign exchange markets are open for business in the principal financial centre of the country of the currency and Singapore.
	“Event of Default” means any of the events mentioned in Clause 9 of Part A hereof.
	“Facility Letter” means the letter from the Bank granting the Facilities to the Borrower (as the same may be renewed, varied, extended or otherwise amended from time to time) to which these terms and conditions are annexed.
	“Facility” or “Facilities” means such facility or facilities granted by the Bank to the Borrower pursuant to the Facility Letter.
	“Interest Period” means, in relation to the Loan, a period mutually agreed between the Borrower and the Bank. In the event the Borrower fails to select the Interest Period, the Bank shall have the option to select the Interest Period.
	“Interest Payment Date” means the last day of the Interest Period or such other date as may be mutually agreed between the Borrower and the Bank.
	“Loan” means the term loan facility granted by the Bank under the Facility Letter.
	“Potential Event of Default” means any event which with the giving of notice, lapse of time or making of any determination or the satisfaction of any other condition (or any combination thereof), might/would constitute an Event of Default.
	“Security Documents” means any and every document, agreement or memorandum from time to time executed by the Borrower and/or the Surety to secure the obligations of the Borrower to the Bank (as may from time to time be amended, supplemented or modified, and includes any document that amends, supplements or modifies that Security Document).
	“Security Margin” means the margin mentioned as such in the Facility Letter.
	“Surety” means a party to a Security Document other than the Bank and the Borrower.
(b)	References to “Facility Letter” shall, unless the context otherwise requires, include all its schedules, attachments and annexures, as the same may be renewed, varied, extended or otherwise amended from time to time.

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(c)	Words importing the singular shall include the plural and vice versa.
(d)	Headings used herein are for case of reference only and shall not affect its interpretation.
(e)	A person who is not a party to any agreement incorporating these terms and conditions has no rights under the Contracts (Rights of Third Parties) Act 2001, (Cap. 53B) 2001 of Singapore to enforce or enjoy the benefit of any provision of such agreement and these terms and conditions.

***********************************

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(To be typed on company’s letterhead)

ANNEX A

BNP PARIBAS
Tung Centre # 01-01
20 Collyer Quay
Singapore 049319

[Date]

Dear Sirs

FACILITY LETTER REF:[       ] DATED [      ]

We refer to the above Facility Letter between ourselves and your Bank.

We hereby give you notice that pursuant to the Facility Letter we wish to drawdown                     (Currency and amount in figures)                     (Currency and amount in words) on                      or if that is not a Business Day, on the next succeeding Business Day.

You are instructed to credit the proceeds of the drawing to Account No.                                          for credit of                                         .

We confirm that no Event of Default has occurred and is continuing or will have occurred upon the date the drawdown is to be made and that the representations and warranties contained in Clause 7 of Part A of the Standard Terms and Conditions Governing Banking Facilities (as may be revised, amended or supplemented from time to time) are true and accurate in all respects in relation to the facts pertaining at today’s date as if they had been set out in full herein.

Yours faithfully
for and on behalf of

                                                            
AUTHORISED SIGNATORY

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(To be typed on company’s letterhead)

ANNEX B

BNP PARIBAS
Tung Centre # 01-01
20 Collyer Quay
Singapore 049319

Dear Sirs

ADVANCE *USD/SGD
MATURITY

We refer to the above Advance which will mature on                      and request you to extend the Advance for a further period of                      months commencing from                      to                     .

We confirm that no Event of Default has occurred and is continuing or will have occurred upon the date the extension is to be made and that the representations an warranties contained in Clause 7 of Part A of the Standard Terms and Conditions Governing Banking Facilities are true and accurate in all respects pertaining at today’s date as if they had been set out in full herein.

Yours faithfully
for and on behalf of

                                                            
AUTHORISED SIGNATORY

* Delete whichever is not applicable

SCHEDULE 2

Additional Conditions Precedent

Each of the following shall be additional Conditions Precedent

1.	Receipt by the Bank of all the documents listed in Clause 9 of the Letter Agreement duly executed in form and substance satisfactory to the Bank.
2.	Receipt by the Bank of the Letter Agreement dated 12 Aug 2005 duly accepted by the Borrower.
3.	Receipt by the Bank of certified true copy of the duly signed Supply Agency and Sales Agreement between BP Singapore Pte Ltd and the Borrower dated 21 December 2001 and the Bank being satisfied with the same.
4.	Receipt by the Bank of certified true copy of the duly signed crude oil sales and purchases contract between the Borrower (as seller) and the Refiner (as buyer) dated 31 May 2004 (the “IOL Crude Oil Contract”) and the Bank being satisfied with the same.
5.	Receipt by the Bank of certified true copy of the duly signed petroleum products sales and purchase contract between the Borrower (as buyer) and the Refiner (as seller) dated 31 May 2004 (the “IOL Export Contract”) and the Bank being satisfied with the same.
6.	Receipt by the Bank of certified true copy of the duly signed Export Marketing and Shipping Agreement between the Borrower and Shell International Eastern Trading Company dated 23 March 2001 (the “SIETCO Export Contract”) and the Bank being satisfied with the same.
7.	Receipt by the Bank of certified true copy of the duly signed Agreement for the Sale and Purchase of Naphtha between the Borrower and Shell International Eastern Trading Company dated 8 February 2001 (the “SIETCO Naphtha Export Contract”) and the Bank being satisfied with the same.
8.	Receipt by the Bank of certified true copy of the duly signed Domestic Sales Contract between the Refiner and Shell Papua New Guinea Limited dated 9 April 2001 (the “Shell Domestic Contract”) and the Bank being satisfied with the same.
9.	Receipt by the Bank of certified true copy of all duly signed Domestic Sales Contract for the sale of the Products by the Refiner to any buyer, including but not limited to the BP Domestic Sale Contract, the Mobil Domestic Contract and the Niugini Domestic, and the Bank being satisfied with the same.
10.	Receipt by the Bank of certified true copy of the Refinery Management Contract executed between the Refiner and Petrofac Niugini on 9 November 2003 and the Bank being satisfied with the same.
11.	Receipt by the Bank of such documentary evidence satisfactory to the Bank issued by Clough Niugini Limited, certifying that the IOL Refinery is ready to accept the first crude oil for refining.
12.	Receipt by the Bank of a signed acceptable insurance policy covering any losses to crude oil and petroleum products located in the Refiner’s storage facilities, with the Bank nominated as loss payee, and evidence of payment of the related insurance premium, the Bank being satisfied with the same.
13.	Receipt by the Bank of an acceptable hedging policy of the Borrower and the Refiner designed to ensure that the Borrower and the Refiner are not exposed to adverse oil price movements, and the Bank being satisfied with the same.
14.	Receipt by the Bank of a certified true copy by or on behalf of the Borrower and the Refiner, of each such law, decree, consent, license, approval, registration or declaration as is, in the opinion of the legal counsel to the Bank, necessary to perfect the Security Documents and to render this Letter Agreement and all Security Documents legal, valid, blinding and enforceable, to make this Letter Agreement and all Security Documents admissible in evidence in its jurisdiction of incorporation and to enable the Borrower and the Refiner to perform their obligations hereunder

	including, without limitation (a) the approval of the Bank of Papua New Guinea to the entry into by the Borrower and the Refiner of this Facility Agreement and the opening of the IOL Collection Account, the IOL, Account and the IOL Operating Account (b) the prior written consent of OPIC to the creation of, and priority of the Bank under, the security interests described in the Security Documents executed or to be executed by the Refiner; and (c) the written consent of all counterparties to the sale and purchase contracts assigned under the Security Documents, where applicable.
15.	Receipt by the Bank of documentary evidence on the continued application as force of law in respect of [the authority from The Independent Consumer & Competition Commission (Oil Refining Facility State Agreement Exception) Regulation 2003 as gazetted in the National Gazette on 25 September 2003 relation to the domestic price formula for all petroleum products], and the Bank being satisfied with the same.
16.	Receipt by the Bank of the appointment of a process agent in Singapore, by the Borrower, the Refiner and IOC, together with the acceptance by such process agents of their respective appointment, each in form and substance satisfactory to the Bank.
17.	Receipt by the Bank of a legal opinion of the Bank’s Papua New Guinea legal counsel in form and substance satisfactory to the Bank.
18.	Receipt by the Bank of a legal opinion of the Bank’s Cayman Island legal counsel in form and substance satisfactory to the Bank.
19.	Receipt by the Bank of a legal opinion of the Bank’s Canadian legal counsel in form and substance satisfactory to the Bank.
20.	Receipt by the Bank of a legal opinion of the Bank’s Bahamas legal counsel in form and substance satisfactory to the Bank.
21.	Receipt by the Bank of a legal opinion of the Bank’s Singapore legal counsel in form and substance satisfactory to the Bank.
22.	Receipt by the Bank of the PNG Regulation and the Project Agreement (as each is defined in Schedule 2).
23.	Execution of all Security Documents, the Letter Agreement and all documents defined in Letter Agreement.
24.	Establishment of the Accounts as defined in Clause 14 of the Letter Agreement.
25.	Receipt by the Bank of documentary evidence containing clear identification of the dead stock levels in the Refiner’s refinery and storage facilities and issued by Petrofac Niugini.
26.	Payment by the Borrower of the legal and other expenses incurred by the Bank in the preparation negotiation, execution and perfection of the Letter Agreement, the Security Documents and the transactions contemplated therein.
27.	Such other documents reasonably required by the Bank related to the Letter Agreement, the Facilities and/or the Security Documents, and notified to the Borrower.

SCHEDULE 3

Events of Default

For the purpose this Schedule 3, the Standard Terms and the Addendum to the Standard Terms, a “Material Adverse Effect” means a material adverse effect on (i) the operation of the Refinery, (ii) the business, operations, prospects, condition (financial or otherwise) of the Borrower or any Surety, (iii) the ability of the Borrower or any Surety to perform its obligations under the Letter Agreement and/or the Security Documents to which it is a party, (iv) the validity or enforceability of any material provision of the Letter Agreement and/or the Security Documents to which it is a party, (v) the effectiveness or priority of the Bank’s security interest under any Security Document, or (v) the rights and remedies available to the Bank under the Letter Agreement and/or any of the Security Documents.

Each of the events or circumstances set out below is an Event of Default for the purpose of Section A, Clause 9 of the Standard Terms:

1.	Each of the events set out in Section A, Clause 9.1 of the Standard Terms.
2.	Non-compliance of the Independent Consumer and Competition Commission (Oil Refining Facility State Agreement Exception) Regulation 2003 as gazetted in the Papua New Guinea National Gazette on 25 September 2003 whereby the Independent State of Papua New Guinea (the “State”) shall ensure that the Domestic Distributors shall first purchase the petroleum products for Papua New Guinea domestic consumption from the Refiner at the Import Parity Price formula (the “PNG Regulation”), and such non-compliance is not rectified by the Borrower to the complete satisfaction of the Bank within thirty (30) days from the date of its occurrence.
	“Import Parity Price” means in respect to a petroleum products, its import parity price as determined in accordance with the provisions of the agreement dated 29 May 1997 between the State and the Borrower and the Refiner (as varied by an extension deed dated 1 July 1999 between the Appendix A of the State and the Borrower and the Refiner), as attached to the petroleum processing facility license granted to the Refiner pursuant to Papua New Guinea Oil and Gas Act 1998 (the “Project Agreement”).
	“Domestic Distributors” means all distributors in the State that distribute petroleum products to retailers of such petroleum product.
3.	Any amendment, revocation or termination of the PNG Regulation for any reason whatsoever, and such amendment, revocation or termination is not rectified by the Borrower or such relevant parties to the complete satisfaction of the Bank within thirty (30) days from the date of its occurrence.
4.	Any amendment, breach, revocation or termination of the Project Agreement, including but not limited to the State’s covenant to ensure that the Domestic Distributors first purchase the Products from domestic refineries including the Refiner at the Import Parity Price formula, and such amendment, breach, revocation or termination is not rectified by the Borrower or such relevant parties to the complete satisfaction of the Bank within thirty (30) days from the date of the its occurrence.
	“Project Agreement” means the Agreement dated 29 May 1997 between the State of Papua New Guinea, the Borrower and the Refiner (as varied by an extension deed dated 1 July 1999 between the Appendix A of the State of Papua New Guinea, the Borrower and the Refiner), as attached to the petroleum processing facility license granted to the Refiner pursuant to Papua New Guinea Oil and Gas Act 1998.
5.	Any change in control and/or ownership of the Borrower and/or the Refiner and/or any Guarantor (excluding IOC) from the control/ownership structure existing as at the date of the Letter Agreement, without the Prior written consent of the Bank, such written consent not to be unreasonably withheld.

6.	Any change in control and/or ownership of IOC from the control/ownership structure existing as at the date of the Letter Agreement in excess of 50% in aggregate, without the prior written consent of the Bank, such written consent not to be unreasonably withheld.
7.	Any merger or amalgamation of the Borrower and/or the Refiner and/or any Guarantor without the prior written consent of the Bank, such written consent not to be unreasonably withheld.
8.	Any breach in the Security Margin, and such breach is not cured within three (3) Business Days from the date written notice from the Bank.
9.	The CVR being less than 1.20, and such shortfall is not cured within three (3) Business Days from the date written notice from the Bank.
10.	Any material adverse development in the financial, economic or political condition in Papua New Guinea which, in the opinion of the Bank, may have a material adverse effect on the Borrower and/or the Refiner and/or any Guarantor.
11.	Any material change or proposed change the nature and/or scope of the Borrower’s business, save with the prior written consent of the Bank.
12.	The government of Papua New Guinea or Singapore or any of the respective countries in which the Borrower, the Refiner and the respective Guarantor is incorporated or any agency thereof, imposes or declares that it will impose any form of exchange control or any law is passed or any other event occurred that will prohibit, substantially prevent or impair the ability of the Borrower, the Refiner and/or any Guarantor to pay remit when due, the principal, interest, fees under the Facilities or to otherwise perform its respective obligations under the Letter Agreement, the Security Documents and/or the sale contracts referred to in the Letter Agreement to which it is a party.

Upon the occurrence of any of the above Events of Default, the consequences set out in Section A, Clause 9 of the Standard Terms shall apply.

EX-99.9

AMENDED AND RESTATED INDIRECT PARTICIPATION
INTEREST AGREEMENT

by and among

INTEROIL CORPORATION

AND

the

INVESTORS

(Listed on Exhibit A)

FEBRUARY 25, 2005

TABLE OF CONTENTS

	Page
ARTICLE I. DEFINED TERMS		1
Section 1.1 Definitions		1
Section 1.2 Construction		6
ARTICLE II. PURCHASE OF INDIRECT PARTICIPATION INTEREST		6
Section 2.1 Payment by Investor		6
Section 2.2 Terms of Payment		6
Section 2.3 Payments to Investor Upon State Election		6
Section 2.4 Distributions		7
ARTICLE III. EXPLORATION PROGRAM		8
Section 3.1 Exploration Program		8
Section 3.2 Designated Exploration Wells		8
Section 3.3 Optional Exploration Wells		8
Section 3.4 InterOil Services		9
Section 3.5 Substitute Wells		10
Section 3.6 InterOil to Pay Costs		10
Section 3.7 Timing; Drilling to Total Depth		10
Section 3.8 Reports		10
Section 3.9 Disclosure		11
ARTICLE IV. DISCOVERIES		11
Section 4.1 Activities after Total Depth		11
Section 4.2 Completion Elections		11
Section 4.3 PDL		12
Section 4.4 Participation in PDL		12
ARTICLE V. SUBSEQUENT OPERATIONS; NON-CONSENT; FEES		13
Section 5.1 Subsequent Work Programs		13
Section 5.2 Non-Consent Operations		13
Section 5.3 Debt Financing		14
Section 5.4 Incentive Discovery Fee		14
Section 5.5 Infrastructure Fee		15
ARTICLE VI. STOCK ISSUANCE		15
Section 6.1 Conversion Right		15
Section 6.2 Restrictive Legend		15
Section 6.3 No Rights as Shareholder until Issuance		16
Section 6.4 Certain Adjustments		16
Section 6.5 Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets		16
Section 6.6 Other Distributions		17
Section 6.7 Representations and Warranties of Investors		17

i

	Page
Section 6.8 Registration Rights Agreement		18
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF INTEROIL		18
Section 7.1 Representations and Warranties		18
ARTICLE VIII. ASSIGNMENT		21
Section 8.1 Generally		21
Section 8.2 Binding Effect		21
Section 8.3 Ability to Encumber		21
Section 8.4 Tag-Along Right		22
ARTICLE IX. CALL OPTION		22
Section 9.1 Reduction of IPI Percentage		22
Section 9.2 Conditions for Reduction of IPI Percentage		23
ARTICLE X. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS		23
Section 10.1 Confidentiality		23
ARTICLE XI. TERM AND TERMINATION		24
Section 11.1 Term		24
ARTICLE XII. FORCE MAJEURE		25
Section 12.1 Force Majeure		25
Section 12.2 Notice		25
Section 12.3 Obligations Reinstated		25
ARTICLE XIII. NOTICES		25
Section 13.1 Address		25
Section 13.2 Address		26
Section 13.3 Change of Address		26
ARTICLE XIV. MISCELLANEOUS		26
Section 14.1 Amendment		26
Section 14.2 Waiver		26
Section 14.3 Entire Agreement		26
Section 14.4 Costs		26
Section 14.5 Accounts		26
Section 14.6 Governing Law		27
Section 14.7 Relationship		27
Section 14.8 Standard of Performance		27
Section 14.9 Counterparts		27
Section 14.10 Dispute Resolution		27
Section 14.11 Additional Investors		28
Section 14.12 Previous Agreements		28
Section 14.13 Other Agreements		28
Section 14.14 Tax Matters		28
Section 14.15 Completion Cost Cap		29

ii

List of Investors	Exhibit A
Accounting Procedures	Exhibit B
Registration Rights Agreement	Exhibit C

iii

AMENDED AND RESTATED INDIRECT PARTICIPATION INTEREST
AGREEMENT

     THIS AGREEMENT is made as of the 25th day of February 2005, by and among InterOil Corporation, a New Brunswick, Canada corporation (“InterOil”), and the persons who have executed this Agreement and whose names are listed on Exhibit A (individually an “Investor” and collectively, “Investors”).

RECITALS

     WHEREAS, InterOil, through its subsidiaries (“Subsidiaries”), is conducting an exploration drilling program in Papua New Guinea;

     WHEREAS, Subsidiaries currently own PPLs numbers PPL 236, PPL 237 and PPL 238, and may acquire additional Licences in Papua New Guinea;

     WHEREAS, InterOil is seeking investors to participate in funding an eight (8) well exploration program on the Licences (as defined herein) to test independent Zones, and, if the exploration program discovers oil or gas in commercial quantities, to develop the Fields discovered;

     WHEREAS, certain of the Investors previously entered into indirect participation interest agreements (“Previous Agreements”) related to the eight (8) well exploration program on the Licences contemplated by this Agreement;

     WHEREAS, InterOil and the Investors desire to enter into this Agreement to amend and restate such Previous Agreements in their entirety.

     NOW THIS AGREEMENT WITNESSES that the parties hereby covenant and agree as follows:

ARTICLE I.
Defined Terms

     Section 1.1 Definitions. The following terms have the meanings ascribed to them below, unless the context clearly requires otherwise:

     “Abandonment Security” means an amount of funds retained from amounts otherwise distributable to Investors, determined by InterOil in its reasonable discretion in accordance with the Operator Standard, to be necessary to pay costs to plug, abandon and restore the site of a well or wells in compliance with applicable governmental regulations.

     “Accounting Procedure” means the procedures attached as Exhibit B.

     “Agreed Interest Rate” means interest compounded on a monthly basis at the rate per annum equal to the one (1) month term, London Interbank Offer Rate (“LIBOR”) for U.S. Dollar deposits, as published by The Wall Street Journal or, if not published, then by the Financial

1

Times of London, plus five percent (5%), applicable on the due date of payment and thereafter on the first business day of each succeeding one (1) month term. If the aforesaid rate is contrary to any applicable usury law, the rate of interest to be charged is the maximum rate permitted by such applicable law.

     “AFE” means an authorization for expenditure submitted by InterOil pursuant to Section 5.2.

     “Affiliate” means, in relation to a person, any person controlled by, controlling or under common control with, such person.

     “barrel” means that quantity of petroleum, which will occupy a volume of 42 U.S. standard gallons measured at 60 degrees Fahrenheit (which volume shall be deemed equivalent to 0.158987 cubic metres when measured at 15.55 degrees Celsius).

     “Block” means a block constituted as provided by Section 17 of the Oil and Gas Act.

     “BOE” means a barrel of oil equivalent, converting natural gas to oil on the basis of 6 Mcf of gas to 1 BOE. An Mcf of natural gas shall be 1,000 cubic feet of natural gas measured by InterOil in accordance with the Operator Standard using temperature, pressure and other factors generally acceptable in the industry for the area of production.

     “Common Shares” means the common shares, no par value, of InterOil.

     “Completion” has the meaning set forth in Section 4.1.

     “Confidential Information” has the meaning set forth in Section 10.1.

     “Conversion Right” means the unilateral right of an Investor to convert its IPI Percentage interest into Common Shares as described in Section 6.1.

     “Conversion Right Period” means the period commencing on the earlier of (A) June 15, 2006 (which date shall not be subject to extension by reason of Force Majeure) and (B) the date, if any, on which InterOil provides notice of a proposed reduction in an IPI Percentage under Section 9.1, and ending on the later of the following:

(a)	December 15, 2006,
(b)	ninety (90) days after the drilling to Total Depth, and, if applicable, Completion of the eighth (8th) Exploration Well drilled by InterOil or its Subsidiaries hereunder has been concluded.

     “Corporations Law” means the Business Corporations Act (New Brunswick) as amended.

     “Drilling Program” means the drilling program prepared by InterOil for each well hereunder at least in the level of detail as set out in section 104 of the Regulation.

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     “Exploration Well” means any one of the wells designated by InterOil as provided in Section 3.1.

     “Extended Well Test” means a Subsequent Work Program that consists primarily of drilling and completing up to four appraisal wells for the purpose of determining whether an Exploration Well has discovered commercial Petroleum deposits or for delineating the geographic extent or size of a Field or Zone believed discovered by an Exploration Well.

     “Field” means the minimum subsurface area required to contain the maximum subsurface area of a Zone as reasonably determined by InterOil as the most likely petroleum-water fluid contact or contacts on a structural map delineating the single structural closure of each Zone. For the avoidance of doubt:

     (a) where two or more Zones include a common Petroleum Pool these structures comprise a single Field; and

     (b) where two or more Zones are found adjacent to, above or below each other, with separate interpreted structural, spill points, different pressures or stratigraphic closures and which do not include a common Petroleum Pool, such structures are separate Fields.

     “Gross Negligence” means any act or failure to act (whether sole, joint or concurrent) by a party which was intended to cause, or which was in reckless disregard of or wanton indifference to, harmful and avoidable consequences such party knew, or should have known, such act or failure to act would have had on the safety or property of another person or entity.

     “InterOil Refinery” means the oil refinery at Napa Napa near Port Moresby in Papua New Guinea owned by InterOil Limited.

     “IPI Percentage” means, for each Investor, the percent interest set forth on Exhibit A hereto, opposite such Investor’s name under the column labelled IPI Percentage. The total of all IPI Percentages shall equal the total set forth on Exhibit A. Each Investor’s IPI Percentage is subject to reduction as provided in Article IX.

     “Joint Account” one or more bank accounts established by InterOil or one of its Affiliates to receive deposit of the Purchase Price and other amounts attributable to operations under this Agreement and from which disbursements to fund operations under this Agreement will be made in accordance with the Accounting Procedure.

     “JVOA” means a form of Joint Venture Operating Agreement agreed to by InterOil and a Majority Interest of the Investors in such JVOA. Such JVOA shall be substantially based on the 2002 AIPN Model Form International Operating Agreement, with such provisions as shall be necessary to comply with applicable law and the Regulations. Such JVOA shall provide that all decisions made with respect to work programs and budgets will be made by holders of a majority of the Participation Interests in such JVOA and for payment of the fees payable to InterOil under Sections 5.4 and 5.5 of this Agreement. InterOil and the Investors who will be a party to such JVOA will each negotiate reasonably and in good faith regarding the terms of such JVOA.

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     “Licence” means PPL 236, PPL 237 or PPL 238 in Papua New Guinea or any PDL that may be issued or granted out of any such PPL, and includes any extension, renewal or variation of such Licence.

     “Licence Areas” means the area covered by any or all of PPL 236, PPL 237 and PPL 238 in Papua New Guinea, and includes the area covered by any extension, renewal or variation of such Licence.

     “Majority Interest” means the vote or consent of Investors whose IPI Percentage represents a majority of the IPI Percentage.

     “Material Adverse Effect” means any adverse effect on the business, operations, properties, prospects or financial condition of InterOil and its Subsidiaries and which is (either alone or together with all other adverse effects) material to InterOil and its Subsidiaries taken as a whole, and any material adverse effect on the transactions contemplated under this Agreement, the Transaction Documents, or any other agreement or document contemplated hereby or thereby.

     “Non-Consent Risk Penalty” means for any Subsequent Work Program an amount to be deducted by InterOil from Quarterly Distributions otherwise payable to Investor in accordance with Section 5.2(a)(ii), equal to:

(a)	800% of the total amount InterOil paid on behalf of Investor’s IPI Percentage of the costs of any Subsequent Work Program in which Investor did not elect to participate; and
(b)	interest on the unrecovered balance of such amount accruing daily at the Agreed Interest Rate.

     “Oil and Gas Act” means the Oil and Gas Act 1998 (No. 49 of 1998) of Papua New Guinea, as amended from time to time.

     “Operator” means InterOil or its wholly owned subsidiary, designated by InterOil to act as Operator under the terms of the JVOA.

     “Operator Standard” has the meaning set forth in Section 14.8.

     “Operator’s Direct Charges” has the meaning set forth in the Accounting Procedure.

     “Operator’s Indirect Charges” has the meaning set forth in the Accounting Procedure.

     “Participation Area” has the meaning set forth in Section 4.3.

     “Participation Interest” means, with respect to a party to the JVOA, that party’s undivided interest, expressed as a percentage and determined in accordance with the JVOA, in all rights, interests, benefits, obligations and liabilities derived under and by virtue of the JVOA.

     “PDL” means a Petroleum Development Licence granted under the Oil and Gas Act.

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     “Petroleum” means:

(a)	any naturally occurring hydrocarbons, whether in a gaseous, liquid, or solid state; or
(b)	any naturally occurring mixture of hydrocarbons, whether in a gaseous, liquid, or solid state; or
(c)	any naturally occurring mixture of one or more hydrocarbons, whether in a gaseous, liquid, or solid state and any other substance; or
(d)	any fraction, mixture or product derived from sub-paragraphs (a), (b) or (c) as a result of Production or processing; or
(e)	any Petroleum as defined in sub-paragraphs (a), (b), (c) or (d) which has been returned to a natural reservoir, but does not include coal or any other substance which can only be recovered by mechanical mining processes.

     “Petroleum Agreement” means an agreement entered into between the holders of a PDL and the State to provide for the State’s participation in the PDL.

     “Petroleum Pool” means a naturally occurring discrete accumulation of Petroleum.

     “PPL” means a Petroleum Prospecting Licence granted under the Oil and Gas Act.

     “PPL 236” means Petroleum Prospecting Licence 236 granted under the Oil and Gas Act.

     “PPL 237” means Petroleum Prospecting Licence 237 granted under the Oil and Gas Act.

     “PPL 238” means Petroleum Prospecting Licence 238 granted under the Oil and Gas Act.

     “Purchase Price” has the meaning set forth in Section 2.2.

     “Registration Rights Agreement” means the Registration Rights Agreement among InterOil and the Investors in substantially the form attached hereto as Exhibit C, providing for registration under the Securities Act of the resale of Common Shares issuable on exercise of the Conversion Right.

     “Regulation” means the Oil and Gas Regulation 2002 (No. 10 of 2002) of Papua New Guinea.

     “Securities Act” means the United States Securities Act of 1933, as amended from time to time, and the rules and regulations of the United States Securities and Exchange Commission promulgated thereunder.

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     “State” means the Independent State of Papua New Guinea, unless the context otherwise requires.

     “Subsequent Work Program” has the meaning set forth in Section 5.1.

     “Total Depth” means the true vertical depth to which each Exploration Well will be drilled, as determined pursuant to this Agreement.

     “Transaction Documents” means this Agreement and the Registration Rights Agreement.

     “Wilful Misconduct” means, in relation to InterOil, an intentional and conscious act or omission not justified by any special circumstances as amounts to an utter disregard of any provision of this Agreement or the JVOA.

     “Zone” means a discrete stratigraphic interval within a geological structure containing or thought to contain a Petroleum Pool, or other common accumulation of Petroleum separately producible from any other common accumulation of Petroleum. For the avoidance of doubt, where two or more porous zones are found adjacent to each other, with separate interpreted structural, spill points, different pressures or stratigraphic closures such zones are separate Zones.

     Section 1.2 Construction. The parties agree that:

(a)	reference to a clause means a clause of this Agreement; and
(b)	reference to legislation or any document includes any amendments or replacements to the legislation or document.

ARTICLE II.
PURCHASE OF INDIRECT PARTICIPATION INTEREST

     Section 2.1 Payment by Investor. In consideration of InterOil entering into this Agreement, Investor agrees to pay to InterOil the amount set forth next to the Investor’s name on Exhibit A under the column labelled Purchase Price.

     Section 2.2 Terms of Payment. Each Investor agrees to wire transfer the amounts set forth in Section 2.1 to InterOil’s account one business day after the date hereof (“Purchase Price”); provided, however, that the Investors indicated on Exhibit A shall pay one half of their purchase price prior to the execution of this Agreement and the balance on or before March 15, 2005. The Purchase Price paid by Investors to InterOil hereunder shall be deposited in the Joint Account and shall only be used in accordance with Section 14.5.

     Section 2.3 Payments to Investor Upon State Election. If the State or its nominee elects under the Petroleum Agreement to participate in a PDL by taking a Participation Interest of up to 22.5% (or any other State reversionary interest entitlement whether resulting in State participation in excess of 22.5% or otherwise), InterOil will pay to each Investor such Investor’s IPI Percentage multiplied by any amount paid by the State to InterOil in connection with such

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participation. If the State so elects to participate, the Investors and InterOil must contribute a portion of their Participation Interest, in proportion to their respective Participation Interest, to the interest to be acquired by the State or its nominee and must execute such documents as are necessary to effect such transfer of interest. The Participation Interest of InterOil and each Investor will be reduced proportionally.

     Section 2.4 Distributions.

(a)

As soon as practical following the end of each fiscal quarter, InterOil shall calculate for each Investor, the amount of such Investor’s Quarterly Distribution. Within 45 days following the end of each of the first three fiscal quarters of each year, and within 90 days following the end of each fiscal year, subject to Section 5.2 regarding the payment to InterOil of the Non-Consent Risk Penalty, InterOil shall pay, or cause Subsidiaries to pay, to each Investor, the amount (if positive) of such Investor’s Quarterly Distribution by wire transfer to an account specified by Investor (or if no account has been specified, by company check mailed to Investor).

(b)

As used herein, for each Investor, “Quarterly Distribution” for any fiscal quarter means the following amount multiplied by the Investor’s IPI Percentage:

(i) all cash representing the proceeds of the sale of Petroleum during such Quarter produced from wells in Fields (including, without limitation, Exploration Wells and any wells that are part of a Subsequent Work Program) in which Investor has not forfeited its rights under Section 4.2; less the sum of the following:

(A)	Operator’s Direct Charges allocable to operations in such Fields;
(B)	Operator’s Indirect Charges allocable to operations in such Fields;
(C)	Any amounts, including principal, interest and fees to repay loans solely pursuant to the provision therefore in Section 5.3; and
(D)	Royalties, taxes, imposts, levies and other amounts and taxes, including income taxes, value added, goods and services taxes or dividend withholding taxes paid or payable with respect to such cash proceeds or production during the quarter with respect to such Fields (provided that any such amounts subsequently recovered by InterOil shall be distributed to the appropriate Investors).

(c) Notwithstanding the provisions of paragraph (a) of this Section, InterOil may retain from an Investor’s Quarterly Distribution the following amounts:

(i) Investor’s IPI Percentage of Abandonment Security for operations in Fields in which Investor has not forfeited its interest under Section 4.2; and

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(ii) The incentive fee payable under Section 5.4 and the infrastructure fee payable under Section 5.5.

Amounts withheld under paragraph (c)(i) shall be deposited by InterOil in a segregated account and used only to fund Investor’s IPI Percentage share of abandonment costs or paid to Investor to the extent InterOil reasonably determines such amounts are not necessary to pay Investor’s IPI Percentage of abandonment costs. InterOil shall timely provide to Investors reasonably detailed backup regarding the amount of such abandonment costs.

(d) Notwithstanding any other provision of this Agreement, InterOil and Subsidiaries shall have the right to offset any amounts payable to an Investor hereunder against amounts Investor owes to InterOil or Subsidiaries under this Agreement.

ARTICLE III.
EXPLORATION PROGRAM

     Section 3.1 Exploration Program. The Exploration Program to be conducted under this Agreement shall consist of six Exploration Wells designated by InterOil as provided in Section 3.2 (the “Designated Exploration Wells”) and two Exploration Wells determined by InterOil with the consent or participation of a Majority Interest as provided in Section 3.3 (the “Optional Exploration Wells”).

     Section 3.2 Designated Exploration Wells. InterOil shall designate one (1) Designated Exploration Well location in each of PPL 236 and PPL 237, and four (4) Designated Exploration Well locations in PPL 238. Each Designated Exploration Well location shall be selected by InterOil to test a separate Zone, and shall be based on such topographical, geological, geophysical, engineering, seismic and other data as InterOil reasonably determines in accordance with the Operator Standard. InterOil shall select the Designated Exploration Wells in a manner to provide sufficient time to comply with the drilling schedule set forth in Section 3.7.

     Section 3.3 Optional Exploration Wells. InterOil shall designate the location and Total Depth of two Optional Exploration Well locations on licenses owned by InterOil designed to test separate Zones. Upon selection of the location and total depth of an Optional Exploration Well, InterOil will give written notice to Investors (“Location and Total Depth of Optional Exploration Well(s)”) of its decision and proposing the location(s) and Total Depth(s) for the Optional Exploration Well(s), together with a Drilling Program and all relevant topographical, geological, geophysical, engineering, seismic and other information that InterOil determines is reasonably necessary for making an election for the proposed well(s). Within 15 days of giving such notice, an Investor may give notice to InterOil and the other Investors (“Acceptance of Location and Total Depth of Optional Exploration Well(s)”) whether it elects to accept the location(s) and Total Depth(s) proposed by InterOil or to provide notice of an alternate location(s) and/or Total Depth(s) (it being understood that an Investor’s selection of a Zone shall suffice as Investor’s selection of a location hereunder). Any alternate location and Total Depth proposed by an Investor must be located on a license owned by InterOil in an area that InterOil determines to be reasonably accessible by InterOil for the purpose of drilling the Optional Exploration Well to the Total Depth proposed. Any proposed Total Depth must be no deeper

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than is, in the judgment of InterOil, technically feasible given the drilling conditions and equipment reasonably available to InterOil at the drilling location and in no event deeper than 3,500 meters. If an Investor does not give notice of an alternative location (which may be a Zone) within such 15 day period, the Investors shall be deemed to have accepted the locations and Total Depth of the Optional Exploration Wells proposed by InterOil. If an alternate location and/or Total Depth is proposed by an Investor, then InterOil shall request that such Investor provide InterOil with notice of the location (which may be a Zone) and Total Depth that such Investor desires to drill, which may be the location and Total Depth selected by InterOil or one of the Investors. If a location (which may be a Zone) and Total Depth is approved by the vote of a Majority Interest, such location (which may be a Zone) and/or Total Depth shall be the location and Total Depth of the Optional Exploration Well. If an alternate location or Total Depth is not approved by such a Majority Interest, then the Optional Exploration Well shall be drilled at the location and to the Total Depth proposed by InterOil. If such location is not specific as to precise latitude and longitude position, InterOil shall determine a precise latitude and longitude position for the Exploration Well within such location.

     Section 3.4 InterOil Services. In accordance with the Operator Standard, InterOil will or cause its Subsidiaries to use commercially reasonable efforts to perform, or cause to be performed, all work necessary to cause the Designated Exploration Wells and Optional Exploration Wells to be drilled to Total Depth. Without limiting the foregoing, InterOil will:

(a)	Acquire all permits, consents and other governmental approvals necessary to drill such wells to Total Depth, and otherwise exercise commercially reasonable efforts in accordance with the Operator Standard to comply with the applicable PPL and other governmental laws and regulations, including without limitation, the Oil and Gas Act and the Regulation;
(b)	Construct access roads, clear and prepare the drill site;
(c)	Arrange for a drilling rig reasonably capable of drilling the Exploration Well to the proposed Total Depth;
(d)	Spud and drill to Total Depth the Exploration Well;
(e)	Provide all materials, services and labor reasonably necessary for drilling the Exploration Well to Total Depth in a good and workmanlike manner in accordance with customary oilfield practice and the Operator Standard;
(f)	Make reasonable tests of formations encountered during drilling which give indication of containing oil and gas in quantities sufficient, in the opinion of InterOil, to test;
(g)	If the well is unsuccessful, plug and abandon the well location, and restore the surrounding area as required by the applicable Licence and governmental regulations;
(h)	Retain and pay for such supervisory and technical employees having engineering, geological or other professional skills necessary for operations hereunder;

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(i)	Receive, approve and timely pay, before they are delinquent, invoices for materials, services and labor provided hereunder;
(j)	Pay or cause to be paid all taxes imposed on or with respect to production or handling of each party’s share of Petroleum produced under the terms of this Agreement;
(k)	Handle, settle or otherwise discharge at the joint expense of the parties hereto any claim or suit arising out of operations hereunder; and
(l)	Prepare and file on behalf of the parties hereunder such operational notices, reports, applications or certifications as may be required by any governmental or quasi-governmental body having jurisdiction of the Licence Areas.

     Section 3.5 Substitute Wells. If a Designated Exploration Well cannot successfully be drilled to Total Depth, because of mechanical difficulties or because of encountering a formation or anomalous condition which is customarily considered in the industry to be impenetrable or which would make further drilling impracticable, or for any other cause reasonably beyond the control of InterOil, then InterOil shall, at its option, either (i) drill a substitute well at a location in the immediate vicinity of the location and to the Total Depth established for the Designated Exploration Well whose drilling was abandoned, or (ii) shall designate as a substitute well one of the other Designated Exploration Well(s) or Optional Exploration Well(s) and such substitute well shall be a Designated Exploration Well, as provided herein. If InterOil elects to designate as a substitute well one of the other Designated Exploration Well(s) or Optional Exploration Well(s), then InterOil shall designate an additional Designated Exploration Well or Optional Exploration Well, as appropriate, in accordance with the provisions of Section 3.2 or Section 3.3, respectively.

     Section 3.6 InterOil to Pay Costs. InterOil will be responsible for, and shall pay promptly when due, all costs incurred to drill each of the Designated Exploration Wells and Optional Exploration Wells to Total Depth, including, without limitation, any costs incurred for materials, services and labor in connection the drilling of each such well. For further clarification, InterOil shall not charge to the Investors any Operator Direct Charges or Operator Indirect Charges attributable to any operations with respect to the drilling of the Exploration Wells.

     Section 3.7 Timing; Drilling to Total Depth. InterOil may drill the Designated Exploration Wells in any order according to a schedule of its choosing subject, however, to the following. In accordance with the Operator Standard, InterOil will use commercially reasonable efforts to cause all Exploration Wells to be drilled with reasonable diligence and in a good and workman-like manner, each to its designated Total Depth on or before September 30, 2006.

     Section 3.8 Reports. Pursuant to the written request of an Investor, InterOil will provide monthly drilling reports to such Investor in respect of all wells in which such Investor has not forfeited its interest, and all such well information will be available at InterOil’s office in Cairns, Queensland upon reasonable request for review by or on behalf of such Investor. InterOil agrees

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to use commercially reasonable efforts in accordance with the Operator Standard to make as much relevant well information as possible available in electronic media accessible by Investor.

     Section 3.9 Disclosure.

(a)	Within two business days of the date of this Agreement, InterOil shall make “public disclosure” (as defined in Regulation FD under the U.S. Securities Exchange Act of 1934) of this Agreement.
(b)	If InterOil or any of its Affiliates provides material information to an Investor that such Investor did not request, InterOil shall, within 10 business days following a subsequent written request from such Investor, make “public disclosure” (as defined in Regulation FD under the U.S. Securities Exchange Act of 1934) of such material information.
(c)	If InterOil or any of its Affiliates provides material information to an Investor that is material to any election to be made under this Agreement (including an election pursuant to Section 4.2 or Section 5.2), InterOil shall (whether or not the providing of such information was requested by such Investor) within 10 business days following a subsequent written request from such Investor, make “public disclosure” (as defined in Regulation FD under the U.S. Securities Exchange Act of 1934) of such material information.
(d)	Within two business days of a written request of an Investor, InterOil shall confirm to such Investor whether or not all material information furnished to it by InterOil has been publicly disclosed (as defined in Regulation FD under the U.S. Securities Exchange Act of 1934) .

ARTICLE IV.
DISCOVERIES

     Section 4.1 Activities after Total Depth. If, upon reaching Total Depth in any Exploration Well, InterOil, in its discretion, decides to continue operations on such a well, it will design a work program which may include logging or other evaluation or analysis, setting casing or running tubing, perforating and testing the well (“Completion”) and/or a Subsequent Work Program as described in Section 5.1.

     Section 4.2 Completion Elections. If InterOil proposes the Completion of an Exploration Well, the following will occur:

(a) InterOil shall give each Investor written notice of the intent to proceed with Completion, together with technical, geological and other logging data and a proposal for such Completion, including cost estimates, that can reasonably be supplied which is relevant to Investor making its decision in Section 4.2(b). Such notice shall prominently state that a response is due from the Investor within 48 hours of receipt of the notice. InterOil shall confirm each Investor’s receipt of such notice by return fax or by return e-mail.

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(b) Within 48 hours of any confirmation of receipt of notice from InterOil pursuant to Section 4.2(a), Investor must give written notice to InterOil that either:

(i)	Investor agrees to pay its IPI Percentage of the costs incurred with respect to the aforementioned Completion; or
(ii)	that Investor will not to pay its IPI Percentage of the costs of the aforementioned Completion, and forfeit (A) Investor’s rights to that well and the development of any Field discovered from such well and (B) Investor’s rights to convert its IPI Percentage into Common Shares as contemplated by Section 6.1.

If Investor fails to timely respond to InterOil’s notice as provided above, then the Investor shall be deemed to have elected pursuant to Section 4.2(b)(ii).

(c)

If an Investor agrees to pay its IPI Percentage of costs incurred with respect to Completion, Investor must make its payment to InterOil of such costs of Completion not later than 30 days after such election. If Investor fails to pay such Completion costs within the 30-day period as provided for in the preceding sentence, InterOil may give written notice to Investor of such failure to pay, and if Investor fails to pay such amounts owing within five (5) days after actual receipt and confirmation of such notice by InterOil, (i) Investor shall be deemed to have elected pursuant to Section 4.2(b)(ii) and will forfeit its right in such well and any Field discovered by such well and (ii) Investor shall forfeit any right to convert its IPI Percentage into Common Shares under Section 6.1.

(d)

For greater clarity, the non-consent provisions of Section 5.2 shall not apply to Completion operations under Section 4.2.

     Section 4.3 PDL. If InterOil determines that the requirements for the issuance of a PDL covering a Field into which an Exploration Well was drilled have been met, InterOil will request the declaration of a location under the Oil and Gas Act, which will include Blocks or portions of Blocks sufficient, in InterOil’s judgment, to cover fully the Field(s) to the extent that such Blocks are in the Licence Areas (a “Participation Area”).

     Section 4.4 Participation in PDL. An Investor may elect to have its IPI Percentage under this Agreement in respect of the relevant Participation Area become a Participation Interest under the relevant JVOA and a registered legal interest in the relevant PDL with a Participation Interest equal to its IPI Percentage in the Participation Area, subject to InterOil’s consent not to be unreasonably withheld, and Investor’s rights under the JVOA and in the relevant PDL shall be parri passu with all other Participation Interest holders, including but not limited to, participation in the relevant Participation Area. If Investor elects to make such an election, InterOil shall directly assign to such Investor such Participation Interest in the PDL, subject to all necessary State consent, and shall take all such further reasonable action necessary in connection therewith.

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ARTICLE V.
SUBSEQUENT OPERATIONS; NON-CONSENT; FEES

     Section 5.1 Subsequent Work Programs. If, upon reaching Total Depth in any Exploration Well, InterOil, in its discretion, decides to continue operations on such a well, regardless of whether InterOil pursues Completion of such well, then it will design a work program which may include an Extended Well Test, appraisal drilling, other operations and full field development and production operations (“Subsequent Work Program”). The drilling of a well after the first Exploration Well on a structure or in a prospective Field in an area subject to this Agreement, which is designed to test the same target formations as the first Exploration Well for that Field, is deemed to be part of a Subsequent Work Program.

     Section 5.2 Non-Consent Operations. Before an Investor can be billed for any commitment or any expenditure incurred by InterOil for a Subsequent Work Program, the following must occur:

(a) InterOil must submit an AFE for that Subsequent Work Program to Investor for its consideration. If the Subsequent Work Program described in the AFE is an Extended Well Test, Investor must, within 15 days after receipt of the AFE, or (ii) if the Subsequent Work Program described in the AFE is not an Extended Well Test, the Investor must, within 60 days after receipt of that AFE, which receipt shall be confirmed by each Investor by return fax or by return e-mail, give written notice to InterOil that either:

(i)

Investor agrees to pay its IPI Percentage of the costs incurred or to be incurred with respect to a proposed Subsequent Work Program proposed by InterOil; or

(ii)

that Investor intends not to pay its IPI Percentage of such costs of the aforementioned Subsequent Work Program and to relinquish its IPI Percentage of the revenues attributable to the wells affected by the Subsequent Work Program until InterOil has recovered the Non-Consent Risk Penalty from Quarterly Distributions that would otherwise have been payable to such Investor from the revenues attributable to the wells affected by the Subsequent Work Program had Investor elected to pay its IPI Percentage share of the costs associated with such Subsequent Work Program.

If Investor fails to timely respond to InterOil’s AFE as provided above, then the Investor shall be deemed to have elected pursuant to Section 5.2(a)(ii).

(b) If an Investor agrees to pay its IPI Percentage cost of a Subsequent Work Program pursuant to Investor’s election under Section 5.2(a)(i), such Investor must make its payment to InterOil of all of the costs of such Subsequent Work Program not later than 30 days after such election. If Investor fails to pay such costs within the 30-day period as provided for in the preceding sentence, InterOil may give written notice to Investor of such failure to pay, and if Investor fails to pay such amounts owing within five (5) days after receipt and confirmation of such notice by InterOil, Investor shall be deemed to have elected pursuant to Section 5.2(a)(ii) to incur the

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Non-Consent Risk Penalty and shall forfeit its right to convert its IPI Percentage into Common Shares under Section 6.1.

     Section 5.3 Debt Financing. In connection with production and development activities with respect to any Fields located in a Participation Area, InterOil or one of its Affiliates may elect to borrow funds on terms it deems in good faith to be commercially reasonable to pay the costs of such operations. If InterOil or one of its Affiliates borrows funds as provided for in this Section 5.3, InterOil shall offer the same loan terms to the Investors. InterOil shall provide Investors the proposed loan documentation prior to requesting Investor to accept or decline the terms of the loan. If an Investor accepts the terms of any such loan, InterOil may deduct from each Investor’s Quarterly Distribution under Section 2.4 such Investor’s allocable share to repay such borrowings, including fees, principal and interest. InterOil or its Affiliate may mortgage, pledge or otherwise hypothecate its interest in the applicable Licence or any rights thereunder, to secure such borrowings to the extent reasonable and customary. All funds from such borrowings shall only be used for production, development or other operations on or in connection with Fields located in a Participation Area. Whether or not an Investor participates in such borrowings, InterOil shall cause the documentation for such loan to permit the Quarterly Distributions to such Investor contemplated by this Agreement; provided, however, that amounts to repay an Investor its share of such borrowings may be deducted from such Investor’s Quarterly Distributions.

     Section 5.4 Incentive Discovery Fee.

(a)

Each Investor’s “Share of Production” shall mean, at any time, the sum of (i) the aggregate production attributable to Investor’s direct interest in any Field assigned to Investor under Section 4.4 plus (ii) the aggregate production allocable to Investor’s IPI Percentage in any Field owned by InterOil in which Investor has an indirect interest under this Agreement. Investor’s Share of Production will include production attributable to an Investor’s direct or indirect interest in a Field in which Investor has exercised non-consent rights under this Agreement or an applicable JVOA as if such non-consent rights had not been exercised. Investor shall pay to InterOil an incentive discovery fee of US $0.20 per BOE of Investor’s Share of Production produced and sold in excess of the product of (i) 50 million BOE multiplied by (ii) Investor’s IPI Percentage. Such fee shall be payable at the end of each calendar quarter. Such fee may be deducted by InterOil from Quarterly Distributions payable under Section 2.4 and any JVOA entered into under Section 4.4 shall provide for the deduction of such fee.

(b)

If an Investor proposes to sell a direct interest under a JVOA or an indirect interest represented by Investor’s IPI Percentage, including sales subject to Article VIII and Article IX of this Agreement, InterOil shall cause an internationally recognized independent petroleum engineering firm to prepare an estimate of the proved and probable oil and gas reserves attributable to the direct interests and indirect interests owned by such Investor. Such reserve report shall be prepared as of a date selected by InterOil that is reasonably close to the anticipated date of sale. Such reserve report shall be prepared using definitions of proved and probable reserves

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promulgated by Canadian regulatory authorities, and otherwise in accordance with generally accepted reserve engineering practices. Assuming that future production occurs as forecast in the reserve report, at the Closing of such sale Investor shall pay InterOil a fee equal to US $0.20 multiplied by the number of BOE estimated in the reserve report as being subject to the sale and which would, in the future, be subject to the fee provided in Section 5.4(a). No further fee shall be payable under Section 5.4(a) by Investor or any transferee of Investor on production attributable to the interest purchased by transferee.

     Section 5.5 Infrastructure Fee. InterOil shall deduct from each Investor’s Quarterly Distribution an infrastructure fee of US $0.45 per barrel of oil and US $0.08 per Mcf of gas produced and sold from any Field hereunder and attributable in whole but not in part to such Investor’s IPI Percentage in such Field.

ARTICLE VI.
STOCK ISSUANCE

     Section 6.1 Conversion Right. InterOil hereby grants to each Investor the right to convert, at any time or from time to time during the Conversion Right Period, all or any portion of such Investor’s IPI Percentage interest into fully paid and non-assessable Common Shares. For purposes of this Section 6.1, if an Investor’s IPI Percentage has been reduced in a Subject Field under Article IX, then the Investor’s IPI Percentage for purposes of this Section 6.1, shall be the smallest IPI Percentage in any Subject Field less any IPI Percentage previously converted. The number of Common Shares issuable on any exercise of the Investor’s Conversion Right will equal the quotient of (x) the product of (A) the IPI Percentage being converted and (B) US $500,000,000 and (y) U.S.$37.50. Immediately following any such conversion, the Investor’s IPI Percentage interest will be reduced to reflect such conversion and any other prior conversions by the Investor. Notwithstanding the foregoing, an Investor may not exercise the conversion right granted in this Section 6.1 if the Investor has forfeited its right as provided in Sections 4.2(b)(ii)(B), 4.2(c)(ii) and 5.2(b). InterOil will use its commercially reasonable best efforts to issue the Common Shares to the Investor within five (5) days of receipt of notice from the Investor that the Investor is exercising its Conversion Right.

     Section 6.2 Restrictive Legend.

(a) Common Shares issued to Investor under Section 6.1 will bear the following legend:

THESE COMMON SHARES HAVE NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (ii) IF AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE.

(b) InterOil may require, as a condition of allowing any transfer of the Common Shares (i) that the holder or transferee of the Common Shares, as the case may be,

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furnish to InterOil a written opinion of counsel (which opinion shall be in form, substance and scope reasonably satisfactory to InterOil) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws and without the necessity to prepare a prospectus under provincial securities law in Canada, (ii) that the holder or transferee execute and deliver to InterOil an investment letter in form and substance reasonably acceptable to InterOil and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a) under the Securities Act or a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.

     Section 6.3 No Rights as Shareholder until Issuance. This Agreement does not entitle the Investor to any voting rights or, except as provided in this Agreement, other rights as a shareholder of InterOil prior to the issuance of the Common Shares as provided in Section 6.1, including the right to participate in new issuances of shares in InterOil. Upon the issuance of the Common Shares, if any, under Section 6.1, the Common Shares so issued shall be and be deemed to be issued to such Investor as the record owner of such shares as of the close of business on the date of such issuance.

     Section 6.4 Certain Adjustments. The number and kind of securities issuable pursuant to Section 6.1 on exercise of the Conversion Right shall be subject to adjustment from time to time upon the happening of any of the following. In case InterOil shall (i) pay a dividend in Common Shares or make a distribution in Common Shares to holders of its outstanding Common Shares, (ii) subdivide its outstanding Common Shares into a greater number of shares, (iii) combine its outstanding Common Shares into a smaller number of Common Shares, or (iv) issue any shares of its capital stock in a reclassification of the Common Shares, then the number of Common Shares issuable pursuant to Section 6.1 shall be adjusted so that Investor shall be entitled to receive the kind and number of Common Shares and other securities of InterOil which it would have owned or have been entitled to receive had Common Shares been issued to the Investor under Section 6.1 on full exercise of its Conversion Right immediately prior to the occurrence of an event specified in this sentence. Upon each such adjustment of the kind and number of Common Shares and other securities of InterOil which are issuable on exercise of the Conversion Right, the Investor shall thereafter be entitled, on exercise of the Conversion Right, to receive the number of Common Shares and other securities resulting from such adjustment. An adjustment made pursuant to this Section shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.

     Section 6.5 Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. If InterOil shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation or entity (where InterOil is not the surviving corporation or where there is a change in or distribution with respect to the Common Shares of InterOil) or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation or other entity (such successor or acquiring corporation or entity, an “Acquiring Entity”), and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, common shares of the Acquiring Entity, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common shares of the Acquiring

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Entity (“Other Property”), are to be received by or distributed to the holders of Common Shares of InterOil, then the Investor shall have the right thereafter to receive in lieu of the Common Shares described in Section 6.1, the number of common shares of the Acquiring Entity or Common Shares of InterOil, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of Common Shares that Investor would have owned or been entitled to receive had Common Shares been issued to Investor under Section 6.1 on full exercise of its Conversion Right were satisfied immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the Acquiring Entity (if other than InterOil) shall expressly assume all the obligations and liabilities of InterOil hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the board of directors of InterOil) in order to provide for adjustments of Common Shares issuable under Section 6.1 which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 6.5. For purposes of this Section 6.5, “common shares of the Acquiring Entity” shall include shares or other ownership interests of such Acquiring Entity of any class which is not preferred as to dividends or assets over any other class of stock or other ownership interests of such Acquiring Entity and which is not subject to redemption and shall also include any evidences of indebtedness, shares or other securities which are convertible into or exchangeable for any such shares or other ownership interests, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock or other ownership interests. The foregoing provisions of this Section 6.5 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations, spin-offs, or dispositions of assets.

     Section 6.6 Other Distributions. If at any time after the date hereof InterOil distributes to holders of its Common Shares, other than as part of its dissolution, liquidation or the winding up of its affairs, any shares of its capital stock, (other than Common Shares), any evidence of indebtedness or any of its assets not covered by Section 6.5 then, as part of such distribution, InterOil shall make lawful provision so that there shall thereafter be deliverable under Section 6.1, in addition to the number of Common Shares issuable on full exercise of the Conversion Right under Section 6.1, the amount of the dividend or other distribution to which the Investor would have been entitled to receive had the exercise occurred as of the record date for such dividend or distribution.

     Section 6.7 Representations and Warranties of Investors. Each Investor severally, but not jointly, represents and warrants to InterOil as follows:

(a)

It is acquiring its interest under this Agreement represented by its IPI Percentage and any Common Shares issuable under this Agreement for its own account for investment and not with a view towards the resale, transfer or distribution thereof, nor with any present intention of distributing the interest represented by the IPI Percentage or the Common Shares. Investor understands that the Common Shares are “restricted securities” as defined in Rule 144 under the Securities Act.

(b)

It has full power and legal right to execute and deliver this Agreement and all other documents contemplated by this Agreement and to perform its obligations hereunder and thereunder.

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(c)	If such Investor is a limited partnership, limited liability company or corporation, it is a validly existing limited partnership, limited liability company or corporation, as the case may be, duly formed, organized or incorporated under the laws of its jurisdiction of formation, organization or incorporation.
(d)	It has taken all action necessary for the authorization, execution, delivery, and performance of this Agreement and all other documents contemplated by this Agreement, and its obligations hereunder and thereunder, and, upon execution and delivery by the InterOil, this Agreement and the other documents shall constitute the valid and binding obligation of such Investor, enforceable against such Investor in accordance with its terms, except that such enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium, liquidation or other similar law now or hereafter in effect relating to creditors’ rights and general principles of equity.
(e)	It has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment represented by the IPI Percentage and in the Common Shares as contemplated by this Agreement, and is able to bear the economic risk of such investment for an indefinite period of time. It has been furnished access to such information and documents as it has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of InterOil concerning the terms and conditions of this Agreement and the Common Shares.
(f)	It is an “accredited investor” as defined in Rule 501(a) promulgated under the Securities Act and has such knowledge and experience in financial and business matters that it is fully capable of evaluating the risks and merits of its investment under this Agreement and in the Common Shares.

     Section 6.8 Registration Rights Agreement. To cover resales of Common Shares issuable on exercise of the Conversion Right, the parties agree to enter into the Registration Rights Agreement on the date of this Agreement.

ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF INTEROIL

     Section 7.1 Representations and Warranties. InterOil hereby makes the following representations and warranties to the Investors as follows:

(a) InterOil is a corporation duly incorporated and existing in good standing under the laws of the Province of New Brunswick and has the requisite corporate power to own its properties and to carry on its business as now being conducted. Each of InterOil and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary other than those in which the failure so to qualify would not have a Material Adverse Effect.

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(b)

(i) InterOil has all requisite corporate power and authority to enter into and perform the Transaction Documents and to issue the interest represented by the IPI Percentages in accordance with the terms hereof, (ii) the execution and delivery of the Transaction Documents by InterOil and the consummation by it of the transactions contemplated thereby, including the issuance of the interest represented by the IPI Percentages, have been duly authorized by all necessary corporate action, and no further consent or authorization of InterOil or its Board of Directors (or any committee or subcommittee thereof) or stockholders, other than stockholder consent that has been obtained or effected on or prior to the date hereof, is required, (iii) when delivered, the Transaction Documents will have been duly executed and delivered by InterOil, (iv) when delivered, the Transaction Documents will constitute valid and binding obligations of InterOil enforceable against InterOil in accordance with their terms, except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of creditors’ rights and remedies, the discretion that a court may exercise in the granting of equitable remedies or by other equitable principles of general application, and (B) to the extent the indemnification provisions contained in this Agreement and the Registration Rights Agreement may be limited by applicable law and (v) the interest represented by the IPI Percentages and the Common Shares issuable upon the conversion and/or exercise thereof have been duly authorized and, upon issuance thereof and payment therefor in accordance with the terms of this Agreement, the interest represented by the IPI Percentages will be validly issued, free and clear of any and all liens, claims and encumbrances, except for restrictions on transfer imposed by applicable securities laws and referenced in Section 6.2.

(c)

The authorized capital stock of InterOil consists of an unlimited number of Common Shares, of which as of the date hereof prior to giving effect to this transaction, 28,418,009 shares are issued and outstanding and 2,577,985 shares are issuable and reserved for issuance pursuant to InterOil’s stock option plans or securities exercisable or exchangeable for, or convertible into, Common Shares. All of such outstanding shares have been, or upon issuance will be, validly issued, fully paid and nonassessable. As of the date hereof, except as disclosed in Section 7.1(c), (i) no shares of InterOil’s capital stock are subject to pre-emptive rights or any other similar rights or any liens or encumbrances suffered or permitted by InterOil, (ii) there are no outstanding debt securities, (iii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of InterOil or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which InterOil or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of InterOil or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of InterOil or any of its Subsidiaries, (iv) there are no agreements or arrangements under which InterOil or any of its Subsidiaries is obligated to register or qualify the sale of any of their securities the

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	applicable securities laws and regulations of any jurisdiction (“Securities Laws”) other than pursuant to the Registration Rights Agreement, (v) there are no outstanding securities of InterOil or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which InterOil or any of its Subsidiaries is or may become bound to redeem a security of InterOil or any of its Subsidiaries, (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance, exercise or conversion of the IPI Percentages or the Warrants as described in this Agreement and (vii) InterOil does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement.
(d)	Upon issuance in accordance with this Agreement, the Common Shares will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof.
(e)	Except as disclosed in Section 7.1(e), the execution, delivery and performance of the Transaction Documents by InterOil and the consummation by InterOil of the transactions contemplated hereby and thereby and issuance of the interest represented by the IPI Percentages and the Common Shares will not (i) result in a violation of InterOil’s Articles of Amalgamation or the By-laws; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which InterOil or any of its Subsidiaries is a party, or (iii) result in a violation of any material law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the rules and regulations of the American Stock Exchange, Canadian and provincial securities laws and regulations and the rules and regulations of the Toronto Stock Exchange or other securities exchange or trading market on which the Common Shares are traded or listed) applicable to InterOil or any of its Subsidiaries or by which any property or asset of InterOil or any of its Subsidiaries is bound or affected. Except as disclosed in Section 7.1(e), neither InterOil nor its Subsidiaries is in violation of any term of, or in default under, (x) its articles of incorporation, any certificate of designations, preferences and rights of any outstanding series of preferred stock or by-laws or their organizational charter or by-laws, respectively, (y) any material contract, agreement, mortgage, indebtedness, indenture, instrument, or (z)(i) any judgment, decree or order or (ii) any statute, rule or regulation applicable to InterOil or its Subsidiaries, the non-compliance with which, would be material to InterOil or its Subsidiaries or interfere with the performance of its obligations under the Transaction Documents. Except as set forth on Section 7.1(e) or as specifically contemplated by this Agreement and as required under Securities Laws and the rules of the Toronto Stock Exchange and the American Stock Exchange, InterOil is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Transaction Documents or the issuance of the interest represented by the IPI Percentages and the Common Shares, in

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accordance with the terms hereof or thereof. Except as disclosed in Section 7.1(e), all consents, authorizations, orders, filings and registrations which InterOil is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.

(f)

Each of SPI (210) Limited, SPI (220) Limited and SPI (208) Limited are indirect, wholly-owned subsidiaries of InterOil. Each Licence (a true and complete copy of which has been provided to the Investors who requested a copy thereof) is in full force and effect and is in good standing, and each of SPI (210) Limited, SPI (220) Limited and SPI (208) Limited is the holder of a one hundred percent (100%) legal and beneficial interest in PPL 236, PPL 237 and PPL 238, respectively, free and clear of all mortgages, charges, pledges, liens, options, pre-emptive rights and other claims or encumbrances other than royalties or other entitlements of the State pursuant to the laws and regulations of Papua New Guinea. The execution and delivery of this Agreement is not in violation of or otherwise conflict with or cause a default under any provision of a Licence.

ARTICLE VIII.
ASSIGNMENT

     Section 8.1 Generally. Subject to applicable securities laws, a party to this Agreement may assign or transfer or purport to assign or transfer any of its interests, rights and obligations in and under this Agreement to a person or entity without the prior written consent of any other party to this Agreement, provided that (a) without the prior consent of InterOil, not to be unreasonably withheld, such assignment unless made to an Affiliate shall not relieve Investor of its obligation to make the payments called for under this Agreement, and (b) if as a result of any proposed direct or indirect assignment or transfer by InterOil of its interest herein, InterOil would no longer be Operator of the Licences, then no such proposed assignment or transfer shall be effective without the prior written consent of a Majority Interest of the Investors, not to be unreasonably withheld.

     Section 8.2 Binding Effect. An assignment or transfer pursuant to the provisions of Section 8.1 shall not be effective until the assignee or transferee executes a counterpart of this Agreement and is bound by the provisions of this Agreement. InterOil shall timely provide notice to Investors of any and all transfers of its interest hereunder.

     Section 8.3 Ability to Encumber. Nothing contained in this Article VIII shall be deemed or construed so as to:

(a)	prevent InterOil from freely mortgaging or encumbering its share of production and transferring or assigning to such mortgagee or lender the rights to the proceeds of sale of any Petroleum sold hereunder on behalf of InterOil as security for such debt. The provisions of this Article VIII shall not apply to the granting of any such security interest; or
(b)	prevent Investor from freely mortgaging or encumbering its rights, subject to its obligations, under this Agreement and assigning to such mortgagee or lender the

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rights to the distributions as defined in this Agreement as security for such debt, subject to Article VIV.

     Section 8.4 Tag-Along Right. If InterOil assigns or transfers any of its interests or rights under this Agreement or its Participation Interest, whereby InterOil holds less than a 50% Participation Interest after completion of such transaction, Investor may with 15 days notice to InterOil, elect to participate on the same terms in such transaction by assigning, for the same pro-rata value to its account, the same proportion of its IPI Percentage to the same assignee or transferee. In no event will InterOil own less than 50% of any PPL in a Subject Field.

ARTICLE IX.
CALL OPTION

     Section 9.1 Reduction of IPI Percentage. InterOil may reduce the IPI Percentage of an Investor in one or more Fields, or on a portion of a Field, as follows:

(a)	In connection with a sale to a purchaser not affiliated with InterOil (“Purchaser”) of a direct or indirect interest in a PPL or PDL covering a Field into which an Exploration Well or another well has been drilled under this Agreement (“Subject Field”), InterOil may elect to reduce pro rata the IPI Percentage in the Subject Field of each Investor (“Subject Field Investor”) which has not forfeited its interest in the Subject Field in an amount up to 50% of the direct or indirect interest being acquired by Purchaser from InterOil, subject to subsection (e) and Section 9.2 hereof. For example, if InterOil proposed to sell a direct or indirect 10% interest in a Subject Field, InterOil could reduce the IPI Percentage in the relevant Subject Field of the Subject Field Investors by up to 5% (e.g., from 15.0% to 10.0%).
(b)	If InterOil proposes to sell a direct or indirect interest to a Purchaser in any PPL or PDL covering a Subject Field and InterOil proposes to reduce the IPI Percentages of the Subject Field Investors with respect to the Subject Field, InterOil shall notify Subject Field Investors of the proposed sale by InterOil at least 15 days prior to the anticipated closing date of such sale. Such notice shall include the anticipated amount to be paid to such Subject Field Investor, the anticipated amount of the reduction in the IPI Percentage as a result of the sale and the anticipated closing date of the sale. InterOil shall provide each Subject Field Investor such information about the terms of the proposed sale as such Investor may reasonably request and which is in InterOil’s possession and not subject to a confidentiality agreement.
(c)	On the closing date of the sale of InterOil’s direct or indirect interest to a Purchaser in the PPL or PDL in the Subject Field, or as soon thereafter as practicable, InterOil shall pay each Subject Interest Investor an amount equal to the consideration received by InterOil from the Purchaser multiplied by a fraction the numerator of which is the reduction in such Investors IPI Percentage and the denominator of which is the total interest acquired by Purchaser and such Investor’s IPI Percentage in the Subject Field shall be reduced as provided in the notice.

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(d)	Without the prior written consent of the Subject Field Investors which own a majority of the IPI Percentages owned by Subject Field Investors in the relevant Subject Field, InterOil shall not sell an interest in the Subject Field other than for cash or securities listed on the New York, American or Toronto Stock Exchange, traded over the National Association of Securities Dealers, Inc. Automated Quotation System, or listed on another internationally recognized securities market. If the consideration received by InterOil in connection with the sale of an interest in the Subject Field to a Purchaser is other than cash, InterOil shall take all commercially reasonable efforts to distribute the appropriate portion of such consideration or an interest therein to the Subject Field Investors entitled thereto. If InterOil is unable to distribute such non-cash consideration to the Subject Field Investors, InterOil shall retain such non-cash consideration and shall convert it to cash as soon as reasonably practicable and distribute such cash to Investors entitled thereto promptly thereafter.
(e)	InterOil may not cause the IPI Percentage of an Investor in a Subject Field to decrease by more than 50% of such Investor’s initial IPI Percentage pursuant to this Section.
(f)	InterOil shall adjust the amount payable to each Subject Field Investor under this Section to account for the effective date of any sale, so that the Subject Field Investors and InterOil are treated substantially the same taking into account any purchase price adjustments with respect to an effective date and Distributions payable to the Investor under this Agreement.
(g)	InterOil and Subsidiaries may offset amounts payable to a Subject Field Investor under this Section against any Non-Consent Penalty or other amount owed by such Subject Field Investor to InterOil or Subsidiaries.

     Section 9.2 Conditions for Reduction of IPI Percentage. Notwithstanding the provisions of Section 9.1, InterOil may not cause the reduction in the IPI Percentage of a Subject Field Investor in such Subject Field pursuant to Section 9.1 unless (i) the consideration received by such Subject Field Investor is equal to or greater than US $50 million per each one (1) percentage point reduction in the IPI Percentage, or (ii) the consideration received by such Subject Field Investor is equal to or greater than US $25 million per each one (1) percentage point reduction in the IPI Percentage and InterOil receives the consent of Subject Field Investors in such Subject Field which own a majority of the IPI Percentages owned by Subject Field Investors in the Subject Field. For purposes of this Section 9.2, the value of non-cash consideration received by a Subject Field Investor shall be determined in good faith and in accordance with reasonable and customary valuation methodologies, taking into account, inter alia, appropriate discounts for illiquidity, tax consequences of receipt of the consideration, any costs associated with holding or disposing of such property, and any other factors.

ARTICLE X.
CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS

     Section 10.1 Confidentiality. InterOil and each Investor agrees to treat confidentially any information identified as confidential (whether prepared by InterOil, Subsidiaries, or

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Investor, or their advisors, agents, or otherwise, and whether oral or written) that InterOil or an Investor or their respective agents or advisors, furnish to the other (which shall include each party’s directors, officers, employees, Affiliates, agents, advisors, representatives and potential financing sources) (such information being collectively referred to herein as the “Confidential Information”). Confidential Information acquired or received by any party under this Agreement shall be held confidential during the continuance of this Agreement plus a period of 2 years thereafter and shall not be divulged in any way to any third party, without the prior written approval of all the affected parties which shall not be unreasonably withheld provided that any party to this Agreement may, without such approval, disclose Confidential Information:-

(a)	to any Affiliate or bona fide intended assignee of such party upon obtaining a similar undertaking of confidentiality from such Affiliate or assignee in favor of all affected parties;
(b)	to any outside consultants, upon obtaining a similar undertaking of confidentiality from such consultants in favor of all affected parties;
(c)	to any bank or financial institution from whom such party is seeking or obtaining finance, upon obtaining a similar undertaking of confidentiality from such bank or institution;
(d)	to the extent required by the Act, the Licence, any other applicable laws or regulations or the having jurisdiction over a party to this Agreement or the regulations of any recognised stock exchange on which are listed for quotation shares in the capital of such party or any Affiliate of such party;
(e)	in a prospectus registered by a stock exchange, or any delegate thereof, where such disclosure is required by law;
(f)	to the extent that the same has become generally available to the public; or
(g)	to the extent acquired independently from a third party whom the disclosing party believed on reasonable grounds was under no obligation of confidentiality relating thereto.

ARTICLE XI.
TERM AND TERMINATION

     Section 11.1 Term. The term of this Agreement shall be for the period commencing on the date as of which this Agreement is made (notwithstanding later execution hereof) and shall continue to be effective until the earlier of: (a) as to any Investor, on the date such Investor has converted its entire IPI Percentage interest into Common Shares as provided in Article VI, (b) as to any Investor, on the date that such Investor has had its interest in each Exploration Well and any Field discovered thereby converted into a PDL as contemplated by Section 4.4 and (c) until the final Distributions after cessation of commercial production of Petroleum from the last Field discovered by an Exploration Well drilled hereunder. Termination of this Agreement shall not affect the representations and warranties of Investors herein, which shall survive termination. In addition, the provisions in Article X shall not terminate until the time periods specified therein.

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ARTICLE XII.
FORCE MAJEURE

     Section 12.1 Force Majeure. The duties and obligations of each Party, other than the obligation for the payment of money due hereunder (unless the obligation for payment of money is prevented or delayed by applicable currency or governmental investment controls or restrictions through no fault of that Party), are suspended and deferred during such time only that such Party is prevented or hindered from complying in whole or in part with its duties and obligations hereunder because of an event of Force Majeure. For purposes hereof, the term “Force Majeure” means acts of God, war, blockade, seizure, riot, acts of a public enemy of the State or of the nation in which the affected Party is incorporated or chartered, strikes, lockouts or other labor disturbances, condemnation or action of priority or control by any governmental authority for any governmental purpose, regulations or directives of the State or of the nation in which the affected Party is incorporated or chartered (whether promulgated in the form of a law or otherwise), unavoidable or inevitable accident, delays in transportation, impossibility to obtain or delay in obtaining necessary materials or equipment in the open market, lack of or inadequate labor, or any other cause, other than the financial inability of any Party to meet its obligations, similar or dissimilar from those above described, which is not reasonably within the control of the Party claiming suspension, which is not due to the fault or negligence of that Party, and which by the exercise of due diligence, that Party is unable, wholly or in part, to prevent or overcome. The term “Force Majeure” likewise includes (i) in those instances where InterOil is required to obtain permits, licences or permission from any government to enable InterOil to fulfil its obligations hereunder, the inability of InterOil to acquire, or the delays on the part of InterOil in acquiring, such permits, licences or permission; and (ii) in those instances where InterOil is required to secure or furnish drilling equipment, materials, supplies, equipment and labor for conducting Joint Operations, the inability of InterOil to so secure or furnish, upon not unreasonable prices and terms, such drilling equipment, materials, supplies, equipment and labor.

     Section 12.2 Notice. Any Party subject to Force Majeure, as above described, must immediately give all other Parties written notice thereof with reasonably full particulars concerning it and must use all possible diligence to remove the cause of Force Majeure as soon as possible.

     Section 12.3 Obligations Reinstated. Any of the Parties whose obligations have been suspended as aforesaid must resume the performance of such obligations as soon as reasonably possible after the removal of the cause and must so notify all the other Parties.

ARTICLE XIII.
NOTICES

     Section 13.1 Address. Any notice (including invoices) given under this Agreement shall be given to a party in writing at its nominated address, and sent whenever practicable and possible by post, facsimile transmission, personal delivery or email. Such notices shall be effective upon receipt which shall be deemed to have occurred on the working day following dispatch, except in the case of emails, receipt of which shall occur when confirmation of receipt has been received from the recipient. Such confirmation may be a reply to or acknowledgement

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of the notice sent by the recipient himself, or a return message automatically generated by the recipient’s system.

     Section 13.2 Address. The addresses of the parties to this Agreement for notice at the date hereof are as follows:

Party	Address
INTEROIL	InterOil Corporation and its subsidiaries c/o InterOil Australia Pty Ltd. Suite 2 Level 2 Orchid Plaza 78 Abbott Street Cairns QLD 4870
INVESTOR	As set forth on Exhibit A

     Section 13.3 Change of Address. Any party to this Agreement may at any time by notice to the other party notify any change of address, facsimile number or email address and, upon receipt of the notice, such address shall become the address of that party for the purposes of this Agreement.

ARTICLE XIV.
MISCELLANEOUS

     Section 14.1 Amendment. This Agreement may be amended only by written agreement of all of the parties to this Agreement.

     Section 14.2 Waiver. No waiver of any breach of this Agreement or of any provisions hereof shall be effective unless such waiver is in writing and signed by the party to this Agreement from whom such waiver is requested. No waiver of any breach shall be deemed to be a waiver of any other or subsequent breach.

     Section 14.3 Entire Agreement. The Transaction Documents contain the entire agreement among the parties and supersedes and replaces all earlier agreements, documents, correspondence and conduct by the parties with respect to the subject matter hereof.

     Section 14.4 Costs. Each Party’s costs of negotiating and entering into the Agreement, and any costs associated with obtaining authorisation or approval of this Agreement from any government or regulatory body shall be borne by the Party accruing such costs.

     Section 14.5 Accounts. InterOil will hold funds paid to it pursuant to Section 2.2 in the Joint Account or Joint Accounts and will only use funds to pay or reimburse exploration, geology, geophysical, general and administrative and all other support costs, drilling, logging and testing costs paid since September 1, 2004, with respect to the eight (8) well Drilling Program contemplated by this Agreement; provided, however, (i) InterOil may pay to itself from the Joint Account any amount of the Purchase Price (plus interest thereon) remaining in such Joint Account after the drilling of 8 Exploration Wells to Total Depth as contemplated herein and

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(ii) InterOil may pay to itself from such Joint Account any amount of the Purchase Price (plus interest thereon) attributable to an Investor which has exercised its right to convert its IPI Percentage into Common Shares as contemplated herein. InterOil shall not transfer, mortgage, charge, pledge, create a lien on or otherwise encumber a Joint Account.

     Section 14.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, U.S.A, WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAWS PROVISIONS THEREUNDER.

     Section 14.7 Relationship. The obligations of each Investor under this Agreement are several and not joint with the obligations of any other Investor. Neither this Agreement nor any rights or obligations of any party under this Agreement shall constitute any of the parties as partners or joint venturers or otherwise cause one party to be directly or indirectly liable for the debts or obligations of another party.

     Section 14.8 Standard of Performance. InterOil shall conduct all operations hereunder (including the incurrence of costs and expenses) as would a reasonable and prudent operator in Papua New Guinea under the same or similar circumstances, in a good and workmanlike manner, in accordance with this Agreement or the JVOA and good oilfield practice and in compliance with applicable law and regulations (the “Operator Standard”). Further, InterOil hereby agrees and covenants that all information, reports and other data provided to Investors hereunder shall be true and correct in all material respects as of the date provided to Investors. In accordance with the foregoing, InterOil shall designate any and all wells hereunder in a manner which InterOil determines in its reasonable good faith judgment is in the commercial interests of the parties to this Agreement.

     Section 14.9 Counterparts. This Agreement may be executed in multiple counterparts, each such Agreement so executed shall have the effect of an original, but all such counterparts shall together constitute but one and the same instrument and this Agreement shall be binding on the Parties.

     Section 14.10 Dispute Resolution.

(a)

On the request of any party hereto, whether made before or after the institution of any legal proceeding, any action, dispute, claim or controversy of any kind now existing or hereafter arising between any of the parties hereto in any way arising out of, pertaining to or in connection with this Agreement (a “Dispute”) shall be resolved by binding arbitration in accordance with the terms hereof. Any party may, by summary proceedings, bring an action in court to compel arbitration of any Dispute.

(b)

Any arbitration shall be administered by the American Arbitration Association (the “AAA”) in accordance with the terms of this Section, the Commercial Arbitration Rules of the AAA, and, to the maximum extent applicable, the Federal Arbitration Act. Judgment on any award rendered by an arbitrator may be entered in any court having jurisdiction.

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(c)	Any arbitration shall be conducted before one arbitrator. The arbitrator shall be a practicing attorney licensed to practice in the State of Texas who is knowledgeable in the subject matter of the Dispute selected by agreement between the parties hereto. If the parties cannot agree on an arbitrator within 30 days after the request for an arbitration, then any party may request the AAA to select an arbitrator. The arbitrator may engage engineers, accountants or other consultants that the arbitrator deems necessary to render a conclusion in the arbitration proceeding.
(d)	To the maximum extent practicable, an arbitration proceeding hereunder shall be concluded within 180 days of the filing of the Dispute with the AAA. Arbitration proceedings shall be conducted in Houston, Texas. Arbitrators shall be empowered to impose sanctions and to take such other actions as the arbitrators deem necessary to the same extent a judge could impose sanctions or take such other actions pursuant to the Federal Rules of Civil Procedure and applicable law. At the conclusion of any arbitration proceeding, the arbitrator shall make specific written findings of fact and conclusions of law. The arbitrator shall have the power to award recovery of all costs and fees to the prevailing party. Each party agrees to keep all Disputes and arbitration proceedings strictly confidential except for disclosure of information required by applicable law.
(e)	All fees of the arbitrator and any engineer, accountant or other consultant engaged by the arbitrator shall be paid equally by the parties involved in the dispute, unless otherwise awarded by the arbitrator.

     Section 14.11 Additional Investors. From time to time prior to June 15, 2005, InterOil may add additional Investors to this Agreement by having them execute a counterpart of this Agreement, and amending Exhibit A. Each such party added pursuant to this Section 14.11 shall be deemed an Investor for all purposes of this Agreement.

     Section 14.12 Previous Agreements. The Previous Agreements are hereby amended and restated in their entirety by this Agreement.

     Section 14.13 Other Agreements. In the event InterOil or any of its Affiliates enters into an agreement subsequent to the date hereof and prior to June 15, 2005 with an Investor or another investor with respect to the proposed exploration and drilling program on the Licences as more particularly set forth in this Agreement, and such agreement with such Investor or third party investor is on more favorable terms and conditions to such investor than those contained in this Agreement for the Investors, including without limitation, the Purchase Price paid hereunder and the Common Shares price of U.S. $37.50 per share as set forth in Section 6.1 of this Agreement, the Investors will have the right to impose on InterOil those terms and conditions which are more favorable, and InterOil will accept such terms and conditions. For purposes of this Section 14.13, an investor shall not include an entity engaged in the oil and gas exploration and production business.

     Section 14.14 Tax Matters. InterOil shall, and shall cause its Affiliates to, use commercially reasonable efforts to structure any payments to be made to Investors hereunder in the most tax efficient manner available.

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     Section 14.15 Completion Cost Cap. Any time prior to receiving a notice from InterOil of its intent to proceed with Completion of an Exploration Well pursuant to Section 4.2, an Investor may deposit in an account designated by InterOil an amount equal to 12% of its portion of the Purchase Price. Each Investor which makes such a deposit shall be deemed to agree to pay its share of costs of Completion as set forth in Section 4.2(a)(i). InterOil will use the amounts deposited by such Investor to pay the costs of Completion allocable to such Investor. If the costs of Completion allocable to such an Investor exceeds the amount deposited by the Investor, such excess will be paid by InterOil. If, following the drilling and, if applicable, Completion of eight Exploration Wells under this Agreement, the aggregate costs of Completion allocated to such Investor is less than the amounts deposited by the Investor, InterOil will promptly pay such difference to such Investor, less a fee of US$50,000 per each 1% IPI Percentage held by such Investor.

[Signature Page Follows]

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IN WITNESS WHEREOF the parties to this Agreement have executed this Agreement effective as of the day and year first hereinbefore mentioned.

INTEROIL CORPORATION, a
New Brunswick, Canada corporation

By:	/s/ Phil E. Mulacek
	Phil E. Mulacek
	President, Chief Executive Officer
	and Chairman

KINGS ROAD INVESTMENTS LIMITED, a
Cayman Islands limited company

By:	/s/ Erik M.W. Caspersen
	Erik M.W. Caspersen
	Title:	Co-Head, [ILLEGIBLE] Investment
		Partners LP as Investment Manager
		for Kings Road Investments Ltd.

IPWI PARTNERS LC

By:	/s/ Adam Cohen
	Adam Cohen
	Title:	General Partner

LASCO DEVELOPMENT, INC.

By:	/s/ David Lasco
	David Lasco
	Title:	President

LASCO FAMILY TRUST

By:	/s/ David Lasco
	David Lasco
	Title:	Trustee

BERNARD SELZ

By:	/s/ Bernard Selz
	Bernard Selz
	Title:

SELZ FAMILY 1997 TRUST

By:	/s/ Lisa P. Selz
	Lisa P. Selz
	Title:	Trustee

CLARION FINANZ

By:	/s/ Carlo Civelli
	Carlo Civelli
	Title:	Director

PEQUOT PNG OIL, INC.
By: Pequot Capital Management, Inc.

     as Investment Manager

/s/ Lawrence Cutler Lawrence Cutler

Principal and CCO

/s/Bruce Hendry Bruce Hendry

SENECA CAPITAL LP

By:	/s/ Doug Hirsch
Name: Doug Hirsch
Title: Managing Member of Seneca Capital Advisors, LLC, as General Partner of Seneca Capital LP

SENECA CAPITAL INTERNATIONAL LTD.

By:	/s/ Doug Hirsch
Name: Doug Hirsch
Title: Managing Member of Seneca Capital Investments, LLC, as Investment Adviser to Seneca Capital International Ltd

SMITHFIELD FIDUCIARY LLC

By:	/s/ Scott M. Wallace
Name: Scott M. Wallace
Title: Authorized Signatory

PROVIDENT PREMIER MASTER FUND LTD

By:	/s/ Scott M. Nelson
Scott M. Nelson
Title:	Chief Operating Officer

EPIC LIMITED PARTNERSHIP

By:	/s/ David Fawcett
David Fawcett
Title:

EPIC LIMITED PARTNERSHIP II

By:	/s/ David Fawcett
David Fawcett
Title:

Exhibit A

Name and Address of Investors

Exhibit B

Accounting Procedures

Exhibit C

Registration Rights Agreement

EX-99.10

AMENDED INDIRECT PARTICIPATION INTEREST
AGREEMENT

BETWEEN

INTEROIL CORPORATION
(“InterOil”)

AND

PNG ENERGY INVESTORS, LLC
(“PNGEI”)

TABLE OF CONTENTS

1.	INTERPRETATION	1
2.	INDIRECT PARTICIPATION INTEREST	5
3.	CONVERSION RIGHTS	5
4.	PHASE ONE EXPLORATION PROGRAM	6
5.	DISCOVERIES AND SUBSEQUENT WORK	6
6.	PHASE TWO EXPLORATION PROGRAM AND PNGEI OPTION	6
7.	ASSIGNMENT	9
8.	CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS	10
9.	TERM AND TERMINATION	11
10.	FORCE MAJEURE	11
11.	NOTICES	11
12.	AMENDMENT	12
13.	ENTIRE AGREEMENT	12
14.	COSTS	12
15.	GOVERNING LAW	12
16.	RELATIONSHIP OF PARTIES	13
17.	COUNTERPARTS	13
SCHEDULE OF JVOA TERMS
DISTRIBUTIONS SCHEDULE
PARTICIPATION NOTICE

ANNEXURE I: EXPLORATION MAP #1 EXPLORATION PROGRAM PROSPECTIVE FIELDS & EXPLORATION MAP #2 EXPLORATION PROGRAM PROSPECTIVE FIELDS

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AMENDED INDIRECT PARTICIPATION INTEREST AGREEMENT

THIS AGREEMENT is made as of the 12th day of May 2004

BETWEEN:

InterOil Corporation, of 25025 I-45 North, Suite 420, The Woodlands, Texas, USA (hereinafter referred to as “InterOil”)

AND:

PNG Energy Investors, LLC, of 3111 Southwest 10^th St., Pompano Beach, Florida, USA (hereinafter referred to as “PNGEI”)

WHEREAS:

A.	InterOil, through its relevant wholly owned Affiliate, is conducting exclusive exploration drilling programs within the Licence Areas in Papua New Guinea and intends to develop and produce Petroleum in any new PDL issued from and out of that area.
B.	InterOil sought an investor to participate in funding these drilling programs in exchange for a beneficial interest (the “Indirect Participation Interest” or “IPI”) in InterOil’s Participation Interest, and PNGEI agrees to be one such investor under the terms of this Agreement.
C.	PNGEI is converting its Cost of IPI in the first eight wells in the Phase One Exploration Program under clause 3.1 of this Agreement, and is granted an option to participate in up to 4.25% IPI in up to 16 exploration wells, which are the last eight wells of the Phase One Exploration Program (exploration well #9 to exploration well #16), and the eight wells of the Phase Two Exploration Program (exploration well #17 to exploration well #24).

NOW THIS AGREEMENT WITNESSES that the parties hereby covenant and agree as follows:

1.	INTERPRETATION
1.1	Unless a contrary intention appears, in this Agreement (including its Recitals):
	“Affiliate” means, in relation to a party, a related body corporate as defined in the Corporations Law;
	“barrel” means that quantity of petroleum, which will occupy a volume of 42 U.S. standard gallons measured at 60 degrees Fahrenheit (which volume shall be deemed equivalent to 0.158987 cubic metres when measured at 15.55 degrees Celsius);
	“Block” means a block constituted as provided by Section 17 of the Oil and Gas Act;
	“Commercial Interest Rate” means the sum of (a) the Prime Rate as reported in the Wall Street Journal on every Tuesday in the Money Rates section; and (b) 500 basis points (or “Prime +5.0%”);
	“Confidential Information” means data and information concerning the fact of this Agreement and the Phase One and Phase Two Exploration Programs, which the Parties are concerned to keep confidential;
	“Conversion Rights” means PNGEI’s rights under clause 3 to convert its IPI to common shares in InterOil;

“Corporations Law” means the Business Corporations Act (New Brunswick) as amended;

“Current Export Market Price” means the current commercially available price for Petroleum at the time of delivery of the Petroleum to the InterOil Refinery or Marine Jetty. PNGEI or a qualified agent has the right to audit this pricing information, based on the export price, net of all costs after the related transportation of such produced crude to the refinery;

“Discovery” means the discovery of Petroleum not previously known to have existed, recoverable at the surface of any well bore in a significant amount measurable by conventional petroleum industry testing methods and which may reasonably be considered to be an indication of a potentially commercial accumulation of Petroleum. The verb “Discover” means the act of making a Discovery;

“Discovery Field” means a Petroleum Field Discovered as a result of drilling and testing any exploratior well which PNGEI participates in, which may be any one or more of exploration well #9 to exploratior well #16 in the Phase One Exploration Program or exploration well #17 to exploration well #24 in the Phase Two Exploration Program within the Licence Areas or any PDL issued from or granted out of the Participation Area;

“Distributions” is defined in the attached Distributions Schedule; “

“Drilling Program” means the drilling program prepared by InterOil for each well hereunder at least in the level of detail as set out in section 104 of the Regulation;

“Field” means the minimum area required to contain the maximum reasonably interpreted area of a Zone as defined by the most likely petroleum-water fluid contact or contacts on a structural map delineating the single structural closure of each Zone.

For the avoidance of doubt:

(a)	where two or more Zones include a common Petroleum Pool these structures comprise a single Field; and
(b)	where two or more Zones are found adjacent to, above or below each other, with separate interpreted structural, spill points, different pressures or stratigraphic closures and which do not include a common Petroleum Pool, such structures are separate Fields;

“Indirect Participation Interest” or “IPI” means the percentage interest share, referred to as the Indirect Participation Interest Percentage, of the whole (100%) of the undivided interest in the Participation Area, provided that such share shall only ever burden InterOil’s Participation Interest in and Petroleum Share from the Participation Area, whatever that may be from time to time, and InterOil shall not transfer or assign PNGEI’s interest to any other party. Nothing shall prevent or frustrate InterOil from selling down to a 5% working interest in any well, field or prospect;

“Indirect Participation Interest Development Rights” or “IPI Development Rights” means PNGEI’s option, when elected and paid for according to this Agreement, to participate in the whole (100%) of the undivided interest in the Participation Area in accordance with its IPI Percentage interest of up to 4.25%, limited to exploration well # 9 to exploration well #16 drilled as part of the Phase One Exploration Program and exploration well #17 to exploration well #24 drilled as part of the Phase Two Exploration Program (if applicable), and including any Subsequent Work Program (if applicable), in the Participation Area;

“Indirect Participation Interest Percentage” or “IPI Percentage” means an interest of up to 4.25% interest in each of exploration well #9 to exploration well #16 in the Phase One Exploration Program exploration well #17 to exploration well #24 in the Phase Two Exploration Program, where PNGEI’s option in respect of each such well is exercised under this Agreement;

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“InterOil Refinery” means the oil refinery at Napa Napa near Port Moresby in Papua New Guinea;

“JVOA” means the InterOil’s standard Joint Venture Operating Agreement to be entered into by PNGEI and InterOil or its nominated Affiliate, and any other working interest parties, in respect of the Licence at time of PDL application, which JVOA shall include, but not be limited to, terms and conditions such as those attached to this Agreement;

“Licence” means PPL 236, PPL 237 and/or PPL 238 in Papua New Guinea or any PDL that may be issued or granted out of any such PPL, and includes any extension, renewal or variation of such Licence including but not limited to PDL’s;

“Licence Areas” means the area covered by any or all of PPL 236, PPL 237 and PPL 238 in Papua New Guinea, and includes the area covered by any extension, renewal or variation of such Licence;

“Non Consent Penalty” means for any Subsequent Work Program payment that PNGEI would have made in accordance with its IPI (excluding the Cost of IPI, the payment under clause 6.2 or debt financing under clause 7.4), but did not for any reason, PNGEI will not receive any Distributions for its IPI from InterOil until InterOil has received from Distributions associated with PNGEI’s IPI the sum_of:

(a)	800% of the total amount InterOil paid on behalf of PNGEI’s IPI; and
(b)	interest on the total amount InterOil paid on behalf of PNGEI’s IPI accruing daily at the Commercial Interest Rate, and;

thereafter, PNGEI will receive all Distributions in accordance with its IPI;

“Oil and Gas Act” means the Oil and Gas Act 1998 (No. 49 of 1998), PNG, as amended from time to time;

“Operator” means InterOil or its wholly owned affiliate, designated and acting as Operator under the terms of the JVOA;

“Participation Area” means the area within the Licence Areas in which PNGEI is entitled to the Indirect Participation Interest in accordance with this Agreement, including the full extent, regardless of the number of wells, required to exploit fully all commercially recoverable Petroleum in any and all Zones drilled pursuant to any of exploration well #9 to exploration well #16 in the Phase One Exploration Program and exploration well #17 to exploration well #24 Phase Two Exploration Program in which PNGEI participates and that result in a Discovery Field;

“Participation Interest” means, with respect to a party to the JVOA, that party’s undivided interest, expressed as a percentage and determined in accordance with the JVOA, in all rights, interests, benefits, obligations and liabilities derived under and by virtue of the JVOA;

“PDL” means a Petroleum Development Licence granted under the Oil and Gas Act;

“Petroleum” means:

(a)	any naturally occurring hydrocarbons, whether in a gaseous, liquid, or solid state; or
(b)	any naturally occurring mixture of hydrocarbons, whether in a gaseous, liquid, or solid state; or
(c)	any naturally occurring mixture of one or more hydrocarbons, whether in a gaseous, liquid, or solid state and any other substance; or
(d)	any fraction, mixture or product derived from sub-paragraphs (a), (b) or (c) as a result of Production or processing; or

3

(e) any Petroleum as defined in sub-paragraphs (a), (b), (c) or (d) which has been returned to a narura reservoir, but does not include coal or any other substance which can only be recovered by mechanical mining processes;

“Petroleum Pool” means a naturally occurring discrete accumulation of Petroleum;

“Petroleum Share” means the Participation Interest share of Petroleum to which a party is entitled pursuant to the JVOA;

“Phase One Exploration Program” means the exploration program conducted by InterOil for Petroleum within the Licence Areas comprising: (i) all necessary work relating to preparation for drilling exploration wells, which will include geological and other studies; (ii) drill the well bores of up to 16 consecutive exploration wells (exploration wells #1 to #16) to the Total Depth of each such well into separate prospective Zones;

“Phase Two Exploration Program” means the exploration program conducted at InterOil’s election for Petroleum within the Licence Areas comprising: (i) all necessary work relating to preparation for drilling exploration wells, which will include geological and other studies; and (ii) drill the well bores of the next 8 consecutive exploration wells (exploration wells #17 to #24) to the Total Depth of each such well into at least 8 separate, distinct Zones within the Licence Areas that are separate and distinct from the Zones to be drilled during the Phase One Exploration Program.;

“PPL” means a Petroleum Prospecting Licence granted under the Oil and Gas Act; “PPL 236” means Petroleum Prospecting Licence 236 granted under the Oil and Gas Act; “PPL 237” means Petroleum Prospecting Licence 237 granted under the Oil and Gas Act; “PPL 238” means Petroleum Prospecting Licence 238 granted under the Oil and Gas Act; “Regulation” means the Oil and Gas Regulation 2002 (No. 10 of 2002), PNG; “State” means the Independent State of Papua New Guinea; “Subsequent Work Program” is defined in clause 7;

“Total Depth” means the depth reached in each exploration well. InterOil shall use all reasonable commercial efforts to drill to target depth stipulated in the relevant Drilling Program on each well.

“Wilful Misconduct” means, in relation to any provision of this Agreement, such wanton or reckless act or omission not justified by any special circumstances as amounts to a wilful and utter disregard for the harmful and avoidable consequences thereof, but shall not include any error of judgment, mistake, act or omission, whether negligent or not, made by the Operator or any director, employee, agent or contractor of the Operator in the exercise, in good faith of any function, authority or discretion conferred upon the Operator;

“Zone” means a discrete stratigraphic interval within a geological structure containing or thought to contain a Petroleum Pool, or other common accumulation of Petroleum separately producible from any other common accumulation of Petroleum.

For the avoidance of doubt, where two or more porous zones a re found adjacent to each other, with separate interpreted structural, spill points, different pressures or stratigraphic closures such zones are separate Zones.

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1.2	The parties agree that:
	reference to the singular includes the plural and vice versa;
	reference to a clause means a clause of this Agreement; and
	reference to legislation or any document includes any amendments or replacements to the legislation or document.
2.	INDIRECT PARTICIPATION INTEREST
2.1	InterOil hereby grants to PNGEI the Conversion Rights under clause 3 hereof and the option for up to 4.25% Indirect Participation Interest (“IPI”) and IPI Development Rights in each of exploration well #9 to exploration #16 drilled as part the Phase One Exploration Program and exploration well #17 to exploration well #24 drilled as part of the Phase Two Exploration Program.
2.2	In consideration of InterOil granting to PNGEI the IPI, IPI Development Rights and Conversion Rights, PNGEI paid to InterOil the amount of US$7,650,000 (hereinafter referred to as the “Cost of IPI”). InterOil will classify this amount as a deposit until the conversion: of 100% of the Cost of IPI to InterOil common shares under clause 3.
2.3	Such payment was deposited in InterOil’s account by wire transfer as follows: (a) US$540,000 of the Cost of IPI by April 9, 2003; and (b) an additional US$6,610,000 of the Cost of IPI by May 9, 2003 and (c) the remaining balance of US$500,000 paid by March 15, 2004.
2.4	Any IPI will be reduced proportionally to the reduction in InterOiPs Participation Interest as a result of the State’s election under the Petroleum Agreement to participate in a PDL by taking a Participation Interest of up to 22.5% or any other State reversionary interest entitlement.
2.5	PNGEI shall be entitled to receive Distributions (net of State royalties and other State imposts and levies of whatever kind as provided by the Distributions Schedule, providing that InterOil and PNGEI shall cooperate to ensure the correct amounts are paid), in accordance with the Distributions Schedule, either directly from InterOil or from InterOiPs wholly owned affiliate producing and selling Petroleum from the Participation Area.
3.	CONVERSION RIGHTS
3.1	PNGEI hereby undertakes to immediately convert US$5,400,000 of its Cost of IPI into fully paid common shares in InterOil, at Fifteen Canadian dollars (C$15.00) per share, and the remaining US$2,250,000 of its Cost of EPI into fully paid common shares in InterOil, at Seventeen Canadian dollars (C$17.00) per share, using the appropriate foreign exchange rate from the Wall Street Journal Currency Trading section for the business day prior to the conversion date. Issuance of such stock to and its subsequent sale by PNGEI will be governed by the rules and requirements of the stock exchanges having jurisdiction over InterOil.
3.2	The conversion of PNGEI’s IPI into and the issuance of common shares to PNGEI under clause 3.1 eliminates for PNGEI any IPI or IPI Development Rights, or options to the first 8 wells drilled in the Phase One Exploration Program. PNGEI’s conversion of its EPI under this clause 3 does not affect PNGEI’s right to exercise its options to elect and pay for up to 4.25% IPI in each of exploration well #9 to exploration well #16 drilled in the Phase One Exploration Program and up to a 4.25% IPI in each of exploration well #17 to exploration well #24 in the Phase Two Exploration Program, whereby PNGEI can elect on a well by well basis prior to such wells being drilled, and shall pay for such interest in accordance to this Agreement.

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4.	PHASE ONE EXPLORATION PROGRAM
4.1	InterOil hereby intends to conduct the Phase One Exploration Program in accordance with this clause 4. InterOil will be the Operator of the Program and is not legally obligated to drilling all 16 wells, regardless of any option that is granted to PNGEI.
4.2	The Phase One Exploration Program will be conducted within specific areas covering the prospective Fields within the Licence Areas (where the specific areas of up to 16 consecutive wells located in PPL 236, PPL 237 and PPL238, which may be one or more Blocks or portions of Blocks (the “Phase One Area”). Upon the Discovery of any commercial Field(s) by wells drilled in the Phase One Exploration Program, InterOil will request the declaration of a location under the Oil and Gas Act, which will include sufficient Blocks or portions of Blocks to cover fully the Field(s) to the extent that such Blocks are in the Licence Areas (“Phase One Participation Area”).
4.3	InterOil will perform all necessary work in preparation and drilling of the exploration wells referred to in clause 6.1, including undertaking geological and other studies, on a reasonable commercial efforts basis.
4.4	InterOil will carry out and perform the Phase One Exploration Program in accordance with this Agreement (see definition in section I, “Phase One Exploration Program”).
4.5	Each well drilled within this Program ends upon that well reaching its Total Depth. If InterOil decides to continue operations on a well, it will design a work program which may include (a) logging or other evaluation or analysis, setting casing and or running tubing, perforating, and testing the well, (“Completion”) and/or (b) appraisal drilling, extended well testing and full field development and production (“Subsequent Work Program”).
4.6	Work on the Phase One Exploration Program commenced between 23rd March 2003 and 15th April 2003 and, if reasonably possible, all drilling is to be completed by 31st December 2005. InterOil will provide monthly drilling reports to PNGEI in respect of all wells in which PNGEI elects to exercise its option to participate, and all such well information will be available at InterOil’s office in Cairns, Queensland upon reasonable request for review by or on behalf of PNGEI. InterOil agrees to use reasonable efforts to make as much relevant well information as possible available in electronic media accessible by PNGEI.
4.7	InterOil will be responsible for all costs of the Phase One Exploration Program as it is defined in this Agreement.
5.	PHASE TWO EXPLORATION PROGRAM
5.1	InterOil hereby intends, subject to clause 5.2, to conduct, at its own cost, the drilling of up to eight wells for the Phase Two Exploration Program in accordance with this section 5. InterOil will be the Operator of the Program and is not legally obligated to drilling all 8 wells, regardless of any option that is granted to PNGEI.
5.2	InterOil agrees not to make a decision to proceed with the Phase Two Exploration Program until the earlier of:

(a)	30 days after completion of the Phase One Exploration Program; and
(b)	30 days after the first cash flow from a commercial Discovery of Petroleum from the Phase One Exploration Program provided Well No 12 in the Phase One Exploration Program has commenced drilling and that this is a special exception to and shall not derogate from the consecutive nature of the Phase One Exploration Program.

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5.3	Upon the Discovery of a commercial Field(s) by wells drilled in the Phase Two Exploration Program InterOil will request the declaration of a location under the Oil and Gas Act, which will include sufficient Blocks or portions of Blocks to cover fully the Field(s), to the extent such Blocks are in the Licence Areas (“Phase Two Participation Area”).
5.4	InterOil will perform all necessary work in preparation and drilling of the exploration wells referred to in clause 5.1, including undertaking geological and other studies, on a reasonable commercial efforts basis.
5.5	InterOil will carry out and perform the Phase Two Exploration Program in accordance with this Agreement (see definition in section 1, “Phase Two Exploration Program”).
5.6	Each well drilled within this Program ends upon that well reaching its Total Depth. If InterOil decides to continue operations on a well, it will design a work program which may include (a) logging or other evaluation or analysis, setting casing and or running tubing, perforating, and testing the well, (“Completion”) and/or (b) appraisal drilling, extended well testing and full field development and production (“Subsequent Work Program”).
5.7	InterOil will provide monthly drilling reports to PNGEI in respect of all wells in which PNGEI elects to exercise its option to participate, and all such well information will be available at InterOil’s office in Cairns, Queensland upon reasonable request for review by or on behalf of PNGEI. InterOil agrees to use reasonable efforts to make as much relevant well information as possible available in electronic media accessible by PNGEI.
5.8	InterOil will be responsible for all costs of the Phase Two Exploration Program as it is defined in this Agreement.
6.	PNGEI OPTIONS
6.1	Upon InterOil’s decision to proceed with any exploration well after the eighth exploration well in the Phase One Exploration Program and any exploration well in the Phase Two Exploration Program, InterOil will give written notice in the form of Annexure I hereto (“Offer of Participation Notice”) of its decision (including a Drilling Program and relevant geological and other information for making an election for that proposed well) to PNGEI and, within 15 days of receiving such notice and relevant information, PNGEI may give notice to InterOil in the form of Annexure I hereto (“Acceptance of Offer to Participate Notice”) that it wishes to purchase an IPI of up to 4.25% in the Participation Area defined by said exploration well, and PNGEI must pay the full amount of such payment on a date no later than 21 days after giving the notice under clause 6.2, or otherwise lose the right to purchase an IPI in the Participation Area defined by said exploration well.
6.2	If PNGEI gives an Acceptance of Offer to Participate Notice that it wishes to participate in respect of an exploration well, then PNGEI must to InterOil either a) for a well less than US$112,500 for each 1% IPI (as it is defined in this Agreement), or (b) where the well is planned to drill beyond 2,000 meters, the PNGEI portion of costs shall be US$112,500 per percentage point, plus the actual cost over US$1 million charged prorata per percentage point (see example below) to be paid upon determination of the actual cost.

For example, the cost to PNGEI of a one percent IPI in the Participation Area to be defined by a US$3,000,000 dollar exploration well to 3,000 meters shall be US$112,500 plus one percent of US$2,000,000, or US$112,500 plus US$20,000 for a total of US$132,500 per percent of participation.

The payment obligation under this clause 6.2 will not be subject to or eligible for a Non-Consent Penalty provision, and must be paid in full.

7

(i)	give written notice to InterOil that PNGEI intends to pay its IPI share of the costs of the aforementioned Completion and make such payment within 30 days of notice given under clause 7.1 (b); or
(ii)	give written notice to InterOil that PNGEI intends not to pay its IPI share of the costs of the aforementioned Completion, and forfeit the rights to that well and any commercial discovery from such well.

(c) In the event that PNGEI does not pay within the period referred to in clause 7.1 (b)(i), for any reason, for all or a part of its IPI share of the costs of any Completion work notified under clause 7.1 (a) and (b), PNGEI will forfeit its right in such well for electing to participate and failing to pay.

7.2 In respect of PNGEI’s IPI Development Rights, Non Consent cannot apply to testing and Completion of a Discovery. Non-Consent only applies to the full development of a field after initial exploration drilling, testing and Completion of a Discovery in clause 7.3.

7.3 Before PNGEI can be billed for any commitment or incurring any expenditure for a. Subsequent Work Program that is not included in the Phase One or Phase Two Exploration Program or Completion, the following will occur:

(a) InterOil must submit an AFE (as defined in the JVOA) for that Subsequent Work Program to PNGEI for its consideration. PNGEI must within 15 days after receipt of that AFE, and in accordance with the terms of the JVOA, either:

(i)	give written notice to InterOil that PNGEI intends to pay its IPI share of the costs of the aforementioned Subsequent Work Program and make such payment within 30 days of notice given under this clause 7.3(a)(i); or
(ii)	give written notice to InterOil that PNGEI intends not to pay its IPI share of the costs of the aforementioned Subsequent Work Program and incur a Non-Consent Penalty.

(b) In the event that PNGEI does not pay within the period referred to in clause 7.3(a), for any reason except clause 7.4, for all or a part of its IPI share of the costs of any Subsequent Work Program notified under clause 7.3(a), PNGEI will incur a Non-Consent Penalty for the amount InterOil paid on behalf of PNGEI’s IPI share of the costs of that Subsequent Work Program.

7.4 In the event that InterOil or one of its Affiliates raises debt financing (including principle, interest and fees) on behalf of InterOil and PNGEI’s IPI share, for all or a portion of any expenditure related to the Participation Area, including a Subsequent Work Program, using as security the rights to the Participation Area, then the Non-Consent Penalty shall not apply to PNGEI’s IPI share of the costs financed under any circumstances.

8. ASSIGNMENT

8.1 A party to this Agreement may a assign or transfer or purport to assign or transfer any of its interests, rights and obligations in and under this Agreement to a person or entity without the prior written consent of the other party to this Agreement, provided that PNGEI may only do so after paying to InterOil all of the agreed amounts described herein, subject to PNGEI’s Non-Consent rights in regard any expenditures in addition to the Cost of IPI.

8.2 An assignment or transfer pursuant to the provisions of this section 8 shall not be effective until the assignee or transferee is bound by the provisions of this Agreement.

9

8.3 Nothing contained in this section 8 shall be deemed or construed so as to:

(a)	prevent InterOil from freely mortgaging or encumbering its Petroleum Share of production and transferring or assigning to such mortgagee or lender the rights to the proceeds of sale of any Petroleum sold hereunder on behalf of InterOil as security for such debt. The provisions of this section 8 shall not apply to the granting of any such security interest; or
(b)	prevent PNGEI from freely mortgaging or encumbering its DPI and assigning to such mortgagee or lender the rights to the proceeds from PNGEI’s IPI as defined in this Agreement as security for such debt.

8.4 If InterOil assigns or transfers any of its interests or rights under this Agreement or its Participation Interest, whereby InterOil holds less than 50% Participating Interest, PNGEI may within 15 days notice by InterOil, elect to participate on the same terms, in such transaction by assigning, for the same pro-rata value to its account, the same proportion of its beneficial interest in the IPI to the same assignee or transferee. InterOil has unencumbered rights to conclude any transaction to sell its interest without frustration.

9. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS

9.1 Confidential Information acquired or received by any party under this Agreement shall be held confidential during the continuance of this Agreement and until the cessation of commercial production of Petroleum from the Discovery Field plus a period of 2 years thereafter and shall not be divulged in any way to any third party, without the prior written approval of all the Producers which shall not be unreasonably withheld provided that any party to this Agreement may, without such approval, disclose Confidential Information: -

(a)	to any Affiliate or bonafide intended assignee of such party upon obtaining a similar undertaking of confidentiality from such Affiliate or assignee in favour of all Producers;
(b)	to any outside consultants, upon obtaining a similar undertaking of confidentiality from such consultants in favour of all Producers;
(c)	to any bank or financial institution from whom such party is seeking or obtaining finance, upon obtaining a similar undertaking of confidentiality from such bank or institution;
(d)	to the extent required by the Act, the Licence, any other applicable laws or regulations or the Securities and Exchange Commission of Australia or any other Security Commission having jurisdiction over a party to this Agreement or the regulations of any recognised stock exchange on which are listed for quotation shares in the capital of such party or any Affiliate of such party;
(e)	in a prospectus registered by the Australian Securities Commission, or any delegate thereof, where such disclosure is required by law;
(f)	to the extent that the same has become generally available to the public; or
(g)	to the extent acquired independently from a third party whom the disclosing party believed on reasonable grounds was under no obligation of confidentiality relating thereto.

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10.	TERM AND TERMINATION
	The term of this Agreement shall be for the period commencing on the date as of which this Agreement is made (notwithstanding later execution hereof) and shall continue to be effective until: (a) 4 years from the date of this Agreement; (b) immediately upon the completion of the Phase One Exploration Program and the Phase Two Exploration Program, or (c) until the final Distributions after cessation of commercial production of Petroleum from the last Discovery Field, whichever is later.
11.	FORCE MAJEURE
11.1	If any party to this Agreement is prevented or delayed, wholly or in part, by Force Majeure (as defined in clause 11.2) to carry out its obligations under this Agreement, other than the obligation to make payment of monies due, upon such party giving notice and reasonably full particulars of such Force Majeure to the other party within a reasonable time after the occurrence of the cause relied upon, the obligations of the party giving notice, so far as they are affected by such Force Majeure, shall be suspended during but no longer than the continuance of the inability so caused and such further period thereafter as shall be reasonable in the circumstances provided always that the cause of the Force Majeure as far as possible shall be remedied with all reasonable dispatch by the party whose performance hereunder is adversely affected.
11.2	“Force Majeure” shall mean, strike, lockout, ban and limitation of work, or other industrial disturbance; act of the public enemy, war, whether declared or undeclared, blockade, riot, insurrection; malicious damage; earthquake, landslide, lightning, fire, storm, flood, tidal wave, epidemic or other act of god; explosion; the order of any court or governmental authority; shortage or unavailability of equipment, materials or labour, or restriction thereon, or limitations upon the use thereof, delay in transportation or communication, breakage of or accidental damage to machinery or lines of pipe, freezing of well or delivery facilities, cratering, washout, well blowout, necessity for making repairs to or reconditioning wells, restraint on access to the Licence Areas in the vicinity of the Discovery Field, termination or suspension of any licence concerning the Discovery Field and any other cause, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party to this Agreement concerned.
11.3	Notwithstanding anything hereinbefore contained, the settlement of a strike, lockout, ban and limitation of work or other industrial disturbance shall be entirely within the discretion of the party to this Agreement concerned.
12.	NOTICES
12.1	Any notice (including invoices) given under this Agreement shall be given to a party in writing at its nominated address, and sent whenever practicable and possible by post, facsimile transmission, personal delivery or email. Such notices shall be effective upon receipt which shall be deemed to have occurred on the working day following dispatch, except in the case of emails, receipt of which shall occur when confirmation of receipt has been received from the recipient. Such confirmation may be a reply to or acknowledgement of the notice sent by the recipient himself, or a return message automatically generated by the recipient’s system.

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12.2 The nominated addresses of the parties to this Agreement at the date hereof are as follows:

Party	Address
	InterOil Corporation (or its nominated Affiliate)
INTEROIL	25025 I-45 North
	Suite 420
	The Woodlands TX 77380
	USA
PNGEI	PNG Energy Investors, LLC
	c/o Global Asset Management,
	LLC 2905 Wilson Ave., Suite 100
	P.O. Box 158
	Grandville, ML USA 49468-0158
	Non P.O. Box Deliveries: 49418
	Telephone: 616-534-8100
	Fax: 616-534-4806

12.3	Any party to this Agreement may at any time by notice to the other party notify any change of address, facsimile number or email address and, upon receipt of the notice, such address shall become the address of that party for the purposes of this Agreement.
13.	AMENDMENT
13.1	This Agreement may be amended only by written agreement of all of the parties to this Agreement.
13.2	No waiver of any breach of this Agreement or of any provisions hereof shall be effective unless such waiver is in writing and signed by the party to this Agreement from whom such waiver is requested. No waiver of any breach shall be deemed to be a waiver of any other or subsequent breach.
14.	ENTIRE AGREEMENT
	This Agreement contains the entire agreement among the parties and supersedes and replaces all earlier agreements, documents, correspondence and conduct by the parties with respect to the subject matter, including, but not limited to, the Indirect Participation Interest Agreements dated April 3, 2003 and April 16, 2003, respectively.
15.	COSTS
	Each Parry’s costs of negotiating and entering into the Agreement, and any costs associated with obtaining authorisation or approval of this Agreement from any government or regulatory body shall be borne by the Party accruing such costs.
16.	GOVERNING LAW
	This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada.

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17.	RELATIONSHIP OF PARTIES
	Neither this Agreement nor any rights or obligations of any party under this Agreement shall constitute any of the parties as partners.
18.	COUNTERPARTS
	This Agreement may be executed in multiple counterparts, each such Agreement so executed shall have the effect of an original, but all such counterparts shall together constitute but one and the same instrument and this Agreement shall be binding on the Parties.

IN WITNESS WHEREOF the parties to this Agreement have executed this Agreement effective as of the day and year first hereinbefore mentioned.

Signed for and on behalf of INTEROIL CORPORATION	Signed for and on behalf of PNG ENERGY INVESTORS, LLC
By: Phil E. Mulacek	By: Global Asset Management LLC
-s- Phil E. Mulacek	Manager
Name/Title	Title
	By: Patrick Ian Phair
	-s- Patrick Ian Phair/Managing Member
	Signature/Title

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SCHEDULE OF JVOA TERMS

Party Participation:	All rights, benefits and interests derived from each Licence and all Petroleum produced from the Licence are owned by the Parties in accordance with their respective Participation Interests.
State Participation:	State (through a nominee) can elect to participate as a joint owner of up to 22.5% Participation Interest in the development of any discovery, by pro-rata contribution by the parties.
Management Committee:	Joint Operations to be authorised, supervised and directed by a Management Committee. Each Party may designate a representative, who has a vote equal to his Party’s Participation Interest.
Voting:	Affirmative vote by Parties holding an aggregate at least 65% Participation Interest.
	Default for approval of minimum work obligations: proposal with largest aggregate Participation Interest.
	Unanimous voting: for work in excess of minimum work obligations, relinquishment of the Licence Areas, etc.
Operator:	InterOil to be Operator for all Joint Operations. Operator has exclusive charge of and conducts Joint Operations under overall supervision and direction of Management Committee. Operator can resign, be removed automatically or be removed by the vote of all non-operators for material breach, gross negligence etc.
Liabilities:	All damage, loss or liability incurred in Joint Operations to be borne by the Parties in proportion to their respective Participation Interests. Operator (except as a Party) is not liable except for damage or less resulting from Operator’s gross negligence or wilful misconduct.
AFE Procedure:	Before entering into any commitment or incurring any expenditure, Operator must submit an AFE to the Parties for Management Committee approval.
Accounting Procedure:	All costs, expenses, credits etc will be ascertained, computed, accounted for in accordance with the Accounting Procedure. Operator is entitled to cash call for monthly project expenditures in advance, in respect of direct and indirect charges to the Joint Account; the latter as a percentage (0.5% — 3%) of annual Joint Account Costs.

Default Provisions:	On non-payment of Participation Interest share of Joint Account Costs. Transfer of Participation Interest to other Parties if Default not remedied within 90 days.
Joint Participation	If all Parties agree to participate, operations will be carried out as a Joint Operation. Approval of Appraisal Programs and budgets and development plans to be by unanimous determination of the Management Committee. Parties not participating in a Development Program forfeit all rights to the Sub-Area and the Development Licence Areas the subject of the Development Plan and transfer all rights and interests etc in that Area to participating Parties.
Sole Risk Operation:	If less than all Parties agree to participate in a Well Proposal, Proposal will be carried out as a Sole Risk Operation: Specifically for Exploration Wells; Testing, Extended Well Testing, Completion, Deepening, Sidetracking, Appraisal or Development Programs.
Non Consent:	Right of election not to participate in a Joint Operation which a Party has voted against whereby the Non Consent Penalty is 800% of the amount that the non-consenting party would have paid had it elected to participate.
Transfer of Interest:	Each party has the right from time to time to transfer all or part of its Participation Interest with the consent of the other parties, except with respect to transfers to Affiliates.

2

DISTRIBUTIONS SCHEDULE

The Indirect Participation Interest (“IPI”) shall entitle PNGEI to Distributions in accordance with its IPI Percentage at the time of any Distribution. InterOil or its nominated Affiliate shall make quarterly Distribution payments to PNGEI as soon as is reasonably practical. PNGEI will have the right to have the information audited by itself or a qualified agent. Distributions to PNGEI in accordance with its IPI shall be calculated as follows:

+ Any and all proceeds associated with the Participation Area, including (if applicable) any and all funds borrowed using as security the rights to the Participation Area, but not used for expenditures related to the Participation Area

-	Operator’s Direct Charges, calculated in accordance with the Accounting Procedures in the JVOA, and including InterOils actual direct costs to produce, stabilize, separate, transport and sell Petroleum, including repayment of any and all borrowings (principal interest, and fees etc.) secured by the rights to the Participation Area
-	Operator’s Indirect Charges, calculated in accordance with the Accounting Procedures in the JVOA, including transportation costs, and third party costs, insurances, etc
-	US$0.45 per barrel infrastructure fee for Petroleum produced and transported to InterOil’s Refinery or Marine Terminal
-	State royalties and other State imposts and levies of whatever kind including income tax, value added or goods and services taxes or dividend withholding taxes (providing that InterOil and PNGEI shall cooperate to ensure the correct amounts are paid for each parties respective interest)
=	Sub-total
x	PNGEI’sIPI%
=	PNGEI’s Sub-total
-	Non-Consent Penalty outstanding, (if any)
-	PNGEI’s IPI% share of Abandonment Security funding (if any)
=	Distribution to PNGEI

ANNEXURE I

PARTICIPATION NOTICE AND SIGNATURE PAGE FOR

INDIRECT PARTICIPATION INTEREST AGREEMENT FOR [NAME OF ELECTION
WELL], EXPLORATION WELL #[ ]

Offer of Participation Notice

As of the      day of     20     (the “Offer of Participation Notice Date”), InterOil Corp.

(“InterOil”), in accordance with the Amended Indirect Participation Interest Agreement dated May 12, 2004 (the “Amended IPI Agreement”), hereby gives notice to PNG Energy Investors, LLC (“PNGEI”) that InterOil will perform drilling operations on a reasonable commercial efforts basis in accordance with the enclosed Drilling Program for [Name of Election Well], exploration well # [ ] (the “Election Well”).

PNGEI may purchase an Indirect Participation Interest {“IPI”) of up to 4.25% in the Participation Area to be defined by the Election Well by returning to InterOil the Confirmation of Participation Notice below in accordance with the Amended IPI Agreement.

Subject to PNGEI providing InterOil the Acceptance of Offer to Participate Notice in accordance with the Amended IPI Agreement, InterOil agrees to incorporate this Offer of Participation Notice and the enclosed Drilling Program into the Indirect Participation Interest Agreement for [Name of Election Well] (the “Election Well IPI Agreement”). This Participation Notice shall be the legally binding signature page for the Election Well IPI Agreement, which shall have an effective date as of the date of the Acceptance of Offer to Participate Notice.

Signed for and on behalf of INTEROIL CORPORATION

By:

                                                            
Name/Title

Acceptance of Offer to Participate Notice

As of the      day of      20      (the “Acceptance of Offer to Participate Notice Date”),
PNGEI, in accordance with the Amended IP I Agreement, hereby gives notice to InterOil that PNGEI will purchase an IPI of and will properly make payment for [%] percent (the “IPI Percentage”), which shall not exceed 4.25%, in the Participation Area to be defined by the Election Well described in the Drilling Program for the Election Well.

PNGEI agrees to incorporate this Acceptance of Offer to Participate Notice and the Drilling Program (which was previously forwarded to PNGEI by InterOil) into the Election Well IPI Agreement. This Participation Notice shall be the legally binding signature page for the

Election Well IPI Agreement, which shall have an effective date as of the date of this Acceptance of Offer to Participate Notice Date.

Signed for and on behalf of PNG ENERGY INVESTORS, LLC

By: Global Asset Management, LLC

                                                            
Title

By: Patrick Ian Phair

                                                            
Signature/ Title

2

ANNEXURE II: EXPLORATION MAP #1 EXPLORATION PROGRAM
PROSPECTIVE FIELDS

ANNEXURE II: EXPLORATION MAP #2 EXPLORATION PROGRAM
PROSPECTIVE FIELDS

i

ii

EX-99.11

DRILLING PARTICIPATION AGREEMENT

BETWEEN

INTEROIL CORPORATION
(“InterOil”)

AND

PNG DRILLING VENTURES LIMITED
(“PNGDV”)

TABLE OF CONTENTS

1. INTERPRETATION	1
2. INDIRECT PARTICIPATION INTEREST	5
3. BACKSTOP PAYMENT	6
4. PHASE ONE EXPLORATION PROGRAM	7
5. CONVERSION OPTION	7
6. CASH CALLS	8
7. PHASE TWO EXPLORATION PROGRAM AND PNGDV OPTION	9
8. CARRY	10
9. ASSIGNMENT	10
10. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS	10
11. TERM AND TERMINATION	11
12. FORCE MAJEURE	11
13. LIABILITY	12
14. NOTICES	12
15. AMENDMENT	13
16. ENTIRE AGREEMENT	13
17. ACKNOWLEDGMENT AND LEGEND	13
18. COSTS	13
19. GOVERNING LAW	14
20. RELATIONSHIP OF PARTIES	14

21. COUNTERPARTS	14
22. TIME	14
23. SEVERABILITY	14

DISTRIBUTIONS SCHEDULE

ANNEXURE I -  EXPLORATION MAP AND PHASE ONE EXPLORATION PROGRAM PROSPECTS

DRILLING PARTICIPATION AGREEMENT

THIS AGREEMENT is made as of the 21st day of July 2003

BETWEEN:

InterOil Corporation, of 25025 I-45 North, Suite 410, The Woodlands, Texas, USA (“InterOil”)

AND:

PNG Drilling Ventures Limited, a Barbados company, with an office at 25025 I-45 North, Suite 410, The Woodlands, Texas, USA (“PNGDV”)

WHEREAS:

A. InterOil, through its relevant Affiliate, intends to conduct exploration drilling programs within the area covered by PPLs 236, 237 and 238 (the “Licence Area”) in Papua New Guinea and to develop and produce Petroleum in any new PDL issued from and out of that area.

B. InterOil is seeking investors to participate in funding these drilling programs in exchange for a beneficial interest (the “Indirect Participation Interest”) in InterOil’s Participation Interest

C.	PNGDV intends to acquire an Indirect Participation Interest under the terms of this Agreement and to hold that Indirect Participation Interest as agent and trustee for various investors.
D.	Whereas the parties acknowledge that partial escrow was deposit by July 1st 2003.

NOW THIS AGREEMENT WITNESSES that the parties hereby covenant and agree as follows:-

1. INTERPRETATION

1.1	Unless a contrary intention appears, in this Agreement (including its Recitals):-
	“Affiliate” means, when used with reference to a specified person, any person that directly or indirectly controls or is controlled by or is under common control with the specified person and, for the purposes of this definition, “control” shall mean the right to exercise control and direction over the management and policies of the relevant specified person whether directly or indirectly and whether through the ownership of voting securities or by contract or otherwise, and any person, or combination of persons, acting jointly or in concert or any combination of Affiliates holding more than 50% of the outstanding voting securities of the specified person shall be deemed to exercise control of that specified person;
	“Backstop Payment” has the meaning given to it in clause 3.1;
	“barrel” means that quantity of petroleum which will occupy a volume of 42 U.S. standard gallons measured at 60 degrees Fahrenheit (which volume shall be deemed equivalent to 0.158987 cubic metres when measured at 15.55 degrees Celsius);

“Block” means a block constituted as provided by Section 17 of the Oil and Gas Act;

“Commercial Field” means a Petroleum Field with at least five million barrels of recoverable Petroleum;

“Commercial Interest Rate” means the sum of (a) the Prime Rate as reported in the Wall Street Journal on every Tuesday in the Money Rates section; and (b) 250 basis points (or 2.5%);

"Completion” has the meaning given to it in clause 4.4;

“Confidential Information” means:

(a)

information regarding the existence, terms or conditions of this Agreement; and

(b)

all communications between the parties, all information concerning the Phase One Exploration Program and Phase Two Exploration Program, and all other information supplied to, or received by, any party from any other party in connection with this Agreement, which is either marked “confidential” or by its nature is intended to be for the knowledge of the recipient and/or any other person within clause 10.1.

“Cost of IPI” has the meaning given to it in clause 2.2;

“Discovery” means the discovery of Petroleum not previously known to have existed, recoverable at the surface of any well bore in a significant amount measurable by conventional petroleum industry testing methods and which may reasonably be considered to be an indication of a potentially commercial accumulation of Petroleum. The verb “Discover” means the act of making a Discovery;

“Discovery Field” means a Petroleum Field Discovered as a result of the Phase One Exploration Program or the Phase Two Exploration Program within PPL236, 237 or 238 or any PDL issued from or granted out of the Participation Area;

“Distributions” is defined in the attached Distributions Schedule;

“Field” means that volume of rock extending from the surface of the earth vertically down to the base of the earth’s crust from a line enclosing the minimum surface area required to include, with respect to a Petroleum Pool created by a geological structure or a stratigraphic trap (whether or not compartmentalised by faulting), the maximum reasonably interpreted area included above the petroleum-water fluid contact or contacts on a structural map delineating the single structural closure of each known Zone.

For the avoidance of doubt:

(a)	where the surface area of a Zone overlaps the surface area of another Zone they comprise a single Field;
(b)	where two or more Zones include a common Petroleum Pool these structures comprise a single Field; and
(c)	where two or more Zones are found adjacent to each other, with separate interpreted structural or stratigraphic closures and which do not include a common Petroleum Pool, such structures are separate Fields;

“Indirect Participation Interest” or “IPI” means the IPI Percentage share of the whole (100%) of the undivided interest in the Participation Area, provided that such share shall only ever burden InterOil’s Participation Interest in and Petroleum Share from the Participation Area, whatever that may be from time to time, and InterOil shall not transfer or assign such interest to any other party;

“Indirect Participation Interest Percentage” or “IPI Percentage” means 13.5% multiplied by a fraction the numerator of which is 8 and the denominator of which is the number of exploratory wells drilled in the Phase One Exploration Program, and shall be adjusted on a pro-rata basis for conversion(s), if any, to either InterOil common shares and/or debt or adjusted in accordance with clause 2.4 or clause 7.4;

“InterOil Refinery” means the oil refinery owned by InterOil or its Affiliate at Napa Napa near Port Moresby in Papua New Guinea, including the related storage tanks and marine terminal;

“Investor” means a party to an indirect participation agreement with PNGDV pursuant to which PNGDV has agreed to hold an Indirect Participation Interest as agent and trustee for the Investor;

“JVOA” means the Joint Venture Operating Agreement to be entered into by InterOil or its nominated Affiliate, and any other working interest parties, in respect of the Licence;

“Licence” means PPLs 236, 237 and 238 or any PDL that may be issued or granted out of PPLs 236, 237 and 238, and includes any extension, renewal or variation of that Licence;

“Non Consent Penalty” means for any payment that PNGDV was obligated to make in accordance with its IPI (excluding the Cost of IPI, the payment under clause 7.5 or debt financing under clause 5.4), but did not make for any reason, PNGDV will not receive any Distributions for its IPI from InterOil until InterOil has received from Distributions associated with PNGDV’s IPI , or from PNGDV, the sum of:

(a)	200% of the total amount InterOil paid on behalf of PNGDV’s IPI; and
(b)	interest on the total amount of payment(s) PNGDV would have made accruing at the Commercial Interest Rate, and

thereafter, PNGDV will receive all Distributions in accordance with its IPI;

“Oil and Gas Act ” means the Oil and Gas Act, 1998 of Papua New Guinea as amended from time to time, and the regulations thereto;

“Operator” means InterOil or its wholly owned affiliate, designated and acting as Operator under the terms of the JVOA;

“Participation Area” means the area within the Licence Area in which PNGDV is entitled to the Indirect Participation Interest in accordance with this Agreement, including the full extent, regardless of the number of wells required to exploit fully all commercially recoverable Petroleum, of any and all Zones drilled pursuant to the Phase One Exploration Program and, if applicable, the Phase Two Exploration Program, and includes the Phase One Participation Area and, if applicable, the Phase Two Participation Area;

“Participation Interest” means, with respect to a party to the JVOA, that party’s undivided interest, expressed as a percentage and determined in accordance with the JVOA, in all rights,

interests, benefits, obligations and liabilities derived under and by virtue of the JVOA and the Licence;

“PDL” means a Petroleum Development Licence granted under the Oil and Gas Act;

“Petroleum” means:

(a)	any naturally occurring hydrocarbons, whether in a gaseous, liquid, or solid state; or
(b)	any naturally occurring mixture of hydrocarbons, whether in a gaseous, liquid, or solid state; or
(c)	any naturally occurring mixture of one or more hydrocarbons, whether in a gaseous, liquid, or solid state and any other substance; or
(d)	any fraction, mixture or product derived from sub-paragraphs (a), (b) or (c) as a result of production or processing; or
(e)	any Petroleum as defined in sub-paragraphs (a), (b), (c) or (d) which has been returned to a natural reservoir,

but does not include coal or any other substance which can only be recovered by mechanical mining processes;

“Petroleum Pool” means a naturally occurring discrete accumulation of Petroleum;

“Petroleum Share” means the Participation Interest share of Petroleum to which a party is entitled pursuant to the JVOA;

“Phase One Area” has the meaning given to it in clause 4.2;

“Phase One Exploration Program” means the exploration program to be conducted by InterOil for Petroleum within the Licence Area comprising: (i) all necessary work relating to preparation for drilling exploration wells, which will include geological and other studies; and (ii) drill the well bore of up to 16 exploratory wells to the designated Target Depth of each such well on up to 16 separate, distinct, non-overlapping Zones within the Licence Area marked as separate drilling prospects on the Exploration Map attached as Annexure I. Each exploratory well must drill into a separate drilling prospect on the Exploration Map attached as Annexure I in the Phase One Exploration Program;

“Phase One Participation Area” has the meaning given to it in clause 4.2;

“Phase Two Exploration Program” means the exploration program to be conducted by InterOil for Petroleum within the Licence Area comprising: (i) all necessary work relating to preparation for drilling exploration wells, which will include geological and other studies; and (ii) drill the well bore of at least 8 exploratory wells to the designated Target Depth of each such well on at least 8 separate, distinct, non-overlapping Zones within the Licence Area that are separate, distinct, and non-overlapping from the Zones to be drilled during the Phase One Exploration Program. Each exploratory well must drill into a separate drilling prospect that has not been drilled by a previous exploratory well in either the Phase One Exploration Program or the Phase Two Exploration Program;

“Phase Two Participation Area” has the meaning given to it in clause 7.3;

“PPLs 236, 237 and 238” means Petroleum Prospecting Licences 236, 237 and 238 granted under the Oil and Gas Act, or top file licences 236, 237 and 238;

“State” means the Independent State of Papua New Guinea;

“Subsequent Work Program” has the meaning given to it in clause 4.4;

“Target Depth” means the lesser of (a) 2,000m; or (b) a depth sufficient to test the Pale Sandstone. In no way shall this definition limit or constrain the Operator from drilling deeper if it deems appropriate;

“Wilful Misconduct” means, in relation to any provision of this Agreement, such wanton or reckless act or omission not justified by any special circumstances as amounts to a wilful and utter disregard for the harmful and avoidable consequences thereof, but shall not include any error of judgment, mistake, act or omission, whether negligent or not, made by the Operator or any director, employee, agent or contractor of the Operator in the exercise, in good faith of any function, authority or discretion conferred upon the Operator;

“Zone” means a geological structure containing or thought to contain a common accumulation of petroleum separately producible from any other common accumulation of Petroleum.

1.2 The parties agree that:

(a)	reference to the singular includes the plural and vice versa;
(b)	reference to a clause means a clause of this Agreement; and
(c)	reference to legislation or any document includes any amendments or replacements to the legislation or document.

2. INDIRECT PARTICIPATION INTEREST

2.1 InterOil hereby grants to PNGDV, as agent and trustee for one or more Investors, the Indirect Participation Interest (“IPI”).

2.2 In consideration of InterOil granting to PNGDV the IPI, PNGDV agrees to pay to InterOil the amount of US$12,185,000.00(the “Cost of IPI”). The Indirect Participation Interest is 13.5% of the undivided interest in the Participation Area, as further defined and adjusted in the definitions of “IPI” and “IPI Percentage”. By way of example, subject to any adjustments pursuant to the definition thereof, the Indirect Participation Interest Percentage will 6.75% if there are 16 exploratory wells drilled in the Phase One Exploration Program.

2.3 The Cost of IPI shall be paid in the following instalments: (a) US$1,000,000 that was paid into escrow on or before July 7^th, 2003 shall be released from escrow by July 23rd, 2003, and (b) US$1,285,000 shall be paid by July 31st, 2003 and (c) US$3,225,000 shall be paid by August 26th, 2003 and (d) US$3,975,000 shall be paid by September 15, 2003, and (e) US$2,700,000 shall be paid by September 30, 2003, in each case by wire transfer to InterOil at the following trust account:

Dale A. Dossey
25025 I-45 North, Suite 410,
The Woodlands, Texas 77380
Tel: 1-281-362-9909

Klein Bank & Trust
ABA 113008012
Acct 125404

2.4 In consideration of PNGDV procuring Investors and acting as agent and trustee for their interests, InterOil agrees to pay to PNGDV, or to one or more third parties designated by PNGDV, by August 30^th, 2003, a financing commission of US$35,000.00 of the Cost of IPI.

2.5 The IPI will be reduced proportionally to the reduction in InterOil’s Participation Interest as a result of the State’s election under a State Petroleum Agreement to participate in a PDL by taking a Participation Interest of up to 22.5% or any other State reversionary interest entitlement.

2.6 PNGDV shall be entitled to receive Distributions in accordance with the Distributions Schedule appended to this Agreement.

2.7 At any time after the grant of a PDL from the Participation Area, any Investors may elect to convert the IPI held for them by PNGDV to a direct working interest, provided that all taxes, duties, fees and other third party charges and costs incurred by InterOil, PNGDV or a third party designated by PNGDV in relation to such conversion (including reasonable attorney’s fees) shall be for the account of PNGDV and such amounts incurred by InterOil shall be reimbursed by PNGDV promptly upon demand.

3. BACKSTOP PAYMENT

3.1 If the aggregate of all Discoveries resulting from the Phase One Exploration Program is less than 5 million barrels of recoverable Petroleum, subject to clause 3.2 InterOil shall exchange fully paid common shares in InterOil or cash (or a combination thereof, in InterOil’s sole discretion) for PNGDV’s IPI (a “Backstop Payment”), calculated by reference to the full paid in Cost of IPI. PNGDV may in its sole discretion designate one or more Investors to whom the cash or shares shall be paid or issued.

3.2 The Backstop Payment will be paid in two equal installments, the first on or about December 15^th, 2005, and the second on or about December 15^th, 2006.

     i) The first instalment, payable in respect of 50% of the Cost of IPI (being $6,092,500), will be comprised of 149,300 shares in respect of $2,650,000 of the first instalment and cash and/or shares (valued at the market trading price under clause 3.3), in respect of the remaining $3,442,500 of the first instalment.

     ii) The second instalment, payable in respect of 50% of the Cost of IPI (being $6,092,500), will be comprised of (A)149,300 shares in respect of $2,650,000 of the second instalment and (B) cash and/or shares (valued at the market trading price under clause 3.3) in respect of the remaining $3,442,500 of the second instalment.

Shares issued at the “market trading price” for the purposes of clauses 3.2(i) and (ii) shall be valued at the weighted average market trading price of InterOil shares in the month of November immediately preceding such issuance, such price to be determined by reference to the price prevailing on the stock exchange on which the largest value of InterOil shares traded (measured by reference to the volume and price of such trades during the relevant month). PNGDV shall not sell, and shall procure that any Investors that it intends to designate as the recipients of shares under

clause 3.1 shall not sell, any InterOil shares during the 2-month period leading up to each such Backstop Payment payment date.

4. PHASE ONE EXPLORATION PROGRAM

4.1 InterOil hereby agrees to conduct, at its own cost, the Phase One Exploration Program in accordance with this clause 4. InterOil will be the Operator of the Phase One Exploration Program.

4.2 The Phase One Exploration Program will be conducted within specific areas covering the proposed drilling prospects within the Licence Area as indicated on the Exploration Map attached as Annexure I, which may be one or more Blocks or portions of Blocks (the “Phase One Area”). Upon the Discovery of any Commercial Field(s) by wells drilled in the Phase One Exploration Program, InterOil will request the declaration of a location under the Oil and Gas Act, which will include sufficient Blocks or portions of Blocks to cover fully the Field(s) to the extent that such Blocks are in the Licence Area (“Phase One Participation Area”).

4.3 InterOil will perform all necessary work in preparation for drilling exploratory wells, including undertaking geological and other studies.

4.4 The Phase One Exploration Program in respect of each well drilled within that program ends upon that well reaching its Target Depth. If InterOil decides to continue operations on that Zone, it will design a work program which may include (a) logging or other evaluation or analysis, setting casing and or running tubing, perforating, and testing the well, (“Completion”) and/or (b) appraisal drilling, extended well testing and full field development and production (“Subsequent Work Program”).

4.5 Work on the Phase One Exploration Program will commence between 15th March 2003 and 15^th April 2003 and, if reasonably possible, all drilling is to be completed by 30th September 2004.

4.6 InterOil will be responsible for all costs of the Phase One Exploration Program.

5. CONVERSION OPTION

5.1 Upon InterOil’s first election to proceed with Completion of a well in the Phase One Area, the following will occur:

(a)	promptly after such election, InterOil shall give to PNGDV and, if notified in advance by PNGDV, to one more Investors, written notice of its Completion decision, together with technical, geological and other logging data and a proposal for such Completion, including cost estimates, that can reasonably be supplied which is relevant to PNGDV making its decision in paragraph (b);
(b)	within 48 hours of receiving any notice from InterOil pursuant to paragraph (a), PNGDV must:

(i) in respect of $5,300,000 of the Cost of IPI, give written notice to InterOil:

(A) that PNGDV intends to participate in operations in the Phase One Participation Area by paying its corresponding IPI share of the costs of the aforementioned Completion and all other costs incurred or to be incurred by InterOil in relation to the Phase One Participation Area under the JVOA; or

(B) that PNGDV intends to convert the corresponding IPI (valued at the full paid in Cost of IPI) for 298,600 fully paid common shares of InterOil; and

(ii) in respect of $1,485,000 of the Cost of IPI, give written notice to InterOil:

(A) that PNGDV intends to participate in operations in the Phase One Participation Area by paying its corresponding IPI share of the costs of the aforementioned Completion and all other costs incurred or to be incurred by InterOil in relation to the Phase One Participation Area under the JVOA; or

(B) that PNGDV intends to convert the corresponding IPI (valued at the full paid in Cost of IPI) for (A)US$565,000 of interest free debt of InterOil, such debt due and payable in a first instalment of US$159,200 on or about December 15, 2005, and a second instalment of US$405,800 on or about December 15, 2006, and (B) 64,540 fully paid common shares to be issued on December 15, 2006; and

(iii) in respect of $5,400,000 of the Cost of IPI, give written notice to InterOil:

(A)	that PNGDV intends to participate in operations in the Phase One Participation Area by paying its corresponding IPI share of the costs of the aforementioned Completion and all other costs incurred or to be incurred by InterOil in relation to the Phase One Participation Area under the JVOA; or
(B)	that PNGDV intends to convert the corresponding IPI (valued at the full paid in Cost of IPI) for:

a) 360,720 fully paid common shares of InterOil; or

b) 270,000 fully paid common shares of InterOil to be issued on December 15, 2006 and US$1,404,000 of interest free debt of InterOil, such debt due by InterOil to Investor and payable in two equal instalments on or about December 15, 2005 and December 15, 2006, respectively,

provided that if, and to the extent that, PNGDV does not notify InterOil of its election under clause 5.1(b)(i), 5.1(b)(ii) or 5.1(b)(iii) within the aforementioned 48 hour period, PNGDV will be deemed to have elected to participate pursuant to clause 5.1(b)(i)(A), 5.1(b)(ii)(A) or 5.1(b)(iii)(A) as applicable.

(c) PNGDV may in its sole discretion designate one or more Investors to whom the cash or shares contemplated in clause 5.1(b) above shall be paid or issued

6. CASH CALLS

6.1 If PNGDV elects to participate in operations in the Phase One Participation Area by electing pursuant to clause 5.1(b)(i)(A), 5.1(b)(ii)(A) or 5.1(b)(iii)(A), before entering into any commitment or incurring any expenditure in respect of Completion, a Subsequent Work Program or

otherwise relating to the JVOA in relation to the Phase One Participation Area, the following will occur:

(a) InterOil must submit an AFE (as defined in the JVOA) for that cost to PNGDV for its consideration. PNGDV must within 15 days after receipt of that AFE, and in accordance with the terms of the JVOA, either:

(i)	give written notice to InterOil that PNGDV intends to pay its IPI share of the costs and make such payment within 30 days of notice given under this clause 6.1(a)(i); or
(ii)	give written notice to InterOil that PNGDV intends not to pay its IPI share of the costs and incur a Non-Consent Penalty.

(b) In the event that PNGDV does not pay, within the period referred to in clause 6.1(a)(i), for any reason except clause 6.2, all or a part of its IPI share of the aforementioned costs, PNGDV will incur a Non-Consent Penalty for the amount PNGDV would have paid for its IPI share of such costs.

6.2 In the event that InterOil or one of its Affiliates raises debt financing (including principle, interest and fees) on behalf of InterOil and PNGDV’s IPI share, for all or a portion of any expenditure related to the Participation Area, including any Completion work and/or a Subsequent Work Program, using as security the rights to the Participation Area, then the Non-Consent Penalty shall not apply to PNGDV’s IPI share of the costs financed under any circumstances.

6.3 If PNGDV elects to participate in operations in the Phase Two Exploration Program pursuant to clause 7.4, this clause 6 shall apply mutatis mutandis.

7. PHASE TWO EXPLORATION PROGRAM AND PNGDV OPTION

7.1 InterOil may decide in its absolute discretion to conduct, at its own cost, the Phase Two Exploration Program in accordance with this clause 7. InterOil will be the Operator of the Phase Two Exploration Program.

7.2 InterOil agrees not to make a decision to proceed with the Phase Two Exploration Program until the earlier of:

(a)	30 days after completion of the Phase One Exploration Program; and
(b)	30 days after the Discovery of a Commercial Petroleum Field from the Phase One Exploration Program.

7.3 The Phase Two Exploration Program will be conducted within the Licence Area as indicated on the Exploration Map attached as Annexure I, which may be one or more portions of Blocks not included in the Phase One Exploration Program (the “Phase Two Area”). All drilling structures and locations will be nominated by InterOil prior to commencement of the drilling program, but may be modified by InterOil from time to time. Upon the Discovery of a commercial Field by wells drilled in the Phase Two Exploration Program InterOil will request the declaration of a location under the Oil and Gas Act, which will include sufficient Blocks or portions of Blocks to cover adequately the Field, to the extent such Blocks are in the Licence Area (“Phase Two Participation Area”).

7.4 Upon InterOil’s decision to proceed with the Phase Two Exploration Program, it will give written notice to PNGDV and, within 90 days of receiving such notice, PNGDV may give notice to InterOil (“Phase Two Notice”) that it wishes to participate in the Phase Two Exploration Program on the same cost terms as for the Phase One Exploration Program, or otherwise lose the right to participate in the Phase Two Exploration Program.

7.5 Within 15 days after giving the Phase Two Notice, PNGDV must pay to InterOil US$225,000 for each 0.25% IPI it wishes to acquire, up to the IPI Percentage PNGDV initially held, in any Phase Two Participation Area resulting from the Phase Two Exploration Program, or otherwise lose the right to participate in the Phase Two Exploration Program. This payment cannot be subject to a Non-Consent Penalty.

8. CARRY

     If a Discovery Field is estimated by InterOil to be 10 million barrels or greater, PNGDV will pay to InterOil, in respect of each 0.5% of IPI Percentage held by it (as such IPI Percentage may be reduced pursuant to the definition thereof),1.0% of the costs incurred in carrying out the Subsequent Work Program in respect of that Discovery Field from the time Total Depth is reached through to the grant of a PDL in respect of that Discovery Field, up to a maximum expenditure limit in respect of that Discovery Field of US$600,000 for each 0.5% of IPI Percentage (as such IPI Percentage may be reduced pursuant to the definition thereof) held by it. Upon the earlier of the grant of the PDL and the maximum expenditure limit being reached in paying for the Subsequent Work Program, all further operations carried out in respect of that Discovery Field, including any remaining Subsequent Work Program in respect of that Discovery Field, will be paid for in accordance with each party’s Participation Interest and in accordance with the terms of the JVOA. The foregoing provisions of this clause shall apply mutatis mutandis to any Phase Two Exploration Program.

9. ASSIGNMENT

9.1 A party to this Agreement may assign or transfer or purport to assign or transfer any of its interests, rights and obligations in and under this Agreement to a person or entity without the prior written consent of the other party to this Agreement, provided that PNGDV may only do so after paying to InterOil all of the agreed amounts described herein.

9.2 An assignment or transfer pursuant to the provisions of this clause 9 shall not be effective until the assignee or transferee is bound by the provisions of this Agreement.

9.3 Nothing contained in this clause 9 shall be deemed or construed so as to:

(a)	prevent InterOil from freely mortgaging or encumbering its Petroleum Share of production and transferring or assigning to such mortgagee or lender the rights to the proceeds of sale of any Petroleum sold hereunder on behalf of InterOil as security for such debt. The provisions of this clause 9 shall not apply to the granting of any such security interest; or
(b)	prevent PNGDV from freely mortgaging or encumbering its IPI and assigning to such mortgagee or lender the rights to the proceeds from PNGDV’s IPI as defined in this Agreement as security for such debt.

10. CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS

10.1 Confidential Information acquired or received by any party under this Agreement shall be held confidential during the continuance of this Agreement and until the cessation of commercial production of Petroleum from the Discovery Field plus a period of 2 years thereafter and shall not be divulged in any way to any third party, without the prior written approval of the other party (which shall not be unreasonably withheld) and such third parties as the other party may reasonably request, provided that any party to this Agreement may, without such approval, disclose Confidential Information:-

(a)	to any Affiliate or bona fide intended assignee of such party upon obtaining a similar undertaking of confidentiality from such Affiliate or assignee in favour of the other party and such third parties as the other party may reasonably request;
(b)	to any outside consultants, upon obtaining a similar undertaking of confidentiality from such consultants in favour of the other party and such third parties as the other party may reasonably request;
(c)	to any bank or financial institution from whom such party is seeking or obtaining finance, upon obtaining a similar undertaking of confidentiality from such bank or institution;
(d)	to the extent required by the Oil and Gas Act, the Licence, any other applicable laws or regulations or the Securities and Exchange Commission of Australia or any comparable government entity having jurisdiction over a party to this Agreement or the regulations of any recognised stock exchange on which are listed for quotation shares in the capital of such party or any Affiliate of such party;
(e)	in a prospectus registered by the Australian Securities Commission or any comparable government entity, or any delegate thereof, where such disclosure is required by law;
(f)	to the extent that the same has become generally available to the public; or
(g)	to the extent acquired independently from a third party whom the disclosing party believed on reasonable grounds was under no obligation of confidentiality relating thereto.

11. TERM AND TERMINATION

     The term of this Agreement shall be for the period commencing on the date as of which this Agreement is made (notwithstanding later execution hereof) and shall continue to be effective until 5 years from the date of first production from the Discovery Field or until the final Distributions after cessation of commercial production of Petroleum from the last Discovery Field, whichever is later.

12. FORCE MAJEURE

12.1 If any party to this Agreement is prevented or delayed, wholly or in part, by Force Majeure (as defined in clause 12.2) from carrying out its obligations under this Agreement, other than the obligation to make payment of monies due, upon such party giving notice and reasonably full particulars of such Force Majeure to the other party within a reasonable time after the occurrence of the cause relied upon, the obligations of the party giving notice, so far as they are affected by such

Force Majeure, shall be suspended during but no longer than the continuance of the inability so caused and such further period thereafter as shall be reasonable in the circumstances provided always that the cause of the Force Majeure as far as possible shall be remedied with all reasonable dispatch by the party whose performance hereunder is adversely affected.

12.2 “Force Majeure” shall mean, strike, lockout, ban and limitation of work, or other industrial disturbance; act of the public enemy, war, whether declared or undeclared, blockade, riot, insurrection; malicious damage; earthquake, landslide, lightning, fire, storm, flood, tidal wave, epidemic or other act of god; explosion; the order of any court or governmental authority; shortage or unavailability of equipment, materials or labour, or restriction thereon, or limitations upon the use thereof, delay in transportation or communication, breakage of or accidental damage to machinery or lines of pipe, freezing of well or delivery facilities, cratering, washout, well blowout, necessity for making repairs to or reconditioning wells, restraint on access to the Licence area in the vicinity of a Discovery Field, termination or suspension of any licence concerning the Discovery Field and any other cause, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party to this Agreement concerned.

12.3 Notwithstanding anything hereinbefore contained, the settlement of a strike, lockout, ban and limitation of work or other industrial disturbance shall be entirely within the discretion of the party to this Agreement concerned.

13. LIABILITY

     InterOil shall not be liable for any claim, action, loss, liability or cost or expense whatsoever arising out of, or in connection with, this Agreement and suffered or incurred by PNGDV except to the extent that it arises out of InterOil’s gross negligence or Wilful Misconduct.

14. NOTICES

14.1 Any notice (including invoices) given under this Agreement shall be given to a party in writing at its nominated address, and sent whenever practicable and possible by post, facsimile transmission, personal delivery or email. Such notices shall be effective upon receipt which shall be deemed to have occurred on the working day following dispatch, except in the case of emails, receipt of which shall occur when confirmation of receipt has been received from the recipient. Such confirmation may be a reply to or acknowledgement of the notice sent by the recipient himself, or a return message automatically generated by the recipient’s system.

14.2 The nominated addresses of the parties to this Agreement at the date hereof are as follows:

Party	Address
	InterOil Corporation (or its nominated Affiliate)
INTEROIL	25025 I-45 North
	Suite 410
	The Woodlands TX 77380
	USA
	Attention: Phil Mulacek
	PNG Drilling Ventures Limited
PNGDV	25025 I-45 North
	Suite 410
	The Woodlands TX 77380
	USA
	Attention: Dale Dossey

14.3 Any party to this Agreement may at any time by notice to the other party notify any change of address, facsimile number or email address and, upon receipt of the notice, such address shall become the address of that party for the purposes of this Agreement.

15. AMENDMENT

15.1 This Agreement may be amended only by written agreement of all of the parties to this Agreement.

No waiver of any breach of this Agreement or of any provisions hereof shall be effective unless such waiver is in writing and signed by the party to this Agreement from whom such waiver is requested. No waiver of any breach shall be deemed to be a waiver of any other or subsequent breach.

16. ENTIRE AGREEMENT

     This Agreement contains the entire agreement among the parties and supersedes and replaces all earlier agreements, documents, correspondence and conduct by the parties with respect to the subject matter hereof.

17. ACKNOWLEDGMENT AND LEGEND

     The parties hereto acknowledge that this Agreement constitutes a certificate for the securities offered hereby for the purposes of Multilateral Instrument 45-102 and subject to such other transfer and sale restrictions as may be agreed to by the parties, the parties hereto further acknowledge the existence and effect of the following legend:

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES OFFERED HEREBY SHALL NOT TRADE THE SECURITIES BEFORE NOVEMBER 28, 2003

18. COSTS

     Each party’s costs of negotiating and entering into the Agreement, and any costs associated with obtaining authorisation or approval of this Agreement from any government or regulatory body shall be borne by the party accruing such costs.

19. GOVERNING LAW

     This Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and the laws of Canada applicable therein, excluding any conflict of laws rules thereof which would refer the matter to the laws of another jurisdiction, and each party irrevocably attorns to the jurisdiction of the courts of Alberta.

20. RELATIONSHIP OF PARTIES

     Neither this Agreement nor any rights or obligations of any party under this Agreement shall constitute any of the parties as partners.

21. COUNTERPARTS

     This Agreement may be executed in multiple counterparts, each such Agreement so executed shall have the effect of an original, but all such counterparts shall together constitute but one and the same instrument and this Agreement shall be binding on the Parties.

22. TIME

     Time shall be of the essence hereof.

23. SEVERABILITY

     Each provision of this Agreement is intended to be severable. If any provision hereof is illegal or invalid, such illegality or invalidity shall not affect the validity of the remainder hereof.

IN WITNESS WHEREOF the parties to this Agreement have executed this Agreement effective as of the day and year first hereinbefore mentioned.

Signed for and on behalf of INTEROIL CORPORATION	Signed for and on behalf of PNGDV DRILLING VENTURES LIMITED
By:	By:
	/s/ Dale Dossey — Trustee
/s/ Phil E. Mularek	Name/Title
Name/Title

DISTRIBUTIONS SCHEDULE

The Indirect Participation Interest (“IPI”) shall entitle PNGDV to Distributions relating to the Phase One Participation Area and, if PNGDV elects to participate therein, the Phase Two Participation Area, in accordance with its applicable IPI Percentage at the time of any Distribution. InterOil or its nominated Affiliate shall make quarterly Distribution payments to PNGDV as soon as is reasonably practical. PNGDV will pay any and all income taxes due to the State related to such Distributions. PNGDV will have the right to have the information audited by itself or a qualified agent. Distributions to PNGDV in accordance with its IPI shall be calculated as follows:

+	Any and all proceeds associated with the Participation Area, including (if applicable) any and all funds borrowed using as security the rights to the Participation Area, but not used for expenditures related to the Participation Area
-	Operator’s Direct Charges, calculated in accordance with the Accounting Procedures in the JVOA, and including InterOil’s actual direct costs to transport and sell Petroleum, including repayment of any and all borrowings (principal interest, and fees etc.) secured by the rights to the Participation Area
-	Operator’s Indirect Charges, calculated in accordance with the Accounting Procedures in the JVOA
-	US$0.45 per barrel infrastructure fee for Petroleum produced and transported to the InterOil Refinery
-	State royalties and other State imposts and levies (if any)
=	Sub-total before State income tax
x	PNGDV’s IPI%
=	PNGDV’s Sub-total
-	Non-Consent Penalty outstanding, (if any)
-	PNGDV's IPI% share of abandonment security funding under the JVOA (if any)
=	Distribution to PNGDV

ANNEXURE I: EXPLORATION MAP AND PHASE ONE EXPLORATION
PROGRAM PROSPECTS

Appendix I, page 1

EX-99.12

CONFORMED COPY

LOAN AGREEMENT

between

E.P. INTEROIL, LTD.

and

OVERSEAS PRIVATE INVESTMENT CORPORATION

Dated as of June 12, 2001

OPIC/889-2000-218-DI

TABLE OF CONTENTS

	Page
ARTICLE 1
Definitions
Section 1.01. Definitions		1
Section 1.02. Interpretation		17
Section 1.03. Financial Plan		17
ARTICLE 2
Amount and Terms of the Loan
Section 2.01. Amount and Disbursement		18
Section 2.02. Commitment Fee		18
Section 2.03. Cancellation of the Commitment		18
Section 2.04. Interest		19
Section 2.05. Repayment of the Loan		19
Section 2.06. Voluntary Prepayment		19
Section 2.07. Mandatory Prepayment		20
Section 2.08. Facility Fee		20
Section 2.09. Maintenance Fee		20
Section 2.10. Waiver and Amendment Fees		21
Section 2.11. Taxes		21
Section 2.12. Miscellaneous		22
ARTICLE 3
Representations And Warranties
Section 3.01. Existence And Power Of The Companies		23
Section 3.02. Authority Of The Companies		23
Section 3.03. Financial Condition		23
Section 3.04. Capitalization of the Companies		24
Section 3.05. Subsidiaries		24
Section 3.06. Liens		25
Section 3.07. Taxes and Reports		25
Section 3.08. Defaults		25
Section 3.09. Litigation		25
Section 3.10. Compliance with Law; Corrupt Practices		25
Section 3.11. Easements, Property Interests, Utilities, Etc		26
Section 3.12. Environmental Matters		27

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	Page
Section 3.13. Project Cost and Project Completion		27
Section 3.14. Disclosure		27
Section 3.15. Suspension and Debarment		27
Section 3.16. Certain Contracts		27
Section 3.17. Specified Policies		28
ARTICLE 4
Conditions Precedent To First Disbursement
Section 4.01. Corporate Authorization		28
Section 4.02. Financing Documents		29
Section 4.03. Approved Financial Plan		31
Section 4.04. Government Approvals		32
Section 4.05. Land		32
Section 4.06. Insurance		32
Section 4.07. Approval of Construction Contract		32
Section 4.08. Due Diligence		33
Section 4.09. Appointment of Agent		33
Section 4.10. Legal Opinions		33
Section 4.11. Management Control		33
Section 4.12. Other Documents		34
Section 4.13. Debt Service Reserve Account		34
ARTICLE 5
Conditions Precedent to Each Disbursement
Section 5.01. Representations and Defaults		34
Section 5.02. Change in Circumstances		34
Section 5.03. Certification		34
Section 5.04. Financial Information and Construction Progress		35
Section 5.05. Payment or Reimbursement of Expenses		35
Section 5.06. Sponsor Investment		35
Section 5.07. Fulfillment of Conditions to Subordinated Loan		35
Section 5.08. Specified Policies		35
Section 5.09. Shell Contracts		36
Section 5.10. Other Documents; Opinions		36
ARTICLE 6
Affirmative Covenants
Section 6.01. Project Completion		36
Section 6.02. Company Operations		36
Section 6.03. Maintenance of Rights and Compliance with Laws		37
Section 6.04. Government Approvals; Foreign Exchange Consents		37
Section 6.05. Maintenance of Insurance		37

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	Page
Section 6.06. Accounting and Financial Management		38
Section 6.07. Financial Statements and Other Information		38
Section 6.08. Access to Records; Inspection; Meetings		40
Section 6.09. Notice of Default and Other Matters		40
Section 6.10. Security Documents		40
Section 6.11. Financial Ratios		41
Section 6.12. Environmental Compliance		41
Section 6.13. O&M Agreement		41
Section 6.14. Third-party Consents		41
ARTICLE 7
Third-party Consents
Section 7.01. Liens		42
Section 7.02. Indebtedness		42
Section 7.03. No Alteration of Agreements		42
Section 7.04. Dividends and Share Redemptions		43
Section 7.05. Conduct of Business with Sponsors		43
Section 7.06. Sale of Assets; Mergers		44
Section 7.07. Lease Obligations		44
Section 7.08. Hedging Arrangements		44
Section 7.09. Ordinary Conduct of Business		44
Section 7.10. Worker Rights		45
ARTICLE 8
Defaults And Remedies
Section 8.01. Events of Default		46
Section 8.02. Remedies upon Event of Default		49
Section 8.03. Jurisdiction and Consent to Suit		49
Section 8.04. Judgment		50
Section 8.05. Immunity		50
ARTICLE 9
Miscellaneous
Section 9.01. Notices		51
Section 9.02. English Language		52
Section 9.03. Governing Law		52
Section 9.04. Succession		52
Section 9.05. Survival of Agreements		52
Section 9.06. Integration; Amendments		52
Section 9.07. Severability		52
Section 9.08. No Waiver		53
Section 9.09. Waiver of Jury Trial		53

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	Page
Section 9.10. Waiver of Litigation Payments		53
Section 9.11. Indemnity		53
Section 9.12. No Third Party Reliance; No Assignment		54
Section 9.13. Further Assurances		54
Section 9.14. Counterparts		54

Schedule X	Contributed Equipment
Schedule Y	EPC Contract Requirements
Schedule 1.03	Preliminary Financial Plan
Schedule 2.05	Repayment Schedule
Schedule 2.05B	Physical Completion Certificate
Schedule 4.04	Government Approvals
Schedule 4.08	Due Diligence
Schedule 6.05	Maintenance of Insurance
Schedule 6.12	Environmental Compliance
Exhibit A	Form of Disbursement Request
Exhibit B	Form of Self-Monitoring Questionnaire
Exhibit C	Guidelines for Preparation of Financial Statements
Exhibit D	Uniform Credit Cash Flow
Exhibit E	Form of Promissory Note

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LOAN AGREEMENT

     LOAN AGREEMENT, dated as of June 12, 2001, between E.P. INTEROIL, LTD., a corporation organized and existing under the laws of the Cayman Islands (the “Borrower”) and OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America (“OPIC”).

W I T N E S S E T H:

     WHEREAS, the Borrower and InterOil Limited, a corporation organized and existing under the laws of Papua New Guinea (“IL”, and together with the Borrower, the “Companies”) intend to construct and operate the Project (as hereinafter defined); and

     WHEREAS, to secure a portion of the financing for the Project, the Borrower has requested that OPIC provide a credit facility to the Borrower in an amount up to U.S. $85,000,000 pursuant to Section 234(b) of the Foreign Assistance Act of 1961, as amended, which OPIC is willing to do on the terms and conditions set forth herein;

     NOW, THEREFORE, in consideration of the premises and of the agreements contained herein, it is hereby agreed as follows:

ARTICLE 1

Definitions

     Section 1.01. Definitions. Unless otherwise provided, capitalized terms used herein shall have the definitions specified below:

     “Account Bank” means Wells Fargo Bank Texas, N.A., as account bank and securities intermediary under the Collateral Account Agreement.

     “Additional Amount” has the meaning set forth in Section 2.11(a).

     “Adjusted Net Income” for any period means Net Income of the Companies, determined on a consolidated basis, for such period plus (it being understood that the adjustments in clauses (1) through (4) below shall be made only to the extent that (i) the relevant amounts are not otherwise included in determining such Net Income for such period and (ii) such adjustments are not duplicative of each other or of other adjustments to Net Income made elsewhere) (1) the sum of the amount of all net non-cash charges (including, without limitation, depreciation, amortization, deferred tax expense, non-cash interest expense and other non-cash charges) included in arriving at such Net Income for

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such period plus (2) value added tax credits applied to reduce value added tax payable by the Companies during such period less (3) the sum of (x) the sum of the amount of all net non-cash gains or losses included in arriving at such Net Income for such period and (y) the amount of interest earned on amounts held in the Distribution Account plus (4) payments received under Business Interruption Insurance, Delayed Startup Insurance, Marine Cargo Delayed Startup Insurance (as such terms are used in part (B) of Schedule 6.05) or the Specified Policies during such period; provided that there shall be excluded:

     (a) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period,

     (b) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, conversion, exchange or other disposition of capital assets (such term to include, without limitation, (i) all non-current assets and, without duplication, (ii) the following, whether or not current: all fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets, and all securities),

     (c) any net gain from the collection of the proceeds of life insurance policies,

     (d) any gain arising from the acquisition of any security, or the extinguishment, under U.S. GAAP, of any Indebtedness, of the Companies, and

     (e) any such Net Income or gain (but not any net loss) during such period from (i) any change in accounting principles in accordance with U.S. GAAP, (ii) any prior period adjustments resulting from any change in accounting principles in accordance with U.S. GAAP, (iii) any extraordinary items or (iv) any discontinued operations or the disposition thereof.

     “Affiliate” means, with respect to any Person, (i) any other Person that is directly or indirectly controlled by, under common control with or controlling such Person; (ii) any other Person owning beneficially or controlling five percent (5%) or more of the equity interest in such Person; (iii) any officer or director of such Person; or (iv) any spouse or relative of such Person. As used herein, the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of partnership interests or voting securities, by contract or otherwise.

     “Agreement” means this Loan Agreement between the Borrower and OPIC.

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     “Annual Budget” has the meaning set forth in Section 6.07(a).

     “Application” means the Borrower’s application to OPIC for the Loan, consisting of the Sponsor Disclosure Reports dated January 14, 2000, the Application dated June 16, 1999, as amended January 14, 2000 and the Commitment Letter.

     “Approved Financial Plan” has the meaning set forth in Section 1.03.

     “Authorizations” means consents, licenses, approvals and authorizations (including, without limitation, consents, licenses, approvals and authorizations of the Bank of Papua New Guinea) of relevant Governmental Authorities and declarations, filings and registrations (including, without limitation, declarations, filings and registrations with the Bank of Papua New Guinea) with relevant Governmental Authorities.

     “Authorized Officer” means, with respect to any Person, its Chairperson, Managing Director, President, Secretary or Treasurer, any Vice President, Assistant Secretary or Assistant Treasurer thereof, and any other officer designated in writing by such Person as having been authorized to execute and deliver this Agreement, the Notes, any of the other Financing Documents to which it is or will be a party, or any other notice or instrument contemplated hereunder.

     “Borrower” has the meaning set forth in the preamble hereto.

     “Business Day” means any day other than (i) a Saturday, Sunday or day on which commercial banks are authorized by law to close in the City of New York or Washington, D.C., United States of America and (ii) with respect to any payment, delivery, or communication to OPIC, a day on which OPIC is not open for business.

     “Capital Expenditures” means all expenditures by the Companies which should be capitalized in accordance with U.S. GAAP, including all expenditures with respect to fixed or capital assets (including, without limitation, expenditures for maintenance and repairs which should be capitalized in accordance with applicable generally accepted accounting principles) except for capital expenditures paid out of Insurance Proceeds.

     “Cash Available for Debt Service” means, for any period, (i) Adjusted Net Income for such period plus (ii) to the extent deducted in determining Adjusted Net Income for such period, all interest expense of the Companies, determined on a consolidated basis, for such period plus (iii) the amount of any net increase (or minus the amount of any net decrease) in working capital for such

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period plus (iv) any subordinated Affiliate fees to the extent deducted but not paid minus (v) the amount of Capital Expenditures for such period.

     “Charter Documents” means, in respect of any company, corporation, limited liability company, partnership, governmental agency or other enterprise, its constitution, founding act, charter, articles of incorporation and by-laws, memorandum and articles of association, statute, or similar instrument.

     “Closing Date” means any Business Day on which a Disbursement is made.

     “Collateral Account Agreement” means a collateral account agreement among the Borrower, OPIC and the Account Bank, satisfactory to OPIC in form and substance.

     “Commitment” means OPIC’s commitment to lend an amount not to exceed $85,000,000 less (i) the portion thereof which pursuant to Section 2.03 has been canceled or has been deemed canceled and (ii) any Loan amounts repaid or prepaid.

     “Commitment Fee” has the meaning set forth in Section 2.02.

     “Commitment Letter” means the letter agreement among the Borrower, IL, the Sponsors and OPIC, dated May 17, 2000, as extended pursuant to a letter agreement among the Borrower, IL, the Sponsors and OPIC dated March 14, 2001, in which OPIC and the Borrower have agreed to enter into this credit facility, subject to the conditions stated therein.

     “Commitment Period” means the period commencing on May 17, 2000 and ending on the earliest of (i) the first date on which the amount of the Loan equals the total amount of the Commitment, (ii) December 31, 2003, (iii) the date the first repayment is made on the Loan and (iv) the date of termination in whole of the Commitment.

     “Company” means each of the Borrower and IL, and “Companies” means both of them.

     “Compensation Payments” means amounts paid to the Companies under (i) all insurance policies contemplated in Section 6.05 and covering loss or damage to the Project and (ii) all equipment warranties (including those provided in, or given for the benefit of the Companies pursuant to, the Construction Contract) or other similar agreements.

     “Construction Contract” means one or more contracts which constitute a lump sum, fixed price, turnkey, date certain obligation for engineering, procurement and construction in respect of the Project that (i) provides that the

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Construction Contractor’s obligations thereunder are guaranteed by the EPC Guarantee, (ii) meets the requirements of the Project Agreement, and (iii) is satisfactory to OPIC in form and substance, including with regard to the matters set forth in Schedule Y hereto.

     “Construction Contractor” means one or more entities acceptable to OPIC, to be engaged by the Companies to undertake engineering, procurement and/or construction work in respect of the Project.

     “Contributed Amounts” has the meaning set forth in Section 5.06.

     “Contributed Equipment” means the equipment listed on Schedule X hereto.

     “Control” means possession, directly or indirectly, of the power to vote 10% or more of any class of voting securities of a Person or to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

     “Corrupt Practices Laws” means (i) the Foreign Corrupt Practices Act of 1977 (Pub.L. No. 95-213, §§101-104), as amended, and (ii) any other law, regulation, order, decree or directive having the force of law and relating to bribery, kick-backs, or similar business practices.

     “Current Assets” means assets treated as current assets under U.S. GAAP.

     “Current Liabilities” means all Indebtedness and liabilities due on demand or to become due within one year and other liabilities treated as current liabilities under U.S. GAAP.

     “Debt Service” for any period means the sum of (i) Interest Expense for such period and (ii) the aggregate principal amount of the Loan scheduled to be paid during such period (whether or not paid).

     “Debt Service Coverage Ratio” means, for any period, the ratio of (x) Cash Available for Debt Service to (y) Debt Service for such period.

     “Debt Service Reserve Account” means a Dollar-denominated account established by the Borrower pursuant to the terms of the Collateral Account Agreement.

     “Default” means an Event of Default or an event or condition that with the passage of time or the giving of notice, or both, could constitute an Event of Default.

     “Default Rate” has the meaning set forth in Section 2.04(b).

5

     “Development Costs” means the Development Costs as represented in the Approved Financial Plan.

     “Disbursement” means each disbursement of the Loan.

     “Disbursement Request” means a request for disbursement of the Loan substantially in the form of Exhibit A.

     “Distribution Account” means a Dollar bank account which the Borrower may open in accordance with the Security Documents that is not subject to the Lien of the Security Documents and which holds only funds that the Borrower is entitled to use to make payments permitted under Sections 7.04 or 7.05.

     “Dollars” or “$” means United States dollars.

     “Downstream Loan Documents” means (i) each agreement, note or other documents or arrangements in respect of the loans or other advances from the Borrower to IL in connection with the financing of the Project and (ii) each guarantee and indemnity of IL in respect of the Borrower’s obligations hereunder (such agreements, notes, other documents, guarantees and indemnities to be secured by a first ranking fixed and floating charge over all of the assets and undertaking of IL and real property mortgages over the Site Leases).

     “Downstream Loans” means the loans or other advances to IL contemplated in the Downstream Loan Documents.

     “EMMP” shall have the meaning set forth in Schedule 6.12.

     “Enron Papua New Guinea” means Enron Papua New Guinea Limited, a company organized and existing under the laws of Papua New Guinea.

     “Environmental Consultant” means NSR Environmental Consultants Pty. Ltd.

     “Environmental Report” means an environmental report from the Environmental Consultant to be delivered to OPIC annually, in form and substance satisfactory to OPIC.

     “EPC Guarantee” means the owner guaranty contemplated in the Construction Contract provided by the Construction Contractor for the benefit of the Companies in form and substance satisfactory to OPIC and executed and delivered by the Construction Contractor and in effect as of a date that is on or prior to the first Disbursement Date.

     “Event of Default” has the meaning set forth in Section 8.01.

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     “Facility Fee” has the meaning set forth in Section 2.08.

     “Feedstock Supply Agreement” means an agreement between either or both of the Companies and any other parties for the purchase of crude oil for use by the Project (other than in connection with spot market purchases in the ordinary course of business), in form and substance satisfactory to OPIC.

     “Financial Statements” means the Companies’ quarterly or annual balance sheet and statements of income, retained earnings, and sources and application of funds for such fiscal period, together with all notes thereto and with comparable figures for the corresponding period of their previous Fiscal Year, each prepared on both a consolidated and consolidating basis, in Dollars and in accordance with U.S. GAAP.

     “Financing Documents” has the meaning set forth in Section 4.02.

     “Fiscal Year” means the accounting year of the Companies, commencing each year on January 1 and ending on December 31 or such other period agreed to among the Companies and OPIC.

     “Governmental Authority” means any government, governmental department, ministry, commission, board, bureau, agency, regulatory authority, instrumentality of any government (national, provincial or local), judicial, legislative or administrative body, domestic or foreign, federal, state, municipal or local, having jurisdiction over the matter or matters in question.

     “Hedging Arrangement” means (x) any interest rate or currency swap, future, option, cap, collar, ceiling, hedge, or other interest rate protection agreement or foreign exchange contract, or any other agreement or arrangement designed to protect against fluctuations in interest rates or currency values and (y) any crude oil price hedging agreements and other agreements, contracts, instruments or other arrangements or commitments, in each case entered into by either Company to fix or cap the cost to IL of crude oil (but which are settled financially and do not require either Company to physically deliver or receive crude oil).

     “IAS” means the accounting standards promulgated by the International Accounting Standards Committee as in effect from time to time.

     “IL” has the meaning set forth in the recitals to this Agreement.

     “Indebtedness” of any Person means, at any date, all or any liabilities, obligations and reserves, contingent or otherwise, which, in accordance with U.S. GAAP, would be reflected as a liability on a balance sheet, including, without limitation, (i) any obligation of such Person for borrowed money or arising out of any credit facility, (ii) any obligation of such Person evidenced by bonds,

7

debentures, notes or other similar instruments, (iii) any obligation of such Person to pay the deferred purchase price of property or services, (iv) any obligation of such Person under conditional sales or other title retention agreements, (v) the net aggregate rentals under any lease by such Person as lessee that under U.S. GAAP would be capitalized on the books of the lessee or is the substantial equivalent of the financing of the property so leased, (vi) any obligation of such Person to purchase securities or other property which arises out of or in connection with the sale of the same or substantially similar securities or property, (vii) any obligation of such Person secured by any Lien upon property, (viii) any Indebtedness of others secured by a Lien on any asset of such Person, and (ix) any Indebtedness of others guaranteed, directly or indirectly, by such Person.

     “Indemnified Person” has the meaning set forth in Section 9.11.

     “Indemnity” has the meaning set forth in Section 9.11.

     “Independent Engineer” means Kellogg Brown & Root, Inc.

     “Insurance Consultant” means AON Risk Services, Inc.

     “Interest Expense” means, for any period, the sum of (without duplication) (a) interest expense of the Companies, determined on a consolidated basis, required to be paid during such period (whether or not so paid) (which, in the case of Indebtedness incurred with original issue discount, shall include the accreted value for such period), except for interest expense required to be paid during such period with respect to any Subordinated Obligations, plus (b) all other financing fees and withholding tax gross-ups with respect to interest expense and financing fees required to be paid by the Companies, determined on a consolidated basis, during such period (whether or not so paid), including Commitment Fees, Maintenance Fees and Additional Amounts but excluding any such amounts in respect of or constituting Subordinated Obligations.

     “Interest Period” means the period (i) from and including the day following the immediately preceding Payment Date or, if later, the Closing Date (ii) to and including the next succeeding Payment Date or, if earlier, the Loan Maturity Date.

     “InterOil” means InterOil Corporation, a corporation organized and existing under the laws of New Brunswick, Canada.

     “Italian Turbine Contract” means the Purchase Agreement dated May 12, 1999 between the Borrower and GM Service srl in respect of the Borrower’s purchase of turbines for $1,350,000.

     “Lien” means any lien, pledge, mortgage, security interest, deed of trust, charge, assignment, hypothecation, title retention or other encumbrance on or

8

with respect to, or any preferential arrangement having the practical effect of constituting a security interest with respect to the payment of any obligation with, or from the proceeds of, any asset or revenue of any kind.

     “Litigation Payment” has the meaning set forth in Section 9.10.

     “Loan” means, on any date, the aggregate of the outstanding unpaid principal amounts of the Notes then outstanding.

     “Loan Documents” has the meaning set forth in Section 4.02.

     “Loan Maturity Date” means December 31, 2012 or such earlier date on which the entire outstanding principal balance of the Loan shall be due and payable in full (whether by way of acceleration, mandatory prepayment or otherwise).

     “Local Currency” or “LC” means the official currency of Papua New Guinea or the Cayman Islands, as applicable.

     “Loss” has the meaning set forth in Section 9.11.

     “Maintenance Fee” has the meaning set forth in Section 2.09.

     “Material Adverse Effect” means a material adverse effect on (i) the Project, (ii) the business, operations, prospects, condition (financial or otherwise), or property of the Companies, the Sponsors (for so long as any of them have any financial obligations under the Sponsor Support Agreement), or any other Person whose continuing viability, because of its guaranty or other undertaking, is essential to the Project, (iii) the ability of the Companies or any other party to perform in a timely manner its material obligations under any of the Financing Documents, (iv) the validity or enforceability of any material provision of any Financing Document, (v) the rights and remedies of OPIC, if any, under any of the Financing Documents, or (vi) the Liens provided to OPIC under the Security Documents.

     “Net Income” means, with respect to any Person for any fiscal period, the net income of such Person for such period after Taxes but before extraordinary items, determined in accordance with U.S. GAAP.

     “Note” means any promissory note issued by the Borrower pursuant to this Agreement substantially in the form of Exhibit E.

     “Note Interest Rate” has the meaning set forth in Section 2.04(a).

9

     “O&M Agreement” means an operating and maintenance agreement in respect of the operation and maintenance of the Project satisfactory to OPIC in form and substance.

     “OHSP” shall have the meaning set forth in Schedule 6.12.

     “OPIC” means Overseas Private Investment Corporation, an agency of the United States of America.

     “OPIC Environmental Requirements” means the requirements set forth in the OPIC Environmental Handbook, April 1999.

     “OPIC Plaintiff” has the meaning set forth in Section 9.10.

     “OPIC Spread” means (x) prior to Project Completion, three percent (3.00%) per annum and (y) at and after Project Completion, three and one-half percent (3.50%) per annum.

     “Papua New Guinea” means the Independent State of Papua New Guinea.

     “Payment Date” means the thirtieth (30^th) day of each June and the thirty-first (31^st) day of each December, commencing December 31, 2000, until the Loan and all amounts due hereunder or under the Note are paid in full, unless such date is not a Business Day, in which case the Payment Date will be the next succeeding Business Day.

     “PC” means Petroleum Independent and Exploration Corporation, a corporation organized and existing under the laws of the State of Texas.

     “Person” means and includes (i) an individual, (ii) a legal entity, including a partnership, a joint venture, a corporation, a limited liability company or partnership, a trust, and an unincorporated organization, and (iii) a government or any department or agency thereof.

     “Phil Mulacek” and “Philippe Mulacek” mean Mr. Philippe Mulacek, who is the President and Chairman of PC as of the date hereof.

     “Physical Completion Certificate” has the meaning set forth in Section 2.05(b).

     “Physical Completion Conditions” has the meaning set forth in Schedule 2.05B.

     “Physical Completion Date” has the meaning set forth in Schedule 2.05B.

10

     “PIE” means PIE Group, LLC, a limited liability company organized and existing under the laws of the State of Delaware.

     “Potential Event of Default” means an event or condition that, with the passage of time or the giving of notice, or both, could constitute an Event of Default.

     “Preliminary Financial Plan” has the meaning set forth in Section 1.03.

     “Prepayment Premium” has the meaning set forth in Section 2.06.

     “Product Sales Agreement” means (i) the Shell Contracts and (ii) any other agreement between either or both of the Companies and any other parties for the purchase and sale of refined product produced by the Project (other than in connection with spot market sales in the ordinary course of business), in form and substance satisfactory to OPIC.

     “Project” means the construction and operation of a 32,500 barrels per day hydroskimming crude oil refinery in Papua New Guinea, as described in the Application.

     “Project Agreement” means the Project Agreement dated May 29, 1997 among Papua New Guinea, InterOil Pty Limited and the Borrower, as amended by the Extension Deed dated July 1, 1999 among Papua New Guinea, IL and the Borrower, as amended from time to time.

     “Project Completion” has the meaning set forth in the Sponsor Support Agreement.

     “Project Contracts” has the meaning set forth in Section 7.10.

     “Project Documents” has the meaning set forth in Section 4.02.

     “Prudent Industry Practice” shall mean those practices, methods, equipment specifications and standards of safety and performance, as the same may change from time to time, as are commonly used by crude oil refineries of a type, size and projected useful life similar to the Project as good, safe and prudent engineering practices in connection with the design, construction, operation, maintenance, repair and use of crude oil refineries and other equipment, facilities and improvements of such crude oil refineries, with commensurate standards of safety, performance, dependability, efficiency and economy.

     “Rights of Way” means all easements, rights-of-way, restrictions, encroachments and other similar charges, rights or encumbrances that are necessary for the operation and maintenance of the Project, including all utilities and interconnection facilities.

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     “Security Agreement” means a security agreement among the Borrower. OPIC and any other parties thereto, satisfactory to OPIC in form and substance.

     “Security Documents” has the meaning set forth in Section 4.02.

     “Self-Monitoring Questionnaire” means the Annual Self-Monitoring Questionnaire attached hereto as Exhibit B, as the same may be revised and supplemented by OPIC from time to time.

     “Share Pledge Agreements” means the share pledge agreements among each of the Sponsors, the Companies and OPIC, in each case satisfactory to OPIC in form and substance.

     “Share Retention Agreements” means the share retention agreements among each of InterOil, PC, Phil Mulacek and OPIC, in each case satisfactory to OPIC in form and substance.

     “Shell Contracts”means (i) the Domestic Sale Agreement dated as of April 9, 2001 between IL and Shell Papua New Guinea Limited, (ii) the Export Marketing and Shipping Agreement dated as of March 23, 2001 between the Borrower and Shell International Eastern Trading Company Limited, (iii) the Agreement for the Sale and Purchase of Naphtha dated as of February 6, 2001 between the Borrower and Shell International Eastern Trading Company and (iv) the Shell Consent Deeds.

     “Shell Consent Deeds” means (i) the Shell Domestic Consent Deed and (ii) the Consent Deed to be entered into on or prior to the first Closing Date by the Borrower and Shell International Eastern Trading Company Limited, in each case substantially in the form of (and in any event the terms of which are no less favorable to OPIC than those contained in) the form of consent deed attached to that certain letter from the Companies to OPIC dated June 12, 2001.

     “Shell Domestic Consent Deed” means the Consent Deed to be entered into on or prior to the Transfer Date by IL, Shell Papua New Guinea Limited and Shell Oil Products (PNG) Limited.

     “Site” has the meaning set forth in Section 3.09.

     “Site Lease” means State Lease No. 04116/1499 in respect of land described as Portion 1499, Milinch Granville, Fourmil Moresby and State Lease 04116/1500 in respect of land described as Portion 1500, Milinch Granville, Fourmil Moresby, in each case as granted to IL pursuant to the Land Act (Chapter No. 185).

     “SPCC” has the meaning set forth in Schedule 6.12.

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     “Specified Policies” has the meaning set forth in the Sponsor Support Agreement.

     “SPI” means S.P. InterOil, LDC, an international business company organized and existing under the laws of the Bahamas.

     “Sponsor Support Agreement” means the Sponsor Support Agreement dated as of the date hereof among the Companies, the Sponsors and OPIC.

     “Sponsors” means PIE and SPI.

     “Subordinated Lender” means SPI.

     “Subordinated Loan” means the aggregate amount outstanding, if any, from time to time under the Subordinated Loan Agreement.

     “Subordinated Loan Agreement” means a loan agreement, if any, between the Companies and the Subordinated Lender, satisfactory to OPIC in form and substance, pursuant to which the Subordinated Lender shall have agreed to make a subordinated loan to the Companies in accordance with Section 5.06.

     “Subordination Agreement” means the Subordination Agreement dated as of a date prior to the first Disbursement, among the Sponsors, the Companies and OPIC, satisfactory to OPIC in form and substance.

     “Subordinated Obligations” shall have the meaning set forth in the Subordination Agreement.

     “Supplemental Financial Statements” means a report prepared in accordance with U.S. GAAP, following the guidelines set forth in Exhibit C, prepared by the Companies’ independent accountants contemporaneously with each of the Companies’ Financial Statements, translating the Companies’ Financial Statements into Dollars and adjusting such Financial Statements to compensate for fluctuations in the exchange rate between the Local Currency and the Dollar.

     “Tangible Net Worth” means, as of any date for the Companies, (i) the total stockholders’ equity (including capital stock, paid-in capital and retained earnings, after deducting treasury stock and reserves) that would appear on the Companies’ Financial Statements prepared on a consolidated basis as of that date, less (ii) the aggregate book value of all intangible assets shown on the Companies’ Financial Statements (prepared on a consolidated basis) as of that date (including, without limitation, goodwill, patents, trademarks, trade names, copyrights, franchises, and unrealized appreciation of assets).

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     “Tangible Net Worth Coverage Ratio” means, at any time, the ratio of the Companies’ Indebtedness, determined on a consolidated basis, to their Tangible Net Worth.

     “Taxes” has the meaning set forth in Section 2.11.

     “Transfer Date” has the meaning set forth in Clause 9.1 of Draft 12 of the Purchase and Sale Agreement, with draft date of April 6, 2001, between Shell Overseas Holdings Limited and InterOil.

     “Treasury Cost” means, with respect to a Note and the related Disbursement, a fixed rate of interest equal to the weighted average per annum discount rate (expressed as a bond equivalent yield on the basis of a year of 360 days and applied on a daily basis) for direct obligations of the United States of America having a maturity of five (5), seven (7), ten (10) or twenty (20) years, as applicable (the obligations with such applicable maturity being referred to as the “Treasury Securities”), set at the most recent auction of Treasury Securities conducted in the month immediately preceding such Disbursement, as published by the Board of Governors of the Federal Reserve System (in Statistical Release H.15 or any successor publication, or in the absence of such publication, by a press release). In the event that the results of any auction of Treasury Securities are not published as provided above, the results of the most recently reported auction of Treasury Securities conducted prior to such unreported auction shall continue to apply for purposes of determining the Treasury Cost until such time, if any, as the results of any subsequent auction of Treasury Securities shall again be so published. The applicable maturity for Treasury Securities shall be determined by selecting the maturity listed in this definition above that most closely approximates the maturity of such Disbursement (determined as provided in the following paragraph); provided that the applicable maturity of Treasury Securities shall be not less than the maturity in the relevant Disbursement Request.

     For purposes of determining the Treasury Cost with respect to any Disbursement, installments of the repayment of the Loan shall be allocated to Disbursements in direct order of maturity. Accordingly, for this purpose, the amount of each Disbursement shall be divided into installments of $4,500,000 (or, if applicable, fraction thereof) and shall be allocated to Payment Dates for which a full allocation of $4,500,000 has not previously been made, in direct chronological order. For purposes of determining the applicable maturity of Treasury Securities with respect to such Treasury Cost, the maturity in the relevant Disbursement shall be determined based on the term beginning on the date of such Disbursement and ending on the date of the latest installment which has been allocated to such Disbursement in accordance with this paragraph.

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     “Uniform Credit Analysis Cash Flow Statement” means cash flow as determined according to the Uniform Credit Analysis Cash Flow attached hereto as Exhibit D.

     “U.S. GAAP” means generally accepted accounting principles in the United States of America in effect from time to time, applied on a consistent basis both as to classification of items and amounts.

     “U.S. Person” means (i) an entity created under the laws of the United States, any state, or territory thereof, or the District of Columbia (an “Entity”), more than fifty percent (50%) of the beneficial ownership of which is held by citizens of the United States and (ii) a wholly owned subsidiary of an Entity that satisfies the criteria set out in clause (i) of this sentence. An Entity shall satisfy the beneficial ownership criteria set forth in the preceding sentence if:

     (a) it is a stock insurance company and more than fifty percent (50%) of the beneficial ownership of its stock is held by citizens of the United States;

     (b) it is a mutual insurance company and policyholders representing more than 50% of the aggregate coverage issued by such mutual insurance company are citizens of the United States;

     (c) it is an insurance company purchasing for a separate account, as described under Rule 144A(a)(1)(i)(A) of the Securities Act, and more than fifty percent (50%) of the beneficial ownership of such separate account is held by citizens of the United States;

     (d) it is a registered investment company described under Rule 144A(a)(1)(i)(B) or Rule 144A(a)(1)(iv) of the Securities Act and the beneficial owners of more than fifty percent (50%) of its interests are citizens of the United States;

     (e) (i) it is an entity described under Rule 144A(a)(1)(i)(D) or (E) of the Securities Act (a “plan”) and the beneficiaries of more than fifty percent (50%) of the interests in such plan are citizens of the United States or (ii) it is a trust whose participants are exclusively plans as described under Rule 144A(a)(1)(i)(F) of the Securities Act and more than fifty percent (50%) of (A) the assets of such trust are held for the benefit of plans satisfying the criteria set forth in the clause (E)(i) and (B) the participants in such trust satisfy the criteria set forth in clause (E)(i);

     (f) it is an organization described in '501(c)(3) of the Internal Revenue Code and more than fifty percent (50%) of the identified beneficiaries of such organization are citizens of the United States; provided, however, that, if such organization does not have identified beneficiaries, it will satisfy the criteria set forth in clause (A) above if more than fifty percent (50%) of the persons

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controlling the investment decisions of such organization are citizens of the United States;

     (g) it is a corporation, partnership, or business trust and more than fifty percent (50%) of the stock, partnership interests, or trust interests, respectively, of such entity are beneficially owned by citizens of the United States;

     (h) it is a registered investment adviser or registered dealer and more than fifty percent (50%) of the ownership interests in such entity are beneficially owned by citizens of the United States or, if it is purchasing for an account other than its own, more than fifty percent (50%) of the ownership interests in such other account are beneficially owned by citizens of the United States; or

     (i) it is a bank or savings and loan association, more than fifty percent (50%) of the ownership interests of which are beneficially owned by citizens of the United States.

     A corporation owned under the laws of the United States or its states and territories shall be deemed to be a “U.S. Person” if more than fifty percent (50%) of its issued and outstanding stock is owned by U.S. citizens either directly or beneficially. Where shares of stock of a corporation with widely dispersed public ownership are held in the names of trustees or nominees, including, without limitation, stock brokerage firms, with addresses in the United States, such shares shall be deemed to be owned by U.S. citizens unless any of such corporation, OPIC, the Companies or the Sponsors has knowledge to the contrary. The beneficial ownership of U.S. corporations shall be determined by tracing back through any foreign ownership of their shares to the ultimate beneficial owners.

     The criteria set forth in (a) through (i) above are not intended to be exclusive and nothing herein will prevent an Entity that otherwise meets the criteria set forth in the first sentence of this definition from being a “U.S. Person” for purposes of this Agreement.

     “Worker Rights Requirements” has the meaning set forth in Section 7.10.

     “World Bank Guidelines” means (a) the World Bank 1998 Pollution and Abatement Handbook for (i) Petroleum Refining, (ii) General Environmental Guidelines and (iii) Monitoring Guidelines, (b) the International Finance Corporation General Health and Safety Guidelines and (c) the “Techniques for Assessing Industrial Hazards” included in the September 1985 World Bank Guidelines for Identifying, Analyzing, and Controlling Major Hazard Installation in Developing Countries with respect to environmental and safety issues associated with explosions, fire and other accidents.

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     Section 1.02. Interpretation. In this Agreement, unless otherwise indicated or required by the context:

     (a) Reference to and the definition of any document (including this Agreement) shall be deemed a reference to such document as it may be amended, supplemented, revised, or modified from time to time;

     (b) All references to an “Article”, “Section”, “Schedule”, or “Exhibit” are to an Article or Section hereof or to a Schedule or an Exhibit attached hereto;

     (c) The table of contents and article and section headings and other captions are for the purpose of reference only and do not limit or affect the meaning of the terms and provisions hereof;

     (d) Defined terms in the singular include the plural and vice versa, and the masculine, feminine and neuter gender include all genders;

     (e) Accounting terms not defined in Section 1.01 have the meanings given to them under U.S. GAAP. Where this Agreement requires that Financial Statements and Supplemental Financial Statements be prepared in accordance with U.S. GAAP, such Financial Statements and Supplemental Financial Statements may instead be prepared in accordance with IAS and reconciled with U.S. GAAP to the extent such Financial Statements and Supplemental Financial Statements are usually prepared in accordance with IAS;

     (f) The words “hereof”, “herein” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement. The words “include”, “includes”, and “including” mean include, includes and including “without limitation” and “without limitation by specification”;

     (g) Any reference to a time of day means the time of day in Washington, D.C.;

     (h) Terms capitalized for other than grammatical purposes which are defined in (i) the introductory paragraph hereof, (ii) the recitals hereof or (iii) the succeeding Sections hereof have the meanings ascribed to them therein; and

     (i) Phrases such as “satisfactory to OPIC”, “in such manner as OPIC may determine”, “to OPIC’s satisfaction”, “at OPIC’s election” and phrases of similar import authorize and permit OPIC to approve, disapprove, act or decline to act in its sole discretion.

     Section 1.03. Financial Plan. A preliminary financial plan for the Project is set forth in Schedule 1.03 (the “Preliminary Financial Plan”). Prior to the first Disbursement of the Loan, a final financial plan for the Project (which shall

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reflect the executed version of the Construction Contract approved by OPIC) shall be agreed by OPIC and the Borrower (the “Approved Financial Plan”).

ARTICLE 2
Amount and Terms of the Loan

     Section 2.01. Amount and Disbursement. (a) Commitment. Subject to the terms and conditions hereof, OPIC agrees to make, and the Borrower agrees to accept, a loan for the Project in the principal amount of not more than $85,000,000. Disbursements of the loan hereunder shall only be made from the date hereof through the end of the Commitment Period.

     (b) Disbursement; Term. Subject to the satisfaction of the conditions set forth in Articles 4 and 5, the Borrower may request a Disbursement of the Loan by delivering a Disbursement Request to OPIC not less than ten (10) Business Days prior to the Closing Date. Each Disbursement shall be evidenced by one or more (as OPIC may specify) Notes aggregating the principal amount of the Disbursement and dated the Closing Date. All Notes shall be issued for a term ending on or before the Loan Maturity Date and shall be consistent with the allocation of installments of repayment of the Loan used in determining the Treasury Cost for the corresponding Disbursement. The amount of the Loan shall not exceed the amount of the Commitment.

     (c) Number and Amount of Disbursements. The Loan hereunder shall be disbursed in not more than five (5) Disbursements. Each Disbursement shall be in an amount of not less than $5,000,000 and in multiples of $500,000 in excess thereof; provided that (i) the first Disbursement shall not exceed $31,000,000 (or such other amount as OPIC and the Borrower agree in the Approved Financing Plan) and (ii) after such first Disbursement, Disbursements and Contributed Amounts shall be made on a Dollar-for-Dollar basis until such time as all Contributed Amounts shall have been contributed in accordance with the Approved Financing Plan.

     Section 2.02. Commitment Fee. Upon the execution and delivery of all of the Loan Documents and continuing through the Commitment Period, a commitment fee (the “Commitment Fee”) shall accrue on a daily basis at the rate of one-half of one percent (0.50%) per annum on the difference, calculated for each day during such period, between (i) the amount of the Commitment, and (ii) the aggregate amount of the Loan outstanding on such day. The Commitment Fee shall be payable in arrears to OPIC on each Payment Date and on the date of expiration of the Commitment Period.

     Section 2.03. Cancellation of the Commitment. The Borrower may cancel all or any part of the Commitment at any time upon giving written notice to OPIC

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of the amount canceled. There shall be no cancellation fee. Any part of the Commitment not disbursed at the end of the Commitment Period shall be deemed to have been canceled.

     Section 2.04. Interest. (a) Note Interest Rate. On each Payment Date, commencing with the first such date to occur at least six months after the date of the first Disbursement, the Borrower shall pay interest in arrears to the order of OPIC on the daily outstanding principal balance of each Note, less any amount of principal on which interest is payable at the Default Rate pursuant to Section 2.04(b), at a rate per annum equal to the sum of the following (the “Note Interest Rate”):

(i)	The Treasury Cost applicable to such Note; and
(ii)	The OPIC Spread.

     (b) Default Interest. If the Borrower fails to pay in full when due any amount of principal or interest on any Note, the Borrower shall, on demand, or, if no demand, on each Payment Date, pay interest in arrears to the order of OPIC on the amount of the defaulted payment, from the date of such payment default until the date on which such defaulted amount is paid in full, at a rate per annum (the “Default Rate”), in lieu of the Note Interest Rate and to the extent permitted by applicable law, equal to the sum of the following:

(i)	The Note Interest Rate; and
(ii)	Two percent (2.0%) per annum.

     Section 2.05. Repayment of the Loan. (a) The Borrower shall repay the Loan in installments of $4,500,000 (or, if less, the outstanding principal balance of the Loan) payable on each Payment Date commencing on the earlier of (i) the first Payment Date to occur at least six (6) months after the Physical Completion Date and (ii) December 31, 2003.

     (b) The Borrower shall furnish OPIC with a certificate substantially in the form of Schedule 2.05B (the “Physical Completion Certificate”) certifying the Physical Completion Date promptly after the occurrence of the Physical Completion Conditions.

     Section 2.06. Voluntary Prepayment. On any date following the last day of the Commitment Period, the Borrower may, upon thirty (30) Business Days’ prior notice to OPIC, prepay the Loan in whole or in part upon the payment to OPIC of a prepayment premium (the “Prepayment Premium”) of (i) three percent (3%) of the Loan amount prepaid during the year immediately following the last day of the Commitment Period, (ii) two percent (2%) of the Loan amount prepaid during the year immediately following the first anniversary of the last day

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of the Commitment Period, and (iii) one percent (1%) of the Loan amount prepaid during the year immediately following the second anniversary of the last day of the Commitment Period; no Prepayment Premium shall be payable following the third anniversary of the last day of the Commitment Period. The amount of any such voluntary prepayment shall be a minimum of $5,000,000 (or such lesser amount necessary to prepay the Loan in full) and shall be applied to the repayment schedule provided for in Section 2.05 in the inverse order of maturity.

     Section 2.07. Mandatory Prepayment. The Borrower shall reduce the amount of the Loan:

     (a) by the amount by which (i) the aggregate amount of insurance proceeds received by the Companies for or in respect of their properties or assets on a consolidated basis during any Fiscal Year, which are not applied or committed within 180 days after the receipt thereof to the repair or replacement of such assets, exceeds (ii) $500,000; and

(b) as and to the extent necessary so that in any Fiscal Year the sum of

     (i) the amount of cash distributions paid by the Companies to their shareholders in respect of any of their capital stock, including dividends and share redemptions referred to in Section 7.04, in such Fiscal Year and

     (ii) the amount of payments by the Companies to the Sponsors referred to in Section 7.06 in such Fiscal Year

     does not exceed the principal and interest on the Loan paid to OPIC in such Fiscal Year.

     The Loan prepayment resulting from this Section 2.07 shall have the same effect as if such prepayment occurred pursuant to Section 2.06, except that no Prepayment Premium shall be payable and the quantum of the Loan being prepaid need not be a minimum of $5,000,000.

     Section 2.08. Facility Fee. The Borrower shall pay OPIC a facility fee (the “Facility Fee”) in the amount of one percent (1%) of the amount of the Commitment as of the date hereof or $850,000, of which $90,000 has previously been paid to OPIC. The outstanding balance of $760,000 shall be due and payable upon the execution and delivery of all of the Loan Documents by the Companies.

     Section 2.09. Maintenance Fee. The Borrower shall pay to OPIC an annual maintenance fee (the “Maintenance Fee”) in the amount of $100,000 on the first Payment Date on which a payment of principal of the Loan is scheduled

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and on each anniversary of such Payment Date, so long as any portion of the Loan remains outstanding.

     Section 2.10. Waiver and Amendment Fees. Waivers and amendments to this Agreement may be subject to additional fees at OPIC’s discretion.

     Section 2.11. Taxes. (a) All sums payable by the Borrower hereunder or under the Notes, whether of principal, interest, fees, expenses or otherwise, shall be paid in full, free of any deductions or withholdings for any and all present and future taxes, levies, imposts, stamps, duties, fees, assessments, deductions, withholdings, and other governmental charges, and all liabilities with respect thereto (collectively referred to as “Taxes”). In the event that the Borrower is prohibited by law from making payments hereunder or under the Notes free of such deductions or withholdings, then the Borrower shall pay such additional amount (an “Additional Amount”) as may be necessary in order that the actual amount received after such deduction or withholding shall equal the full amount stated to be payable hereunder or under the Notes.

     (b) The Borrower shall pay directly to all appropriate taxing authorities any and all present and future Taxes, and all liabilities with respect thereto imposed by law or by any taxing authority on or with regard to any aspect of the transactions contemplated by this Agreement or the execution and delivery of this Agreement or the Notes, except for any Taxes or other liabilities that the Borrower is contesting in good faith by appropriate proceedings, provided that the Borrower hereby indemnifies OPIC and holds OPIC harmless from and against any and all liabilities, fees or additional expense with respect to or resulting from any delay in paying, or omission to pay, Taxes. Within thirty (30) days after the payment by the Borrower of any Taxes, the Borrower shall furnish OPIC with the original or a certified copy of the receipt evidencing payment thereof, together with any other information OPIC may reasonably require to establish to its satisfaction that full and timely payment of such Taxes has been made.

     (c) OPIC shall notify the Borrower of any payment of Taxes required or requested of it and shall give due consideration to any advice or recommendation given in response thereto by the Borrower, and upon notice from OPIC that Taxes or any liability relating thereto (including penalties and interest) have been paid, the Borrower shall pay or reimburse OPIC therefor within thirty (30) days of such notice.

     (d) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.11 shall survive the payment in full of principal and interest hereunder and under the Notes.

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     Section 2.12. Miscellaneous. (a) Payment or Reimbursement of Expenses. The Borrower shall pay or reimburse OPIC, upon request, OPIC’s reasonable out-of-pocket costs and expenses incurred in connection with the negotiation, preparation, execution and delivery, and implementation of this Agreement, the Notes, and the other Financing Documents, including (i) the fees and expenses of outside legal counsel and business consultants (it being understood that OPIC shall consult with the Sponsors prior to engaging any such legal counsel or consultants but shall not require the Sponsors’ consent to engage any such persons) and (ii) the costs of communications, the preparation of any documents, the authentication, registration and recordation of any of the Financing Documents, the preparation of bound volumes of the Financing Documents for OPIC’s use, and the termination of the Liens created pursuant to the Security Documents. The Borrower shall also reimburse OPIC upon demand for all costs and expenses, including attorneys’ fees and expenses and the cost of travel incurred by OPIC in preserving in full force and effect or enforcing its rights hereunder or under any of the Financing Documents and all reasonable costs and expenses, including attorneys’ fees and expenses and the cost of travel incurred by OPIC in connection with the modification, amendment or waiver of any provision of any such document, including release of the Liens in favor of OPIC arising under the Security Documents.

     (b) Currency and Place of Payment. All payments required hereunder shall be made in Dollars in immediately available funds without any offset or deduction for Taxes or otherwise to OPIC at the following address:

     If sent by wire transfer (via a United States domestic bank):

U.S. Treasury Department
New York, New York
ABA No. 0210-3000-4 TREASNYC/CTR/BNF=AC71000001
OBI=OPIC Loan No. 889-2000-218-DI

     (c) Computation of Interest on Notes and Fees. Except as otherwise provided herein or in any Note, interest (including the OPIC Spread), default interest, the Commitment Fee and any other fees shall accrue on a daily basis and shall be computed on the basis of 360-day years composed of twelve (12) thirty (30)-day months.

     (d) Application of Payments to OPIC. Payments received by OPIC under this Agreement or with respect to any Note shall be applied to amounts due under this Agreement and under the Notes in such manner as OPIC may determine to be appropriate, notwithstanding any instruction to the contrary from the Borrower.

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ARTICLE 3
Representations And Warranties

     The Borrower represents, covenants, and warrants to OPIC that:

     Section 3.01. Existence And Power Of The Companies. The Borrower is a corporation duly organized, validly existing, and in good standing under the laws of the Cayman Islands. IL is a corporation duly organized, validly existing, and in good standing under the laws of Papua New Guinea. Each Company is duly authorized to do business in each jurisdiction in which its business makes such authorization necessary, has the requisite power to own and operate its properties, to carry on its business and the Project, to borrow money and create a charge on its properties and to execute, deliver, and perform this Agreement, the Notes, and each of the other Financing Documents to which it is or will be a party.

     Section 3.02. Authority Of The Companies. The execution, delivery, and performance by the Borrower of this Agreement and the Notes, and by each Company of each of the other Financing Documents to which it is or will be a party: (i) have been duly authorized by all necessary action, corporate or otherwise; (ii) will not violate any applicable regulation or ruling of any Governmental Authority; and (iii) will not breach, or result in the imposition of any Lien upon any of its assets (except as permitted by Section 7.01) under, any of its Charter Documents or any agreement or other requirement by which it or any of its properties may be bound or affected. The execution and delivery by the Borrower of this Agreement and the Notes, and by each Company of each of the other Financing Documents to which it is or will be a party will cause each such respective instrument to constitute a legal, valid, and binding obligation of such Company enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditors’ rights generally or general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). Except for consents referred to in Section 3.10, no consent of any other Person, including shareholders of either Company (except for the Shareholders of IL, which consent has been obtained and is in full force and effect) is required in connection with the execution, delivery, performance, validity, or enforceability of any of the Financing Documents. Subject to Section 7.01(d), the obligations of the Borrower hereunder and under the Notes will rank not less than pari passu with all of the Borrower’s other Indebtedness and obligations, and the Borrower shall cause the obligations of IL under the Downstream Loans to rank not less than pari passu with all of IL’s other Indebtedness and obligations.

     Section 3.03. Financial Condition. The Companies’ audited Financial Statements, dated December 31, 2000, which have been furnished to OPIC, are complete and correct and fairly present its financial condition and results of its operations for the period then ended. The Companies have no contingent

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obligation, liability for Taxes, material or long-term commitment, or outstanding Indebtedness of any kind except as disclosed in such Financial Statements. There has been no change in either Company’s financial condition or prospects from that set forth in such Financial Statements that could have a Material Adverse Effect, and since the date thereof no dividend or other distribution has been declared or paid to such Company’s shareholders.

     Section 3.04. Capitalization of the Companies. (a) Subject to modification pursuant to the last sentence of this clause (a), the authorized capital of the Borrower consists of the following classes of capital stock: 100 shares of non-participating voting ordinary shares, par value $1.00 per share, of which 100 shares are issued and outstanding and which are held by SPI; and 24,000,000 shares of participating non-voting ordinary shares, par value $0.01 per share, of which 13,984,482 shares are issued and outstanding and of which 13,087,040 are held by SPI and 897,542 are held by Enron Papua New Guinea. All such capital stock of the Borrower has been duly authorized and validly issued, and is fully paid and nonassessable. There are no outstanding subscriptions, options, warrants, calls, agreements, preemptive rights, acquisition rights, redemption rights or any other rights or claims of any character that restrict the transfer of, require the issuance of, or otherwise relate to any class of the capital stock of the Borrower. Subject to OPIC’s approval, the authorized and issued share capital of the Borrower may be increased as necessary in order to allow contributions of equity to the Project; the amount of any such increase shall be notified promptly to OPIC in writing.

     (b) Subject to modification pursuant to the last sentence of this clause (b), the issued share capital of IL consists of 2 ordinary shares, 10 class A ordinary shares, and 499,990 class B ordinary shares. All such issued share capital of IL has been duly authorized and validly issued, and is fully paid and nonassessable. There is no unissued share capital of IL. There are no outstanding subscriptions, options, warrants, calls, agreements, preemptive rights, acquisition rights, redemption rights or any other rights or claims of any character that restrict the transfer of, require the issuance of, or otherwise relate to any class of the issued share capital of IL. All the issued share capital of IL is owned beneficially and of record by the Borrower. Subject to OPIC’s approval, the issued share capital of IL may be increased as necessary in order to allow contributions of equity to the Project; the amount of any such increase shall be notified promptly to OPIC in writing.

     Section 3.05. Subsidiaries. Except for the interest of the Borrower in IL, neither Company owns or otherwise controls any voting stock of, or has any ownership interest in, any other Person, including any other corporation or partnership.

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     Section 3.06. Liens. Except as permitted in Section 7.01, the Security Documents are, or upon filing and registration will be, effective to create in favor of OPIC legal, valid, and enforceable first Liens on all of each Company’s assets intended to be covered thereby. Neither Company has outstanding, nor is it contractually bound to create, any Lien on or with respect to, any of its properties, rights or revenues, except as permitted in Section 7.01.

     Section 3.07. Taxes and Reports. All tax returns and reports of the Borrower required by law to be filed in the Cayman Islands and each governmental subdivision thereof and all tax returns and reports of IL required by law to be filed in Papua New Guinea and each governmental subdivision thereof have been duly filed for periods ending prior to the date of this Agreement, and all Taxes, assessments, fees and other governmental charges due or reasonably anticipated to become due in respect of each Company, or any assets, income, or franchises of such Company, that if not paid could have a Material Adverse Effect, have been duly paid or have been adequately provided for on the books of such Company.

     Section 3.08. Defaults. No Default has occurred and is continuing. Neither Company or any other party is in breach of any provision of any contract to which such Company is a party, which breach could have a Material Adverse Effect.

     Section 3.09. Litigation. No action, suit, other legal proceeding, arbitral proceeding, claim or investigation is pending by or before any domestic or foreign court, Governmental Authority or in any arbitral or other forum or is threatened, against either Company or any of its properties or rights that (i) relates to any of the transactions contemplated by this Agreement or any other Financing Document, or (ii) has, or if adversely determined could have, a Material Adverse Effect. No action (including any non-judicial or administrative action) is pending or threatened by any persons residing, whether permanently or temporarily, on or in the vicinity of the land which is the subject of the Site Lease (the “Site”) which may materially interrupt access to the Site or which may otherwise have a Material Adverse Effect.

     Section 3.10. Compliance with Law; Corrupt Practices. (a) Each Company is conducting its business in compliance with all applicable laws, regulations and Authorizations, non-compliance with which could have a Material Adverse Effect, and in compliance with its Charter Documents. Neither the making of any Financing Document to which either Company is a party nor (when all the Authorizations referred to in Section 4.04 have been obtained) the compliance with its terms will conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default or require any consent under, any indenture mortgage, agreement or other instrument or arrangement to which such Company is a party or by which it is bound, or violate any of the

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terms or provisions of such Company’s Charter Documents or any Authorization, judgment, decree or order or any statute, rule or regulation applicable to such Company.

     To the best of such Company’s knowledge, after due inquiry:

     (i) the Authorizations specified in Schedule 4.04 are all the Authorizations (other than Authorizations that are of a routine nature and are obtained in the ordinary course of business) needed by such Company to conduct its business, carry out the Project and execute, and comply with its obligations under, this Agreement and each of the other Financing Documents to which it is a party;

     (ii) all Authorizations specified in Section (1) of Schedule 4.04 have been obtained and are in full force and effect; and

     (iii) such Company has applied (or is making arrangements to apply) for all Authorizations specified in Section (2) of Schedule 4.04, and has no reason to believe that it will not obtain those Authorization in a timely manner.

     (b) Without limiting the effect of clause (a), each Company and its officers, directors, employees, and agents have complied with all applicable Corrupt Practices Laws in obtaining any consents, licenses, approvals, authorizations, rights, and privileges in respect of the Project, and are otherwise conducting the Project and the business of the Company in compliance with applicable Corrupt Practices Laws. Each Company’s internal management and accounting practices and controls are adequate to ensure compliance with applicable Corrupt Practices Laws.

     Section 3.11. Easements, Property Interests, Utilities, Etc. Except as set forth in Schedule 3.11, all easements, leasehold and other property interests (including, without limitation, ownership and other rights with respect to the Contributed Equipment), and all utility and other services, means of transportation, facilities, other materials and other rights that can reasonably be expected to be necessary for the construction, completion and operation of the Project in accordance with applicable requirements of law and the Financing Documents (including, without limitation, gas, electrical, water and sewage services and facilities) have been procured or are commercially available to the Project, and, to the extent appropriate, arrangements have been made on commercially reasonable terms for such easements, interests, services, means of transportation, facilities, materials and rights. No material licenses, trademarks, patents or other similar agreements are necessary for the construction, ownership, operation and maintenance of the Project.

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     Section 3.12. Environmental Matters. Each Company has duly complied with, and its business, operations, assets, equipment, property, leaseholds, and other facilities are materially in compliance with, the provisions of all applicable environmental, health and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder, with the OPIC requirements and with the World Bank Guidelines. Each Company (x) has been issued and will maintain all required permits, licenses, certificates and approvals relating to, and (y) has received no complaint, order, directive, claim, citation or notice by any Governmental Authority or any Person with respect to: (i) air emissions, (ii) discharges to surface water or ground water, (iii) noise emissions, (iv) solid or liquid waste disposal, (v) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes, or (vi) other environmental, health or safety matters.

     Section 3.13. Project Cost and Project Completion. Each Company’s preliminary good faith estimate of the total cost of the Project (including provisions for contingencies) is the equivalent of $191,000,000 (at InterOil Book Value) based on the Preliminary Financial Plan, and such Company’s good faith estimate of the date on which it will achieve Project Completion is a date not later than December 31, 2004.

     Section 3.14. Disclosure. All documents, reports or other written information pertaining to the Project (including, without limitation, the Application, this Agreement, and the other Financing Documents) that have been furnished to OPIC were when furnished true and correct and did not at such time contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained herein or therein not materially misleading. There is no fact known to either Company, that has not been disclosed to OPIC in writing, the existence of which could have a Material Adverse Effect. No condition has arisen since the date of the Application that has or could have a Material Adverse Effect.

     Section 3.15. Suspension and Debarment. No event has occurred and no condition exists that is likely to result in the debarment or suspension of either Company from contracting with the U.S. Government or any agency or instrumentality thereof, and neither Company is now and has been subject to any such debarment or suspension.

     Section 3.16. Certain Contracts. Neither Company is party to any contract (x) relating to the design and construction of the Project other than (i) the Construction Contract and (ii) the Italian Turbine Contract or (y) for the lease of equipment or facilities for the Project, in either case exceeding a value of $500,000.

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     Section 3.17. Specified Policies. Each of the Specified Policies is in full force and effect and no event which constitutes or could, with the passage of time or the giving of notice, reasonably be expected to constitute a default thereunder has occurred and is continuing; provided that this representation and warranty is not required to be true prior to the first Closing Date.

ARTICLE 4
Conditions Precedent To First Disbursement

     Unless OPIC otherwise agrees in writing, the obligation of OPIC to make the first Disbursement of the Loan is subject to the prior fulfillment, to OPIC’s satisfaction, of the following conditions precedent and to their continued fulfillment on the date of the first Disbursement:

     Section 4.01. Corporate Authorization. (a) OPIC shall have received a certificate of an Authorized Officer of each Company, dated the Closing Date, satisfactory to OPIC in form and substance:

     (i) attaching a copy of each of the Charter Documents of such Company, as amended to date, certifying that the attached copies are true and complete and in full force and effect as of the Closing Date, together with evidence satisfactory to OPIC that such documents have been approved or registered, as applicable, by the competent governmental agencies and authorities in the Cayman Islands or Papua New Guinea, as applicable;

     (ii) attaching a copy of the resolutions of the Board of Directors of such Company, and of all documents evidencing any other necessary corporate action (each such resolution and document satisfactory to OPIC in form and substance), authorizing it to execute, deliver and perform this Agreement, the Notes, and each of the other Financing Documents to which it is or will be a party and to engage in the transactions herein contemplated, and certifying that the attached copies are true and complete and in full force and effect as of the Closing Date; and

     (iii) certifying the names, titles and specimen signatures of the Persons who are authorized to execute and deliver on behalf of such Company this Agreement, the Notes, each of the other Financing Documents to which it is or will be a party and all other notices or instruments contemplated hereunder.

     (b) OPIC shall have received a certificate of an Authorized Officer of each Sponsor, dated the Closing Date, satisfactory to OPIC in form and substance:

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     (i) attaching a copy of each of the Charter Documents of such Sponsor, as amended to date, certifying that the attached copies are true and complete and in full force and effect as of the Closing Date, together with evidence satisfactory to OPIC that such documents have been approved by the competent governmental agencies and authorities in the Bahamas or the State of Delaware, as applicable;

     (ii) attaching a copy of the resolutions of the Board of Directors (or other similar body, if applicable) of such Sponsor, and of all documents evidencing any other necessary corporate or limited liability company action, as applicable (each such resolution and document satisfactory to OPIC in form and substance), authorizing it to execute, deliver and perform each of the Financing Documents to which it is or will be a party and to engage in the transactions herein contemplated, and certifying that the attached copies are true and complete and in full force and effect as of the Closing Date; and

     (iii) certifying the names, titles and specimen signatures of the Persons who are authorized to execute and deliver on behalf of the Sponsor each of the Financing Documents to which it is or will be a party and all other notices or instruments contemplated hereunder.

     Section 4.02. Financing Documents. OPIC shall have received the following documents, each of which shall be satisfactory to OPIC in form and substance, each of which shall have been duly executed by the parties thereto and each of which shall be in full force and effect in accordance with its terms without default:

     (a) OPIC shall have received duly executed originals (or, at OPIC’s election, a true and complete copy) of each of the following agreements and documents (the “Loan Documents”):

     (i) this Agreement;

     (ii) any Notes issued in connection with the Disbursement;

     (iii) the Sponsor Support Agreement, together with all documents providing for collateral security or other credit support in connection therewith;

     (iv) the Collateral Account Agreement;

     (v) the Security Agreement;

     (vi) the Subordination Agreement (if any);

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     (vii) the Share Pledge and Retention Agreements;

     (viii) the Share Retention Agreements; and;

     (ix) the Downstream Loan Documents.

     (b) OPIC shall have received duly executed originals (or, at OPIC’s election, a true and complete copy) of the following agreements and documents (the “Security Documents”):

     Security for the Loan and the Downstream Loans shall be determined by OPIC, and documented to the satisfaction of OPIC, in consultation with OPIC’s local counsel and shall include, at OPIC’s discretion, a valid, first-ranking (except that Liens permitted under Section 7.01(d) may rank ahead of the Liens under the Security Documents), and perfected (or otherwise enforceable against all persons to the fullest extent possible in each relevant jurisdiction) lien or charge on, or security interest in, all of the Companies’ assets, whether now or hereafter acquired, tangible or intangible, including, without limitation, all accounts receivable, inventory, general intangibles, equipment, real and personal property, accounts, rights under relevant project agreements, and such other security as OPIC requires, and by a pledge of all of the Companies’ stock owned by SPI and the Borrower.

     Each Lien created pursuant to the Security Documents (i) to the extent it arises or attaches under the Uniform Commercial Code of any jurisdiction in the United States, shall be perfected and (ii) in all other cases, shall be enforceable against the relevant Company and any holder of a subsequently established Lien (including a judgment lien), holder of a fixed or floating charge, or transferee for or not for value, in bulk, by operation of law, for the benefit of creditors, or otherwise. Each of the Security Documents shall be in full force and effect and shall have been duly filed and registered or recorded in every jurisdiction in which such filing and registration or recording is necessary to make valid and effective the Liens intended to be created thereby, and the rights of OPIC thereunder, and OPIC shall have received evidence satisfactory to it that such filing and registration or recording has been made.

     (c) OPIC shall have received copies of the following agreements, each of which shall be satisfactory to OPIC in form and substance, shall have been duly executed by the parties thereto and shall have been certified by an Authorized Officer of each Company as being true and complete and in full force and effect in accordance with its terms without default (the “Project Documents”):

     (i) the Project Agreement;

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     (ii) any Subordinated Loan Agreement;

     (iii) the Construction Contract;

     (iv) the Product Sales Agreements;

     (v) any Feedstock Supply Agreement(s);

     (vi) the EPC Guarantee;

     (vii) the Site Lease;

     (viii) the Rights of Way;

     (ix) all contracts to provide services to the Project exceeding a value of $500,000; and

     (x) any other agreements material to the Project.

The Loan Documents, the Security Documents, and the Project Documents, together with any other agreements or instruments pursuant to which the Loan or any portion thereof is made to the Borrower, are collectively referred to herein as the “Financing Documents.”

     (d) OPIC shall have received satisfactory evidence, which evidence shall include certificates of Authorized Officers of the Companies, that all conditions to the obligations of the parties (other than OPIC) to the Financing Documents (other than the Shell Contracts) have been satisfied or waived in accordance with the terms of the Financing Documents.

     Section 4.03. Approved Financial Plan. (a) The Company and OPIC shall have agreed upon the Approved Financial Plan (which shall reflect the executed version of the Construction Contract approved by OPIC), (b) the Sponsors or other entities acceptable to OPIC have made to the Companies a fully paid-in equity contribution of at least $55,000,000 (exclusive of the amounts contemplated in Section 4.13) consisting of Contributed Equipment and Development Costs (in each case at OPIC’s valuation as set forth in the Approved Financial Plan) on terms satisfactory to OPIC and in accordance with the Approved Financial Plan, (c) the Companies, either directly or indirectly, have acquired complete marketable title rights to such Contributed Equipment, subject only to Liens permitted under Section 7.01 and (d) OPIC shall be satisfied that the Sponsors have available, either in the form of cash or cash equivalents or equity commitments from creditworthy entities on terms and conditions satisfactory to OPIC, sufficient resources to fund on a timely basis all requirements to provide equity capital to the Companies in accordance with the requirements of the Approved Financial Plan and the Construction Contract.

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     Section 4.04. Government Approvals. The Companies shall have obtained, and provided to OPIC copies of, all Authorizations listed in Sections (1) and (2) of Schedule 4.04, and such other Authorizations not listed in such Sections that may become necessary for:

     (i) the Loan;

     (ii) the obligations of IL under the Downstream Loan Documents;

     (iii) the businesses of the Companies as presently conducted and contemplated to be conducted;

     (iv) the Project and the implementation of the Approved Financial Plan;

     (v) the due execution, delivery, validity and enforceability of, and performance by, the Companies of their obligations under, this Agreement, the other Financing Documents and any other documents (in each case to the extent such Company is a party thereto) necessary to the implementation of any of those agreements or documents; and

     (vi) the remittance to OPIC or its assigns in Dollars of all monies payable with respect to the Financing Documents;

     and all such Authorizations are in full force and effect.

     Section 4.05. Land. OPIC shall have received evidence in form and substance satisfactory to it that the Companies, either directly or indirectly, have acquired complete marketable title or complete leasehold rights to the land necessary for the Project, subject only to Liens permitted under Section 7.01.

     Section 4.06. Insurance. (a) OPIC shall have received from the insurer evidence of required coverages in accordance with items (E) and (F) of Schedule 6.05.

     (b) The Insurance Consultant shall have provided OPIC with a report, in form and substance satisfactory to OPIC and on which OPIC is expressly permitted to rely, confirmed by the Insurance Consultant as of the date of the first Disbursement, indicating that such insurance is effective and provides coverage for the Project consistent with the customs and practices of limited recourse financing for international projects.

     Section 4.07. Approval of Construction Contract. OPIC shall have received a report, satisfactory to OPIC in form and substance, from the

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Independent Engineer that the technical, design and other specifications set forth in the Construction Contract satisfy the requirements of the Independent Engineer.

     Section 4.08. Due Diligence. OPIC shall have completed to its satisfaction its due diligence investigation of the Project and matters relating thereto and to the Loan Documents (including, without limitation, environmental issues raised by the Environmental Report or otherwise, the issues identified in Schedule 4.08 and issues relating to the Construction Contract and to approvals of the Bank of Papua New Guinea), and the results of such investigation shall be satisfactory to OPIC.

     Section 4.09. Appointment of Agent. OPIC shall have received evidence that: (i) the agent for service of process referred to in Section 8.03 has been duly appointed and holds such appointment without reservation until the Borrower is no longer obligated under this Agreement or any Note, together with evidence of the prepayment in full of the fees of such agent; (ii) the agent for service of process referred to in the Sponsor Support Agreement has been duly appointed and holds such appointment without reservation until the Borrower is no longer obligated under this Agreement or any Note, together with evidence of the prepayment in full of the fees of such agent; and (iii) the agent for service of process referred to in each other Financing Document pursuant to which the appointment of such agent is required has been duly appointed and holds such appointment without reservation until the Borrower is no longer obligated under this Agreement or any Note, together with evidence of the prepayment in full of the fees of such agent.

     Section 4.10. Legal Opinions. OPIC shall have received the following written opinions, dated the Closing Date, in respect of the first Disbursement, satisfactory to OPIC in form and substance:

     (i) of Allens Arthur Robinson, its special Papua New Guinea Counsel;

     (ii) of Epstein, Becker & Green, PC, New York legal counsel to the Companies and the Sponsors;

     (iii) of Gadens Lawyers, Papua New Guinea counsel to the Companies and the Sponsors;

     (iv) of Maples and Calder, Cayman Islands counsel to the Borrower; and

     (v) of Lobosky and Lobosky, Bahamas counsel to SPI.

     Section 4.11. Management Control. OPIC shall have received satisfactory evidence, which evidence shall include copies of the Charter

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Documents of the Sponsors and the Companies, that the Sponsors and Phil Mulacek have adequate contractual and legal rights (as determined by OPIC in its sole discretion) such that SPI will retain Control of the Companies, that Phil Mulacek will retain Control of PC, and that PC will remain the general manager of the Sponsors.

     Section 4.12. Other Documents. OPIC shall have received such other certificates, opinions, agreements and documents, each satisfactory to OPIC in form and substance, as it may reasonably request.

     Section 4.13. Debt Service Reserve Account. The Debt Service Reserve Account shall have been fully funded in the amount of $8,500,000 in cash or cash equivalents (e.g. letters of credit) from creditworthy entities on terms and conditions satisfactory to OPIC.

ARTICLE 5
Conditions Precedent to Each Disbursement

     Unless OPIC otherwise agrees in writing and save as otherwise provided herein, it shall be a condition precedent to the Borrower’s right to each Disbursement (including the first Disbursement), that each of the following conditions be satisfied on the date of any such Disbursement:

     Section 5.01. Representations and Defaults. The representations and warranties set forth in Article 3 shall be true and correct in all material respects in respect of the facts and circumstances then subsisting on the date of such Disbursement as if made on such date, and on such date no Default shall have occurred and be continuing.

     Section 5.02. Change in Circumstances. At the time of each Disbursement, no circumstance shall exist, and no change of law or regulation of any Governmental Authority shall have occurred, that could have a Material Adverse Effect.

     Section 5.03. Certification. Each Company shall have furnished OPIC with a certificate of an Authorized Officer of such Company, dated the date of such Disbursement, satisfactory to OPIC in form and substance (i) certifying the satisfaction of the conditions set forth in Sections 5.01 and 5.02, (ii) setting forth the Project costs to which any prior Disbursements have been applied and (iii) setting forth the Project costs to which the present Disbursement will be applied and certifying that the proceeds of this Disbursement are anticipated to be needed for these purposes prior to the next Disbursement, and that, to the extent such proceeds are not so applied or are not anticipated to be applied within the following 30 days, such proceeds will be held by a financial institution

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satisfactory to OPIC in an account that is pledged or charged to OPIC in a manner satisfactory to it (it being understood that each withdrawal from such account shall (a) absent a Default, be at the discretion of th Borrower without the need for any approval by OPIC or the financial institution at which the account is held, but, if a Default has occurred and is continuing, will require OPIC’s consent and (b) constitute a deemed representation by the Borrower that the amounts so withdrawn shall be applied to the Project costs set forth in such certificate).

     Section 5.04. Financial Information and Construction Progress. Not less than ten (10) Business Days before the Closing Date, OPIC shall have received: (i) any Financial Statements, reports, and other information that the Companies, pursuant to Section 6.07, would otherwise be required to furnish to OPIC on or before the Closing Date, and (ii) evidence, satisfactory to OPIC in form and substance, that sufficient progress has been made in the construction of the Project to proceed with such Disbursement.

     Section 5.05. Payment or Reimbursement of Expenses. All fees and other amounts due to OPIC with respect to the making of the Loan, and all other amounts payable or reimbursable by the Companies in connection with the making of the Loan, shall have been paid, including, but not limited to, (i) the Commitment Fee, (ii) the Facility Fee, (iii) the Maintenance Fee, (iv) any Taxes and Additional Amounts payable pursuant to Section 2.11, and (v) any amounts payable pursuant to Section 2.12(a), including the fees and expenses of OPIC legal counsel and business consultants and the costs of registration and recordation of any of the Financing Documents.

     Section 5.06. Sponsor Investment. OPIC shall have received satisfactory evidence, which evidence shall include certificates of the Companies’ independent accountants and certified copies of relevant stock certificates, that the Sponsors or other entities acceptable to OPIC have made to the Companies a fully paid-in cash equity contribution or a contribution of a combination of equity and subordinated debt, cash, assets (other than the Contributed Equipment and Development Costs paid under Section 4.03) and, to the extent approved by OPIC for this purpose, Project costs incurred as of the date hereof, in each case satisfactory to OPIC, on terms satisfactory to OPIC and in accordance with the Approved Financial Plan and Section 2.01(c) (together, the “Contributed Amounts”).

     Section 5.07. Fulfillment of Conditions to Subordinated Loan. The Subordinated Loan Agreement, if any, shall be in full force and effect without default, and the Subordinated Loan shall have been disbursed in full.

     Section 5.08. Specified Policies. OPIC shall have received evidence satisfactory to it that each of the Specified Polices is in full force and effect.

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     Section 5.09. Shell Contracts. (a) OPIC shall have received evidence satisfactory to it that each of the Shell Consent Deeds is in full force and effect; provided that no such evidence shall be required with respect to the Shell Domestic Consent Deed prior to the Transfer Date.

     (b) OPIC shall have received satisfactory evidence, which evidence shall include certificates of Authorized Officers of the Companies, that all conditions to the obligations of the parties (other than OPIC) to the Shell Contracts have been satisfied or waived in accordance with the terms of the Shell Contracts; provided that such conditions shall not be required to have been so satisfied or waived to the extent that they are not required to be satisfied on or prior to the date of the Disbursement in accordance with the terms of the relevant Shell Contracts.

     Section 5.10. Other Documents; Opinions. OPIC shall have received such other certificates, opinions, agreements and documents (including, without limitation, a legal opinion or opinions of counsel acceptable to OPIC), each satisfactory to OPIC in form and substance, as it may reasonably request, with respect to any matters incident to the Disbursement, which, due to changes in circumstance, are not adequately addressed by the certificates, opinions, agreements and documents that were delivered in connection with prior Disbursements.

ARTICLE 6
Affirmative Covenants

     Unless OPIC otherwise agrees in writing, so long as the Commitment shall remain outstanding and until all amounts due and to become due hereunder and under the Notes shall have been paid in full, the Borrower covenants and agrees as follows:

     Section 6.01. Project Completion. The Borrower shall, and shall cause IL to, construct and implement the Project promptly, shall apply the proceeds of the Loan and shall apply, or cause IL to apply, as applicable, the proceeds of the Subordinated Loan and of the loans contemplated in the definition of Downstream Loan Documents exclusively to the Project and shall use, and cause IL to use, its best efforts to cause Project Completion to be achieved on or prior to December 31, 2004. If the Borrower becomes unable to achieve the completion undertakings set out in the preceding sentence, or the Companies become unable to meet their other obligations in respect of such completion prior to Project Completion, the Borrower shall promptly so notify OPIC.

     Section 6.02. Company Operations. The Borrower shall duly and punctually perform its obligations under this Agreement, the Notes, and each of

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the other Financing Documents to which it is a party and shall cause IL to duly and punctually perform its obligations under each of the Financing Documents to which it is a party. The Borrower shall, and shall cause IL to, conduct its operations on the basis of customary commercial practice and arm’s-length arrangements, with due diligence and efficiency and under the supervision of qualified and experienced management. The Borrower shall, and shall cause IL to, repair, and/or replace and protect each of its assets in accordance with prudent industry practice so that its business can be conducted properly at all times.

     Section 6.03. Maintenance of Rights and Compliance with Laws. The Borrower shall, and shall cause IL to (i) whenever in its power to do so, acquire, maintain, and renew all rights, contracts, powers, privileges, leases, lands, sanctions, and franchises necessary for the conduct of its business and the performance of its obligations hereunder and under the other Financing Documents; (ii) conduct its business in compliance with all applicable laws and directives of Governmental Authorities having force of law, including applicable environmental standards and Corrupt Practices Laws; and (iii) duly pay before they become overdue all Taxes, assessments and other government charges levied or imposed in any jurisdiction upon its property, earnings or business that, if not paid, could have a Material Adverse Effect, except amounts being contested in good faith by appropriate proceedings diligently pursued for which adequate reserves shall have been established.

     Section 6.04. Government Approvals; Foreign Exchange Consents. (a) The Borrower shall, and shall cause IL to, obtain (in each case no later than the time specified therefor in Schedule 4.04), and maintain in full force and effect, all material Authorizations necessary for the performance by such Company of this Agreement, the Notes, and each of the other Financing Documents to which it is a party.

     (b) Following each Disbursement of the Loan, the Borrower shall promptly cause such disbursed portion of the Loan to be duly registered or recorded with all relevant Governmental Authorities and shall take all other steps necessary to secure the foreign exchange consents required for the payment of all amounts due hereunder and under the Notes. The Borrower shall furnish OPIC promptly with a copy of each such registration, recording and consent.

     Section 6.05. Maintenance of Insurance. (a) The Borrower shall, and shall cause IL to, keep all property useful and necessary in their business in good working order and condition (ordinary wear and tear excepted) in accordance with Prudent Industry Practice and keep their present and future properties and business insured as required by and in accordance with the terms and provisions described in Section (B) of Schedule 6.05.

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     (b) The Borrower shall, and shall cause IL to, cause the Construction Contractor to obtain and maintain the insurance described in Section (A)(1) of Schedule 6.05 as required by and in accordance with the terms and provisions of such Schedule and the operator under the O&M Agreement to obtain and maintain the insurance described in Section (A)(2) of Schedule 6.05 as required by and in accordance with the terms and provisions of such Schedule.

     (c) The Borrower shall, and shall cause IL to, comply with and observe all of their covenants and agreements set forth in Schedule 6.05, each of which is incorporated by reference in this Section 6.05 as if set forth in full herein.

     Section 6.06. Accounting and Financial Management. (a) The Borrower shall, and shall cause IL to (i) maintain adequate management information and cost control systems, (ii) maintain a system of accounting, (iii) prepare the Companies’ Financial Statements in accordance with U.S. GAAP (including a Uniform Credit Analysis Cash Flow Statement), (iv) engage KPMG or other independent internationally recognized accountants satisfactory to OPIC, (v) cause such independent accountants to prepare the Supplemental Financial Statements, (vi) notify OPIC of any change in such accountants and the reason therefor, and (vii) upon OPIC’s reasonable request to the Borrower, shall instruct such accountants to communicate directly with OPIC regarding the Companies’ accounts and operations. Without limiting the foregoing, the Borrower shall, and shall cause IL to, maintain the systems described in clauses (i) and (ii) and related management and accounting policies in a manner adequate to ensure compliance with applicable Corrupt Practices Laws.

     (b) The Borrower shall, and shall cause IL to, make arrangements satisfactory to OPIC for overseeing the financial operations of the Companies, including their cash management, accounting and financial reporting, and for overseeing the Companies’ relationship with their lenders and independent accountants; such arrangements may include, but shall not be limited to, employing a chief financial officer to oversee the financial operations of the Companies.

     Section 6.07. Financial Statements and Other Information. At its cost the Borrower shall, and shall cause IL to, furnish to OPIC each of the following documents:

     (a) Within forty-five (45) days after the end of each fiscal quarter (including the fourth (4th) fiscal quarter) of each Fiscal Year, the Companies’ unaudited Financial Statements and corresponding Supplemental Financial Statements, and a comparison between (i) such Financial Statements and the projections for such fiscal quarter furnished pursuant to Section 6.07(e) below, (ii) actual financial ratios and the financial ratio required by Section 6.11, showing all calculations and (iii) actual financial results and the forecasted financial results set

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forth in the projections furnished pursuant to Section 6.07(e) below, all prepared in accordance with U.S. GAAP and certified by the chief financial officer of each Company as fairly presenting the financial condition, results of operations, and cash flow of the Companies’ for the period then ended, together with such officers’ certificate that their review has not disclosed the existence of a Default or, if any Default then exists, specifying the nature and period of existence thereof and what action the Companies’ have taken or propose to take with respect thereto. If OPIC so requests, a financial officer of the Borrower, duly empowered to act on behalf of each Company, shall schedule a date within sixty (60) days prior to the close of the then-current Fiscal Year to present the relevant annual budget (the “Annual Budget”) to OPIC and to discuss such other matters relating to the Project as OPIC deems reasonable at OPIC’s offices in Washington, D.C.;

     (b) Within ninety (90) days after the end of each Fiscal Year, the Companies’ audited Financial Statements and corresponding Supplemental Financial Statements, all prepared in accordance with U.S. GAAP, together with a certificate by the independent accountants reporting thereon describing briefly the scope of their examination (which shall include a review of the relevant terms of this Agreement) and certifying whether their examination has disclosed the existence of a Default and if so, specifying the nature and period of existence thereof;

     (c) Until the Companies shall have achieved Project Completion, a report within forty-five (45) days after the end of each fiscal quarter prepared in accordance with U.S. GAAP and certified by an Authorized Officer setting forth in reasonable detail the progress of the Project, including (i) expenditures of funds, (ii) estimated future costs, (iii) unexpended funds available to such Company, (iv) the progress and percentage of completion of the major phases of Project construction and the total construction work of the Project, (v) the acquisition of fixtures and equipment, and (vi) any material variation order, amendment or waiver relating to the Construction Contract;

     (d) Within forty-five (45) days after the end of each Fiscal Year, a report certified by an Authorized Officer setting forth in reasonable detail all transactions between (x) such Company, (y) the other Companies or Affiliates of the other Companies and (z) the Sponsors or Affiliates of the Sponsors;

     (e) Not later than thirty (30) days prior to the beginning of each Fiscal Year, an annual operating forecast for the Companies’, including their projected quarterly Financial Statements for such Fiscal Year and corresponding Supplemental Financial Statements, together with a statement of the assumptions on which such forecast is based;

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     (f) Within ninety (90) days after the end of each Fiscal Year, the Self-Monitoring Questionnaire, certified by an Authorized Officer as true and complete; and

     (g) Copies of all other annual or interim audit reports submitted to such Company by its independent accountants and such other information and data with respect to its operations (including supporting information as to compliance with this Agreement) as OPIC may reasonably request from time to time upon at least two (2) Business Days’ notice.

     Section 6.08. Access to Records; Inspection; Meetings. The Borrower shall, and shall cause IL to, upon request of OPIC, give, or cause to be given, to any representatives of OPIC access during normal business hours to, and permit them to examine, copy and make extracts from, any and all records and documents in the possession or subject to the control of such Company relating to its operations and financial affairs, and to inspect any of its facilities or properties. If OPIC so requests, the Borrower shall, or, if applicable, shall cause such other Company to, give OPIC not less than ten (10) days’ notice of, and shall permit an Authorized Officer of OPIC to attend, each meeting of its shareholders and of its directors.

     Section 6.09. Notice of Default and Other Matters. The Borrower shall, and shall cause IL to, immediately notify OPIC of (i) the occurrence of each Event of Default and of each event or condition known to any of its officers that with the passage of time or the giving of notice, or both, could constitute an Event of Default, (ii) any actions, suits, other legal proceedings or arbitral proceedings against either Company that involve claims aggregating more than the equivalent of $250,000, and (iii) the occurrence of any other condition or event (including action by a Governmental Authority or any landowner) that could have a Material Adverse Effect.

     Section 6.10. Security Documents. The Borrower at its cost shall, and shall cause IL to, take all actions necessary to maintain each of the Security Documents in full force and effect and enforceable in accordance with its terms, including all (i) filings and recordations, (ii) payments of fees and other charges, (iii) issuance of supplemental documentation, including continuation statements, (iv) discharge of all claims or other Liens adversely affecting the rights of OPIC in the property subject to any Security Document (other than any Lien permitted under this Agreement or to which OPIC has otherwise consented), (v) publication or other delivery of notice to third parties, (vi) deposit of title documents, and (vii) taking all actions necessary to ensure that, except as otherwise provided in this Agreement, all after-acquired property of the Companies is subject to a valid and enforceable first-ranking Lien in favor of OPIC.

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     Section 6.11. Financial Ratios. The Borrower shall cause the Companies to, as of the last day of each fiscal quarter following the date of the first Disbursement, maintain a Tangible Net Worth Coverage Ratio equal to or less than 1.5 to 1. For purposes of this Section 6.11, the ratio and amounts referred to shall be calculated on the basis of information set forth in the Financial Statements or the Supplemental Financial Statements, as applicable.

     Section 6.12. Environmental Compliance. The Borrower shall, and shall cause IL to, comply with, and conduct its business, operations, assets, equipment, property, leaseholds, and other facilities in compliance with, the provisions of all applicable environmental, health and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder. The Borrower shall, and shall cause IL to, maintain all required permits, licenses, certificates and approvals relating to: (i) air emissions, (ii) discharges to surface water or ground water, (iii) noise emissions, (iv) solid or liquid waste disposal, (v) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes, or (vi) other environmental, health or safety matters. In addition to and not in limitation of the foregoing, the Borrower shall, and shall cause IL to perform the actions specified in Schedule 6.12.

     Section 6.13. O&M Agreement. The Companies shall enter into the O&M Agreement on or prior to the date that is twelve (12) months after to the date of the first Disbursement.

     Section 6.14. Third-party Consents. The Borrower shall, and shall cause IL to, use its best efforts to cause third parties under Product Sales Agreements to enter into “consent to assignment” agreements with the relevant Company, OPIC and the Account Bank granting OPIC and the Account Bank “step-in” rights upon foreclosure, requiring that payments by such third party be made directly to an account under OPIC’s or the Account Bank’s control free of deduction or set-off, and containing other provisions typical in such agreements. For the avoidance of doubt, it is understood that the entry by the parties thereto into the each of the Shell Consent Deeds at the time specified therefor in the definition of such Shell Consent Deed will constitute satisfaction of this covenant with respect to the third parties under Product Sales Agreements that are also Shell Contracts.

ARTICLE 7
Third-party Consents

     Unless OPIC otherwise agrees in writing, so long as the Commitment shall remain outstanding and until all amounts due and to become due hereunder and under the Notes shall have been paid in full, the Borrower covenants and agrees as follows:

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     Section 7.01. Liens. The Borrower shall not, and shall cause IL not to, create, assume or otherwise permit to exist any Lien on any of their properties or assets, whether now owned or hereafter acquired, or in any proceeds or income therefrom, except for:

     (a) the Liens created under the Security Documents or pursuant to any of the other Financing Documents;

     (b) Liens for Taxes or other statutory Liens that are being contested or litigated in good faith;

     (c) any mechanic’s, worker’s or other like Liens arising by mandatory provision of law securing obligations incurred in the ordinary course of business that are not yet overdue or that are being contested or litigated in good faith; and

     (d) Liens on crude oil inventory, product, collection accounts and receivables that secure Indebtedness permitted by Section 7.02(d).

     Section 7.02. Indebtedness. The Borrower shall not, and shall cause IL not to, incur, assume, guarantee, or permit to exist or otherwise become liable for Indebtedness except:

     (a) the Loan;

     (b) the Downstream Loans;

     (c) Indebtedness subordinated to the Loan pursuant to the terms of the Subordination Agreement;

     (d) Indebtedness on normal commercial terms consisting of trade credit from suppliers of goods including but not limited to crude oil, or from a working capital lender in connection with the financing of crude oil purchases by the Companies, or services incurred in the ordinary course of business and on terms requiring payment in full in not more than ninety (90) days; and

     (e) Indebtedness which, when incurred, will not cause the Companies to fail to meet the financial ratio set forth in Section 6.11.

     Section 7.03. No Alteration of Agreements. (a) The Borrower shall not, and shall cause IL not to, terminate, amend or grant any waiver of, or assign any of the respective duties or obligations under, any of its Charter Documents or any provision of any of the Financing Documents to which it is a party (other than amendments or waivers, either to correct manifest error or which are of a formal, minor, or technical nature and do not change materially any Person’s rights or obligations, provided that Borrower gives, or, if applicable, causes such Company to give, OPIC prompt notice of such amendment or waiver).

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     (b) The Borrower shall not, and shall cause IL not to, approve without OPIC’s consent any variation or change order under, or amend or grant any waiver of, any provision of, the Construction Contract, the effect of which, individually or in aggregate, could be to increase the cost of the Project above $250,000 or $2,000,000, respectively.

     Section 7.04. Dividends and Share Redemptions. The Borrower shall not, and shall cause IL not to, declare or pay any dividends or make any other distributions on any shares of any class of its capital stock (other than dividends payable solely in shares of its capital stock), or purchase, acquire, redeem or retire (directly or indirectly through any subsidiary of either Company) any of such shares until all amounts due or to become due hereunder or under the Notes shall have been paid in full; provided, however, that after the Borrower shall have repaid in full the first two (2) installments of the Loan in accordance with Section 2.05, the relevant Company may (subject to the mandatory prepayment provisions set forth in Section 2.07(b)) pay such dividends or redemptions, but only if, after giving effect to each such dividend or redemption: (i) no Default shall have occurred and be continuing; (ii) the Companies shall for the period of the four fiscal quarters immediately preceding such dividend or distribution and following the date of the first Disbursement (or prior to the completion of four full fiscal quarters following such date, for each period from such date to the last day of each full fiscal quarter following such date) have maintained a Debt Service Coverage Ratio equal to or greater than 1.35 to 1, (iii) the Companies shall as of the last day of each fiscal quarter in each such period have maintained a Tangible Net Worth Coverage Ratio equal to or less than 1.50 to 1 and (iv) all reserve accounts shall have been funded to the levels required under the Collateral Account Agreement; and provided further that nothing in this Section 7.04 shall be deemed to prevent payments by IL to the Borrower or OPIC, as applicable, in accordance with the Downstream Loan Documents or otherwise solely in order to allow the Borrower to make payments hereunder.

     Section 7.05. Conduct of Business with Sponsors. (a) The Borrower shall not, and shall cause IL not to, conduct any business with, or enter into any business transaction involving, the other Company, any Sponsor or an Affiliate of the other Company or any Sponsor, except on an arm’s length basis and subject to the reporting requirement set forth in Section 6.07(d).

     (b) Except for amounts permitted under Section 7.05, the Borrower shall not, and shall cause IL not to, pay, or incur or assume any obligation to pay, any amount to the Sponsors, including, without limitation, salaries, bonuses, commissions, management fees, consulting fees, technical assistance fees and debt service; provided, however, that the Companies may (subject to the mandatory prepayment provisions set forth in Section 2.07(b)) make such payments, but only if, after giving effect to each such payment: (i) no Default

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shall have occurred and be continuing; and (ii) the Companies shall be in compliance with the financial ratio set forth in Section 6.11.

     Section 7.06. Sale of Assets; Mergers. The Borrower shall not, and shall cause IL not to:

     (a) sell, assign, convey, lease or otherwise dispose of all or a substantial part of its assets or properties, whether now owned or hereafter acquired, except (i) for the replacement of a capital asset with an asset of equal or greater value, (ii) pursuant to the sale of refined product in the ordinary course of business or (iii) in connection with the disposal of physical assets constituting Contributed Equipment to the extent such assets are reasonably deemed unsuitable for refurbishment and re-use and are not required (in accordance with the terms of the Construction Contract) for the completion of the Project (and Schedule X shall be deemed amended to such extent);

     (b) dissolve, liquidate or otherwise cease to do business;

     (c) create any subsidiaries other than those referred to in Section 3.05 or as approved by OPIC in connection with purchases of crude oil from domestic producers under collateral security arrangements acceptable to OPIC;

     (d) acquire by purchase or otherwise any of the shares of capital stock or assets of another Person; or

     (e) merge or consolidate with any Person.

     Section 7.07. Lease Obligations. The Borrower shall not, and shall cause IL not to, enter into any agreement or arrangement to acquire by lease the use of any property or equipment of any kind, if the annual rental payable under such lease, when aggregated with the annual rentals payable under all other leases already entered into by such Company, would exceed $500,000 or its equivalent in any Fiscal Year.

     Section 7.08. Hedging Arrangements. The Borrower shall not, and shall cause IL not to, without OPIC’s consent, enter into any Hedging Arrangement, if as a result of such Hedging Arrangement such Company might incur or otherwise become liable for any Indebtedness, whether in respect of any cost of modifying the terms of such Hedging Arrangement or in respect of any cost of terminating such Hedging Arrangement.

     Section 7.09. Ordinary Conduct of Business. The Borrower shall not, and shall cause IL not to:

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     (a) engage in any business other than its present business activities, those related to the Project and other activities similar thereto or form or acquire any subsidiary;

     (b) materially change the nature or scope of the Project;

     (c) change its Charter Documents in a manner that would be inconsistent with the provisions of any of the Financing Documents;

     (d) change its name or take any other action that might adversely affect the Liens created by the Security Documents;

     (e) enter into any partnership, profit-sharing or royalty agreement or other similar arrangement whereby such Company’s income or profits are, or might be, shared with any other Person;

     (f) except for investments by the Borrower in IL, purchase any equity securities of, make or permit to exist any loans or advances to, invest or acquire any interest whatsoever in, or assume, guarantee, endorse or otherwise become directly or contingently liable for any obligation or Indebtedness of, any Person, other than the endorsement of negotiable instruments for collection in the ordinary course of business and the prudent investment of idle surplus funds in readily marketable Dollar-denominated or LC-denominated debt securities; provided that such investment of idle surplus funds in Local Currency may be made or continue to be held only to the extent that such Local Currency cannot, under the laws of Papua New Guinea, be converted to Dollars;

     (g) fail to maintain its corporate existence and its right to carry on its operations;

     (h) enter into any Product Sales Agreement or Feedstock Supply Agreement without OPIC’s consent; or

     (i) enter into any contract of a type specified in Section 3.16 without OPIC’s consent and determination that such contract is satisfactory to OPIC in form and substance.

     Section 7.10. Worker Rights. The Borrower shall not, and shall cause IL not to, take any action to prevent its employees from lawfully exercising their right of association and their right to organize and bargain collectively and shall observe applicable laws relating to a minimum age for employment of children, acceptable conditions of work with respect to minimum wages, hours of work and occupational health and safety, and not to use forced labor. In addition, the Borrower agrees, and shall cause IL to agree that (i) no person under the age of fourteen (14) years shall be employed by such Company and that no person under the age of sixteen (16) years shall be employed by such Company in the

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performance of any hazardous activity and (ii) every person employed by such Company shall have the right to remove himself or herself from dangerous work situations without jeopardizing his or her continued employment in connection with the Project. The Borrower shall, and shall cause each Company to, require each of its Project contractors performing engineering, procurement or construction services, or providing operating or maintenance services, for the Project, to comply with the foregoing undertakings (the “Worker Rights Requirements”) with respect to employees of such Project contractors, and to employees of their respective subcontractors, performing work under contracts between such Company and the Project contractor (“Project Contracts”) in Papua New Guinea. The Borrower shall, and shall cause IL to, use commercially reasonable efforts to monitor the compliance of contractors and subcontractors with the Worker Rights Requirements. In the event information concerning non-compliance or potential non-compliance with the Worker Rights Requirements with respect to employees of either Company or under any Project Contract comes to the attention of a responsible officer of either Company, the Borrower shall, or, if applicable, shall cause such Company to, give prompt notice thereof to OPIC and shall investigate the circumstances of such non-compliance or potential non-compliance. In the event of non-compliance, the Borrower shall, or, if applicable, shall cause the relevant Company to (i) cure such non-compliance or use its best efforts to cause the relevant Project contractor to cure, or to cause its subcontractor to cure, such non-compliance, in either case to the satisfaction of OPIC, and (ii) terminate such Project contractor’s Project Contract, or cause such Project contractor to terminate the relevant subcontract, unless such non-compliance is cured to the satisfaction of OPIC within ninety (90) days after such notice, or notice from OPIC to such Company, whichever first occurs. Notwithstanding the foregoing, none of the Companies or any of their Project contractors shall be responsible for non-compliance with the Worker Rights Requirements resulting from actions of a government.

ARTICLE 8
Defaults And Remedies

     Section 8.01. Events of Default. The occurrence and continuation of any of the following events or circumstances shall constitute an “Event of Default” hereunder:

     (a) The Borrower fails to pay when due any principal or interest payable pursuant to any Note or any other amount payable pursuant to this Agreement;

     (b) Either Company fails to pay when due any principal of or interest on any of its Indebtedness other than the Loan, and such failure continues beyond the grace period, if any, applicable thereto; or a default occurs under any agreement or instrument evidencing, or under which such Company has outstanding at the

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time, any such Indebtedness and such default continues beyond the grace period, if any, applicable thereto, if the effect of such default is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness;

     (c) Any representation or warranty made by or on behalf of either Company in this Agreement, or in any notice or other certificate, document, Financial Statement or other statement delivered pursuant hereto, proves to have been incorrect in any material respect when made;

     (d) The Borrower fails to comply with any covenant or provision set forth in Section 6.09 or Article 7 or the Sponsors fail to perform their obligations under the Sponsor Support Agreement;

     (e) The Borrower fails to comply with or perform any agreement or covenant contained herein other than those referred to in Sections 8.01(a), (b), (c) and (d) above, and such failure continues for thirty (30) days after the occurrence thereof;

     (f) Any authorization, consent or approval of any governmental agency or public authority necessary for the execution, delivery or performance of this Agreement, the Notes, or any of the other Financing Documents or for the validity or enforceability of any of the Borrower’s obligations under this Agreement, the Notes or any of the other Financing Documents, is not effected or given or is withdrawn or ceases to remain in full force and effect;

     (g) This Agreement, the Notes, or any of the other Financing Documents at any time for any reason ceases to be in full force and effect (other than as a result of a termination of such Financing Document in accordance with its stated term), or is declared by a court of competent jurisdiction to be void or is repudiated, or the validity or enforceability hereof or thereof is at any time contested by either Company or any other party thereto (other than OPIC), or is terminable in connection with the bankruptcy or insolvency of any party thereto (other than OPIC) (and the Borrower has been unable to cure such deficiency to OPIC’s satisfaction within sixty (60) days or such longer period as may have been agreed with OPIC) or, in the case of the Security Documents, ceases to give or provide the respective Liens, rights, titles, remedies, powers, or privileges intended to be created thereby;

     (h) Any Governmental Authority condemns, nationalizes, seizes or otherwise expropriates any substantial portion of the assets or the capital stock of either Company or takes any action that would prevent such Company from carrying on any material part of its business or operations;

     (i) Either Company or any other party fails to comply with or perform any of its material obligations or undertakings set forth in any Financing

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Document (other than this Agreement and the Sponsor Support Agreement) and such failure continues for thirty (30) days after the occurrence thereof;

     (j) Either Company or, prior to Project Completion, any Sponsor (or any successor in interest thereto), (i) applies for, or consents to the appointment of, a receiver, trustee, custodian, intervener or liquidator of itself or of all or a substantial part of its assets, (ii) files a voluntary petition in bankruptcy, admits in writing that it is unable to pay its debts as they become due or generally fails to pay its debts as they become due, (iii) makes a general assignment for the benefit of creditors, (iv) files a petition or answer seeking reorganization or arrangement with creditors or to take advantage of any bankruptcy or insolvency laws, (v) files an answer admitting the material allegations of, or consents to, or defaults in answering, a petition filed against it in any bankruptcy, reorganization or insolvency proceeding where such action or failure to act will result in a determination of bankruptcy or insolvency against it;

     (k) Without its application, approval or consent, a proceeding is instituted in any court of competent jurisdiction or by or before any government or governmental agency of competent jurisdiction, seeking in respect of either Company or, prior to Project Completion, any Sponsor (or any successor in interest thereto): adjudication in bankruptcy, reorganization, dissolution, winding up, liquidation, a composition or arrangement with creditors, a readjustment of Indebtedness, the appointment of a trustee, receiver, liquidator or the like of it or of all or any substantial part of its property or assets, or other like relief in respect of it under any bankruptcy, reorganization or insolvency law; and, if such proceeding is being contested by it in good faith, the same continues undismissed for a period of 60 days;

     (l) Any final judgment or judgments for the payment of money in an aggregate amount in excess of $100,000 or its equivalent in another currency is rendered against either Company, and such judgment or judgments is not satisfied or discharged or stayed or bonded pending appeal for any period of 60 consecutive days;

     (m) Phil Mulacek (or, in the event of his death, disability or incapacity, another person acceptable to OPIC) ceases to retain Control of PC, or PC ceases to be the general manager of either Sponsor;

     (n) Any environmental claim shall have been asserted against either Company or any other party to the Financing Documents, and such claim could have a Material Adverse Effect;

     (o) Any event shall have occurred that, in the reasonable judgment of OPIC, could have a Material Adverse Effect;

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     (p) Any acts of war (whether declared or undeclared), revolution, insurrection, civil war, strife of a lesser degree, terrorism or sabotage occur that cause the destruction, disappearance or physical damage of a substantial portion of the assets of either Company or prevent such Company from carrying on any material part of its business or operations;

     (q) The occurrence and continuation of any event of default under any of the Downstream Loan Documents; or

     (r) Less than twenty-five percent (25%) of the issued share capital of InterOil shall be beneficially owned by U.S. Persons.

     Section 8.02. Remedies upon Event of Default. (a) Except as otherwise provided in Section 8.02(b), if any Event of Default has occurred and is continuing, OPIC may at any time do any one or more of the following: (i) suspend or terminate the Commitment, (ii) declare, by written demand for payment to the Borrower, any portion or all of the Loan to be due and payable, whereupon such portion of the Loan, together with interest accrued thereon and all other amounts due under this Agreement, the Notes, and the other Financing Documents, shall immediately mature and become due and payable, without any other presentment, demand, diligence, protest, notice of acceleration, or other notice of any kind, all of which the Borrower hereby expressly waives, or (iii) without notice of default or demand, proceed to protect and enforce its rights and remedies by appropriate proceedings, whether for damages or the specific performance of any provision of this Agreement, any Note, or any other Financing Document, or in aid of the exercise of any power granted in this Agreement, any Note, any other Financing Document, or by law, or may proceed to enforce the payment of any Note.

     (a) Upon the occurrence of an Event of Default referred to in Sections 8.01(j) or (k), (i) the Commitment shall automatically be terminated, and (ii) the Loan, together with interest accrued thereon and all other amounts due under this Agreement, the Notes, and the other Financing Documents, shall immediately mature and become due and payable, without any other presentment, demand, diligence, protest, notice of acceleration, or other notice of any kind, all of which the Borrower hereby expressly waives.

     Section 8.03. Jurisdiction and Consent to Suit. (a) Without prejudice to OPIC’s right to bring suit in any appropriate domestic or foreign jurisdiction, any proceeding to enforce this Agreement, any Note, or any other Financing Document to which the Borrower is a party (unless otherwise specified) may be brought by OPIC in any state or federal court of competent jurisdiction in the District of Columbia or the State of New York of the United States of America or in any other jurisdiction where the Borrower or any of its property may be found. The Borrower hereby irrevocably waives any present or future objection to any

49

such venue, and irrevocably consents and submits unconditionally to the non-exclusive jurisdiction for itself and in respect of any of its property of any such court. The Borrower further agrees that final judgment against it in any such action or proceeding arising out of or relating to this Agreement shall, to the fullest extent permitted by law, be conclusive and may be enforced in any other jurisdiction within or outside the United States of America by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of its obligation.

     (b) Prior to the first Closing Date, the Borrower shall irrevocably designate and appoint agents satisfactory to OPIC for service of process in the District of Columbia and the State of New York as its authorized agent to receive, accept, and forward on its behalf service of process in any such proceeding, and shall provide OPIC with evidence of the prepayment in full of the fees of such agents. The Borrower agrees that service of process, writ, judgment, or other notice of legal process upon said agents shall be deemed and held in every respect to be effective personal service upon it. The Borrower shall maintain such appointment (or that of a successor satisfactory to OPIC) continuously in effect at all times while the Borrower is obligated under this Agreement or any Note. Nothing herein shall affect OPIC’s right to serve process in any other manner permitted by applicable law.

     Section 8.04. Judgment. This is an international loan transaction in which the specification of Dollars is of the essence, and such currency shall be the currency of account in all events. The payment obligation of the Borrower hereunder and under the Notes shall not be discharged by an amount paid in another currency, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on prompt conversion to Dollars in the United States of America under normal banking procedures does not yield the amount of Dollars then due. In the event that any payment by the Borrower, whether pursuant to a judgment or otherwise, upon conversion and transfer, does not result in the payment of such amount of Dollars at the place such amount is due, OPIC shall be entitled to demand immediate payment of, and shall have a separate cause of action against the Borrower for, the additional amount necessary to yield the amount of Dollars then due. In the event OPIC, upon the conversion of such judgment into Dollars, shall receive (as a result of currency exchange rate fluctuations) an amount greater than that to which it was entitled, the Borrower shall be entitled to immediate reimbursement of the excess amount.

     Section 8.05. Immunity. The Borrower represents and warrants that it is subject to civil and commercial law with respect to its obligations under this Agreement, the Notes, and each of the other Financing Documents to which it is a party, that the making and performance of this Agreement, the Notes, and such other Financing Documents and the borrowings by the Borrower pursuant hereto constitute private and commercial acts rather than governmental or public acts

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and that neither the Borrower nor any of its properties or revenues has any right of immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, set-off, execution of a judgment or from any other legal process with respect to its obligations under this Agreement, the Notes, and such other Financing Documents. To the extent that the Borrower may hereafter be entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement, any Note or any other Financing Document to which it is a party, to claim for itself or its revenues or assets any such immunity, and to the extent that in any such jurisdiction there may be attributed to the Borrower such an immunity (whether or not claimed), the Borrower hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity. The foregoing waiver of immunity shall have effect under the United States Foreign Sovereign Immunities Act of 1976.

ARTICLE 9
Miscellaneous

     Section 9.01. Notices. Each notice, demand, report, or other communication relating to this Agreement shall be in writing, shall be hand-delivered or sent by mail (postage prepaid), telegram or facsimile transmission (with a copy by mail to follow, receipt of which copy shall not be required to effect notice), and shall be deemed duly given when sent to the following addresses, or to such other address or number as each party shall have last specified by notice to the other parties:

To the Borrower:

E.P. InterOil, Ltd.
25025 I 45N, Suite 420
The Woodlands, TX 77380

(Facsimile: 281-292-0888)

To OPIC:

Overseas Private Investment Corporation
1100 New York Avenue, N.W.
Washington, D.C. 20527
United States of America
(Attn: Vice President, Finance)

Re: InterOil Refining Project (Papua New Guinea)

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(Facsimile: 1-202-408-9866)

Either party may, by written notice to the other, change the address to which such communications should be sent to it.

     Section 9.02. English Language. All documents to be furnished or communications to be given or made under this Agreement, the Notes, and each of the other Financing Documents to which the Borrower is a party shall be in the English language or, if in another language, shall be accompanied by a translation into English certified by an Authorized Officer of the Borrower, which translation shall be the governing version between the Borrower and OPIC.

     Section 9.03. Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD TO ITS CONFLICT OF LAW RULES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

     Section 9.04. Succession. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties hereto, provided that the Borrower shall not, without the prior written consent of OPIC, assign or delegate all or any part of its interest herein or obligations hereunder.

     Section 9.05. Survival of Agreements. Each agreement, representation, warranty and covenant contained or referred to in this Agreement shall survive any investigation at any time made by OPIC and shall survive the Disbursement of the Loan, except for changes permitted hereby, and, save as otherwise provided in Sections 2.11 and 9.10, shall terminate only when all amounts due or to become due under this Agreement and the Notes are paid in full.

     Section 9.06. Integration; Amendments. This Agreement embodies the entire understanding of the parties hereto and supersedes all prior negotiations, understandings and agreements between them with respect to the subject matter hereof. The provisions of this Agreement may be waived, supplemented or amended only by an instrument in writing signed by Authorized Officers of the Borrower and OPIC.

     Section 9.07. Severability. If any provision of this Agreement is prohibited or held to be invalid, illegal or unenforceable in any jurisdiction, the parties hereto agree to the fullest extent permitted by law that (i) the validity, legality and enforceability of the other provisions in such jurisdiction shall not be affected or impaired thereby, and (ii) any such prohibition, invalidity, illegality or unenforceability shall not render such provision prohibited, invalid, illegal, or unenforceable in any other jurisdiction. If, and to the extent that, the obligations

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of any party under Section 9.10 are unenforceable for any reason, such party agrees to make the maximum contribution to the payment and satisfaction thereof as is permissible under applicable law.

     Section 9.08. No Waiver. (a) No failure or delay by OPIC in exercising any right, power or remedy shall operate as a waiver thereof or otherwise impair any of its rights, powers or remedies. No single or partial exercise of any such right shall preclude any other or further exercise thereof or the exercise of any other legal right. No waiver of any such right shall be effective unless given in writing.

     (a) The rights, powers, and remedies provided for herein are cumulative and are not exclusive of any other rights, powers, or remedies provided by law. The assertion or employment of any right, power, or remedy hereunder, or otherwise, shall not prevent the concurrent assertion of any other appropriate right, power, or remedy.

     Section 9.09. Waiver of Jury Trial. THE BORROWER AND OPIC EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM ESTABLISHED BY THIS AGREEMENT, THE NOTES, ANY OTHER FINANCING DOCUMENT AND ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT ENTERED INTO IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     Section 9.10. Waiver of Litigation Payments. In the event that any action or lawsuit is initiated by or on behalf of OPIC in Papua New Guinea or elsewhere against the Borrower or any other party to any Financing Document, the Borrower, to the fullest extent permissible under applicable law, irrevocably waives its right to, and agrees not to request, plead, or claim that OPIC and its successors, transfers, and assigns (any such Person, an “OPIC Plaintiff”) post, pay, or offer, any caution judicatum bond, litigation bond, or any other bond, fee, payment, or security measure provided for by any provision of law applicable to such action or lawsuit (any such bond, fee, payment, or measure, a “Litigation Payment”), and the Borrower further waives any objection that it may now or hereafter have to an OPIC Plaintiff’s claim that such OPIC Plaintiff should be exempt or immune from posting, paying, making or offering any such Litigation Payment.

     Section 9.11. Indemnity. The Borrower shall indemnify and hold harmless (collectively, the “Indemnity”) OPIC and each of OPIC’s directors, officers, employees, personal services contractors, and agents (but, as to each such agent, only and to the extent that OPIC asserts a claim hereunder) (each an “Indemnified Person”) in connection with any losses, claims, damages, liabilities,

53

penalties, or other expenses arising out of or relating to, this Agreement, the Commitment Letter, the Financing Documents, the provision of this Agreement and the Loan, the use or intended use of the Loan and the Project, and the use, management, and operation thereof, (including, the cost of defending against such claim) which an Indemnified Person may incur or to which an Indemnified Person may become subject (each a “Loss”). The Indemnity shall not apply to the extent that a court or arbitral tribunal with jurisdiction over the subject matter of the Loss and over OPIC and each other Indemnified Person who has a Loss in connection therewith and at which OPIC and such other Indemnified Person had an adequate opportunity to defend its interests determines that such Loss resulted from (i) the gross negligence or willful misconduct of the Indemnified Person or (ii) OPIC’s failure to perform any act required of it hereunder or under any agreement between OPIC and the Borrower relating to the Project or the financing or guaranty contemplated hereunder. The Indemnity (i) shall survive the disbursement and repayment of the Loan and the provision of any subsequent or additional indemnity by any Person unless explicitly terminated by OPIC in writing and (ii) is independent of and in addition to any other agreement of the Borrower or any other Company to pay any amount to OPIC. Any exclusion of an obligation to pay any amount under this paragraph shall not affect the requirement to pay such amount under any other section hereof or under any other agreement. The requirement in this Section that costs of defense be borne by the Borrower shall not vest in the Borrower the right or power to control the defense of any Indemnified Person. The Borrower shall not assert any claim against any Indemnified Person or any agent of OPIC for special, indirect, consequential, or punitive damages relating to this Indemnity, the Loan or the Project.

     Section 9.12. No Third Party Reliance; No Assignment. The Borrower may not assign this Agreement or any rights hereunder to any Person or entity. This Agreement is for the sole benefit of the Borrower and OPIC, and no other Person (other than the Indemnified Persons) shall be a direct or indirect beneficiary of, be entitled to rely hereon, or have any direct or indirect cause of action or claim in connection with this Agreement or any of the other Financing Documents.

     Section 9.13. Further Assurances. From time to time, the Borrower shall, and shall cause each IL to, execute and deliver to OPIC such additional documents as OPIC may require to carry out the purposes of this Agreement or the Financing Documents or to preserve and protect OPIC’s rights as contemplated herein or therein.

     Section 9.14. Counterparts. This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed an original and all of which together shall constitute one and the same instrument.

54

     IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed and delivered on its behalf by its Authorized Officer as of the date first above written.

E.P. INTEROIL, LTD.
By:	/s/ Phil E. Mulacek
Its: Authorized Director
OVERSEAS PRIVATE INVESTMENT CORPORATION
By:	/s/ James C. Polan
Its: Manager, Project Finance

55

Schedule X

Contributed Equipment

DESCRIPTION OF REFINERY ASSETS

1.	Main Crude Processing Unit (Two Modules)
2.	Crude heaters
3.	Boiler
4.	Gasoline Stripper Column (C102)
5.	Diesel Furnace Oil Stripper (C104)
6.	Crude Column (C101)
7.	CATF Base Stripper Column (C103)
8.	Turbine Fuel Stripper
9.	Desalter
10.	LSR Separation Unit
11.	Boiler Feed Pumps
12.	Heat Exchangers and Asphalt Heaters
13.	Stabilizers (C105)
14.	Compressor
15.	Diesel Furnace
16.	Product Loading Manifolds
17.	Air Coolers
18.	Reboilers
19.	Clay Treater
20.	Main Furnaces
21.	All Plans, Drawings, and Records

Module and Furnaces

The main module contains all of the pumps, heat exchangers, fin-fan coolers and separator vessels.

Two crude heater furnaces have carbon steel tubes which may be operated at a maximum temperature of 900° F. The reboiler furnace also contains carbon steel tubes. Fuel gas produced in the Refinery is burned in the furnaces.

Five Major Columns

1. Atmospheric column: 120” diameter. Carbon steel with 40 sieve type trays

SX-1

2. Heavy Straight Run Gasoline Stripper: 36” diameter, 34’ tangent to tangent, 8 sieve type trays

3. Chevron Aircraft Turbine Fuel Base Stripper: 48” inside diameter, 29’ tangent to tangent, 8 sieve type trays

4. Diesel Furnace Oil Stripper: 66” diameter at bottom head, 48” diameter top head, 31’ total tangent to tangent, 8 sieve type trays

5. Gasoline Stabilizer Column: 54” bottom head, 30” top head, 74’ total tangent to tangent, 30 sieve type trays.

MAJOR EQUIPMENT ITEMS

C-101	Crude Column: 120” ID x 95’ — 6” T-T (113’ — 11” OAL), 56 psig design @ 655°F Steel — SA285C FBQ with 9’ of stainless cladding type T405 in flash zone between tray No. 5&6; weight: 147,000 lbs. Built 1962 by American Pipe and Construction Co., Portland, Oregon. SN12353, NB#6759, ASME Code stamped “U” & “W”, Partial x-rayed, partial stress relieved, corrosion allowances: 0.1, 1/8, 3/16”.
F-101A&B	Crude Charge Heaters (2): 30.4 MM BTU/hr. each, 22 tubes are steel A-161, 26 tubes are 5% Chrome steel, A-200 T5, Petrochem Isoflow SN-62F166-1A&1B, vertical cylindrical, -13’ OD x -30’ straight side w/convection section on top, 4-1/2 OD tubes x .275” wall.
V-101	Desalter: 12’ dia x 13’ t-t Horizontal, 240 psi @ 400°F, Petreco Cylectric Desalter w/(2) grids, upper & lower, (4) rectifiers, rating 100 KVA, 460v. Built by Mosher in 1962, stress relieved, weight:
	48,800 lbs.
	NOTE: Manway open, looks good inside.
BOILER	Boiler, Packaged: 50,000#/hr., 275 psig approx. 10’-6” Wx11”-7” Hx27’-4” Lg. Fuel: Turbine Oil and/or Pitch-18,500 BTU/lb., 30.0 API. Built by Erie City Iron Works; Type: Keystone, Model SP#15-300 #, water tube package Keystone boiler tubes: 2”x.105”wall, SA 178A; steam outlet is 6”-300#; One burner: steam atomizing Model SAO-24; (4) Soot blowers, 100’ high stack on side. Forced draft fan driven by Terry steam turbine #600 BCH.

COLUMNS

C-101 Crude Column: 120”ID x 95’-6”T-T (113’-11” OAL), 56 psig

SX-2

	** See Major Equipment Listing for details**
C-102	Hv SR Gaso Stripper, 36” ID x 34’-2” t-t, design: 62 psig @ 650°F with 18 trays, SN 12354, 12,400 lbs., 46’-6” OAL
C-103	CATF Base Stripper, 48”ID x 29’-2” t-t, (40’-10” OAL), 62 psig @ 650°F with 8 trays, SN 12355, 12,000 lbs.
C-104	Diesel Furnace Oil Stripper, 60” ID Bottom & 48” ID Top x 31’ — 9” t-t (45’-3” OAL) 14,100 lbs., SN 12356, 8 trays in top section.
C-105	Stabilizer, 54”ID Bottom with 15 trays & 30” ID Top with 15 trays 74’ — 3” T-T (84’-11” OAL) 32,600 lbs., SN 12357, 187 psig @ 450°F.
C-106	Turbine Fuel Stripper, 30” ID x 14’-4” t-t (25’-7” OAL) with 4 Sieve Trays, 62 psig @ 650°F, SN 12375, 3600 lbs.
Note:	All columns are built by American Pipe & Construction Co., Portland, Oregon 1962. All are code stamped with NB Numbers, all rated 7.5 psi external also.

PUMPS

P-101&A	Crude Charge Pumps (2): 715 gpm @ 757’ United J4 x 15CTC (6’ end suction x 4” top discharge) SN 88044,5
	P-101A Driven by Terry Type Z-4 Turbine, 185HP, 220 psi inlet/50 psi exhaust
	P-101 Driven by 250 HP, 3550 RPM, TEFC motor.
P-102&A	Crude Booster Pumps (2): 770 gpm @ 547’, United J4x15 CTC, SN 88046,7 1962.
	P-102A Driven by Terry Turbine 130 HP, 3550 RPM, Type E, SN 32188, 220 psig inlet, 50 psig max. exhaust.
	P-101Driven by 150 HP, TEFC Motor.
P-103&A	Water Service (2): 35 gpm @ 560’, United C-1-1/2 x 13 STC, SN88048,9 with 40 HP motors, 1962.
P-104&A	Crude Col Reflux (2): 760 gpm @ 258’, United W-4 x 9 STC, SN 88050,1 1962.
P-104	Driven by Westinghouse 50 HP Motor, 3550 RPM, TEFC, 208-220/4400
P-104A	Driven by Terry Steam Turbine approx. 50 HP

SX-3

	P-105 Water Draw Spare: 35 gpm @ 725’, United C-1-1/4 x 13 STC, SN 88049, 4/9/62, with 60 HP motor, 3550 RPM, TEFC P-105A Stabilizer Feed: 132 gpm @ 725’, United N-1-1/4 x 13 STC, SN 88052, 4/9/62. With Terry Turbine approximately 60 HP.
P-106	Heavy SR Gasoline: 170 gpm @ 204’, United FX-2x9 TC, SN 88054, Steel Case, Cast Iron Impeller, 4” suction, 2” discharge with 10 HP motor, TEFC
P-107&A	CAT Stripper Bottoms (2): 193 gpm @ 232 United H-3x9 TC SN 88055, both driven by 15 HP motors, TEFC.
P-108&A	Diesel Furnace Stripper Bottoms (2): 495 gpm @ 410’, United M- 3x13 TC SN 88057
	P-108 Driven by 50 HP motor, TEFC
	P-108A Driven by Terry Type Z Turbine SN 32511, 55 HP, 3550 RPM, Max Inlet: 220 psig, Max Exhaust: 50 psig.
P-109	Crude Column Bottoms: 450 gpm @ 208’, United A-4x9 TC, SN 88059, 4/9/62, with 30 HP motor TEFC.
P-110&A	Stabilizer Reflux (2): 95 gpm @ 262’, United CX-2x9L STC, SN 88060, 4/9/62, both with 10 HP Westinghouse motors, TEFC.
P-114	No 4 Cut: 50 gpm @ 191’, United BX- 1-1/4 x 9L-TC, SN 88749. 6/27/62 with 7-1/2 HP motor, TEFC, 3550 RPM.
P-121	CATF Booster: 175 gpm @ 505’, United 1-1/2 TCB with 40 HP motor TEFC.
P-122	CATF Blend Transfer: 30 gpm @ 280’, United BX 1-1/2 x9 L-TC, with 10 HP Motor, TEFC.
P-204&A	Boiler Feed Water (2): 130 gpm @ 653’, United F-2x12 LTCM 2 Stg, SN 88599, 88600.
	P204 with 60 HP Westinghouse motor, TEFC
	P204A with 50 HP Terry Type Z steam turbine, SN 32542, 240 psig max inlet, 50 psig max exhaust.

EXCHANGERS

E-101 Crude Exchanger: 1782 sq. ft. Steel Shell: 150 psi @ 500°F Steel Tubes: 300 psi @ 650°F Type AES, built May 1962 by

SX-4

	Western Supply, Tulsa, OK. 28”OD x 20’ Long Tubes, (454) Tubes - 2/4”, 14 gage, 20’ long SA 214 Steel Stamped “U” & “W”.
E-101A	(Previously E9 @ Richmond)
	Crude Exchanger: approx. 1,200 ft. steel shell: 150 psi @ 550°F/Steel Tubes: 450 psi @ 350°F Type AES, built 12/3/57, Job #2045, SN 4335, HSB# 14325, NB#782, “U” & “W” stamped, SR, CH-FDC, Spot XR., 20”OD.
E-103	Resid/Crude: 2714 sq. ft., Steel Shell: 150 psi @ 650°F Type AES Western 1962, “U” stamped, 1 pass Shell/4 pass tubes, (692) Tubes 3/4”. 14 gage, 20’ Long SA 214. 19,800 lbs.
E-104	Brown Fin Tube (4) sections, 20.9 sq. ft. each Steel Shell: 275 psi @ 650°F/Steel Tubes: 500 psi @ 300°F NB#6886, “U” & “API” stamped, 1962.
E-105	Diesel Furnace Oil/Crude: 885 sq. ft., Steel 1 pass Shell: 150 psig @ 500°F Steel 2 pass tubes: 425 psig @ 650°F with (226) tubes 3/4” 14 gage 20’ SA 214 Type AES, Built May 1962 by Western, ASME “U” Stamped.
E-106	CATF/Crude: 885 sq. ft. same as E-105, E-105&6 stacked.
E-107&A	Resid/Crude (2) (stacked): 1550 sq. ft. each, Steel one pass shell 150 psi @ 650°F/Steel 2 pass tubes (396) 3/4” 11 gage 20’ SA214, 13,300 lbs. Type AES. 26” ODx20’ Built May 1962 by Western, “U” stamped.
	E-108 Air Cooler, ATM Column O.H. Condenser: 3557 sq. ft. bare, 58,262 sq. ft. extended, 57 psig @ 650°F, 26.5 MM BTU/HR, one pass, one cell, 3 coils, (2) 25 HP fans/cell, 22’-2” w x 30’ L x 12’H, YUBA 1YTF-430-212 (154) 1” x 12 gage steel tubes with aluminum fins
E-109	Air Cooler, ATM Column OH Condenser, 3,003 sq. ft. bare, 49,182 sq. ft. extended, 13.3 MM BTU/Hr., otherwise same as E-108.
E-110	Heavy SR gasoline Stripper Reboiler: 266 sq. ft. Vertical. Steel one pass shell: 160 psig @ 650°F/ steel one pass tubes: 64 psig @ 650°F with (178) tubes 3/4” OD 14 gage x 96”

SX-5

E-111	CATF Base Stripper Reboiler: 833 sq. ft. Vertical Steel one pass shell: 160 psig @ 650°F/steel one pass tubes: 64 psig @ 650°F AES, 29” x 8’, Western, 1962
E-112	Air Cooler, Hvy SR Prod Cooler, 877 sq. ft. bare, 14,376 sq. ft. extended 60 psig @ 375°F, 16’-7” w x 30’L x 12’H, with 1” 12 gage steel tubes, Alum fins one cell /2 fans per cell 20 HP each. YUBA 1YTF 330-212
E-113	Air Cooler, CATF Base Product Cooler. 970 sq. ft. bare, 15,890 sq. ft. extended 120 psig @ 650°F with 1” 12 gage steel tubes, Alum Fins, YUBA YTF 330-212
E-114	Air Cooler, Diesel Furnace Oil Prod Cooler, 785 sq. ft. bare, 12,863 sq. ft. extended 158 psig @ 473°F with (102) 1” 12 gage steel tubes with Alum Fins, YUBA 1YTF 230-210
E-115	Stabilizer Feed Bottoms: 314 sq. ft. AES, 12” x 20’. Western 1962. 3,300 lbs. Steel one pass shell: 270 psig @ 650°F.
E-116	Air Cooler, Stabilizer O.H. Condenser: 877 sq. ft. bare, 14,376 sq. ft. extended 185 psig @ 375°F. One section, 2 fans/cell YUBA YTF 230-210, 1” 12 gage steel tubes, alum fins.
E-117	Stabilizer Reboiler: 785 sq. ft. Vertical, 25” x 10’, Western, AES, 8,000 lbs., Steel one pass Shell: 275 psig @ 650°F/Steel one pass tubes: 190 psig @ 650°F.
E-118	Air Cooler. LT SR Product Cooler, 600 sq. ft. bare, 9,836 sq. ft. extended 178 psig @ 406°F, 1” 12 gage tubes, Alum fins, YUBA YTF 330-212.
E-119	Air Cooler, Turbine Fuel Cooler, 433 sq. ft. bare, 7106 sq. ft. extended 150 psig @ 650°F, 1 fan, 1 cell with 1” 12 gage steel tubes. Alum fins YUBA YGF-810-107
E-120	G-Fin, Glycol cooler, 140.6 sq. ft. Steel Shell: 500 psig @ 650°F/Steel Tubes: 500 psig @ 650°F Brown Type 117-000-720

VESSELS

V-102 Crude O.H. Reflux 84” ID x 20’ t-t, Horizontal, 61 psig @ 650°F, Steel, 14,000 lbs.

SX-6

V-103	Separator 72” ID x 20’ t-t, Horizontal, 60 psig @ 650°F Steel, 12,000 lbs.
V-104	Stabilizer Reflux 36” ID x 8’ t-t, Horizontal 200 psig @ 450°F, Steel 2,700 lbs.
V-115	Clay Treater 66” ID x 16’ t-t, Vertical 306 psig @ 450°F, Steel, 15,608 lbs.

COMPRESSOR

K-101 Crude Column Overhead Gas, Chicago Pneumatic 7x9 TB, SN 70639, 117 SCFM, P1 = 25.7 psig, P2 = 177.2 psig, 317 RPM max. with 25 HP motor, TEFC.

DELIVERY

F-102 Diesel Stripper Reboiler, Petrochem, vertical, cylindrical. 3.15 MM BTU/HR, 64 psi @ 609°F Inlet, (15) Tubes: 4.5” OD, .337” Wall, A-161 Steel.

MISCELLANEOUS ITEMS

One Lot B Structured Steel, Platforms, Ladders, Manual Valves and Piping Spools.

SX-7

DESCRIPTION OF RECONDITIONED GAS TURBINE GENERATORS

The two reconditioned gas turbine generator set include the following equipment:

Pfsparrow(1)

Two reconditioned Nuovo-Pignone PGT-5B Gas Turbines

Support Frames

Starting System including a Deutz Type F61-912 diesel engine and battery compartment.

Instrumentation

Lubrication Systems

Gas Fuel Systems

Liquid Fuel Systems

Acoustic Enclosures

Combustion Air Inlet Systems

Exhaust Systems with Silencers and Stacks

Mail Load Gears

Two 50 Hz Generators and Excitation Systems

Control Systems

Miscellaneous Items including a Compressor Washing Trolley, manuals, anchor bolts, interconnecting pipping, etc.

SX-8

DESCRIPTION OF REFORMER ASSETS:

3.0	HDS UNIT
3.1	Charge Pump, Heater & Reactor P & ID
	E-1251, 1252, 1253, 1254
	HDS FEED / EFFLUENT EXCHANGER (used surplus)
	P-1151 A, B
	HDS CHARGE PUMP
	3 x Flow Control Valves
	H-1451
	HDS CHARGE HEATER
	2 x Flow Control Valves
	1 x Pressure Control Valve
	R-1351
	HDS REACTOR (Refractory Lined)
	1 x Flow Control Valve
3.2	HDS Stripper and Side Stripper P & ID
	C-1353
	STRIPPER COLUMN (used surplus)
	1 x Flow Control Valve
	E-1264
	STRIPPER REBOILER (used surplus)
	1 x Temperature Control Valve
	C-1355
	SIDE STRIPPER COLUMN
	1 x Flow Control Valve
	E-1269
	SIDE STRIPPER REBOILER
	3.0 MM BTU / HR
	1 x Temperature Control Valve
3.3	HDS Reactor Effluent / Stripper Feed Exchange Systems P & ID

SX-9

	E-1255
	EFFLUENT CONDENSER
	E-1256, E-1257
	EFFLUENT TRIM COOLERS
	V-1352
	REACTOR SEPARATOR (Used Surplus)
	1 x Pressure Control Valve
	2 x Level Control Valve
	E-1258, E-1259
	STRIPPER FEED BOTTOMS EXCHANGERS
	1 x Flow Control Valve (to Naphtha Distillation)
	E-1272
	STRIPPER BOTTOMS COOLER (Existing)
	1 x Flow Control Valve
3.4	HDS Stripper Overhead and Side Stripper Exchange System P & ID
	E-1262
	STRIPPER OVERHEAD CONDENSER
	E-1263
	STRIPPER OVERHEAD TRIM CONDENSER
	V-1354
	STRIPPER ACCUMULATOR (Used Surplus)
	P-1153A & B
	STRIPPER REFLUX PUMPS
	P-1159
	SOUR DISTILLATE PRODUCT PUMP
	1 x Level Control Valve
	E-1266 A,B,C,D
	SIDE STREAM STRIPPER BOTTOMS COOLERS
	1 x Level Control Valve
	V-1316
	CHLORIDE INJECTION DRUM (Packaged Unit)
	P-1106
	CHLORIDE METERING PUMP

SX-10

V-1310

METHANOL STG. DRUM (Packaged Unit)

P-1105

METHANOL METERING PUMP

P-1101 A & B

CHARGE PUMPS

1 x Flow Control Valve

E-1204

SECONDARY FEED EFFLUENT EXCHANGER

E-1201, E-1202, E-1203

PRIMARY FEED EFFLUENT EXCHANGERS

H-1401

CHARGE HEATER

1 x Temperature Control Valve

1 x Pressure Control Valve

R-1301

REACTOR

50” I.D. x 13’ — 0” T/T

V-1501

BOILER STEAM DRUM

1 x Level Control Valve (Boiler Feed Water)

1 x Pressure Control Valve (Steam Export)

P-1109 A & B

BOILER FEED WATER PUMPS

H-1402

REHEATER

1 x Temperature Control Valve

1 x Pressure Control Valve

R-1302

REACTOR

H-1403

REHEATER

1 x Temperature Control Valve

1 x Pressure Control Valve

SX-11

R-1303

REACTOR

1 x Flow Control Valve

C-1305

STABILIZER COLUMN

P-1103 A & B

STABILIZER REFLUX PUMPS

1 x Flow Control Valve

E-1206

STABILIZER REBOILER (Existing)

1 x Temperature Control Valve

E-1212

STABILIZER OVERHEAD CONDENSER

V-1308

STABILIZER OVERHEAD ACCUMULATOR

1 x Level Control Valve

1 x Pressure Control Valve

V-1318

3 x Pressure Control Valves

E-1207, E-1208

REACTOR EFFLUENT CONDENSERS (Used Surplus)

V-1304

PRODUCT SEPARATOR DRUM (Used Surplus)

1 x Flow Control Valve

1 x Pressure Control Valve

1 x Level Control Valve

E-1210 & 1211

STABILIZER EXCHANGERS (Combined)

E-1216

STABILIZER BOTTOMS COOLER

Duty: 4.27 MM BTU / HR

1 x Level Control Valve

K-1901

HYDROGEN RECYCLE COMPRESSOR

1 x Shut Down Control Valve

SX-12

	E-1218
	JACKET WATER / LUBE OIL COOLER
	2 x 25 HP Motors
	P-1107 A & B
	JACKET WATER PUMPS
	V-1323
	JACKET WATER STORAGE DRUM
	K-1902
	HYDROGEN RECYCLE COMPRESSOR
	1 x shut down control valve
	K-1903
	HYDROGEN RECYCLE COMPRESSOR
	1 x Shut Down Control Valve / 1 x Pressure Control Valve
	P-1112
	START UP LUBE OIL PUMP
	E-1213
	LUBE OIL COOLER (K1903)
	V-1321
	STARTING AIR RECEIVER
	V-1306
	COMPRESSOR SUCTION KNOCK OUT DRUM
	C-1353
	STRIPPER COLUMN (Used Surplus)
	1 x Flow Control Valve
	E-1264
	STRIPPER REBOILER (Used Surplus)
	1 x Temperature Control Valve
	C-1355
	SIDE STRIPPER COLUMN
	1 x Flow Control Valve
	E-1269
	SIDE STRIPPER REBOILER
3.5	One Lot B Structured Steel, Platforms, Ladders, Manual Valves

SX-13

and Piping Spools

SX-14

Schedule Y

EPC Contract Requirements

     The requirements of this Schedule are set forth in a letter of the Companies to OPIC dated June 12, 2001.

Schedule 1.03

Preliminary Financial Plan

The total cost of the Project (being the assets of the Developer and Refiner on a consolidated basis) are estimated to be as follows:

	At InterOil	At OPIC
	Book Value	Valuation
	US$m	US$m
Contributed Equipment	41	26
Development Costs already incurred (to Mar 2001)	29	29
EPC (fixed price)	94	94
Owner’s Costs	14	14
Contingency & Reserve	6	6
Finance Costs (fees and IDC)	7	7
Total Project Cost	191	176
Plus funding of Debt Service Reserve Account	9	9
Total Funding Requirement	200	185

     The Developer and Refiner, on a consolidated basis, will be funded as follows:

	At InterOil	At OPIC
	Book Value	Valuation
	US$m	US$m
Contributed Equipment and Development Costs already funded	70	55
Senior Debt provided by OPIC	85	85
InterOil Funding (Equity and Subordinated Debt) / Guarantees required	36	36
Funding of Debt Service Reserve Account1	9	9
Total Funding	200	185

¹ To be fully funded in cash pursuant to Section 4.13 prior to the first Disbursement.

Schedule 2.05

Repayment Schedule

The Loan, if fully drawn, shall be repaid on the dates and in the amounts shown in the table, adjusted according to the note to the table.

	Repayment		Principal to
Date	Number		be Repaid(1)
31-Dec-03		1	$	4,500,000
30-Jun-04		2	$	4,500,000
31-Dec-04		3	$	4,500,000
30-Jun-05		4	$	4,500,000
31-Dec-05		5	$	4,500,000
30-Jun-06		6	$	4,500,000
31-Dec-06		7	$	4,500,000
30-Jun-07		8	$	4,500,000
31-Dec-07		9	$	4,500,000
30-Jun-08		10	$	4,500,000
31-Dec-08		11	$	4,500,000
30-Jun-09		12	$	4,500,000
31-Dec-09		13	$	4,500,000
30-Jun-10		14	$	4,500,000
31-Dec-10		15	$	4,500,000
30-Jun-11		16	$	4,500,000
31-Dec-11		17	$	4,500,000
30-Jun-12		18	$	4,500,000
30-Dec-12		19	$	4,000,000
TOTAL			$	85,000,000

Note:

The first Payment Date is assumed in the table to be 31 December 2003. If it is earlier, then all repayment dates will be brought forward by the same amount in time. For example, if the first Payment Date is 30 June 2003, then the last Payment Date shall be 30 June 2012.

Schedule 2.05B

[FORM OF PHYSICAL COMPLETION CERTIFICATE]

PHYSICAL COMPLETION CERTIFICATE

DATE:
TO:	Overseas Private Investment Corporation (“OPIC”)
	1100 New York Avenue, N.W.
	Washington, D.C. 20527
	Attn.: Vice President for Finance, and [Investment Officer]

     This Physical Completion Certificate is submitted to OPIC pursuant to Section 2.05(b) of the Loan Agreement, dated as of June 12, 2001 (the “Loan Agreement”), between E.P. INTEROIL, LTD., a corporation organized and existing under the laws of the Cayman Islands (the “Borrower”) and OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America (“OPIC”).

     All capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Loan Agreement.

     The undersigned hereby certifies that [he/she] is an Authorized Officer of the Borrower, and further certifies that as of                      ___, 200___(the “Physical Completion Date”) all buildings, equipment, facilities, and necessary infrastructure for the Project have in all material respects been procured, constructed, and installed in accordance with the Construction Contract, are operational and in good working condition and have satisfied all performance and reliability tests under the Construction Contract, and are capable of being used for their intended purpose (the “Physical Completion Conditions”).

     Evidence of the foregoing is attached hereto and made a part hereof as Schedule 1 [attach relevant supporting evidence][NOTE: Relevant supporting evidence may include an independent consultant’s report, accountants’ certificate, opinions of counsel, Authorized Officer’s Certificate from the Companies, audited Financial Statements, etc.].

     The undersigned further certifies that the documents and materials attached hereto as Schedules are true, correct, and complete originals or copies.

     The undersigned understands that Section 237(n) of the Foreign Assistance Act of 1961, as amended, provides for imprisonment, as well as fines, for knowingly submitting false statements or reports or willfully overvaluing any

land, property, or security for the purpose of influencing in any way the actions of OPIC with respect to an OPIC-financed project.

     IN WITNESS WHEREOF, the undersigned has hereunto set [his][her] hand on this ___day of                     , 200_.

[PRINTED NAME OF AUTHORIZED OFFICER]
[TITLE OF AUTHORIZED OFFICER]
E.P. INTEROIL, LTD.

Attachments

S2.05B-2

Schedule 3.11

Easements

     Confirmation of Rights of Way for the Napa Napa Road Corridor access road to the Project site.

Schedule4.04

Government Approvals

See Sections 3.10 and 4.04 of the Agreement:

Section (1) Authorizations already obtained

     1. Grant of exemption from import duty under section 9 (1) (d) of the Customs Tariff Act 1990 in Notice of Exemption published in the National Gazette No. G81 of 30 June 1999, for goods comprising an oil refinery and other associated and ancillary goods, materials, assets, plans, equipment, consumables and spare and replacement parts that are an integral part of the refinery and are necessary for the commencement of commercial operations and for two years after for the operation of the refinery.

     2. Approval of the Company’s Training and Localisation Plan under the Employment of Non-Citizens Act (Ch. No 374).

     3. Approval of the Company’s Environmental Plan under the Environment Planning Act 1978 (PNG).

     4. Grant by NCD Water & Sewerage Limited, trading as Eda Ranu, under the National Capital District Water and Sewerage Act 1996, for the Company to:

• Use water sourced and derived from the Company’s boreholes on the Site Lease until such time as Eda Ranu is able to supply adequately from the mains;

• Construct and operate a sewerage system to a design approved by Eda Ranu for the project and refinery operations within the Site Lease.

     5. Registration of the Project Agreement and the Extension Deed against the PPFL 1, under Section 100 of the Oil and Gas Act 1998.

     6. Rezoning of the land the subject of the Site Leases to a zone which will permit the construction and operation of the Project and the grant of planning permission by the National Capital District Physical Planning Board under section 79 of the Physical Planning Act 1989 to conduct the Project on that land.

     7. Grant of Petroleum Processing Facility License No.1 (“PPFL 1”) under Section 189 and Part III Division 10 of the Oil and Gas Act 1998 to InterOil Limited.

Section (2) Authorizations to be obtained prior to first Disbursement

     8. Grant of permits under the Water Resources Act (Ch. No. 205) (PNG).

     (a) Water Investigation Permit granted by the Director of the Department of Water Resources.

     (b) Grant of Water Use Permits for:

     (i) the abstraction of bore water;

     (ii) the abstraction of sea water; and

     (iii) the discharge of treated sewage effluent, process area wash water and desalinated brine into the sea.

     9. Approval by the Bank of Papua New Guinea of the InterOil Limited’s final financing plan under clause 10 of the Project Agreement and the Central Banking (Foreign Exchange and Gold) Regulation.

     10. Approval by the Bank of Papua New Guinea pursuant to the Central Banking (Foreign Exchange and Gold) Regulation to allow InterOil Limited to enter into and perform its obligations pursuant to:

(a)	The Downstream Loan Documents;
(b)	The Equity Subscription Agreement;
(c)	The Asset Sale Agreement;
(d)	The Security Documents;
(e)	The Sponsor Support Agreement; and
(f)	The Share Pledge Agreement in respect of the Borrower’s pledge of its interest in IL.

     11. Approval by the Harbours Board under the Harbours Board Act for the Company to construct and operate the proposed marine jetty.

     12. Receipt of certification under section 28 of the Investment Promotion Act in respect of InterOil Limited and re-certification under that Act in relation to changes in shareholding in the Borrower and InterOil Limited.

S-4.05-2

     13. Confirmation of rights of way for access roads to the Project site by the compulsory acquisition by the State of the required land from the traditional landowners under the Land Act 1996.

     14. Grant of authorization from the Electricity Commission under section 31 of the Electricity Commission Act (Chapter No.78) to generate and supply electricity to the Project, or confirmation from the Commission that no such authorization is necessary.

S-4.05-3

Schedule 4.08

DUE DILIGENCE

1. State Leases

Confirm whether appropriate zoning and planning permission in respect of the state leases have been obtained.

2. Landowner Issues

Examine threat to access to Site.

3.	Corporate Issues
•	IL Constitution B Registration; confirm consistency with other IPA records re share structure; inappropriate provisions.
•	IL filings B confirm annual returns lodged in accordance with the Act.
4.	EPI Ownership of Former Chevron Assets

Legal opinion as to EPI’s ownership free from encumbrances of (a) the Chevron Crude & Light Ends Unit together with certain utility systems previously located at Nikiski on the Kenai peninsula in Alaska and (b) the Chevron El Paso Catalytic Reformer and its associated Hydro-desulfurizer (HDS) previously located at Cyril, Oklahoma.

Schedule 6.05

MAINTENANCE OF INSURANCE

(A) Insurance by the Contractor and the Operator.

(1)	Insurance By The Contractor: The Companies shall cause the Contractor to maintain in full force and effect at all times on and after the first Closing Date and continuing throughout the terms of the Agreement, insurance policies with limits and coverage provisions sufficient to satisfy the requirements set forth in each of the Project Documents.
(2)	Insurance By The Operator: The Companies shall cause the operator under the O&M Agreement to maintain in full force and effect at all times on and after the O&M Agreement is executed and then throughout the term of the Agreement, insurance policies with limits and coverage provisions sufficient to satisfy the requirements set forth in each of the Project Documents.

(B) Insurance by the Companies: The Companies shall procure at their own expense and maintain in full force and effect at all times on and after the first Closing Date (unless otherwise specified below) and continuing throughout the term of this Agreement (unless otherwise specified below) insurance policies with responsible insurance companies authorized to do business in Papua New Guinea (if required by law or regulation) with (i) a Best Insurance Reports rating of “A-” or better and a financial size category of “IX” or higher, (ii) or a Standard & Poors financial strength rating of “BBB+” or higher, (iii) or other companies acceptable to OPIC, with limits and coverage provisions sufficient to satisfy the requirements set forth in each of the Project Documents, but in no event less than the limits and coverage provisions set forth below (provided that the requirements with respect to the Specified Policies shall be those requirements set forth in the Sponsor Support Agreement).

(1)	Workers’ Compensation Insurance: Workers’ compensation insurance as required by applicable laws. A maximum deductible or self-insured retention of $25,000 per occurrence shall be allowed.
(2)	Employer’s Liability Insurance: Employer’s liability insurance for the Companies’ liability arising out of injury to or death of

	employees of the Companies in the amount of $1,000,000 per accident. A maximum deductible or self-insured retention of $25,000 per occurrence shall be allowed.
(3)	General Liability Insurance: Liability insurance on an occurrence basis against occurrences anywhere in the world and claims filed in anywhere in the world for the Companies’ liability arising out of claims for personal injury (including bodily injury and death) and property damage. Such insurance shall provide coverage for products-completed operations (which coverage shall remain in effect for a period of at least three years following the final completion date contemplated in the Construction Contract), blanket contractual, broad form property damage, personal injury insurance, independent contractors and sudden and accidental pollution liability with a $1,000,000 minimum limit per occurrence for combined bodily injury and property damage provided that policy aggregates, if any, shall apply separately to claims occurring with respect to the Project. A maximum deductible or self-insured retention of $100,000 per occurrence shall be allowed.
(4)	Automobile Liability Insurance: Automobile liability insurance for the Companies’s liability arising out of claims for bodily injury and property damage covering all owned (if any), leased, non-owned and hired vehicles used in the performance of the Companies’ obligations under the Construction Contract with a $1,000,000 minimum limit per accident for combined bodily injury and property damage and containing appropriate no-fault insurance provisions wherever applicable. A maximum deductible or self-insured retention of $25,000 per occurrence shall be allowed.
(5)	Marine Liability: Marine liability insurance for the Companies’ liability arising out of claims for bodily injury or property damage arising out of any vessel or barge owned, rented or chartered by the Companies with a minimum $25,000,000 limit per occurrence provided that policy aggregates, if any, shall apply separately to claims occurring with respect to the Project.
(6)	Marine Terminal Operator’s Liability: On or before the substantial completion date contemplated in the Construction Contract, Marine Terminal Operator’s Liability for the Companies’ liability arising out of claims for bodily injury or property damage including physical damage to vessels, property of others or cargo during docking/undocking, loading/unloading or while in the custody of the Companies with a minimum limit of $25,000,000

S-6.05-2

	per occurrence. A maximum deductible or self-insured retention of $250,000 per occurrence shall be allowed.
(7)	Environmental Impairment Liability: Environmental Impairment Liability insurance for the Companies’ liability arising out of the release of pollutants that cause environmental damage or bodily injury or property damage to third parties and first party clean-up expenses with a minimum limit of $50,000,000. A maximum deductible or self-insured retention of $1,000,000 per claim shall be allowed.
	Solely with respect to the Environmental Impairment Liability insurance outlined in this section, the Companies shall not be required to obtain such insurance earlier than the sixtieth (60th) day prior to the date crude oil is first introduced into the Project.
(8)	Excess Liability Insurance: Excess liability insurance on an occurrence basis covering claims (on at least a following form basis) in excess of the underlying insurance described in the foregoing subsections (2), (3), (4), (5) and (6), with a $25,000,000 minimum limit per occurrence until the sixtieth (60th) day prior to the date crude oil is first introduced into the Project and a $50,000,000 minimum limit per occurrence thereafter, provided that aggregate limits of liability, if any, shall apply separately to claims occurring with respect to the Project.
	The amounts of insurance required in the foregoing subsections (2), (3), (4), (5), (6) and this subsection (8) may be satisfied by Companies purchasing coverage in the amounts specified or by any combination of primary and excess insurance, so long as the total amount of insurance meets the requirements specified above.
(9)	Aircraft Liability Insurance: If the performance of the Construction Contract requires the use of any aircraft that is owned, leased or chartered by the Companies, aircraft liability insurance insuring the Companies with a $25,000,000 minimum limit per occurrence for property damage and bodily injury, including passengers and crew provided that policy aggregates, if any, shall apply separately to claims occurring with respect to the Project.
(10)	Construction All Risks: Property damage insurance on an “all risk” basis insuring the Companies, the Construction Contractor, sub-contractors, the operator under the O&M Agreement and OPIC, as their interests may appear, including coverage for the perils of earth movement (including but not limited to earthquake, landslide,

S-6.05-3

subsidence and volcanic eruption), flood, boiler, turbine and machinery accidents, strike, riot, civil commotion, sabotage and “terrorism”. For purposes of this clause “terrorism” shall be defined as any act of any person acting on behalf of or in connection with any organization with activities directed towards the overthrowing or influencing of any government de jure or de facto by force or violence.

(a)

Property Covered: The Construction All Risks insurance shall provide coverage for (i) the buildings, structures, boilers, machinery, equipment, facilities, fixtures, supplies, fuel and other properties constituting a part of the Project, (ii) free issue items used in connection with the Project, (iii) the inventory of spare parts to be included in the Project, (iv) property of others in the care, custody or control of the Companies, (v) all preliminary works, temporary works and interconnection works, (vi) foundations and other property below the surface of the ground, (vii) electronic equipment and media, (viii) any item of construction equipment whose loss or damage could result in delay in completion of the Project, (ix) steam and electrical transmission lines and equipment to the extent the Companies have an insurable interest and (x) all the Contributed Equipment and all assets included in Contributed Amounts.

(b)

Additional Coverages: The Construction All Risks policy shall insure (i) the cost of preventive measures to reduce or prevent a loss (sue & labor) in an amount not less than $5,000,000, (ii) operational and performance testing for a period not less than sixty (60) days, (iii) inland transit with sub-limits sufficient to insure the largest single shipment to or from the Site from anywhere within New Guinea, (iv) attorney’s fees, engineering and other consulting costs, and permit fees directly incurred in order to repair or replace damaged insured property in a minimum amount of $5,000,000, (v) expediting expenses (defined as extraordinary expenses incurred after an insured loss to make temporary repairs and expedite the permanent repair of the damaged property in excess of the delayed startup coverage even if such expenses do not reduce the delayed startup loss) in an amount not less than $5,000,000, (vi) off-site storage with sub-limits sufficient to insure the full replacement value of any property or equipment not stored on the Site, (vii) the removal of debris with a sub-limit not less than limit not less

S-6.05-4

	than $5,000,000, and (viii) pollution clean up and removal for a sub-limit not less than $250,000.
(c)	Special Clauses: The Construction All Risks policy shall include (i) a seventy-two (72) hour flood/storm/earthquake clause, (ii) an unintentional errors and omissions clause, (iii) a 50/50 clause, (iv) a requirement that the insurer pay losses within 30 days after receipt of an acceptable proof or loss or partial proof of loss, (v) an other insurance clause making this insurance primary over any other insurance, (vi) currency clause giving the insured the option of obtaining loss payments in either Dollars or the equivalent amount of Papua New Guinea LC’s, and (vii) a clause stating that the policy shall not be subject to cancellation by the insurer except for non-payment of premium.
(d)	Prohibited Exclusions: The Construction All Risks policy shall not contain any (i) coinsurance provisions, (ii) exclusion for loss or damage resulting from freezing, mechanical breakdown, (iii) exclusion for loss or damage covered under any guarantee or warranty arising out of an insured peril, or (iv) exclusion for resultant damage caused by ordinary wear and tear, gradual deterioration, normal subsidence, settling, cracking, expansion or contraction, faulty workmanship, design or materials.
(e)	Sum Insured: The Construction All Risks policy shall (i) be on a completed value form, with no periodic reporting requirements, (ii) insure 100% of the completed insurable value of the Project, (iii) value losses at replacement cost, without deduction for physical depreciation or obsolescence including custom duties, taxes and fees and (iv) insure earth movement and flood coverage.
(f)	Deductible: The Construction All Risks insurance shall have no deductible greater than $250,000 per occurrence for operational testing coverage and $100,000 per occurrence for all other coverage.
(g)	Policy Expiration: The Construction All Risks insurance shall remain in effect until replaced by operational physical damage insurance as specified in Section (B)(13) below.

(11) Delayed Startup Insurance: Delayed startup coverage insuring the Companies and OPIC, as their interests may appear, covering the Companies’ fixed costs and debt service as a result of loss or damage insured by Section (B)(10) above resulting in a delay in completion of the Project beyond its anticipated date of completion in an amount not less than eighteen (18) months projected continuing expenses plus debt service of the Borrower.

S-6.05-5

Companies’ fixed costs and debt service as a result of loss or damage insured by Section (B)(10) above resulting in a delay in completion of the Project beyond its anticipated date of completion in an amount not less than eighteen (18) months projected continuing expenses plus debt service of the Borrower.

Such insurance shall (a) have a deductible of not greater than 30 days aggregate for all occurrences during the construction period, (b) have an indemnity period not less than eighteen (18) months, (c) include an interim payments clause allowing for the monthly payment of a claim pending final determination of the full claim amount, (d) cover loss sustained when access to the Site is prevented due to an insured peril at premises in the vicinity of the Site, (e) cover loss sustained due to the action of a public authority preventing access to the Site due to imminent or actual loss or destruction arising from an insured peril at premises in the vicinity of the Site, (f) insure loss caused by damage to finished equipment or machinery while awaiting shipment at a supplier’s premises (including all the Contributed Equipment and all assets included in Contributed Amounts), (g) insure loss resulting from caused by damage or mechanical breakdown to construction plant and equipment at the Site not already insured by Section (B)(9) above, (h) not contain any form of a coinsurance provision or include a waiver of such provision and (i) cover loss sustained due to the accidental interruption or failure of supplies of electricity, gas, sewers, water or telecommunication up to the terminal point of the utility supplier with the Site.

Coverage shall remain in effect until replaced by business interruption insurance as specified in Section (B)(14) below.

(12) Marine Cargo Insurance: cargo insurance insuring the Companies and OPIC, as their interests may appear, on a “warehouse to warehouse” basis including land, air and marine transit insuring “all risks” of loss or damage on a replacement cost basis plus freight and insurance from the time the goods are in the process of being loaded for transit until they are finally delivered to the Site including during shipment deviation, delay, forced discharge, re-shipment and transshipment. Such insurance shall include coverage for war, strikes, theft, pilferage, non-delivery, charges of general average sacrifice or contribution, salvage expenses, temporary storage in route, consolidation, repackaging, refused and returned shipments, contain a replacement by air extension clause, 50/50 clause, unintentional, difference in conditions for C.I.F. shipments, errors and omissions clause, import duty clause, non-

S-6.05-6

vitiation clause, an English law and practices plus adjustment and settlement clause, OPIC loss payable clause satisfactory to the Insurance Consultant, debris removal, contain no exclusion for inadequate packing or survey warranties and insure for the replacement value of the largest single shipment plus freight and insurance, subject to a minimum limit of $15,000,000 per conveyance.

(13)

Marine Cargo Delayed Startup Insurance: Delayed startup insurance insuring the Companies and OPIC, as their interest may appear, for the Companies’ fixed costs, including debt service, as a result of (i) loss or damage insured by Section (B)(12) above, (ii) cover loss sustained when ingress to or egress from the Site is prevented, and (iii) loss, breakdown or damage to the hull, machinery or equipment of the vessel or aircraft on which the insured property is being transported, resulting in a delay in completion of the Project beyond their anticipated date of completion in an amount not less than eighteen (18) months projected continuing expenses plus debt service of the Borrower. Such insurance shall have a deductible of not greater than thirty (30) days per occurrence or thirty (30) days aggregate for all occurrences during the construction of the Project.

(14)

Operational Property Damage Insurance: On or prior to the Substantial Completion Date or the expiration of the Construction All Risks insurance, whichever comes first, property damage insurance on an “all risk” basis insuring the Companies and OPIC, as their interests may appear, including coverage against damage or loss caused by earth movement (including but not limited to earthquake, landslide, subsidence and volcanic eruption), flood, boiler and machinery accidents, strike, riot, civil commotion sabotage and “terrorism”. For purposes of this clause “terrorism” shall be defined as any act of any person acting on behalf of or in connection with any organization with activities directed towards the overthrowing or influencing of any government de jure or de acto by force or violence.

(a) Property Insured: The property damage insurance shall provide coverage for (i) the buildings, structures, boilers, machinery, turbines, equipment, facilities, fixtures, supplies, fuel and other properties constituting a part of the Project, (ii) steam and electrical transmission lines along with related equipment for which the Companies have an insurable interest, (iii) the cost of recreating plans, drawings or any other documents or computer system records, (iv) electronic

S-6.05-7

equipment and (v) foundations and other property below the surface of the ground.

(b) Additional Coverages: The property damage insurance shall insure (i) transit and off-site repair including ocean marine and air transit, if applicable, with sub-limits sufficient to insure the full replacement value of the property or equipment prior to its being moved to or from the Site and while located away from the Site, (ii) attorney’s fees, engineering and other consulting costs, and permit fees directly incurred in order to repair or replace damaged insured property in a minimum amount of $5,000,000, (iii) the cost of preventive measures to reduce or prevent a loss (sue & labor) in an amount not less than $5,000,000, (iv) increased cost of construction and loss to undamaged property as the result of enforcement of building laws or ordinances with sub-limits not less than 10% of the “Full Insurable Value”, (v) debris removal with sub-limits not less than $5,000,000 or 25% of the loss, whichever is greater and (vi) expediting expenses (defined as extraordinary expenses incurred after an insured loss to make temporary repairs and expedite the permanent repair of the damaged property in excess of the business interruption even if such expense does not reduce the business interruption loss) in an amount not less than $5,000,000.

(c) Special Clauses: The property damage policy shall include a (i) seventy-two (72) hour clause for flood, windstorm and earthquakes, (ii) unintentional errors and omissions clause, (iii) requirement that the insurer pay losses within thirty (30) days after receipt of an acceptable proof of loss or partial proof of loss, (iv) other insurance clause making this insurance primary over any other insurance and (v) currency clause giving the insured the option of obtaining loss payment in either Dollars or the equivalent amount of Local Currency.

(d) Sum Insured: Losses shall be valued at their repair or replacement cost, without deductible for physical depreciation or obsolescence, including custom duties, taxes and fees. The property damage policy shall insure the Project in an amount not less than the “Full Insurable Value”. For purposes of this Section, “Full Insurable Value” shall mean the full replacement value of the Project, including any improvements, equipment, spare parts, fuel and supplies,

S-6.05-8

without deduction for physical depreciation and/or obsolescence.

(e) Deductibles: The property damage insurance may have deductibles of not greater than $100,000 per occurrence, except for the turbine/generator units which shall not have a deductible greater than $250,000 per occurrence.

(f) Prohibited Exclusions: The property damage policy shall not contain any (i) coinsurance provision, (ii) exclusion for loss or damage resulting from freezing, mechanical breakdown, (iii) exclusion for loss or damage covered under any guarantee or warranty arising out of an insured peril or (iv) exclusion for resultant damage caused by ordinary wear and tear, gradual deterioration, normal subsidence, settling cracking, expansion or contraction, faulty workmanship, design or materials.

(15)

Business Interruption Insurance: On or prior to the substantial completion date contemplated in the Construction Contract or the expiration of the delayed startup insurance, whichever comes first, business interruption insurance insuring the Companies and OPIC, as their interests may appear, covering 100% of the Companies’s continuing normal operating expenses including payroll and debt service for a period of 12 months, arising from loss required to be insured by Section (B)(14)(a) above.

Such insurance shall (a) have a deductible no greater than thirty (30) days average daily value of production per occurrence, (b) include for a period of twelve (12) months that portion of fixed expenses and debt service not earned arising from an insured loss, (c) cover loss sustained when access to the Site is prevented due to an insured peril at premises in the vicinity of the Site, (d) cover loss sustained due to the action of a public authority preventing access to the Site due to imminent or actual loss or destruction arising from an insured peril at premises in the vicinity of the Site, (e) cover loss sustained due to damage by an insured peril to contributing or recipient properties, (f) have an indemnity period of not less than twelve (12) months, and (g) include a clause allowing interim payments on account pending finalization of the claim payment. Such insurance shall not contain any coinsurance clause or include a waiver of such clause.

(16) Specified Policies: As set forth in the Sponsor Support Agreement with respect to the Specified Policies

S-6.05-9

(17) Endorsements: All policies of liability insurance required to be maintained by the Companies shall be endorsed as follows:

(a)	To name the Companies and OPIC and their respective officers and employees (and such other Persons as may be required by the Project Documents) as additional insureds;
(b)	To provide a severability of interests and cross liability clause;
(c)	That the insurance shall be primary and not excess to or contributing with any insurance or self-insurance maintained by the Companies or OPIC.

(18) Evidence of Insurance: The Companies shall, prior to the first Disbursement date and upon request from time to time, to deliver to OPIC such suitable evidence of insurance as may be reasonably requested by OPIC.

(19) Waiver of Subrogation: The Companies hereby waive any and every claim for recovery from OPIC for any and all loss or damage covered by any of the insurance policies to be maintained under this Agreement to the extent that such loss or damage is recovered under any such policy. Inasmuch as the foregoing waiver will preclude the assignment of any such claim to the extent of such recovery, by subrogation (or otherwise), to an insurance company (or other person), the Companies shall give written notice of the terms of such waiver to each insurance company which has issued, or which may issue in the future, any such policy of insurance (if such notice is required by the insurance policy) and shall cause each such insurance policy to be properly endorsed by the issuer thereof to, or to otherwise contain one or more provisions that, prevent the invalidation of the insurance coverage provided thereby by reason of such waiver.

(C) Amendment of Requirements:

(1) Amendment by OPIC: OPIC may at any time, acting reasonably, amend the requirements and approved insurance companies of this Schedule 6.05 due to (i) new information not known by OPIC on the first Disbursement date and which poses a material risk to the Project or (ii) changed circumstances after the first Disbursement date which in the reasonable judgment of OPIC renders such coverage materially inadequate.

S-6.05-10

(2) Amendment Due To Commercial Unfeasibility: In the event any insurance (including the limits or deductibles thereof) hereby required to be maintained shall not be reasonably available and commercially feasible in the commercial insurance market, OPIC shall not unreasonably withhold its agreement to waive such requirement to the extent the maintenance thereof is not so available; provided, however, that (i) the Companies shall first request any such waiver in writing, which request shall be accompanied by a written report prepared by the Insurance Consultant, certifying that such insurance is “not reasonably available and commercially feasible” (and, in any case where the required amount is not so available, certifying as to the maximum amount which is so available) and explaining in detail the basis for such conclusions; (ii) at any time after the granting of any such waiver, but not more often than once a year, OPIC may request, and the Companies shall furnish to OPIC within fifteen (15) days after such request, supplemental reports reasonably acceptable to OPIC from the Insurance Consultant updating their prior report and reaffirming such conclusion; and (iii) any such waiver shall be effective only so long as such insurance shall not be reasonable available and commercially feasible in the commercial insurance market, it being understood that the failure of the Companies to timely furnish any such supplemental report shall be conclusive evidence that such waiver is no longer effective because such condition no longer exists, but that such failure is not the only way to establish such non-existence. The failure at any time to satisfy the condition to any waiver of an insurance requirement set forth in the proviso to the preceding sentence shall not impair or be construed as a relinquishment of the Companies’ ability to obtain a waiver of an insurance requirement pursuant to the preceding sentence at any other time upon satisfaction of such conditions. For the purposes of this sub-section insurance will be considered “not reasonably available and commercially feasible” if it is obtainable only at excessive costs which are not justified in terms of the risk to be insured and is generally not being carried by or applicable to projects or operations similar to the Project because of such excessive costs.

 (D) Conditions:

(1) Loss Notification: The Companies shall promptly notify OPIC of any single loss or event likely to give rise to a claim against an insurer for an amount in excess of $500,000 covered by any insurance maintained pursuant to Sections (B)(9), (10), (11), (12), (13) and (14).

S-6.05-11

(2)	Payment of Loss Proceeds: All policies of insurance required to be maintained pursuant to Sections (B)(9), (10), (11), (12), (13) and (14), shall provide that the proceeds of such policies shall be payable solely to OPIC and applied as specified in the Financing Documents.
(3)	Loss Adjustment and Settlement: A loss under any insurance required to be carried under Sections (B)(10), (11), (12), (13), (14) and (15) shall be adjusted with the insurance companies, including the filing in a timely manner of appropriate proceedings, by the Companies, subject to the approval of OPIC if such loss is in excess of $500,000. In addition, the Companies may in their reasonable judgment consent to the settlement of any loss provided that in the event that the amount of the loss exceeds $500,000 the terms of such settlement is concurred with by OPIC.
(4)	Policy Cancellation and Change: All policies of insurance required to be maintained pursuant to this Schedule 6.05 shall be endorsed so that if at any time should they be canceled, or coverage be reduced (by any party including the insured) which affects the interests of OPIC, such cancellation or reduction shall not be effective as to OPIC for sixty (60) days, except for non-payment of premium which shall be for ten (10) days, after receipt by OPIC of written notice from such insurer of such cancellation or reduction.
(5)	Miscellaneous Policy Provisions: All policies of insurance required to be maintained pursuant to Sections (B)(9), (10), (11), (12), (13) and (14) shall (i) not include any annual or term aggregate limits of liability or clause requiring the payment of additional premium to reinstate the limits after loss except as regards the insurance applicable to the perils of flood, earth movement, sabotage and terrorism, (ii) shall include OPIC as additional insured as its interest may appear and (iii) include a clause requiring the insurer to make final payment on any claim within thirty (30) days after the submission of proof of loss and its acceptance by the insurer.
(6)	Separation of Interests: All policies (other than in respect to liability or workers compensation insurance) shall insure the interests of OPIC regardless of any breach or violation by the Companies or any other Party of warranties, declarations or conditions contained in such policies, any action or inaction of the Companies or others, or any foreclosure relating to the Project or any change in ownership of all or any portion of the Project.

S-6.05-12

(7)	Acceptable Policy Terms and Conditions: All policies of insurance required to be maintained pursuant to this Schedule 6.05 shall contain terms and conditions reasonably acceptable to OPIC after consultation with the Insurance Consultant.
(8)	Waiver of Subrogation: All policies of insurance to be maintained by the provisions of this Schedule 6.05 shall provide for waivers of subrogation in favor of OPIC and their respective officers and employees (and such other Persons as may be required by the Project Documents).

(E)	Evidence of Insurance: On the first Disbursement date or such other date as required by this Schedule 6.05 and on an annual basis at least 10 days prior to each policy anniversary, the Companies shall furnish OPIC with (1) certificates of insurance or binders, in a form acceptable to OPIC, evidencing all of the insurance required by the provisions of this Schedule 6.05 and (2) a schedule of the insurance policies held by or for the benefit of the Companies and required to be in force by the provisions of this Schedule 6.05. Such certificates of insurance/binders shall be executed by each insurer or by an authorized representative of each insurer where it is not practical for such insurer to execute the certificate itself. Such certificates of insurance/binders shall identify underwriters, the type of insurance, the insurance limits and the policy term and shall specifically list the special provisions enumerated for such insurance required by this Schedule 6.05. Upon request, the Companies will promptly furnish OPIC with copies of all insurance policies, binders and cover notes or other evidence of such insurance relating to the insurance required to be maintained by the Companies. The schedule of insurance shall include the name of the insurance company, policy number, type of insurance, major limits of liability and expiration date of the insurance policies.
(F)	Reports: Concurrently with the furnishing of the certification referred to in Section (E) above, the Companies shall furnish OPIC with a report of an independent broker, signed by an officer of the broker, stating that in the opinion of such broker, the insurance then carried or to be renewed is in accordance with the terms of this Schedule 6.05 and attaching an updated copy of the schedule of insurance required by Section (E) above. In addition the Companies will advise OPIC in writing promptly of any default in the payment of any premium and of any other act or omission on the part of the Companies which may invalidate or render unenforceable, in whole or in part, any insurance being maintained by the Companies pursuant to this Schedule 6.05.
(G)	Failure to Maintain Insurance: In the event the Companies fail, or fail to cause the Contractor or the operator under the O&M Agreement, to take

S-6.05-13

out or maintain the full insurance coverage required by this Schedule 6.05, OPIC, upon thirty (30) days’ prior notice (unless the aforementioned insurance would lapse within such period, in which event notice should be given as soon as reasonably possible) to the Companies of any such failure, may (but shall not be obligated to) take out the required policies of insurance and pay the premiums on the same. All amounts so advanced thereof by OPIC shall become an additional obligation of the Companies to OPIC, and the Companies shall forthwith pay such amounts to OPIC, together with interest thereon at the Past-Due Rate from the date so advanced.

(H) No Duty of OPIC to Verify or Review: No provision of this Schedule 6.05 or any provision of any Financing Document shall impose on OPIC any duty or obligation to verify the existence or adequacy of the insurance coverage maintained by the Companies, nor shall OPIC be responsible for any representations or warranties made by or on behalf of the Companies to any insurance company or underwriter. Any failure on the part of OPIC to pursue or obtain the evidence of insurance required by this Agreement from the Companies and/or failure of the OPIC to point out any non-compliance of such evidence of insurance shall not constitute a waiver of any of the insurance requirements in this Agreement.

(I) Maintenance of Insurance: The Companies shall at all times maintain the insurance coverage required under the terms of the Project Documents.

(J) Loss Proceeds:

(1) All insurance policies required hereby covering loss or damage to the Project shall provide that all Compensation Payments be applied as described below. Upon the occurrence of any event with respect to which Compensation Payments are payable, in respect of a single event, (x) in an amount not in excess of $500,000, the Companies shall be permitted to apply such Compensation Payments to the prompt payment or reimbursement of the costs of repair or replacement of properties or assets constituting part of the Project subject to the terms of subsection (2) of this Section (J) or (y) in an amount in excess of $500,000, the Companies shall be permitted to apply such Compensation Payments to the prompt payment or reimbursement of the costs of repair or replacement of properties or assets constituting part of the Project subject to the terms of subsection (2) of this Section (J) if, and only if, the Companies shall have furnished to OPIC and OPIC shall be satisfied with, and shall have consented to, the following:

S-6.05-14

(a)	contracts for such repair or replacement demonstrating the Company’s ability to effect such repair or replacement (i) at a cost no greater than such Compensation Payments (or, if such cost is greater, accompanied by an explanation of the source of funds for such excess amounts satisfactory to OPIC) and (ii) on a schedule reasonably acceptable to OPIC;
(b)	cash-flow projections and other assurances satisfactory to OPIC demonstrating the Companies’ ability to meet their obligations under the Financing Documents during the period from such loss until and following completion of such repair or replacement;
(c)	evidence that all required approvals of all Governmental Authorities to be obtained by the Companies or any contractor in connection with the necessary repairs and replacements have been obtained or are readily obtainable without material delay or expense; and
(d)	evidence that all Financing Documents and such required approvals shall remain in full force and effect during such period and thereafter to OPIC’s satisfaction and that the Companies and the Project are in compliance in all material respects with all applicable laws (except for any non-compliance caused by the casualty or other event that gave rise to the payment of such Compensation Payments that (i) will not prevent or materially delay the repairs or replacements proposed to be made, (ii) will not result in any material liability or obligation being imposed on the Companies, (iii) will not prevent the resumption of construction or normal operations of the Project in accordance with the Project Documents and substantially in accordance with the base case projections for the Project upon the completion of the repairs or replacements proposed to be made and (iv) will be cured upon completion of the repairs or replacements proposed to be made);

(2) Upon completion of any repair or replacement of properties or assets constituting part of the Project, and upon filing with OPIC of (a) a certificate of an Authorized Officer, certifying the completion f the repair or replacement of properties or assets constituting part of the Project and the amount, if any, required in the Companies’ opinion to be retained in an account approved by OPIC and pledged to OPIC to OPIC’s satisfaction for the payment of any remaining costs of repair or replacement not then due and payable

S-6.05-15

or the liability for payment of which is being contested or disputed by the Companies and (b) a certificate from the Independent Engineer stating that, based upon reasonable investigation and review, all of the information material to the repair or replacement of properties or assets constituting part of the Project set forth in such Authorized Officer’s certificate is true and complete in all material respects, the Compensation Payments, if any, in excess of that amount to be retained by OPIC as specified in such Authorized Officer’s certificate, shall be transferred to an account approved by OPIC and pledged to OPIC to OPIC’s satisfaction.

(3)

If any Compensation Payments are not permitted to be applied in accordance with subsections (1) or (2) of this Section (J), or if so permitted are not so applied in accordance with subsections (1) or (2) of this Section (J) within sixty (60) days following receipt of such Compensation Payments, then, if the aggregate amount of such Compensation Payments not so otherwise applied exceeds $500,000, the Borrower shall be obligated, to the extent required hereunder, to prepay the principal amount of the Loan, in an amount that equals in the aggregate of such Compensation Payments not so otherwise applied (or approved to be so applied); provided, however, that if the aggregate amount of such Compensation Payments not so otherwise applied shall not exceed $500,000 following such sixty (60) day period, then such amounts shall be transferred to an account approved by OPIC and pledged to OPIC to OPIC’s satisfaction;

(4)

Notwithstanding subsections (1), (2) and (3) above, if an Event of Default shall have occurred and be continuing, OPIC shall apply all Compensation Payments as a prepayment of the Loan in accordance with Section 2.06 and any other permitted payee of such Compensation Payments shall apply all such amounts as a prepayment of the Loan pursuant to Section 2.07.

S-6.05-16

Schedule 6.12

ENVIRONMENTAL COMPLIANCE

     In addition to and not in limitation of Section 6.12, the Borrower shall, and shall cause IL to:

(a)	cause the Project to be operated in compliance with the World Bank Guidelines, the OPIC Environmental Requirements and applicable law;
(b)	at least ninety (90) days prior to Mechanical Completion (as defined in the Construction Contract, “Mechanical Completion”) submit to OPIC an acceptable Occupational Health and Safety Plan (the “OHSP”) consistent with international best practices, including, but not limited to, safety measures, training, fire safety, and public health safety.
(c)	at least ninety (90) days prior to Mechanical Completion, submit to OPIC an acceptable Site location plan showing the exact location of the Site relative to its surroundings as well as the extent of earth moving necessary for the Project. This plan shall be drawn to a legible scale and certified by a surveyor acceptable to OPIC;
(d)	at least ninety (90) days prior to the Mechanical Completion, submit to OPIC an acceptable Project layout showing the locations of all key apparatus including, but not limited to, tanks, sumps, jetties, wharf, ponds and major piping. The layout shall be drawn to a legible scale and certified by a surveyor acceptable to OPIC;
(e)	at least ninety (90) days prior to Mechanical Completion, submit to OPIC an acceptable waste disposal plan outlining the final disposal of all solid waste generated on the Site during construction and daily operations;
(f)	at least ninety (90) days prior to the Mechanical Completion, submit to OPIC an acceptable air emission data for the Project and power generators that shall include, but not be limited to, dimensions, flowrates, velocities, sulfur dioxide, and nitrogen dioxide emissions;
(g)	at least ninety (90) days prior to Mechanical Completion, submit to OPIC an acceptable wharf and jetty design and location. This plan shall show, without limitation, the location and design of the wharf(s) and jetties, any and all impacts to the environment (both

land and sea), and any dredging that was necessary for the selected locations;

(h)	at least ninety (90) days prior to Mechanical Completion, submit to OPIC an acceptable hazardous waste disposal plan outlining the final disposal of all oily and hazardous waste generated on the Site. This plan shall include, but not be limited to, any proposed bioremediation techniques, disposal of slop material and waste holding area;
(i)	at least ninety (90) days prior to Mechanical Completion, submit to OPIC an acceptable Spill Prevention Control and Countermeasure plan (the “SPCC”) consistent with international best practices. The SPCC shall provide details on, without limitation, secondary containment measures at the fuel storage sites (and any testing done on the constructed tanks to ensure their integrity), actions planned to prevent human exposure (including the proposed tiered response plan), safety from fires, the contamination of surface water and groundwater in the event of spills, tank ruptures, or other such incidents, information on truck and oil tanker loading and offloading, bunding material and dimensions, method and material of construction of oil/water separators, tank sizes and material of construction and the amount and type of sorbent material stored on the Site;
(j)	at least ninety (90) days prior to Mechanical Completion, submit to OPIC an acceptable Environmental Management and Monitoring Plan (the “EMMP”) consistent with international best practices and including, but not limited to, applicable regulatory standards and guidelines, organizational responsibilities and management, socio-economic impacts and Site background information;
(k)	prior to the Project’s third year of operation, submit to OPIC an acceptable independent assessment of the current status of the Project’s compliance with applicable environmental requirements. This audit shall be performed by an independent engineer acceptable to OPIC who has the knowledge to evaluate the roject’s environmental compliance policies, practices and controls;
(l)	on each anniversary of the date of the Loan Agreement, submit to OPIC an acceptable annual self-monitoring report. Each such report shall include, without limitation, regular testing results for any emissions standard, effluent standards, noise, reports of material non-compliance with relevant environmental guidelines

S-6.12-2

and requirements and remedial actions required to meet relevant environmental guidelines and requirements; and

(m) within twenty-four (24) hours of its occurrence, submit to OPIC an acceptable written notice of any accident impacting the environment or resulting in the loss of life.

S-6.12-3

Exhibit A

Form of Disbursement Request

[E.P. INTEROIL, LTD. LETTERHEAD]

[Date]

Overseas Private Investment Corporation
1100 New York Avenue, N.W.
Washington, D.C. 20527
United States of America

Attention: Vice President for Finance
with a copy to Treasurer

Disbursement Request

     Dear Sir or Madam:

Reference is made to the Loan Agreement between E.P. InterOil, Ltd. (the “Company”) and Overseas Private Investment Corporation (“OPIC”) dated as of June 12, 2001 (the “Loan Agreement”). Except as otherwise provided, capitalized terms used herein shall have the meanings set forth in the Loan Agreement.

Pursuant to Section 2.01(b) of the Loan Agreement, notice is hereby given that the undersigned requests Disbursement of the Loan as follows:

Amount of Disbursement:	$[___]
Closing Date:	Not less than ten (10) Business Days from the date OPIC receives this Disbursement Request.
Repayment Schedule for this Disbursement:

	Repayment		Principal to
Date	Number		be Repaid
[___]		1	$[___]

Please indicate your agreement with this repayment schedule by returning to us by fax an executed version of the attached schedule.

The proceeds of the Disbursement are needed for purposes of the Project to meet the following expenses (which will be described in greater detail and documented in the Officer Certificate to be delivered pursuant to Section 5.03):

     1. [___]
     2. [___]

$[___] of the proceeds of this Disbursement will be held in [specify account]. It is anticipated that these funds will be needed for the following purposes at the following times:

     [__________]

As of the Closing Date, each of the conditions set forth in [Articles 4 and 5] [Article 5] will be satisfied.

Very truly yours,

E.P. INTEROIL, LTD.

By:

Its:

A-2

Schedule to Exhibit A

OVERSEAS PRIVATE INVESTMENT CORPORATION

[To be filled in by the Borrower]

[Date]

E.P. InterOil, Ltd.
Suite 2, Orchid Plaza
79 Abbott Street
Cairns QLD 4870
Australia

Attention: President

By facsimile to: 61-7-4031-4565

Repayment Schedule in Respect of Disbursement No. [1][2][3][4][5]

Dear Sir or Madam:

Reference is made to your Disbursement Request dated [___] with respect to the Loan Agreement between E.P. InterOil, Ltd. (the “Company”) and Overseas Private Investment Corporation (“OPIC”) dated as of June 12, 2001 (the “Loan Agreement”). Except as otherwise provided, capitalized terms used herein shall have the meanings set forth in the Loan Agreement.

This is to notify you that OPIC hereby agrees with you that the Disbursement being made to you on the date hereof shall be repaid on the dates and in the amounts shown in the table below:

	Repayment		Principal to
Date	Number		be Repaid
[___]		1	$[___]

Please note that all repayments of this Disbursement must be made on a Payment Date, and that the aggregate amount scheduled to be paid on any Payment Date with respect to this and all prior Disbursements cannot exceed $4,500,000 (or $4,000,000 if such Payment Date corresponds to installment 19 on Schedule 2.05,).

A-3

Please note also that OPIC agrees that the Promissory Note dated [    ] is varied to the extent that the Loan installments payable under that Note shall henceforth be payable as set forth in this letter.

Please indicate your agreement to the foregoing by signing in the space provided below.

Very truly yours,

OVERSEAS PRIVATE INVESTMENT CORPORATION

By:

Its:

Accepted and agreed:

E.P. INTEROIL, LTD.

By:

Its:

A-4

Exhibit C

Guidelines for Preparation of
Supplemental Financial Statements

(NOTE: Capitalized terms used in this Exhibit, and not defined herein,
are used as defined in the Loan Agreement; Section references
are to the Loan Agreement, unless otherwise stated.)

     The Companies independent accountants (the “Independent Accountants”), in addition to preparing the Financial Statements of the Companies, will also prepare the Supplemental Financial Statements required pursuant to Section 6.06.

     The Financial Statements of the Companies will be prepared in the currencies allowed under Section 1.02(e) of the Loan Agreement. The Supplemental Financial Statements will be prepared in Dollars, recognizing foreign currency translations in accordance with Appendix B of FASB 52.

     The Supplemental Financial Statements will be prepared on a quarterly as well as on an annual basis. The Supplemental Financial Statements will include a balance sheet and a statement of income. The Supplemental Financial Statements, while following Appendix B of FASB 52, will exclude the issue of deferred taxes. The Independent Accountants will not express any opinion on the Supplemental Financial Statements.

     Under Appendix B of FASB 52 the Independent Accountants are required to use historical exchange rates between the functional currency (Dollars) and the other currency (LC’s) for non-monetary balance sheet accounts and the current exchange rate for monetary accounts. Based upon Appendix B of FASB 52, the following guidelines will be applied in the preparation of the Supplemental Financial Statements:

Income Statement:	Income and expenses denominated in Dollars will be reported at their Dollar book value. Income and expenses denominated in LC’s will be reported at the average exchange rate for the period.
Fixed Assets:	Fixed assets will be recorded at $[___] (based on the Construction Contract) plus interest, finance and other costs capitalized during construction. Depreciation will be calculated in Dollars and accumulated depreciation will be reported in Dollars.

Inventories:	Inventories purchased in Dollars will be reported at their Dollar book value. Inventories purchased in LC’s will be translated at the exchange rate on the transaction date.
Receivables:	Receivables in Dollars will be reported at the Dollar book value. Receivables in LC’s will be translated at the exchange rate at the end of the period.
Cash and Bank Balances:	Balances denominated in Dollars will be reported at their Dollar book value. Balances in LC’s will be translated at the exchange rate at the end of the period.
Accounts Payable:	Accounts payable in Dollars will be reported at their Dollar book value. Accounts payable in LC’s will be translated at the exchange rate at the end of the period.
Loans:	The portion payable within twelve (12) months will be classified as the current portion of long term debt in the balance sheet. The balance will be classified as long term debt in the balance sheet. Loans payable in Dollars will be reported at their Dollar book value. Loans payable in LC’s will be translated at the exchange rate at the end of the period.
Equity:	Common stock shares denominated in LC’s will be translated at the exchange rate on the transaction date of LC’s [___] to the Dollar.
Retained Earnings:	Retained earnings for each year will be reported in Dollars at the average exchange rate for the period. These Dollar sums will remain fixed at that amount in the balance sheets in subsequent years.

C-2

Exhibit D

UNIFORM CREDIT CASH FLOW

For purposes of calculating cash flow, the following format should be followed (specific line items may vary):

Sales/Revenue
- -(G&A expenses)
- -(Taxes)
+/-(changes in working capital)
-(Non-discretionary Capital Expenditure)
Cash After Operations (Cash Available for Debt Service)

-(Current portion long-term debt)
- -(Management fees)
+/-(Changes in fixed assets)
+/-(Changes in investments)
Financing Surplus/Requirements

+/-Changes in common stock, retained earnings, minority interest)
Cash After Financing

+Any additional cash
Ending Cash and Equivalents

Exhibit E

[FORM OF] PROMISSORY NOTE

$[___] Dated: ___, ___

     FOR VALUE RECEIVED, the undersigned, E.P. INTEROIL, LTD., a Cayman Islands corporation (the “Borrower”), HEREBY PROMISES TO PAY to the order of OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America (“OPIC”), the principal sum of [amount of Disbursement in words] ($[amount of Disbursement in figures]) or, if less, the principal amount of the Disbursement (as defined below) evidenced by this Promissory Note that is outstanding at any time, in installments on the dates specified in the repayment schedule set forth in Schedule 1 attached hereto (each a “Payment Date”), and ending no later than the Loan Maturity Date (as defined in the Loan Agreement (as defined below), the “Loan Maturity Date”); provided, however, that the last such installment shall be in the amount necessary to repay in full the unpaid principal amount hereof; together with interest on the principal amount hereof from time to time outstanding from the date hereof until such principal amount is paid in full, payable in arrears as specified in the Loan Agreement at a fixed rate per annum equal at all times to the Treasury Cost plus (x) prior to Project Completion, three percent (3.00%) per annum and (y) at and after Project Completion, three and one-half percent (3.50%) per annum (the “Note Interest Rate”) and, with respect to interest on any overdue amount due to OPIC under any Financing Document, payable on demand, at the Default Rate from the date that such amount was due to the date of payment thereof in full. Both principal and interest on the Disbursement are payable to OPIC in Dollars and otherwise as set forth in Section 2.12 of the Loan Agreement (as defined below).

     This Promissory Note is a Note referred to in, is issued under, and is subject to and entitled to the benefits of, the Loan Agreement dated as of June 12, 2001 between the Borrower and OPIC (the “Loan Agreement”; the terms defined therein and not otherwise defined herein being used herein as therein defined). The Loan Agreement, among other things, (i) provides for the making of disbursements (each, a “Disbursement”) by OPIC to the Borrower from time to time, the indebtedness of the Borrower resulting from each such Disbursement being evidenced by a Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for voluntary and mandatory prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. No reference herein to the Loan Agreement and no provision of this Promissory Note or the Loan Agreement shall alter or impair the obligation of the Borrower to pay the principal

of, interest on, and all other amounts due pursuant to this Promissory Note as provided herein.

     THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD TO ITS CONFLICT OF LAW RULES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK

E.P. INTEROIL, LTD.

By:

Title:

E-2

Exhibit E Schedule 1

REPAYMENT SCHEDULE

The Disbursement evidenced by this Promissory Note shall be repaid on the dates and in the amounts shown in the table below [to be adjusted according to each Disbursement].

	Repayment		Principal to
Date	Number		be Repaid
[          ]		1	$[          ]
[          ]		2	$[          ]
[          ]		3	$[          ]
TOTAL			$[          ]

E-3

AMENDMENT NO. 1 TO
LOAN AGREEMENT

     AMENDMENT dated as of March 25, 2002 to the Loan Agreement dated as of June 12, 2001 (the “Loan Agreement”) between E.P. InterOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”).

WITNESSETH:

     WHEREAS, the parties hereto desire to make certain amendments to the Loan Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

     Section 1. Defined Terms; References. (a) Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement has the meaning assigned to such term in the Loan Agreement. Each reference to “hereof, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Loan Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement as amended hereby.

     (b) Section 1.01 of the Loan Agreement is hereby amended by adding the following definitions:

     “BP Bond” means the First Demand Bond dated December 21, 2001 issued to OPIC, as Beneficiary, by BP Singapore, as Guarantor.

     “BP Consent” means the Consent Deed dated March 25, 2002 among BP Singapore, the Borrower and OPIC.

     “BP Crude Sale Agreement” means the Crude Supply Agency and Sales Agreement dated December 21, 2001 between the Borrower and BP Singapore.

     “BP Documents” means, collectively, the BP Bond, the BP Crude Sale Agreement, the BP Guaranty, the BP Consent and the BP Indemnity Agreement.

     “BP Guaranty” means the Deed of Guarantee dated December 21, 2001 among the Company, InterOil and BP Singapore.

     “BP Indemnity Agreement” means the Credit and Indemnity Agreement dated December 21,2001 between the Borrower and BP Singapore.

[STAMP DUTY]

     “BP Singapore” means BP Singapore Pte. Limited, a company incorporated in Singapore under Registration No. 196600436K.

     “Clough Loan” means a subordinate loan agreement between IL and Clough Niugini Limited as contemplated in Clause 46.11 of the Construction Contract and providing that the loan thereunder shall be repaid in full in two (2) semi-annual installments, in form and substance satisfactory to OPIC.

     “Contract Frustration Policy” means an insurance policy naming OPIC as sole loss payee and otherwise satisfactory to OPIC in form and substance (x) prior to the amendment contemplated in 5.11(c) hereof, in the form of the insurance policy entitled “Contract Frustration Policy” received by OPIC from InterOil on February 13, 2002 and (y) upon and after such amendment, in the form of such policy as so amended, in either case as such policy may be replaced pursuant to Section 3(a)(iv) of the Sponsor Support Agreement.

     “Currency Inconvertibility Policy” means an insurance policy naming OPIC as sole loss payee and otherwise satisfactory to OPIC in form and substance (x) prior to the amendment contemplated in 5.11(c) hereof, in the form of the insurance policy entitled “Currency Inconvertibility Policy” received by OPIC from InterOil on February 13, 2002 and (y) upon and after such amendment, in the form of such policy as so amended, in either case as such policy may be replaced pursuant to Section 3(a)(iv) of the Sponsor Support Agreement.

     “Refinery Proposal” means the proposal of the Companies set forth in Appendix B to the Project Agreement.

     “Refurbisher” means Gulf Copper Manufacturing.

     “Refurbishment Contract” means the Refurbishment Contract dated November 7, 2001 between the Borrower and the Refurbisher in respect of the refurbishment of certain Contributed Equipment as contemplated by such contract.

     (c) The definitions of the following terms in Section 1.01 are hereby amended as follows:

     “Commitment Period” means the period commencing on May 17, 2000 and ending on the earliest of (i) the first date on which the amount of the Loan equals the total amount of the Commitment, (ii) June 30, 2004, (iii) the date the first repayment is made on the Loan and (iv) the date of termination in whole of the Commitment.

2

     “Specified Policies” means the Contract Frustration Policy and the Currency Inconvertibility Policy.

     (d) The Contract Frustration Policy as in effect on the date hereof shall constitute Exhibit B to the Sponsor Support Agreement. The Currency Inconvertibility Policy as in effect on the date hereof shall constitute Exhibit C to the Sponsor Support Agreement. References to the Specified Policies in the Financing Documents shall be deemed to refer to the Specified Policies as defined herein.

     Section 2. Approved Financial Plan. The Approved Financial Plan defined in Section 1.03 shall read as follows:

Approved Financial Plan

     The total cost of the Project (being the assets of the Developer and Refiner on a consolidated basis) are estimated to be as follows:

	At InterOil			At OPIC
	Book Value			Valuation
	US$m			US$m
Contributed Equipment		41			26
Development Costs already incurred (to 31 Dec 2001)		36			36
EPC (fixed price)		93			93
Owner’s Costs		á1l	3		11
Contingency & Reserve		6			6
Finance Costs (fees and IDC)		8			8
Total Project Cost		á196	4		181
Plus funding of Debt Service Reserve Account		9			9
Total Funding Requirement		á204	5		189

     The Developer and Refiner, on a consolidated basis, will be funded as follows:

3

		At InterOil			At OPIC
		Book Value			Valuation
		US$m			US$m
Contributed Equipment and Development Costs already funded			á76	6		61
Senior Debt provided by OPIC			85			85
InterOil Funding (Equity and Subordinated Debt) / Guarantees required			34			34
InterOil Funding Sources1:
cash at bank	1
certificates of deposit	17
sale of barges	7
Clough deferred payment	5
deferred equity raising	4
Sub-Total	34
Funding of Debt Service Reserve Account			9			9
Total Funding			á204	7		189

     Section 3. First Disbursement. Notwithstanding Section 2.01 (b), but subject to the satisfaction of the conditions set forth in Articles 4 and 5, the Borrower may request the initial Disbursement of the Loan by delivering a Disbursement Request to OPIC not less than 3 Business Days prior to the first Closing Date.

     Section 4. Repayment of the Loan and of Certain Subordinated Debt. (a) Section 2.05 of the Loan Agreement is hereby amended in its entirety to read as follows:

     (a) The Borrower shall repay the Loan in installments of $4,500,000 (or, if less, the outstanding principal balance of the Loan) payable on each Payment Date commencing on the earlier of (i) the first Payment Date to occur at least six (6) months after the Physical Completion Date and (ii) June 30, 2004.

     (b) The Borrower shall furnish OPIC with a certificate substantially in the form of Schedule 2.05B (the “Physical Completion Certificate”) certifying the Physical Completion Date promptly after the occurrence of the Physical Completion Conditions. For the avoidance of doubt, the Physical Completion Certificate shall be issued upon the occurrence of Practical Completion (as defined in the Construction

¹ The components and sources of InterOil Funding may be substituted by other types of Contributed Amounts as may be satisfactory to OPIC in its sole discretion.

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     Contract).

     (c) Notwithstanding subsection (a) above, if IL enters into the Clough Loan, then the Borrower shall make in full the first and second scheduled repayments of the Loan (including both principal and interest) prior to IL repaying the first and second installments, respectively, of the Clough Loan. For the avoidance of doubt, this subsection (c) shall not require adjustment of the repayment schedule in subsection (a) above if the requirement in this subsection (c) can be met without any such adjustment.

     (d) If subsection (c) above requires repayment of a portion of the Loan on a date other than as contemplated in subsection (a) above, then the Borrower shall provide OPIC with no less than thirty (30) Business Days’ prior notice of such new repayment date. For the avoidance of doubt, repayments of the Loan pursuant to subsection (c) above will not constitute voluntary prepayments under Section 2.06, and will not require the payment of a Prepayment Premium.

     (e) The Borrower shall cause IL not to make any payment under the Clough Loan, if any, (i) to the extent the Borrower fails to comply with subsection (c) above, (ii) during the occurrence and continuance of any Default, (iii) if giving effect to such payment would trigger a Default or (iv) if giving effect to such payment would cause the Borrower to draw on the Debt Service Reserve Account in order to make in full the next scheduled payment on the Loan.

     (f) The Borrower shall cause IL to enter into the Clough Loan to the extent (i) Contributed Amounts are not otherwise made available such that the Borrower remains in compliance with Sections 2.01(c)(ii) and Section 5.06 or (ii) that prior to time the final $5 million of the Contract Sum (as defined in the Construction Contract) are owed under the Construction Contract, the Sponsors and/or their Affiliates have not fully funded the Project in the amount of $34 million as contemplated in the Approved Financial Plan.

     (g) The Borrower shall not make any payment under the BP Indemnity Agreement (i) prior to áthe repayment in full (including both principal and interest) of the first and second scheduled repayments of the Loan, (ii) during the occurrence and continuance of any Default, (iii) if at the time of such proposed payment amounts available in the Debt Service Reserve Account are less than the Debt Service Reserve Requirement (as defined in the Collateral Account Agreement), (iv) if giving effect to such payment would trigger a Default or (v) if giving effect to such payment

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     would cause the Borrower to draw on the Debt Service Reserve Account in order to make in full the next scheduled payment on the Loan. ₈

     (b) The contents of Schedule 2.05 are deleted and replaced with the following:

Repayment Schedule

The Loan, if fully drawn, shall be repaid on the dates and in the amounts shown in the table, adjusted according to the note to the table.

	Repayment	Principal to
Date	Number	be Repaid(1)
30-Jun-04	1	$  4,500,000
31-Dec-04	2	$  4,500,000
30-Jun-05	3	$  4,500,000
31-Dec-05	4	$  4,500,000
30-Jun-06	5	$  4,500,000
31-Dec-06	6	$  4,500,000
30-Jun-07	7	$  4,500,000
31-Dec-07	8	$  4,500,000
30-Jun-08	9	$  4,500,000
31-Dec-08	10	$  4,500,000
30-Jun-09	11	$  4,500,000
31-Dec-09	12	$  4,500,000
30-Jun-10	13	$  4,500,000
31-Dec-10	14	$  4,500,000
30-Jun-11	15	$  4,500,000
31-Dec-11	16	$  4,500,000
30-Jun-12	17	$   4,500,000
31-Dec-12	18	$  4,500,000
30-Jun-13	19	$  4.000.000
TOTAL		$85.000.000

Note:

The first Payment Date is assumed in the table to be 30 June 2004. If it is earlier, then all repayment dates will be brought forward by the same amount in time. For example, if the first Payment Date is 31 December 2003, then the last Payment Date shall be 31 December 2012.

     Section 5. Project Cost and Project Completion. Section 3.13 of the

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Loan Agreement is hereby amended in its entirety to read as follows:

     Each Company’s ^good faith estimate of the total cost of the Project (including provisions for contingencies) is the equivalent of $197,000,000 (at InterOil Book Value) based on the Approved Financial Plan, and such Company’s good faith estimate of the date on which it will achieve Project Completion is a date not later than December 31, 2004. ₉

     Section 6. Refurbishment Contract. Section 3.16 of the Loan Agreement is hereby amended in its entirety to read as follows:

     Neither Company is party to any contract (x) relating to the design and construction of the Project other than (i) the Construction Contract and (ii) the Italian Turbine Contract, (iii) the Refurbishment Contract or (y) for the lease of equipment or facilities for the Project, in either case exceeding a value of $500,000.

     Section 7. Refinery Proposal. A new Section 3.18 is added to the Loan Agreement to read as follows:

     Section 3.18. Refinery Proposal. The Companies have timely notified, and will continue to timely notify, all relevant Governmental Authorities in Papua New Guinea of all amendments to the Refinery Proposal to the extent necessary in connection with the Project Documents.

     Section 8. Debt Service Reserve Account. Section 4.13 of the Loan Agreement is hereby amended in its entirety to read as follows: “The Debt Service Reserve Account shall have been funded in the amount of $100,000 in cash or cash equivalents (e.g. letters of credit) from creditworthy entities on terms and conditions satisfactory to OPIC, and the BP Documents shall be in full force and effect.”

     Section 9. Sponsor Investment. Section 5.06 of the Loan Agreement is amended to replace the clause “Project costs incurred as of the date hereof in the eighth line thereof to “Project costs incurred as of December 31, 2001”.

     Section 10. áConditions Precedent to Second Disbursement. A new Section 5.11 is added as follows: ₁₀

     Section 5.11. áConditions Precedent to Second Disbursement. Unless OPIC otherwise agrees in writing and save as otherwise provided herein, it shall be a condition precedent to the Borrower’s right to the

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second Disbursement (but excluding the first Disbursement), that the following áconditions be satisfied on the date of the second Disbursement:

     á(a) The Sponsors shall have raised at least $4,000,000 through deferred equity raising (as contemplated in Approved Financial Plan) and OPIC shall have received satisfactory evidence, which evidence shall include certificates of the Companies’ independent accountants and certified copies of relevant stock certificates, that the Sponsors or other entities acceptable to OPIC have made to the Companies a fully paid-in cash equity contribution of at least $4,000,000 of such amount, on terms satisfactory to OPIC and in accordance with the Approved Financial Plan. _11-13

     (b) The Refurbishment Contract and the Italian Turbine Contract shall have been novated to the Construction Contractor in accordance with Clause 15.1.3 of the Construction Contract, and such novation shall be satisfactory to OPIC in form and substance.

     (c) The Specified Policies shall have been amended to OPIC’s satisfaction to reflect the following:

     (i) Contract Frustration Policy. The Contract Frustration Policy shall be amended as follows:

     (A) Insert “(it being understood that Exclusion (6) shall not be invoked in this context)” between “conditions and warranties of this Policy” and “, the Underwriters agree” in the paragraph following (iii) in clause (2) (Disputes) under Exclusions.

     (B) Insert “to the standard applicable to claimants under breach of contract claims” between “bear the burden of proving” and “that the loss is recoverable under this Policy” in clause (2) (Onus of Proof) under Conditions.

     (C) Insert “; provided that failure to give such notice shall not relieve the Underwriters of any obligations hereunder” between “becomes aware of such circumstance” and the final period (full stop) in clause (9) (Notification) under Conditions.

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     (ii) Currency Inconvertibility Policy. Clauses (a) and (b) of Article D (Reference Rate of Exchange) of the Currency Inconvertibility Policy shall be amended to read as follows:

     (a) first, the exchange rate category generally applied by the Central Bank on the Date of Loss for purposes of servicing private foreign debt:

     (b) second, the most representative clearing rate on the Date of Loss legally used by commercial banks or any other private market in the Host Country: and

     (c) third, the clearing rate used on the Date of Loss outside the Host Country in the most active market for conversion of local currency into Policy Currency.

     Section 11. Environmental Compliance. (a) The definitions of “Environmental Consultant” and “Environmental Report” contained in Section 1.01 of the Loan Agreement are hereby deleted.

     (b) The phrase “environmental issues raised by the Environmental Report or otherwise,” in the parenthetical in Section 4.08 is hereby deleted.

     (c) The contents of Schedule 6.12 are deleted and replaced with the following:

Environmental Compliance

     In addition to and not in limitation of Section 6.12, the Borrower shall, and shall cause IL to:

(a)	cause the Project to be operated in compliance with the World Bank Guidelines, the OPIC Environmental Requirements and applicable laws;
(b)	within twenty-four (24) hours of its occurrence, submit to OPIC a written notice of any accident impacting the environment or resulting in the loss of life;
(c)	no later than two (2) months after issuance in accordance with the

9

Construction Contract of the Notice to Proceed (as defined in the Construction Contract), submit to OPIC the following plans and program, in each case applicable to the construction phase of the Project and in form and substance satisfactory to OPIC:

(1)	an Occupational Health and Safety Plan (“OHSP”) consistent with international best practices, and including measures in respect of safety, training, fire safety, and public health safety;
(2)	a Site Location Plan showing the exact location of the Site relative to its surroundings as well as the extent of earth moving necessary for the Project; this plan shall be drawn to a legible scale and certified by a surveyor satisfactory to OPIC;
(3)	a Waste Management Plan identifying the source of materials, handling strategies, contamination risks and disposal procedures for all solid waste generated on the Site during construction and daily operations;
(4)	a Spill Prevention Control and Countermeasure Plan (“SPCC”) consistent with international best practices; the SPCC shall provide details on, without limitation, secondary containment measures at the fuel storage sites (and any testing done on the constructed tanks to ensure their integrity), actions planned to prevent human exposure (including the proposed tiered response plan), safety from fires, the contamination of surface water and groundwater in the event of spills, tank ruptures, or other such incidents, information on truck and oil tanker loading and offloading, building material and dimensions, method and material of construction of oil/water separators, tank sizes and material of construction and the amount and type of sorbent material stored on the Site;
(5)	a Fire Protection and Control Plan outlining fire risks and control measures, spill control, and fire protection;
(6)	a Storm Water Management Plan including measures for the control, containment, and disposal of contaminated storm water;

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(7)	a Community Assistance Program outlining economic and physical support strategies for the local community; and
(8)	a Site Monitoring Plan including trigger levels for investigation and remediation.

(d) at least ninety (90) days prior to Mechanical Completion (as defined in the Construction Contract) submit to OPIC the following plans, reports and program, in each case applicable to the operational phase of the Project and in form and substance satisfactory to OPIC:

(1)	an Occupational Health and Safety Plan (“OHSP”) consistent with international best practices, and including measures in respect of safety, training, fire safety, and public health safety;
(2)	a Site Location Plan showing the exact location of the Site relative to its surroundings as well as the extent of earth moving necessary for the Project; this plan shall be drawn to a legible scale and certified by a surveyor satisfactory to OPIC;
(3)	a Project Layout showing the locations of all key apparatus including tanks, sumps, jetties, wharf, ponds and major piping; the layout shall be drawn to a legible scale and certified by a surveyor satisfactory to OPIC;
(4)	a Waste Management Plan identifying the source of materials, handling strategies, contamination risks and disposal procedures for all solid waste generated on the Site during construction and daily operations;
(5)	an Air Emission Data Report for the Project and power generators that shall include dimensions, flow rates, velocities, sulfur dioxide, and nitrogen dioxide emissions;
(6)	a Wharf and Jetty Design and Location Report; this plan shall show, without limitation, the location and design of the wharf(s) and jetties, any and all impacts to the environment (both land and sea), and any dredging that was necessary for the selected locations;
(7)	a Hazardous Waste Disposal Plan outlining the final

11

	disposal of all oily and hazardous waste generated on the Site; this plan shall include any proposed bioremediation techniques, disposal of slop material, and waste holding area;
(8)	a Spill Prevention Control and Countermeasure Plan (“SPCC”) consistent with international best practices; the SPCC shall provide details on, without limitation, secondary containment measures at the fuel storage sites (and any testing done on the constructed tanks to ensure their integrity), actions planned to prevent human exposure (including the proposed tiered response plan), safety from fires, the contamination of surface water and groundwater in the event of spills, tank ruptures, or other such incidents, information on truck and oil tanker loading and off loading, building material and dimensions, method and material of construction of oil/water separators, tank sizes and material of construction and the amount and type of sorbent material stored on the Site;
(9)	an Environmental Management and Monitoring Plan (“EMMP”) consistent with international best practices and including applicable regulatory standards and guidelines, organizational responsibilities and management, socioeconomic impacts and Site background information;
(10)	a Fire Protection and Control Plan outlining fire risks and control measures, spill control, and fire protection;
(11)	a Storm Water Management Plan including measures for the control, containment, and disposal of contaminated storm water;
(12)	a Community Assistance Program outlining economic and physical support strategies for the local community; and
(13)	a Site Monitoring Plan including trigger levels for investigation and remediation.

(e) prior to the Project’s third year of operation, submit to OPIC an independent assessment in form and substance satisfactory to OPIC of the current status of the Project’s compliance with applicable environmental requirements; such assessment shall be performed by

12

an independent engineer satisfactory to OPIC who has the knowledge to evaluate the Project’s environmental compliance policies, practices and controls; and

(f) on each anniversary of the first Closing Date, submit to OPIC an annual Self-Monitoring Report in form and substance satisfactory to OPIC; each such report shall include regular testing results for any emissions standard, effluent standards, noise, reports of material non-compliance with relevant environmental guidelines and requirements and remedial actions required to meet relevant environmental guidelines and requirements.

     Section 12. Insurance. (a) Subject to this Section and the conditions and limitations set forth in Section (C)(2) of Schedule 6.05 of the Loan Agreement, OPIC hereby waives the provisions of the first paragraph of Section (B)(10) of such schedule, which, solely for the term of such waiver shall be deemed to read as follows:

     Construction All Risks: Property damage insurance on an “all risk” basis insuring the Companies, the Construction Contractor, subcontractors, the operator under the O&M Agreement and OPIC, as their interests may appear, including coverage for the perils of earth movement (including but not limited to earthquake, landslide, subsidence and volcanic eruption), flood, boiler, turbine and machinery accidents, strike, riot and civil commotion.

     The Borrower understands and accepts (i) the interim nature of the waiver provided hereby, and that OPIC has given no assurance that it will extend the waiver provided hereby or provide other waivers under or amendments to any Financing Document; (ii) that except as expressly set forth in this Section, the waiver contained herein shall not constitute a waiver or amendment of any term or condition of any Financing Document and all such terms and conditions shall remain in full force and effect and are hereby ratified and confirmed in all respects, and that no failure or delay by OPIC in exercising any right, power or privilege under any Financing Document, or any other action taken or not taken or statement made, during the period prior to the date hereof or during the period this waiver is in effect shall operate as a waiver thereof or obligate OPIC to agree to an extension of the waiver provided hereby or any other waiver under or amendment to any Financing Document and (iii) that this waiver shall lapse without the requirement of any further action by OPIC if the Companies fail to comply with the conditions set forth in such Section (C)(2).

     (b) Schedule 6.05 of the Loan Agreement is hereby amended as follows:

13

     (i) the following clause is added to the end of Section (B)(10)(a): “other than Contributed Equipment subject to the Refurbishment Contract, but only to the extent such Contributed Equipment subject to the Refurbishment Contract is in the custody of the Refurbisher and insured to OPIC’s satisfaction”.

     (ii) clause (iv) of Section (B)(10)(b) is amended to read as follows: “(iv) engineering and other consulting costs, and permit fees directly incurred in order to repair or replace damaged insured property in a minimum amount of $2,500,000,”;

     (iii) Section (B)(10)(f) is amended to read as follows: “Deductible: The Construction All Risks insurance shall have no deductible greater than $1,000,000 per occurrence for damage arising out of the perils of vandalism, malicious mischief, strike, riot or civil commotion and $250,000 per occurrence for all other coverage.”;

     (iv) clause (a) of the second paragraph of Section (B)(11) is amended to read as follows: “(a) have a deductible of not greater than 60 days aggregate for all occurrences during the construction period,”;

     (v) the following clause is added to follow the colon after the italicized language at the beginning of Section (B)(12): “at least 14 days prior to the date any portion of such cargo is first loaded for transit to the Site,”; and

     (vi) the following clause is added to follow the colon after the italicized language at the beginning of Section (B)(13): “simultaneously with the first procurement of the insurance contemplated in Section (B)(12) above,”.

     Section 13. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     Section 14. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

14

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

E.P. INTEROIL, LTD.
By:	/s/ Christian Vinson
	Name:	Christian Vinson
	Title:	Director
OVERSEAS PRIVATE INVESTMENT CORPORATION
By:	/s/ [ILLEGIBLE]
	Name:	[ILLEGIBLE]
	Title:13	Lawyer of Allens Arthur Robinson (under a redelegation of authority dated 27 February 2002)

14

LIMITED WAIVER TO LOAN AGREEMENT

     LIMITED WAIVER TO LOAN AGREEMENT, dated as of [February 21], 2003 (this “Waiver”), in respect of the LOAN AGREEMENT, dated as of June 12, 2001 (as amended from time to time, the “Loan Agreement”) between E.P. INTEROIL, LTD., a corporation organized and existing under the laws of the Cayman Islands (the “Borrower”) and OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America (“OPIC”).

W I T N E S S E T H

     (A) WHEREAS, the Borrower has requested that on the date hereof OPIC make a Disbursement under the Loan Agreement in the amount of $6,500,000 (the “Second Disbursement”);

     (B) WHEREAS, the Borrower has requested, and OPIC has agreed to grant, waivers in respect of certain conditions to the Second Disbursement as hereinafter provided; and

     (C) WHEREAS, pursuant to Section 9.06 of the Loan Agreement, the provisions of the Loan Agreement may be waived by an instrument in writing signed by Authorized Officers of the Borrower and OPIC;

     NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     1. Definitions; Rules of Construction. Capitalized terms used but not otherwise defined herein shall have the respective meanings set forth in Section 1.01 of the Loan Agreement. The principles of construction set forth in Section 1.02 of the Loan Agreement shall apply to this Waiver.

     2. Waiver.

(a)	OPIC hereby waives the conditions to the Second Disbursement contained in Section 5.11(b) of the Loan Agreement.
(b)	OPIC hereby waives the conditions to the Second Disbursement contained in 5.1l(c)(i)(C) of the Loan Agreement, but only to the extent that the amendment required in such Section shall read “; provided that failure of the Insured to use its best efforts to give such notice shall not relieve the Underwriter of any obligations hereunder, except if and to the extent if any, that their position is prejudiced by such failures on the part of the Insured.”
(c)	This Waiver shall become effective as of the date hereof when OPIC shall have received (i) a counterpart hereof executed by the Borrower and (ii) evidence to its satisfaction that the Borrower has made the payment described in Section 2(d)(i) hereof.

1

(d)	In consideration of OPIC’s willingness to grant this Waiver, the Borrower hereby agrees to pay to OPIC to its account specified in Section 2.12(b) of the Loan Agreement, in immediately available funds, a waiver fee in the amount of $150,000, payable as follows: (i) $50,000 on or prior to the date hereof and (ii) $100,000 prior to such time as the Borrower or IL shall pay any dividend or make any other distribution on any shares of any class of its capital stock (other than dividends or distributions payable solely in shares of its capital stock or allowed pursuant to the second proviso of Section 7.04 of the Loan Agreement).
(e)	This Waiver shall expire and cease to be in effect immediately if the Borrower shall fail to make the payments set forth in Section 2(d) hereof when and as required in such Section.
(f)	The waiver referred to in Section 2(a) hereof shall be effective only to waive the conditions contained in Section 5.11(b) of the Loan Agreement in respect of the Second Disbursement, and it is expressly understood that such conditions are not waived in respect of any Disbursement other than the Second Disbursement. It is further understood that OPIC shall have no obligation to extend such waiver in respect of any other Disbursement.
(g)	The waiver referred to in Section 2(b) hereof shall expire and cease to be in effect immediately if at any time the Borrower shall act in such a way so as to cause the Underwriter’s (as defined in the agreement amended pursuant to such Section) position to be prejudiced as contemplated in the exception clause underlined in Section 2(b) hereof.
(h)	This Waiver shall be considered a “Financing Document” for all purposes of the Loan Agreement.

     3. Representations of the Borrower. The Borrower represents and warrants that no Default shall have occurred and be continuing as of the date of this Waiver.

     4. GOVERNING LAW. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

     5. Headings. Section headings have been inserted in this Waiver as a matter of convenience and for reference only and it is agreed that such paragraph headings are not a part of this Waiver and shall not be used in the interpretation of any provision of this Waiver.

     6. Counterparts. This Waiver may be executed by one or more of the parties hereto on any number of separate counterparts each of which when so executed and delivered shall be

2

deemed to be an original, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

     7. No Other Amendments, Consents or Waivers. The waivers set forth herein are limited as written, and except as specifically provided in this Waiver, no other amendments, revisions or changes to, consents with respect to, or waivers of the terms of, the Loan Agreement or any other Transaction Document shall be made or permitted hereby. All other terms and conditions of the Loan Agreement remain in full force and effect.

[Remainder of Page Left Intentionally Blank]

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     IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

E.P. INTEROIL, LTD., as Borrower		OVERSEAS PRIVATE INVESTMENT
		CORPORATION, an agency of the United
		States of America
By:	/s/ Christian Vinson	By:
Name:	Christian Vinson	Name:
Title:	Director	Title:

4

AMENDMENT NO. 3 TO
LOAN AGREEMENT

     AMENDMENT dated as of June 24, 2003 (this “Amendment”) to the Loan Agreement dated as of June 12, 2001 (the “Loan Agreement”) between E.P. InterOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”).

W I T N E S S E T H :

     WHEREAS, the parties hereto desire to make certain amendments to the Loan Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

     Section 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement has the meaning assigned to such term in the Loan Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Loan Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement as amended hereby.

     (a) Section 1.01 of the Loan Agreement is hereby amended by adding the following definition:

     “Amendment No. 3 to Loan Agreement” means the Amendment No. 3 to Loan Agreement, dated as of June 24, 2003, between the Borrower and OPIC.

     “Construction Account” has the meaning set forth in the Collateral Account Agreement.

     “Construction Budget and Schedule” shall mean the construction Budget and Schedule approved by OPIC and the Independent Engineer, attached hereto as Exhibit I, and each other construction budget and schedule delivered pursuant to Section 6.07(c)(ii). For purposes of any Financing Documents, the term “Project Budget” shall mean the budget portion of the Construction Budget and Schedule.

     “Date of Mechanical Completion” has the meaning set forth in the Construction Contract.

     “Heat Exchangers” means the 1200 series heat exchangers.

Section 2. Conditions Precedent to Further Disbursements.

     Article V of the Loan Agreement is hereby amended by adding the following new Section 5.12:

     Section 5.12 Additional Conditions Precedent. (a) Prior to any Disbursement occurring on orafter June 30, 2003, (i) documentation, satisfactory in form and substance to OPIC and the Borrower shall have been executed among the Borrower, the Sponsors, OPIC and any other party that OPIC may reasonably require, to obligate such parties (other than OPIC) to contribute the addition equity required to complete the Project pursuant to any Construction Budget and Schedule; and (ii) the refurbishment of all Contributed Equipment (except for the Heat Exchangers) shall have been completed in accordance with the Refurbishment Contract and such equipment shall have been shipped, or loaded for shipment, to the Refiner.

     (b) Prior to any Disbursement occurring on or after July 31, 2003, the refurbishment of all Heat Exchangers shall have been completed in accordance with the Refurbishment Contract and such equipment shall have been shipped, or loaded for shipment, to the Refiner.

     (c) Prior to any Disbursement occurring on or after August 31, 2003, additional equity contributions in an aggregate amount equal to $9,376,876 shall have been deposited in the Construction Account.

     (d) For all Disbursements occurring after June 30, 2003, a certificate of the Independent Engineer certifying that the Project is in compliance with the applicable Construction Budget and Schedule and is on schedule to achieve Mechanical Completion on or prior to March 31, 2004.

     Section 3. Reporting Requirements prior to Project Completion. Section 6.07(c) of the Loan Agreement is hereby amended in its entirety to read as follows:

                (i) Until the Companies shall have achieved Project Completion, a report within forty-five (45) days after the end of each fiscal quarter prepared in accordance with U.S. GAAP and certified by an Authorized Officer setting forth in reasonable detail the progress of the Project, including (A) expenditures of funds, (B) estimated future costs, (C) unexpended funds available to such Company, (D) the progress and percentage of completion of the major phases of Project construction and the total construction work of the Project, (E) the acquisition of fixtures and equipment, and (F) any material variation order, amendment or waiver relating to the Construction Contract; and

2

                (ii) until the Companies shall have achieved Practical Completion, a Construction Budget and Schedule on or prior to September 30, 2003, and on or prior to the end of each fiscal quarter thereafter, or such other date as OPIC may request, approved by OPIC and the Independent Engineer, setting forth in reasonable detail the Project budget and schedule for the period commencing on the first day of the following fiscal quarter and ending on the date Practical Completion is scheduled to be achieved.

     Section 4. O&M Agreement. Section 6.13(ii) of the Loan Agreement is hereby amended by deleting the phrase “15 June 2003” and replacing it with the phrase “15 July 2003”.

     Section 5. Amendment Fee. Section 7.04 is hereby amended by adding the phrase “and OPIC shall have received an amendment fee in the amount of $425,000 in respect of Amendment No. 3 to Loan Agreement” immediately following the words “Collateral Account Agreement” in clause (iv) thereof.

     Section 6. Additional Defaults. Section 8.01 of the Loan Agreement is hereby amended by the adding the following clauses:

(s) The Date of Mechanical Completion shall not have occurred on or prior to March 31, 2004.

(t) The Physical Completion Date shall not have occurred on or prior to July 31, 2004.

(u) Additional equity contributions in an aggregate amount equal to $9,376,876 shall not have been deposited in the Construction Account on or prior to September 30, 2003.

(v) If any Construction Budget and Schedule sets forth total construction costs in excess of the total construction costs set forth in the previous Construction Budget and Schedule, an additional equity contribution in the amount of such excess shall not have been deposited in the Construction Account on or prior to the date that is thirty (30) days after such Construction Budget and Schedule was required to be delivered to OPIC pursuant to Section 6.07(c)(ii).

(w) The Project shall not be on schedule to achieve Mechanical Completion on or prior to March 31, 2004.

     Section 7. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     Section 8. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the

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signatures thereto and hereto were upon the same instrument.

     Section 9. No Other Amendments. The amendments set forth herein are limited as written, and except as specifically provided in this Amendment, no other amendments, revisions or changes to, consents with respect to, or waivers of the terms of, the Loan Agreement or any other Transaction Document shall be made or permitted.

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

E.P. INTEROIL, LTD.
By:	/s/ Phil E. Mulacek
	Title Director
OVERSEAS PRIVATE INVESTMENT      CORPORATION
By:
	Title

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LIMITED WAIVER AND AMENDMENT NO.4 TO THE LOAN AGREEMENT

     LIMITED WAIVER AND AMENDMENT NO.4 TO LOAN AGREEMENT, dated as of December 18, 2003 (this “Waiver and Amendment”), in respect of the LOAN AGREEMENT, dated as of June 12, 2001 (as amended from time to time, the “Loan Agreement”) between E.P. INTEROIL, LTD., a corporation organized and existing under the laws of the Cayman Islands (the “Borrower”) and OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America (“OPIC”).

WITNESSETH

     (A) WHEREAS, the Borrower has requested that on the date hereof OPIC make a Disbursement under the Loan Agreement in the amount of $3,000,000 (“Disbursement No. II”);

     (B) WHEREAS, the Borrower has requested, and OPIC has agreed to grant, waivers in respect of certain conditions to Disbursement No. 11 as hereinafter provided; and

     (C) WHEREAS, pursuant to Section 9.06 of the Loan Agreement, the provisions of the Loan Agreement may be waived by an instrument in writing signed by Authorized Officers of the Borrower and OPIC;

     NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     1. Definitions; Rules of Construction. Capitalized terms used but not otherwise defined herein shall have the respective meanings set forth in Section 1.01 of the Loan Agreement. The principles of construction set forth in Section 1.02 of the Loan Agreement shall apply to this Waiver and Amendment.

     2. Waiver.

(a)	OPIC hereby waives the conditions to Disbursement No. 11 contained in 5.11(c)(i)(C) of the Loan Agreement, but only to the extent that the amendment required in such Section shall read “;provided that failure of the Insured to use its best efforts to give such notice shall not relieve the Underwriter of any obligations hereunder, except if and to the extent if any, that their position is prejudiced by such failures on the part of the Insured.”
(b)	OPIC hereby waives the conditions to Disbursement No. 11 contained in Section 5.12(b) of the Loan Agreement.
(c)	This Waiver and Amendment shall become effective as of the date hereof when OPIC shall have received a counterpart hereof executed by the Borrower.
(d)	The waiver referred to in Section 2(a) and Section 2(b) hereof shall be effective only to waive the conditions contained in Sections 5.1l(c)(i)C and 5.12(b) of the Loan Agreement in respect of Disbursement No. 11, and it is expressly

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	understood that such conditions are not waived in respect of any Disbursement other than Disbursement No. 11. It is further understood that OPIC shall have no obligation to extend such waiver in respect of any other Disbursement.
(a)	The waiver referred to in Section 2(a) hereof shall expire and cease to be in effect immediately if at any time the Borrower shall act in such a way so as to cause the Underwriter’s (as defined in the agreement amended pursuant to such Section) position to be prejudiced as contemplated in the exception clause underlined in Section 2(a) hereof.
(b)	This Waiver and Amendment shall be considered a “Financing Document” for all purposes of the Loan Agreement.

     3. Amendment. The Loan Agreement is amended as follows:

(a)	Section 1.01 of the Loan Agreement is hereby amended by replacing the definition of “Commitment Period” with the following:
	““Commitment Period” means the period commencing on May 17, 2000 and ending on the earliest of (i) the first date on which the amount of the Loan equals the total amount of the Commitment, (ii) March 31, 2004, (iii) the date the first repayment is made on the Loan and (iv) the date of termination in whole of the Commitment.”
(b)	Section 2.01(c) of the Loan Agreement is hereby amended by the deletion of the paragraph in its entirety and replacing that paragraph with the following:
	“Number and Amount of Disbursements. The Loan hereunder shall be disbursed in not more than twelve (12) Disbursements. Each Disbursement shall be in an amount of not less than $2,000,000 and in multiples of $500,000 in excess thereof; provided that (i) the first Disbursement shall not exceed $31,000,000 (or such other amount as OPIC and the Borrower agree in the Approved Financing Plan) and (ii) after such first Disbursement, Disbursements and Contributed Amounts shall be made on a Dollar-far-Dollar basis until such time as all Contributed Amounts shall have been contributed in accordance with the Approved Financing Plan.”
(c)	Section 5.11(b) of the Loan Agreement is hereby amended by the deletion of the paragraph in its entirety.
(d)	Section 8.01 of the Loan Agreement is hereby amended by adding the following clause:
	“(x) The Refurbishment Contract and the Italian Turbine Contract shall not have been novated to the Construction Contractor in accordance with Clause 15.1.3 of the Construction Contract, in form and substance satisfactory to OPIC, prior to Physical Completion Date.”

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     4. Representations of the Borrower. The Borrower represents and warrants that no Default shall have occurred and be continuing as of the date of this Waiver and Amendment.

     5. GOVERNING LAW. THIS WAIVER AND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

     6. Headings. Section headings have been inserted in this Waiver and Amendment as a matter of convenience and for reference only and it is agreed that such paragraph headings are not a part of this Waiver and Amendment and shall not be used in the interpretation of any provision of this Waiver and Amendment.

     7. Counterparts. This Waiver and Amendment may be executed by one or more of the parties hereto on any number of separate counterparts each of which when so executed and delivered shall be deemed to be an original, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

     8. No Other Amendments, Consents or Waivers. The waivers and amendments set forth herein are limited as written, and except as specifically provided in this Waiver and Amendment, no other amendments, revisions or changes to, consents with respect to, or waivers of the terms of, the Loan Agreement or any other Transaction Document shall be made or permitted hereby. All other terms and conditions of the Loan Agreement remain in full force and effect.

[Remainder of Page Left Intentionally Blank]

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     IN WITNESS WHEREOF, the parties hereto have caused this Waiver and Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

E.P. INTEROIL, LTD., as Borrower			OVERSEAS PRIVATE INVESTMENT CORPORATION, an agency of the United States of America
By:	/s/ Phil E. Mulacek		By:
Name:		Phil E. Mulacek	Name:
Title:		Director	Title:

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AMENDMENT NO. 5 TO
LOAN AGREEMENT

     AMENDMENT dated as of June 30, 2004 to (i) the Loan Agreement dated as of June 12, 2001 (the “Loan Agreement”) between E.P. InterOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”).

WITNESSETH:

     WHEREAS, the parties hereto desire to make certain amendments to the Loan Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

     SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement has the meaning assigned to such term in the Loan Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Loan Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement as amended hereby.

     SECTION 2. Amendments To Loan Agreement. (a) Section 1.01 of the Loan Agreement is hereby amended by (i) revising the definition of “Loan Maturity Date” in its entirety to read as follows:

     “Loan Maturity Date” means June 30, 2014 or such earlier date on which the entire outstanding principal balance of the Loan shall be due and payable in full (whether by way of acceleration, mandatory prepayment or otherwise).

          (ii) adding the following definitions:

     “Amendment No. 5” means Amendment No. 5 to the Agreement dated as of June 30, 2004 between the Borrower and OPIC.

     “BNP Facility” means the $60,000,000 secured revolving crude oil import facility dated May 31, 2004 between the Borrower and BNP Paribas, Singapore Branch.

     “BNP Documents” means, collectively, the BNP Facility and all security documents, guarantees and other documents and agreements securing or guaranteeing the Borrower’s obligations under the BNP Facility.

     “Parent Guaranty” means the Guarantee dated as of June 30, 2004 between InterOil and OPIC.

     (b) Amendment to Section 2.02 of the Loan Agreement. Section 2.02 of the Loan Agreement is hereby amended by inserting the following at the end of the last sentence thereof:

     “provided that any Commitment Fee otherwise payable on June 30, 2004 shall instead be payable on August 15, 2004”.

     (c) Amendment to Section 2.04(a) of the Loan Agreement. Section 2.04(a) of the Loan Agreement is hereby amended by inserting the following after clause (ii) thereof:

     “provided that any interest otherwise payable on June 30, 2004 pursuant to this clause (a) of Section 2.04 shall instead be payable on August 15, 2004.”

     (d) Amendment to Section 2.05(a) of Loan Agreement. (i) Section 2.05(a) of the Loan Agreement is hereby amended in its entirety to read as follows:

(a) The Borrower shall repay the Loan in installments of $4,500,000 (or, if less, the outstanding principal balance of the Loan) payable on each Payment Date commencing on and including June 30, 2005.

     (ii) The contents of Schedule 2.05 are deleted and replaced with the following:

REPAYMENT SCHEDULE

     The Loan, if fully drawn, shall be repaid on the dates and in the amounts shown in the table, adjusted according to the note to the table.

	Repayment		Principal to
Date	Number		be Repaid(1)
30-Jun-05		1	$	4,500,000
31-Dec-05		2	$	4,500,000
30-Jun-06		3	$	4,500,000
31-Dec-06		4	$	4,500,000
30-Jun-07		5	$	4,500,000
31-Dec-07		6	$	4,500,000
30-Jun-08		7	$	4,500,000
31-Dec-08		8	$	4,500,000
30-Jun-09		9	$	4,500,000
31-Dec-09		10	$	4,500,000
30-Jun-10		11	$	4,500,000
31-Dec-10		12	$	4,500,000
30-Jun-11		13	$	4,500,000

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	Repayment		Principal to
Date	Number		be Repaid(1)
31-Dec-11		14	$	4,500,000
30-Jun-12		15	$	4,500,000
31-Dec-12		16	$	4,500,000
30-Jun-13		17	$	4,500,000
31-Dec-13		18	$	4,500,000
30-Jun-14		19	$	4,000,000
TOTAL			$	85,000,000

     (e) Amendment to Section 2.07 of the Loan Agreement. Section 2.07 of the Loan Agreement is amended by adding a new subsection (c) to read in its entirety as follows:

(c) in an amount equal to the Distribution Reserve Balance on deposit in the Operational Account (as defined in the Collateral Account Agreement) on any Semi-Annual Date following the Date of Mechanical Completion (as defined in the Construction Contract) but prior to June 30, 2005.

     (f) Amendment to Section 4.02(a)(iii) of the Loan Agreement. Section 4.02(a)(iii) of the Loan Agreement is amended by inserting the phrase “and the Parent Guaranty” after the phrase the “Sponsor Support Agreement”.

     (g) Addition of new Section 7.11 to the Loan Agreement. A new Section 7.11 is added to the Loan Agreement to read as follows:

     Section 7.11. BNP Facility. (a) The Borrower will not seek or permit (i) any material amendment or waiver to any term of any BNP Document without the prior written consent of OPIC and (ii) in any event any amendment relating to principal, interest, fees, maturity or collateral under the BNP Facility or Section 14 of the BNP Facility or any defined term used therein.

     (b) The Borrower will execute and deliver to OPIC such documents, instruments and agreements and make such filings and registrations and payments as are required by Section 6.10 in order for OPIC to obtain a perfected security interest in the collection and collateral accounts established pursuant to the BNP Facility and all other collateral now or hereafter securing the BNP Facility, subject to no prior Liens or security interests other than the Liens and security interests that secure the BNP Facility.

     (c) The Borrower shall on a timely basis give all notices and requests and take all other actions required for the NACP (as defined in the BNP Facility) to be transferred to the Operational Account (as defined in the

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Collateral Account Agreement) in accordance with Section 14.2(d) of the BNP Facility.

     (h) Amendment to Section 8.01 of the Loan Agreement. Section 8.01 of the Loan Agreement is hereby amended by (i) revising subclauses (s) through (w) in their entirety to read as follows:

     (s) The Date of Mechanical Completion shall not have occurred on or prior to September 15, 2004.

     (t) The Physical Completion Date shall not have occurred on or prior to March 17, 2005.

     (u) If any Construction Budget and Schedule sets forth total construction costs in excess of the total construction costs set forth in the previous Construction Budget and Schedule, an additional equity contribution in the amount of such excess shall not have been deposited in the Construction Account on or prior to the date that is thirty (30) days after such Construction Budget and Schedule was required to be delivered to OPIC pursuant to Section 6.07(c)(ii).

     (v) The Debt Service Reserve Account Balance is less than $1 million at September 1, 2004, or less than $2 million at October 1, 2004, or less than $3.5 million at November 1, 2004, or less than $5 million at December 1, 2004.

     (w) At any time that Interoil Corporation issues equity during the period after the date Amendment No. 5 became effective and prior to the date that the BP Bond becomes effective in accordance with its terms, the balance(s) standing to the credit of the Operational Account and/or the Working Capital Liquidity Sub Account (each as defined in the Collateral Account Agreement) and/or the EPI Security Margin Account (as defined in the BNP Facility) do not increase as of the date of such equity issuance by an amount equal to the lesser of (a) the excess, if any, of $5,000,000 over the sum of (i) the balance standing to the credit of the Debt Service Reserve Account on such date and (ii) the aggregate amount previously deposited into the Operational Account and/or the Working Capital Liquidity Sub Account and/or the EPI Security Margin Account pursuant to this clause (w) and (b) 20% of the gross proceeds from such equity issuance.

     (ii) adding the following clauses (y), (z) and (aa):

     (y) The Borrower or IL shall not have executed and delivered to OPIC on or prior to August 13, 2004 all documents requested by OPIC in order

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for OPIC to have a Lien subordinate to BNP Paribas, Singapore Branch on all accounts established under the BNP Facility.

     (z) The Borrower shall not have (i) on or prior to August 13, 2004, deposited the amount of $4,000,000 into the EPI Security Margin Account or (ii) at any time during the period beginning on August 13, 2004 and ending on the Loan Maturity Date, maintained such amount in the EPI Security Margin Account.

     (aa) The Borrower shall not (i) on or prior to the Completion Date, have deposited into the EPI Security Margin Account and/or the Working Capital Liquidity Sub Account an amount equal to 15% of the Facility Amount on such date, subject to the Price Escalation Provision, (each, as defined in the BNP Facility) or such other amount as may be agreed in writing between the parties or (ii) at any time during the period beginning on the Completion Date and ending on the Loan Maturity Date, have maintained such amount in such accounts.

     SECTION 3. Additional Fees. The Borrower shall pay to OPIC the following fees in connection with this Amendment No. 5:

     (a) a fee of $425,000 payable in full prior to (and as a condition precedent to, in addition to the other conditions precedent set forth in Section 7.04) the first dividend or other distribution paid by the Borrower to its shareholders, or, if earlier, the date on which the Loan is paid in full or matures (by acceleration or otherwise) in accordance with its terms; and

     (b) an additional monthly fee of $25,000 payable if an Event of Default occurs under clauses (v) or (w) of Section 8.01, such fee to be due and payable in arrears on the last Business Day of each calendar month until such Event of Default has been cured and, if earlier, on the same day as the fee described in clause (a) above would be due and payable.

     SECTION 4. Deposit Funds in the EPI Security Margin Account. The Borrower shall deposit not less than $4,000,000 into the EPI Security Margin Account (as defined in the BNP Facility) on or prior to August 13, 2004.

     SECTION 5. Conditions Precedent To Effectiveness. This Amendment shall become effective when (i) counterparts hereof and of Amendment No. 1 to the Collateral Account Agreement dated as of the date hereof shall have been executed and delivered by the Borrower and OPIC, (ii) counterparts of Amendment No. 1 to the Refiner Collateral Account Agreement dated as of the date hereof between the Refiner and OPIC shall have been executed and delivered by OPIC and the Refiner, (iii) OPIC shall have received evidence that the Borrower has established the Working Capital Liquidity Sub Account and (iv)

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InterOil Corporation shall have executed and delivered a guarantee of the Loan for the benefit of OPIC in the form of Exhibit I hereto.

     SECTION 6. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     SECTION 7. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

E.P. INTEROIL, LTD.
By:	/s/ Christian Vinson
	Name: Christian Vinson
	Title: Director
OVERSEAS PRIVATE INVESTMENT CORPORATION
By:	/s/ Steven A. Smith
	Name: Steven A. Smith
	Title: Senior Investment Officer

EXHIBIT I

GUARANTEE

     GUARANTEE dated as of June 30, 2004 by INTEROIL CORPORATION, a corporation organized under the laws of New Brunswick (with its successors, the “Guarantor”) for the benefit of OVERSEAS PRIVATE INVESTMENT CORPORATION (with its successors and assigns, the “Beneficiary”).

     WHEREAS, the Guarantor is the indirect owner of approximately 98.5% of the capital stock of E.P. InterOil, Ltd., a Cayman Islands corporation (with its successors, the “Obligor”), and

     WHEREAS, the Obligor has entered into (a) a Loan Agreement dated as of June 12, 2001, with OPIC (as amended, the “Agreement”) and (b) a secured revolving crude import facility dated as of May 31, 2004, with BNP Paribas, Singapore Branch (the “BNP Facility”); and

     WHEREAS, it is a condition to OPIC agreeing to defer the principal of the Loan as set forth in Amendment No. 5 to the Agreement and make certain other amendments to the Agreement that the Guarantor execute and deliver this Guarantee;

     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Guarantor agrees as follows:

     1. The Guarantee. The Guarantor hereby unconditionally guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of each Guaranteed Obligation, as hereinafter defined. Upon failure by the Obligor to pay punctually any Guaranteed Obligation, the Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the instrument evidencing such Guaranteed Obligation. “Guaranteed Obligations” means (i) all principal of, premium and interest on all loans made pursuant to the Agreement (including, without limitation, any interest (“Post-Petition Interest”) which accrues (or which would accrue but for such case, proceeding or action) after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Obligor (whether or not such interest is allowed or allowable as a claim in any such case, proceeding or other action) on all loans made pursuant to the Agreement), (ii) all other amounts payable by the Obligor from time to time pursuant to the Agreement and the other Loan Documents (as defined in the Agreement) (including any Post-Petition Interest with respect to such amounts),

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and (iii) any renewals, refinancings or extensions of any of the foregoing (including Post-Petition Interest).

     2. Guarantee Unconditional. The obligations of the Guarantor hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:

     (a) any extension, renewal, settlement of or supplement to the Agreement;

     (b) any modification or amendment of or supplement to the Agreement;

     (c) any release, impairment, non-perfection or invalidity of any direct or indirect security for any obligation of the Obligor under the Agreement;

     (d) any change in the corporate existence, structure or ownership of the Obligor, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Obligor or its assets or any resulting release or discharge of any obligation of the Obligor contained in the Agreement;

     (e) the existence of any claim, set-off or other rights which the Guarantor may have at any time against the Obligor, the Beneficiary or any other entity, whether in connection herewith or with any unrelated transaction, provided that nothing herein shall prevent the assertion or any such claim by separate suit or compulsory counterclaim;

     (f) any invalidity or unenforceability relating to or against the Obligor for any reason of the Agreement or any provision of applicable law or regulation purporting to prohibit the payment by the Obligor of principal, premium or interest on any loan made pursuant to, or any other amount payable pursuant to the Agreement; or

     (g) any other act or omission to act or delay of any kind by the Obligor, the Beneficiary or any other person or any other circumstance whatever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to the Guarantor’s obligations hereunder.

     3. Release of Liability. The Guarantor shall be released under this Guarantee on the later to occur of (a) the Completion Date (as defined in the Agreement) and (b) the date on which the balance standing to the credit of the EPI Security Margin Account (as defined in the BNP Facility) and/or the Working

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Capital Liquidity Sub Account (as defined in the Collateral Account Agreement) is equal to or greater than 15% of the Facility Amount on such date, subject to the Price Escalation Provision, (each, as defined in the BNP Facility) or such other amount as may be agreed in writing between the Obligor and the Beneficiary.

     4. Discharge Only Upon Payment in Full; Reinstatement In Certain Circumstances. Subject to Section 3, the Guarantor’s obligations hereunder shall remain in full force and effect until all Guaranteed Obligations shall have been paid in full. If at any time any payment of any Guaranteed Obligation is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time.

     5. Waiver by the Guarantor. The Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any person or entity against the Guarantor, the Obligor or any other person or entity.

     6. Subrogation. Upon making full payment with respect to any obligation of the Obligor hereunder, the Guarantor shall be subrogated to the rights of the payee against the Obligor with respect to such obligation; provided that the Guarantor shall not enforce any payment by way of subrogation so long as any Guaranteed Obligation remains unpaid.

     7. Stay of Acceleration. If acceleration of the time for payment of any Guaranteed Obligation is stayed upon the insolvency, bankruptcy or reorganization of the Obligor, all such Guaranteed Obligations otherwise subject to acceleration under the terms of the Agreement shall nonetheless be payable by the Guarantor hereunder forthwith on demand by the Beneficiary.

     8. Representations and Warranties. The Guarantor represents and warrants to the Beneficiary that:

     (a) the Guarantor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization;

     (b) the execution, delivery and performance by the Guarantor of this Guarantee are within the Guarantor’s corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action;

     (c) this Guarantee has been duly executed and delivered by the Guarantor and constitutes a legal, valid and binding obligation of the Guarantor, enforceable in accordance with its terms, subject to applicable

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bankruptcy, insolvency, reorganization, moratorium, and other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law;

     (d) the execution, delivery and performance of this Guarantee (i) do not require any consent or approval of, registration or filing with, or other action by, any governmental authority, except such as have been obtained and are in full force and effect, (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Guarantor or any order of any court or governmental authority, and (iii) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Guarantor or any of its properties or give rise to a right thereunder to require the Guarantor to make any payment; and

     (e) there are no actions, suits or proceedings by or before any arbitrator or court or other governmental authority pending against or, to the knowledge of the Guarantor, threatened against or affecting the Guarantor as to which there is a reasonable possibility of adverse determinations that, in the aggregate, could reasonably be expected to result in a material adverse effect on the assets, operations, prospects or condition, financial or otherwise, of the Guarantor or the ability of the Guarantor to perform its obligations under this Guarantee.

     9. Notices. All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail, or sent by telecopy, as follows: (i) if to the Guarantor, to it at InterOil Corporation, 25025 I-45 North, Suite 420, The Woodlands, TX 77380, Attention of Phil E Mulacek, Facsimile no. 281-292-0888 and (ii) if to the Beneficiary, to it at Overseas Private Investment Corporation, 1100 New York Avenue, N.W., Washington, D.C. 20527, United States of America, Attention of Vice President, Finance, Re: InterOil Refining Project (Papua New Guinea), Facsimile no. 1-202-408-9866. Each party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other party. All notices and other communications given in accordance with the provisions of this Guarantee will be deemed to have been given on the date of receipt.

     10. No Waiver. No failure or delay by the Beneficiary in exercising any right, power or privilege under this Guarantee or the Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

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     11. Amendments and Waivers. Any provision of this Guarantee may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Beneficiary and the Guarantor.

     12. Successors and Assigns. This Guarantee shall be binding upon the Guarantor and its successors and assigns, for the benefit of the Beneficiary and its successors and assigns, except that the Guarantor may not transfer or assign any or all of its rights or obligations hereunder without the prior written consent of the Lender.

     13. Governing Law; Jurisdiction. (a) This Guarantee shall be construed in accordance with and governed by the law of the State of New York.

     (b) The Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any relevant appellate court, in any action or proceeding arising out of or relating to this Guarantee, or for recognition or enforcement of any judgment, and each party hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in New York State court or, to the extent permitted by law, in such Federal court. Each party hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Guarantee shall affect any right that the Beneficiary may otherwise have to bring any action or proceeding relating to this Guarantee against the Guarantor or its properties in the courts of any jurisdiction.

     (c) The Guarantor irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Guarantee in any court referred to in subsection (b) of this Section. Each party hereto irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of any such suit, action or proceeding in any such court.

     14. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTEE.

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     IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly executed and delivered as of the date first above written.

INTEROIL CORPORATION
By:	/s/ Christian Vinson
	Name: Christian Vinson
	Title: Director

Agreed to and accepted by:

OVERSEAS PRIVATE INVESTMENT CORPORATION

By:	/s/ Steven A. Smith
	Name: Steven A. Smith
	Title: Senior Investment Officer

AMENDMENT NO. 6 TO
LOAN AGREEMENT

     AMENDMENT dated as of August 15, 2004 to the Loan Agreement dated as of June 12, 2001 (the “Loan Agreement”) between E.P. IntcrOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”).

WITNESSETH:

     WHEREAS, the parties hereto desire to make certain amendments to the Loan Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

     SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement has the meaning assigned to such term in the Loan Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Loan Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement as previously amended and as amended hereby.

     SECTION 2. Amendments To Loan Agreement. (a) Amendment to Section 2.02 of the Loan Agreement. Section 2.02 of the Loan Agreement is hereby amended by amending and restating the proviso at the end of the last sentence thereof to read as follows:

     “provided that any Commitment Fee otherwise payable on June 30, 2004 shall instead be payable on September 15, 2004”.

     (b) Amendment to Section 2.04(a) of the Loan Agreement. Section 2.04(a) of the Loan Agreement is hereby amended by amending and restating the proviso following clause (ii) thereof to read as follows:

     “provided that any interest otherwise payable on June 30, 2004 pursuant to this clause (a) of Section 2.04 shall instead be payable on September 15, 2004.”

     (c) Amendment to Section 8.01 of the Loan Agreement. Section 8.01 of the Loan Agreement is hereby amended by amending and restating subclause (v) in its entirety to read as follows:

     (v) The Debt Service Reserve Account Balance is less than $1 million at September 15, 2004, or less than $2 million at October 1, 2004, or less than $3.5 million at November 1, 2004, or less than $5 million at December 1, 2004.

     SECTION 3. Waiver of Section 6.07. OPIC waives any Default or Event of Default that would otherwise result from the failure by the Company to deliver Financial Statements and corresponding Supplemental Financial Statements required to by Section 6.07 of the Loan Agreement to be delivered by August 15, 2004 as long as such Financial Statements and corresponding Supplemental Financial Statements are delivered to OPIC no later than September 15, 2004.

     SECTION 4. Reference To And Effect Upon The Loan Agreement.

     (a) Except as expressly set forth herein, all terms, conditions, covenants, representations and warranties contained in the Loan Agreement or any other Financing Document, and all rights of OPIC and all obligations of the Borrower thereunder, shall remain in full force and effect. The Borrower hereby confirms that the Loan Agreement and the other Financing Documents are in full force and effect.

     (b) Except as expressly provided herein, nothing contained in this Amendment and no action by, or inaction on the part of OPIC shall, or shall be deemed to, directly or indirectly (i) constitute a consent to or waiver of any past, present or future violations of any provisions of the Loan Agreement or any other Financing Document, (ii) amend, modify or operate as a waiver of any provision of the Loan Agreement, or any other Financing Document or, except as expressly set forth herein, of any right, power or remedy of OPIC thereunder or (iii) constitute a course of dealing or other basis for altering any obligations of the Borrower under the Financing Documents or any other contract or instrument.

     SECTION 5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     SECTION 6. Counterpart. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

E.P. INTEROIL, LTD.
By:	/s/ Phil E. Mulacek
	Name:	/s/ Phil E. Mulacek
	Title:	President

OVERSEAS PRIVATE INVESTMENT      CORPORATION
By:	/s/ Steven A. Smith
	Name:
	Title:

AMENDMENT NO. 7 TO
LOAN AGREEMENT

AMENDMENT NO. 2 TO
COLLATERAL ACCOUNT AGREEMENT

AMENDMENT TO
SECURITY AGREEMENT

     AMENDMENT dated as of November 1, 2004 to (i) the Loan Agreement dated as of June 12, 2001 (as heretofore amended, the “Loan Agreement”) between E.P. InterOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”), (ii) the Collateral Account Agreement dated March 25, 2002 (as heretofore amended, the “Collateral Account Agreement”) between the Borrower and OPIC and (iii) the Security Agreement dated February 22, 2002 (the “Security Agreement”) among the Borrower, InterOil Limited and OPIC.

W I T N E S S E T H :

     WHEREAS, the parties hereto desire to make certain amendments to the Loan Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

     SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement has the meaning assigned to such term in the Loan Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Loan Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement as previously amended and as amended hereby.

     SECTION 2. Amendment to the Loan Agreement. (a) Section 8.01 of the Loan Agreement is hereby amended by amending and restating subclause (v) in its entirety to read as follows:

     “(v) The Debt Service Reserve Account Balance is less than $1 million at September 15, 2004, or less than $2 million at October 1, 2004 or less than $5 million at January 1, 2005.”

     SECTION 3. Amendment to the Collateral Account Agreement. Section 2.01(c)(ii) of the Collateral Account Agreement is hereby amended by amending and restating subclause (1) thereof to read as follows:

“(1) $12 million or such other amount as maybe agreed in advance in writing by the Company and OPIC (the amount in effect at any time under this clause (1), the “Working Capital Liquidity Requirement”) over”.

     SECTION 4. Amendment to Security Agreement. The Security Agreement is hereby amended by inserting a new Section 28 to read as follows:

     “Section 28. Release of Receivables subject to the Discounting Facility. The Liens granted under this Agreement on any Collateral that is a “Receivable” subject to a “Discount” under (and each as defined in) the BNP Facility shall automatically terminate upon such Receivable becoming subject to a Discount pursuant to the BNP Facility.

     SECTION 5. Reference to and Effect upon the Loan Agreement.

     (a) Except as expressly set forth herein, all terms, conditions, covenants, representations and warranties contained in the Loan Agreement or any other Financing Document, and all rights of OPIC and all obligations of the Borrower thereunder, shall remain in full force and effect. The Borrower hereby confirms that the Loan Agreement and the other Financing Documents are in full force and effect.

     (b) Except as expressly provided herein, nothing contained in this Amendment and no action by, or inaction on the part of OPIC shall, or shall be deemed to, directly or indirectly (i) constitute a consent to or waiver of any past, present or future violations of any provisions of the Loan Agreement or any other Financing Document, (ii) amend, modify or operate as a waiver of any provision of the Loan Agreement, or any other Financing Document or, except as expressly set forth herein, of any right, power or remedy of OPIC thereunder or (iii) constitute a course of dealing or other basis for altering any obligations of the Borrower under the Financing Documents or any other contract or instrument.

     SECTION 6. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     SECTION 7. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

E.P. INTEROIL, LTD.
By:	/s/ Phil E. Mulacek
	Name: Phil E. Mulacek
	Title: Chief Executive officer
OVERSEAS PRIVATE INVESTMENT CORPORATION
By:	/s/ Steven A. Smith
	Name: Steven A. Smith
	Title: Senior Investment Officer

AMENDMENT NO. 8 TO
LOAN AGREEMENT

     AMENDMENT dated as of December 31, 2004 to the Loan Agreement dated as of June 12, 2001 (as heretofore amended, the “Loan Agreement”) between E.P. InterOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”).

W I T N E S S E T H :

     WHEREAS, the parties hereto desire to make certain amendments to the Loan Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

     SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement has the meaning assigned to such term in the Loan Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Loan Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement as previously amended and as amended hereby.

     SECTION 2. Amendment to the Loan Agreement. (a) Amendment to Section 2.02 of the Loan Agreement. Section 2.02 of the Loan Agreement is hereby amended by amending and restating the proviso at the end of the last sentence thereof to read as follows:

     “provided that any Commitment Fee otherwise payable on December 31, 2004 shall instead be payable on January 31, 2005.”

     (b) Amendment to Section 2.04(a) of the Loan Agreement. Section 2.04(a) of the Loan Agreement is hereby amended by amending and restating the proviso following clause (ii) thereof to read as follows:

“provided that any interest otherwise payable on December 31, 2004 shall instead be payable on January 31, 2005.”

     (c) Amendment to Section 8.01 of the Loan Agreement. Section 8.01 of the Loan Agreement is hereby amended by amending and restating subclause (v) in its entirety to read as follows:

“(v) The Debt Service Reserve Account Balance is less than $1 million at September 15, 2004, or less than $2 million at October 1, 2004 or less than $5 million at January 31, 2005.”

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     SECTION 3. Reference to and Effect upon the Loan Agreement.

     (a) Except as expressly set forth herein, all terms, conditions, covenants, representations and warranties contained in the Loan Agreement or any other Financing Document, and all rights of OPIC and all obligations of the Borrower thereunder, shall remain in full force and effect. The Borrower hereby confirms that the Loan Agreement and the other Financing Documents are in full force and effect.

     (b) Except as expressly provided herein, nothing contained in this Amendment and no action by, or inaction on the part of OPIC shall, or shall be deemed to, directly or indirectly (i) constitute a consent to or waiver of any past, present or future violations of any provisions of the Loan Agreement or any other Financing Document, (ii) amend, modify or operate as a waiver of any provision of the Loan Agreement, or any other Financing Document or, except as expressly set forth herein, of any right, power or remedy of OPIC thereunder or (iii) constitute a course of dealing or other basis for altering any obligations of the Borrower under the Financing Documents or any other contract or instrument.

     SECTION 4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     SECTION 5. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

E.P. INTEROIL, LTD.
By:	/s/ Phil E. Mulacek
	Name: Phil E. Mulacek
	Title: Director
OVERSEAS PRIVATE INVESTMENT CORPORATION
By:	/s/ Steven A. Smith
	Name: Steven A. Smith
	Title: Senior Investment Officer

3

AMENDMENT NO. 9 TO
LOAN AGREEMENT

     AMENDMENT dated as of March 31, 2005 to the Loan Agreement dated as of June 12, 2001 as amended (the “Loan Agreement”) between E.P. InterOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”).

W I T N E S S E T H :

     WHEREAS, the parties hereto desire to make certain amendments to the Loan Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

     SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement has the meaning assigned to such term in the Loan Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Loan Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement as amended hereby.

     SECTION 2. Amendments to Loan Agreement. (a) Section 1.01 of the Loan Agreement is hereby amended by adding the following definitions:

     “Amendment No. 9” means Amendment No. 9 to the Loan Agreement dated as of March 31, 2005 between the Borrower and OPIC.

     (b) Amendment to Section 8.01 of the Loan Agreement. Section 8.01 of the Loan Agreement is hereby amended by revising subclause (s) and subclause (v) in their entirety to read as follows:

     “(s) The Date of Mechanical Completion shall not have occurred on or prior to September 30, 2004.”

     and

     “(v) The Debt Service Reserve Account Balance is less than $1 million at September 15, 2004, or less than $2 million at October 1, 2004 or less than $5 million at February 1, 2005.”

     SECTION 3. Conditions Precedent to Effectiveness. This Amendment shall be deemed to be effective as of and from December 31, 2004 upon execution and delivery by OPIC and the Refiner. Notwithstanding, the parties acknowledge, confirm and agree that the Loan Agreement is in full force and effect and as at the date hereof has not been rescinded or terminated and that no party is in breach of the terms thereof.

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     SECTION 4. GoverningLaw. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     SECTION 5. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written.

E.P. INTEROIL, LTD.
By:	/s/ Christian Vinson
	Name: Christian Vinson
	Title: Director
OVERSEAS PRIVATE INVESTMENT CORPORATION
By:	/s/ Steven A. Smith
	Name: Steven A. Smith
	Title: Senior Investment Officer

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AMENDMENT NO. 10 TO
LOAN AGREEMENT

AMENDMENT NO. 3 TO COLLATERAL ACCOUNT
AGREEMENT

     AMENDMENT dated as of June 17, 2005 to (i) the Loan Agreement dated as of June 12, 2001 as amended (the “Loan Agreement”) between E.P. InterOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”); (ii) the Collateral Account Agreement dated as of March 25, 2002 as amended (the “Collateral Account Agreement”) between the Borrower and OPIC.

WITNESSETH:

     WHEREAS, the parties hereto desire to make certain amendments to the Loan Agreement and the Collateral Account Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

     SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement or the Collateral Account Agreement respectively, has the meaning assigned to such term in that Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Loan Agreement or the Collateral Account Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement or the Collateral Account Agreement as amended hereby.

     SECTION 2. Amendments to Loan Agreemen. (a) Section 1.01 of the Loan Agreement is hereby amended by adding the following definitions:

     “Amendment No. 10” means Amendment No. 10 to the Loan Agreement dated as of June 17, 2005 between the Borrower and OPIC.

(b) Section 1.01 of the Loan Agreement is hereby amended by amending the definition of “Construction Budget and Schedule” to read as follows:

     ““Construction Budget and Schedule” means the construction budget and schedule approved by OPIC and the Independent Engineer, attached hereto as Exhibit I, and includes budgets and schedules relating to capital investment projects in the refinery after the Physical Completion Date such as refinery optimizations and modifications.”

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     (c) Amendment to Section 2.05(a) of the Loan Agreement. (i) Section 2.05(a) of the Loan Agreement is hereby amended in its entirety to read as follows:

     “(a) The Borrower shall repay the Loan in installments of $4,500,000 (or, if less, the outstanding principal balance of the Loan) payable on each Payment Date commencing on and including December 31, 2005.”

     (ii) The contents of Schedule 2.05 are deleted and replaced with the following:

“REPAYMENT SCHEDULE

        The Loan, if fully drawn, shall be repaid on the dates and in the amounts shown in the table, adjusted according to the note to the table.

	Repayment		Principal to
Date	Number		be Repaid(1)
31-Dec-05		1	$	4,500,000
30 Jun-06		2	$	4,500,000
31-Dec-06		3	$	4,500,000
30-Jun-07		4	$	4,500,000
31-Dec-07		5	$	4,500,000
30-Jun-08		6	$	4,500,000
31-Dec-08		7	$	4,500,000
30-Jun-09		8	$	4,500,000
31-Dec-09		9	$	4,500,000
30-Jun-10		10	$	4,500,000
31-Dec-10		11	$	4,500,000
30-Jun-11		12	$	4,500,000
31-Dec-11		13	$	4,500,000
30-Jun-12		14	$	4,500,000
31-Dec-12		15	$	4,500,000
30-Jun-13		16	$	4,500,000
31-Dec-13		17	$	4,500,000
30-Jun-14		18	$	4,500,000
31-Dec-14		19	$	4,000,000
TOTAL			$	85,000,000

     (d) Amendment to Section 2.09 of the Loan Agreement. Section 2.09 of the Loan Agreement is hereby amended in its entirety to read as follows:

     “Maintenance Fee. The Borrower shall pay to OPIC an annual maintenance fee (the “Maintenance Fee”) in the amount of $100,000 on June 30, 2005 and thereafter on each anniversary thereof, so long as any portion of the Loan remains outstanding.”

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     (e) Amendment to Article 6 of the Loan Agreement. Article 6 of the Loan Agreement is hereby amended by adding the following clause 6.15:

     “SECTION 6.15. Debt Service Reserve Account. The Borrower shall establish and maintain the Debt Service Reserve Account in accordance with the Collateral Account Agreement and shall ensure that, at all times beginning on August 31, 2005, the amounts on deposit in the Debt Service Reserve Account is at least equal to the Debt Service Reserve Requirement as defined and provided for under the Collateral Account Agreement, unless prior consent in writing is received from OPIC under the Collateral Account Agreement to make withdrawals from the Debt Service Reserve Account in reduction of the amounts on deposit below the Debt Service Reserve Requirement.”

     (f) Amendment to Section 8.01 of the Loan Agreement. Section 8.01 of the Loan Agreement is hereby amended by adding the following clause (bb):

“(bb) The Borrower or IL or BNP Paribas, Singapore Branch shall not have executed and delivered to OPIC on or prior to August 31, 2005 all documents requested by OPIC in order for OPIC to have a Lien subordinate to BNP Paribas, Singapore Branch on the IOC Security Margin Account.”

     SECTION 3. Amendment to Collateral Account Agreement. Section 2.04(a) of the Collateral Account Agreement is hereby amended by (i) inserting the following language in the 5^th line of subsection (ii) after “Requisition”: “and after receiving OPIC’s prior consent in writing”; and

     (ii) inserting the following language in the 4^th line of subsection (iii) after “such date”: “and after receiving OPIC’s prior consent in writing”.

     SECTION 4. Conditions Precedent to Effectiveness. This Amendment shall become effective when counterparts hereof shall have been executed and delivered by OPIC, the Borrower and IL. Notwithstanding, the parties acknowledge, confirm and agree that the Loan Agreement and the Collateral Account Agreement are in full force and effect and as at the date hereof have not been rescinded or terminated and that no party is in breach of the terms thereof.

     SECTION 5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     SECTION 6. No Waiver; No Course of Dealing.

     (a) No failure or delay by OPIC in exercising any right, power or remedy shall operate as a waiver thereof or otherwise impair any of its rights, powers or remedies. No single or partial exercise of any such right shall preclude

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any other or further exercise thereof or the exercise of any other legal right. No waiver of any such right shall be effective unless given in writing.

     (b) Except as expressly provided by this Amendment No. 10, the agreements contained herein shall not limit or otherwise adversely affect OPIC’s rights under the Finance Documents. OPIC specifically reserves the right to insist on strict compliance with the terms of the Finance Documents, and by executing and delivering this Amendment No. 10, the Company expressly acknowledges such reservation of rights. Any future amendment or waiver of any provision of the Finance Documents to which OPIC is a party or has consented, shall be effective only if set forth in a writing separate and distinct from this Amendment No. 10 and executed by an authorized officer of OPIC. The terms of this Amendment No. 10 will not, either alone or taken with other amendments or waivers of provisions of the Finance Documents, be deemed to create or be evidence of a course of conduct.

     SECTION 7. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

[Signature page(s) follows.]

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

E.P. INTEROIL, LTD.
By:	/s/ Christian Vinson
	Name:	Christian Vinson
	Title:	Director

OVERSEAS PRIVATE INVESTMENT      CORPORATION
By:	/s/ Steven A. Smith
	Name:	Steven A. Smith
	Title:	Senior Investement Officer

5

LIMITED WAIVER AND AMENDMENT NO. 11 TO
LOAN AGREEMENT

     LIMITED WAIVER AND AMENDMENT dated as of June 30, 2005 to the Loan Agreement dated as of June 12, 2001 as amended (the “Loan Agreement”) between E.P. InterOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”).

WITNESSETH:

     WHEREAS, prevailing market conditions including escalating crude feedstock prices during the crucial start-up phase of the refinery has resulted in greater liabilities than forecasted and a higher debt to equity ratio than expected; and

     WHEREAS, recognizing these market anomalies and wishing to extend the debt to equity requirement of the Loan Agreement for a limited term with the object of reviewing such requirement after December 31, 2005, the parties hereto desire to waive certain provisions of and make certain amendments to the Loan Agreement;

     NOW, THEREFORE. the parties hereto agree as follows:

     SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement has the meaning assigned to such term in the Loan Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Loan Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement as amended hereby.

     SECTION 2. Waiver. (a) OPIC hereby waives the conditions contained in Section 6.11 of the Loan Agreement.

     (b) The waiver contained in Section 2(a) hereof shall expire and cease to be in effect at midnight on December 31, 2005 (Washington, DC time).

     SECTION 3. Amendments to Loan Agreement. (a) Section 1.01 of the Loan Agreement is hereby amended by adding the following definition:

     ““Limited Waiver and Amendment No. 11” means Limited Waiver and Amendment No. 11 to the Loan Agreement dated as of June 30, 2005 between the Borrower and OPIC.”

(b) Amendment to Section 6.11 of the Loan Agreement. Section 6.11 of the Loan Agreement is hereby amended by deleting the paragraph in its entirety and replacing the paragraph with the following:

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     “SECTION 6.11. Financial Ratios. The Borrower shall cause the Companies to, as of the last day of each fiscal quarter following the date of the first Disbursement, maintain a Tangible Net Worth Coverage equal to or less than 1.9 to 1. For the purposes of this Section 6.11, the ratio and amounts referred to shall be calculated on the basis of information set forth in the Financial Statements or the Supplemental Financial Statements, as applicable.”

(c) This Amendment shall expire and cease to be in effect at midnight on December 31, 2005 (Washington, DC time).

     SECTION 4. Conditions Precedent to Effectiveness. This Limited Waiver and Amendment shall become effective when counterparts hereof shall have been executed and delivered by OPIC and the Refiner. Notwithstanding, the parties acknowledge, confirm and agree that the Loan Agreement is in full force and effect and as at the date hereof has not been rescinded or terminated and that no party is in breach of the terms thereof.

     SECTION 5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     SECTION 6. No Waiver; No Course of Dealing.

     (a) No failure or delay by OPIC in exercising any right, power or remedy shall operate as a waiver thereof or otherwise impair any of its rights, powers or remedies. No single or partial exercise of any such right shall preclude any other or further exercise thereof or the exercise of any other legal right. No waiver of any such right shall be effective unless given in writing.

     (b) Except as expressly provided by this Amendment No. 10, the agreements contained herein shall not limit or otherwise adversely affect OPIC’s rights under the Finance Documents. OPIC specifically reserves the right to insist on strict compliance with the terms of the Finance Documents, and by executing and delivering this Amendment No. 11, the Company expressly acknowledges such reservation of rights. Any future amendment or waiver of any provision of the Finance Documents to which OPIC is a party or has consented), shall be effective only if set forth in a writing separate and distinct from this Amendment No. 11 and executed by an authorized officer of OPIC. The terms of this Amendment No. 11 will not, either alone or taken with other amendments or waivers of provisions of the Finance Documents, be deemed to create or be evidence of a course of conduct.

     SECTION 7. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

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E.P. INTEROIL, LTD.
By:	/s/ Christian Vinson
	Name:	Christian Vinson
	Title:	Director

OVERSEAS PRIVATE INVESTMENT      CORPORATION
By:	/s/ Steven A. Smith
	Name:	Steven A. Smith
	Title:	Senior Investment Officer

3

LIMITED WAIVER AND AMENDMENT NO. 12 TO
LOAN AGREEMENT
AND
AMENDMENT NO 4 TO
COLLATERAL ACCOUNT AGREEMENT

     LIMITED WAIVER AND AMENDMENT NO. 12, dated as of December 30, 2005 (the “Amendment”), to (i) the Loan Agreement dated as of June 12, 2001, as amended (the “Loan Agreement”), between EP InterOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”), and (ii) the Collateral Account Agreement dated as of March 25, 2002, as amended (the “Collateral Account Agreement”), between the Borrower and OPIC.

WITNESSETH

     WHEREAS, the parties to this Amendment desire to waive certain requirements of, and make certain amendments to, the Loan Agreement;

     NOW, THEREFORE, the parties to this Amendment agree as follows:

     Section 1. Defined Terms; References. Unless otherwise specifically defined in this Amendment, each term used in this Amendment which is defined in the Loan Agreement or the Collateral Agreement has the meaning assigned to such term in the Loan Agreement or the Collateral Agreement. Each reference to “hereof,” “hereunder,” “herein,” “hereby” and other similar references, and each reference to “this Agreement” and other similar references contained in the Loan Agreement or the Collateral Account Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement or the Collateral Account Agreement as amended by this Amendment.

     Section 2. Waiver.

     (a) OPIC hereby waives the requirement of Section 6.15 that the amounts on deposit in the Debt Service Reserve Account is at least equal to the Debt Service Reserve Requirement and consents to the Borrower making withdrawals from the Debt Service Reserve Account in reduction of the amounts on deposit below the Debt Service Reserve Requirement for the purpose of making the interest and principal payments due pursuant to Sections 2.04(a) and 2.05(a) on December 31, 2005.

     (b) The waiver contained in Section 2(a) of this Amendment shall expire and cease to be in effect at on February 15, 2006 (Washington, DC time).

     Section 3. Amendment to Loan Agreement. Section 6.15 of the Loan Agreement is hereby amended by deleting the paragraph in its entirety and replacing the paragraph with the following:

“SECTION 6. 15. Debt Service Reserve Account. The Borrower shall establish and maintain the Debt Service Reserve Account in accordance with the Collateral Account Agreement and shall ensure that, at all times beginning on February 16, 2006, the amount on deposit in the Debt Service Reserve Account is at least equal to the Debt Service Reserve Requirement as defined and provided for under the Collateral Account Agreement, unless prior consent in writing is received from OPIC under the Collateral Account Agreement to make withdrawals from the Debt Service Reserve Account in reduction of the amounts on deposit below the Debt Service Reserve Requirement.”

Section 4. Amendment to Collateral Account Agreement.

     Section 2.04(a) of the Collateral Account Agreement is hereby amended by adding the following sentence to the end of clause (ii):

“Notwithstanding the foregoing, the Company may request that the Account Bank withdraw from the Debt Service Reserve Account all payments requested in the Senior Project Payment Requisition for all amounts due on the December 31, 2005 Semi-Annual Date regardless of whether or not the funds needed to pay such Senior Project Payment Requisition are available in the Operational Account.”

     Section 5. Conditions Precedent to Effectiveness. This Amendment shall become effective as of December 30, 2005 upon the execution and delivery of counterparts to this Amendment by the Borrower and OPIC. On or prior to March 31, 2006, the Borrower covenants to pay to OPIC an amendment fee of US$100,000. Notwithstanding the foregoing, the parties acknowledge, confirm and agree that the Loan Agreement and the Collateral Agreement are in full force and effect and as at the date hereof have not been rescinded or terminated and that no party is in breach of the terms of the Loan Agreement or Collateral Agreement.

     Section 6. Covenants of Borrower.

     (a) In consideration for OPIC entering into this Amendment, the Borrower covenants that (i) the Borrower will use commercially reasonable efforts to effect the changes to OPIC’s security under the Finance Documents describe in Exhibit A; and (ii) upon the receipt of the net proceeds of any public or private offering of debt or equity securities or borrowings closed by InterOil Corporation on or prior to March 31, 2006, use of a portion of such net proceeds as provided in Exhibit A.

     (b) The Borrower, OPIC and InterOil Corporation hereby agree to examine the possibility of obtaining a security interest in assets of InterOil Corporation to collateralize the Parent Guaranty and agree to the execution of the necessary documents, provided that (i) such security is materially advantageous to OPIC, and (ii) the cost of such documentation is not greater than US$200,000.

2

     Section 7. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

     Section 8. No Waiver; No Course of Dealing.

     (a) No failure or delay by OPIC in exercising any right, power or remedy shall operate as a waiver thereof or otherwise impair any of its rights, powers or remedies. No single or partial exercise of any such right shall preclude any other further exercise thereof or the exercise of any other legal right. No waiver of any such right shall be effective unless given in writing.

     (b) Except as expressly provided by this Amendment, the agreements contained herein shall not limit or otherwise adversely affect OPIC’s rights under the Finance Documents. OPIC specifically reserves the right to insist on strict compliance with the terms of the Finance Documents, and by executing and delivering this Amendment, the Company expressly acknowledges such reservation of rights. Any future amendment or waiver of any provision of the Finance Documents to which OPIC is a party or has consented, shall be effective only if set forth in a writing separate and distinct from this Amendment and executed by an authorized officer of OPIC. The terms of this Amendment will not, either alone or taken with other amendments or waivers of provisions of the Finance Documents, be deemed to create or be evidence of a course of conduct.

     Section 9. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

[Signature Page Follows.]

3

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.

EP INTEROIL, LTD.
By:	/s/ Phil E. Mulacek
Name: Phil E. Mulacek
Title: Director
OVERSEAS PRIVATE INVESTMENT CORPORATION
By:	/s/ Steven A. Smith
Name: Steven A. Smith
Title: Senior Investment Officer
INTEROIL CORPORATION
By:	/s/ Phil E. Mulacek
Name: Phil E. Mulacek
Title: Director

Exhibit A

BP Agreements

Following the execution of the Amendment, the Borrower will use commercially reasonable efforts to enter into agreements with BP Singapore PTE. Limited, or a related entity, (“BP”), or otherwise effect the following:

(a)	BP enters into an amendment to, or a new agreement substantially similar to, mutatis mutandis, the First Demand Bond and the related Credit and Indemnity Agreement dated 20 December 2001 between BP and Borrower (“CIA”), in form and substance satisfactory to OPIC, to satisfy the Debt Service Reserve Requirement of approximately $8.4 million.
(b)	BP issues a $15 million corporate guarantee, in form and substance satisfactory to OPIC, to BNP Paribas (“BNP”)and BNP releases $15 million of cash (“Freed Cash”) currently held by BNP as collateral. Upon the issuance of the $15 million corporate guarantee to BNP by BP, the Borrower agrees to enter into an agreement, in form and substance satisfactory to OPIC, pursuant to which it covenants to OPIC that $4.5 million of the Freed Cash shall be used to prepay the June 30, 2006 principal payment under the Loan Agreement.
(c)	Borrower and BP enter into an amendment, in form and substance satisfactory to OPIC, of the crude optimization provisions of the Crude Supply Agency and Sales Agreement dated 21 December 2001 between BP and the Borrower (the “Profit Sharing Agreement”) to change the profit sharing by BP in the Borrower’s profits generated by its Refinery.

Net Proceeds of Offerings

Borrower and InterOil Corporation covenant that $10.5 million will be used to make capital improvements to the Borrower’s refinery in Papua New Guinea (“Refinery”) from the net proceeds of any public or private offering of debt or equity securities or borrowings closed by InterOil Corporation on or prior to March 31, 2006.

A-1

LIMITED WAVER AND AMENDMENT NO. 13 TO
LOAN AGREEMENT

     LIMITED WAIVER AND AMENDMENT NO. 13, dated as of February 15, 2005 (the “Amendment”), to the Loan Agreement dated as of June 12, 2001, as amended (the “Loan Agreement”), between EP InterOil, Ltd. (the “Borrower”) and Overseas Private Investment Corporation (“OPIC”).

WITNESSETH

     WHEREAS, the parties to this Amendment desire to waive certain requirements of, and make certain amendments to, the Loan Agreement;

     NOW, THEREFORE, the parties to this Amendment agree as follows:

     Section 1. Defined Terms; References. Unless otherwise specifically defined in this Amendment, each term used in this Amendment which is defined in the Loan Agreement has the meaning assigned to such term in the Loan Agreement. Each reference to “hereof,” “hereunder,” “herein,” “hereby” and other similar references, and each reference to “this Agreement” and other similar references contained in the Loan Agreement shall, after this Amendment becomes effective, refer to the Loan Agreement as amended by this Amendment.

     Section 2. Waivers.

     (a) OPIC hereby waives the conditions contained in Section 6.11 of the Loan Agreement.

     (b) The waiver contained in Section 2(a) hereof shall expire and cease to be in effect at midnight on March 31, 2006 (Washington, DC time).

     (c) OPIC hereby waives the requirement of Section 6.15 that the amounts on deposit in the Debt Service Reserve Account are at least equal to the Debt Service Reserve Requirement.

     (d) The waiver contained in Section 2(c) of this Amendment shall expire and cease to be in effect at on March 31, 2006 (Washington, DC time). The Borrower shall use commercially reasonable efforts to ensure drafts of all documentation for which OPIC’s consent is required will be delivered to OPIC not later than March 7, 2006.

Section 3. Amendments to Loan Agreement. (a) Section 6.11 of the Loan Agreement is hereby amended by deleting the paragraph in its entirety and replacing the paragraph with the following:

     “SECTION 6.11. Financial Ratios. The Borrower shall cause the Companies to, as of the last day of each fiscal quarter following the date of the first

Disbursement, maintain Tangible Net Worth Coverage equal to or less than 1.9 to 1. For the purposes of this Section 6.11, the ratio and amounts referred to shall be calculated on the basis of information set forth in the Financial Statements or the Supplemental Financial Statements, as applicable.”

(b) This Amendment shall expire and cease to be in effect at midnight on March 31, 2006 (Washington, DC time).

      (c) Section 6.15 of the Loan Agreement is hereby amended by deleting the paragraph in its entirety and replacing the paragraph with the following:

“SECTION 6.15. Debt Service Reserve Account. The Borrower shall establish and maintain the Debt Service Reserve Account in accordance with the Collateral Account Agreement and shall ensure that, at all times beginning on March 31, 2006, the amounts on deposit in the Debt Service Reserve Account is at least equal to the Debt Service Reserve Requirement as defined and provided for under the Collateral Account Agreement, unless prior consent in writing is received from OPIC under the Collateral Account Agreement to make withdrawals from the Debt Service Reserve Account in reduction of the amounts on deposit below the Debt Service Reserve Requirement.”

       Section 4. Conditions Precedent to Effectiveness. This Amendment shall become effective when counterparts to this Amendment have been executed and delivered by the Borrower and OPIC. Notwithstanding the foregoing, the parties acknowledge, confirm, and agree that the Loan Agreement is in full force and effect and as at the date hereof have not been rescinded or terminated and that no party is in breach of the terms of the Loan Agreement.

       Section 5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

       Section 6. No Waiver; No Course of Dealing.

       (a) No failure or delay by OPIC in exercising any right, power or remedy shall operate as a waiver thereof or otherwise impair any of its rights, powers or remedies. No single or partial exercise of any such right shall preclude any other further exercise thereof or the exercise of any other legal right. No waiver of any such right shall be effective unless given in writing.

       (b) Except as expressly provided by this Amendment, the agreements contained herein shall not limit or otherwise adversely affect OPIC’s rights under the Finance Documents. OPIC specifically reserves the right to insist on strict compliance with the terms of the Finance Documents, and by executing and delivering this Amendment, the Company expressly acknowledges such reservation of rights. Any future amendment or waiver of any provision of the Finance Documents to which OPIC is a party or has consented, shall be effective only if set forth in a writing separate and distinct from this Amendment and executed by an authorized officer of OPIC. The terms

of this Amendment will not, either alone or taken with other amendments or waivers of provisions of the Finance Documents, be deemed to create or be evidence of a course of conduct.

     Section 7. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

[Signature Page Follows.]

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.

EP INTEROIL, LTD.
By:	/s/ Phil E. Mulacek
Name: Phil E. Mulacek
Title: Director
OVERSEAS PRIVATE INVESTMENT
CORPORATION
By:	/s/ Steven A. Smith
Name: Steven A. Smith
Title: Senior Investment Officer

EX-99.13

Exhibit 13

Certifications

I, Phil E. Mulacek, certify that:

1.	I have reviewed this annual report on Form 40-F of InterOil Corporation (the “issuer”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: March 31, 2006	/s/ Phil E. Mulacek
	Phil E. Mulacek
	Chief Executive Officer

EX-99.14

Exhibit 14

Certifications

I, Tom S Donovan, certify that:

1.	I have reviewed this annual report on Form 40-F of InterOil Corporation (the “issuer”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c)	Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: March 31, 2006	/s/ Tom S. Donovan
	Tom S. Donovan
	Chief Financial Officer

EX-99.15

Exhibit 15

Certification Required by Rule 13a-14(b) or Rule 15d-14(b)
of the Securities Exchange Act of 1934 and
Section 1350 of Chapter 63 of Title 18 of the United States Code

In connection with the report of InterOil Corporation (the “Company”) on Form 40-F for the fiscal year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Phil E. Mulacek, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

Date: March 31, 2006

/s/ Phil E. Mulacek  

Phil E. Mulacek 

Chief Executive Officer 

EX-99.16

Exhibit 16

Certification Required by Rule 13a-14(b) or Rule 15d-14(b)
of the Securities Exchange Act of 1934 and
Section 1350 of Chapter 63 of Title 18 of the United States Code

In connection with the report of InterOil Corporation (the “Company”) on Form 40-F for the fiscal year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tom S. Donovan, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Report.

Date: March 31, 2006

/s/ Tom S. Donovan  

Tom S. Donovan 

Chief Financial Officer