2012 Second Quarter Results Conference Call Presentation - August 14, 2012
Chief Executive Officer
Cautionary & Forward-Looking Statements
This presentation includes “forward-looking statements” as defined in United States federal and Canadian securities laws. All statements, other than statements of historical facts,
included in this presentation that address activities, events or developments that the InterOil expects, believes or anticipates will or may occur in the future are forward-looking
statements, including in particular designing a seismic and six well delineation plan in the Triceratops structure, further testing of the Triceratops-2 well, development activities
including plans to deploy InterOil's rigs, drilling wells in PRL 15, drilling plans in PPLs 236 and 238, the development of the proposed LNG processing facility, the ability to attract a
strategic LNG partner, timing and success of the LNG partnering process, satisfaction of the State of InterOil's development plans and satisfaction of the terms of the 2009 LNG
Project Agreement with the State, benefits to stakeholders, the relationship with Pacific Rubiales, characteristics of our resources, InterOil's prospect inventory being able to
support a multi-year, multi-well exploration program, completion of the farm-in transaction with PRE, satisfaction and timing of conditions to completion of the farm-in transaction
with PRE, timing of FEED on the liquefaction facilities, the economic conditions and demand for InterOil's products in the LNG, growth opportunities, closing and timing such
closing regarding a refinery asset backed financing transaction, near term corporate goals and the satisfaction of such goals, anticipated financial conditions and performance,
business prospects, strategies, regulatory developments, the ability to obtain financing on acceptable terms, the ability to identify drilling locations and the ability to develop
reserves and production through development and exploration activities.
These statements are based on certain assumptions made by the Company based on its experience and perception of current conditions, expected future developments,
agreements with third parties, bids received in respect of the LNG partnering process and other factors it believes are appropriate in the circumstances. No assurances can be
given however, that these events will occur. Actual results will differ, and the difference may be material and adverse to the Company and its shareholders. Such statements are
subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause our actual results to differ materially from
those implied or expressed by the forward-looking statements. Some of these factors include the risk factors discussed in the Company’s filings with the Securities and Exchange
Commission and on SEDAR, including but not limited to those in the Company’s Annual Report for the year ended December 31, 2011 on Form 40-F and its Annual Information
Form for the year ended December 31, 2011. In particular, there is no established market for natural gas or gas condensate in Papua New Guinea and no guarantee that gas or
gas condensate from the Elk, Antelope and Triceratops fields will ultimately be able to be extracted and sold commercially.
Investors are urged to consider closely the disclosure in the Company’s Form 40-F, available from us at www.interoil.com or from the SEC at www.sec.gov and its Annual
Information Form available on SEDAR at www.sedar.com.
Oil and Gas Disclosure
Resources in this presentation are based on the report prepared by GJL Petroleum Consultants (“GLJ”) dated March 7, 2011 with an effective date of December 31, 2011 setting
forth certain information regarding contingent resources of InterOil’s interests in the Elk and Antelope fields in PNG.
An evaluation of the resources of gas and condensate for the Elk and Antelope fields has been completed by GLJ Petroleum Consultants Ltd., an independent qualified reserves
evaluator, as of December 31, 2011, and was prepared in accordance with the definitions and guidelines in the COGE Handbook and National Instrument 51-101 - . All resources
estimated for the Elk and Antelope fields are classified as contingent resources – economic status undetermined.
Contingent resources are those quantities of natural gas and condensate estimated, as of a given date, to be potentially recoverable from known accumulations using established
technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. The economic status of
the resources is undetermined and there is no certainty that it will be commercially viable to produce any portion of the resources. The following contingencies must be met before
the resources can be classified as reserves: (i) Sanctioning of the facilities required to process and transport marketable natural gas to market; (ii) Confirmation of a market for the
marketable natural gas and condensate; and (iii) Determination of economic viability. Although a final project has not yet been sanctioned, pre-FEED studies are ongoing for the
LNG Project and FEED studies conducted for the CS Project as options for potential monetization of the gas and condensate.
The “low” estimate is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed
the low estimate. With the probabilistic methods used, there should be at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low
estimate. The “best” estimate is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered
will be greater or less than the best estimate. With the probabilistic methods used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will
equal or exceed the best estimate. The “high” estimate is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual
remaining quantities recovered will exceed the high estimate. With the probabilistic methods used, there should be at least a 10 percent probability (P10) that the quantities
actually recovered will equal or exceed the high estimate.
The accuracy of resource estimates are in part a function of the quality and quantity of the available data and of engineering and geological interpretation and judgment. Other
factors in the classification as a resource include a requirement for more delineation wells, detailed design estimates and near term development plans. The size of the resource
estimate could be positively impacted, potentially in a material amount, if additional delineation wells determined that the aerial extent, reservoir quality and/or the thickness of the
reservoir is larger than what is currently estimated based on the interpretation of the seismic and well data. The size of the resource estimate could be negatively impacted,
potentially in a material amount, if additional delineation wells determined that the aerial extent, reservoir quality and/or the thickness of the reservoir are less than what is currently
estimated based on the interpretation of the seismic and well data.
Phil Mulacek - CEO
Group Activity and Results
Second Quarter 2012 Results:
Second quarter loss of $31.7 million reflects the oil and refined product price declines
experienced during the quarter. Rising commodity pricing in the third quarter to date has had a
positive impact on the refinery profitability.
Excluding the $23.8 million inventory write-down, operating segments of Corporate, Midstream
Refining and Downstream collectively derived a net profit for the quarter of $7.5 million, while the
investments in the development segments of Upstream and Midstream Liquefaction resulted in a
net loss of $15.4 million.
Our strong balance sheet provides liquidity in excess of our current cash position through
potential debt financing, in addition to over $102 million in un-drawn working capital and credit
We believe that the well results indicate that Triceratops-2 is a significant discovery. Together with
Pacific Rubialis Energy we plan a six well appraisal and development program to delineate this
Our prospect inventory is maturing and we anticipate that it will support our goal of a multi-year,
multi-well exploration program, with activities in PPL236, PPL237, PPL238 and PRL15.
IOC LNG Activities:
We are pleased with the outcome of the election in PNG and ready to move ahead with the LNG
partnering and government approval process.
We have received conforming and non-conforming indications for the LNG partnering and sell
down of an interest in the Elk and Antelope fields that we believe will be accretive to shareholders
from a short list of interested parties.
The end result of the partnering process is envisioned to fully satisfy all the terms of the 2009
LNG Project Agreement.
Second Quarter 2012 Financial Results
Collin Visaggio - CFO
Group Quarterly Consolidated Results
Net Profit - Trend 3 years
Key items for second quarter of 2012
Gross margin of negative $18.4 million from operations, which was impacted by large falls in crude
and product prices over the quarter, increase in premiums paid on purchases of crude, and a $23.8
million NRV write-down on the inventories balance on hand as of June 30, 2012.
Seismic costs expensed during the quarter of $5.2 million.
Summary Financial Position
June 30, 2012 December 31, 2011 June 30, 2011
Total Current Assets Total Non-Current Assets
Change in Current Assets less Current Liabilities
Six Months Ended June 30, 2012
US Dollars (Millions)
150.0 $13m $28m $118m
Opening CA - CL Invest Gulf Project and Operating Cash Flow B/F Cash and WC Movement Partner funding and Closing CA - CL
Exploration WC Other
The $20 million reduction in cash balace for the quarter is held in working capital accounts and
Group Debt Optimization Capacity
Current 13% Geared 50% Geared Open Debt
Borrowing Level Borrowing Level Capacity=37%
Debt Quantum ($m) 110 700 590
Refinery and Distribution Business Segment Update
Bill Jasper - President
Refinery & Distribution Volumes
Throughput Capacity Util. Sales Volumes
26,000 65% 200
22,000 45% 100
2Q:12 2Q:11 2Q:12 2Q:11 2Q:12 2Q:11
Total refinery throughput for the quarter ended June 30, 2012 was 23,900 barrels per operating day,
compared with 23,496 barrels per operating day during the quarter ended June 30, 2011.
Capacity utilization of the refinery for the quarter ended March 31, 2012, based on 36,500 barrels per
day operating capacity, was 60% compared with 51% for the same quarter in 2011.
Refining and Distribution Operations
PNG Economy Expanding
The PNG economy remains strong with continued robust activity in the resource sector with the
ExxonMobil LNG project now well advanced in their development stage. This project, in conjunction with
other resource sector projects, has not only generated continued growth in demand for diesel, but also
for aviation fuel which magnifies the impact to our retail businesses.
Retail Distribution Investments
Our retail business sector continues to grow with the opening of a new service station in Wewak during
the quarter, and the continued development of our “Truck Stop” concept and the roll out of new electronic
systems for retail pumps across locations. One existing site that was previously head leased was
purchased during the quarter ended June 30, 2012.
Our continued safety focus has helped us achieve these great levels of performance and we now have
achieved 8.2 million man hours without a lost time injury for our InterOil employees and over 6.5 million
man hours for our contract staff.
Triceratops-2 Well Update and Key Events
The Triceratops-2 well was spudded on January 15, 2012
The well reached total depth of 7,736 feet (2,236 meters) after a total of 98 days of drilling
Completed wire line logging including vertical seismic profile and side wall coring in April, 2012
Testing confirmed gas in the 397 feet (121 metre) thick upper limestone zone at rates of up to 28
MMcf/d in May, 2012
Well log and pressure data indicate two separate reservoir intervals separated by a vertical sealing section of
marl rock between 4,869 feet (1,484 meters) and 5,069 feet (1,545 meters).
Upper limestone 4,471 feet to 4,869 feet (1,363 to 1,484 mMD) with a 397 feet (121 meters) gross
Lower limestone from 5,069 feet to 7,736 feet (1,545 to 2,236 meters) with a 2,667 feet (691 meters )
Logging and testing established gas on rock (no water contact) in the upper limestone. The reservoir pressure
lines up with the Bwata-1 well and the gas is of similar composition.
In the lower limestone, openhole drill stem testing established a higher pressure aquifer than in the offset
As discussed with and at the direction of the PNG Department of Petroleum and Energy, in June/August of 2012
the well was cased and cased hole logging and testing was completed.
After setting a retainer at 5,336 feet (1,626.5 metres) and reacidising the well in DST#10A test confirmed gas in
the lower limestone at rates up to 3 MMcfd. The gas had a higher field reported condensate yield between 45
and 65 bbl/MMcf through a separator (2.6 to 3.8 times higher than the upper limestone).
The DST#10A gas had a slightly higher CO2 content (< 1%) and H2S was recorded. Although the DST#10A gas
appears compositionaly different, the reservoir pressure lies on the same depth pressure trend.
A lower limestone gas/water contact was establsihed at 5,286 feet (1,611 meters measured depth (MD)). This is
approximately 900 feet higher than contact in the offset Bwata-1 well.
Triceratops-3 will be designed to delineate the condensate rich reservoir in a reefal setting.
In summary, our current model is that we are working with two separate limestone reservoirs with Triceratops-2
being the first well to penetrate the lower limestone.
Triceratops-2 Interpreted well log and DST Intervals
Upper zone tested in DST#7, #8 and #9
• Gas Rate: ~27 MMcfd DST#9
• CGR: ~16-17 bbl/MMcfd (Bwata-1 Legacy ~6.7)
• Gas Gravity: SG 0.672 to 0.706
• CO2: ~0.3 mol%
• H2S: Not recorded
• Gas Contact: Gas on rock
Argillaceous Limestone, Marl likely
Lower zone tested in open hole DST’s #1 through #6
Hole Test and cased hole testing DST#10 and #10A
•Gas Rate: ~3 MMcfd DST#10A
•CGR: 45 to 60 bbl/MMcfd
Test #1 to •Gas Gravity: 0.7 (range 0.68 and 0.71)
•CO2: range >0.3 mol% and
•H2S: Recorded but variable
•Gas Contact: Gas Water Contact at 1,611 mMD
•Water Gradient: Higher aquifer pressure than Bwata-1
Potential Tall Hydrocarbon Column Under Large Area Of Closure
Seismically defined structural closure of over 125 Km2.
Triceratops-2 and Bwata-1 Depth Pressure plots
Projected Highest Gas (see Map at left)
100 TT-2 Data
0 Bwata-1 Data
-100 Bwata-1 Aquife (.0423 psi/ft)r
-200 Triceratops 2 Top Carbonate
-300 Projected Gas Gradient
D -400 Triceratops-2 Data above marl
e -500 Triceratops-2 MPLT Data
-700 Approx. 5,500 ft (1700 m)
-800 Projected Gas Column
V -1000 Highest Known Gas TT-2
-1600 Gas Water
Lowest Known Gas Bwata-1
1,800.00 2,000.00 2,200.00 2,400.00 2,600.00 2,800.00 3,000.00 3,200.00
Column Height Bwata-1
0 2 4 >5,500ft
Seismic strike line BW05IOL10 and Triceratops-2 showing up
dip attic to the west
Triceratops Key Results
The diagenetic features (presence of dolomite), biostratigraphy and FMI sedimentary facies
interpretation support the interpretation that the Triceratops-2 well is on the flank of a shallow
marine carbonate and reefal build up. Detailed petrophysical and petrographic studies are
currently in progress.
The reservoir development in Triceratops-2 is significantly better than the Triceratops-1 and
Bwata-1 and the Elk-4 well (which is in a similar setting on the Antelope reef).
Unlike at Antelope, there appears to be an intra-formational seal developed potentially dividing
the carbonate into two stratigraphic units. An upper unit and a lower condensate rich unit.
It is our view that the results of testing at Triceratops-2 have established gas on rock in the upper unit
and established gas and a separate gas water contact in the lower unit.
Importantly the gas pressures from both units lie on the same gradient as each other and the Bwata-1
There is an enormous attic in terms of height and areal extent to the south, west and northwest
of the Triceratops-2 well.
We believe Triceratops-2 is a significant discovery well and the southern potential reefal attic
and the western attic will be our focus during the forward seismic and well program.
Triceratops Delineation Plan
InterOil has suspended Triceratops-2 as a future producing well, and with the consent of the PNG
Department of Petroleum and Energy, released the rig from the Triceratops-2 location.
InterOil, with our new partner Pacific Rubialis Energy, intends to analyze data from the Triceratops-2 well
and samples undergoing laboratory analyses. New potential field data, once integrated into our
structural model, should should improve our plans for additional seismic data acquisition.
Additional seismic data acquisition will assist to:
identify the limits of the western and north western extent of the field
provide in-fill data to define the better shallow marine reef reservoir facies
map the vertical and lateral extent of the separate limestones.
A Triceratops multiwell production development program will be finalized in the near term.
Elk and Antelope Appraisal
InterOil Rig#2 will be mobilised to Antelope-3 rig site and InterOil Rig#3 will be mobilised to the Elk-3 site
currently under construction. These wells will be drilled to complete the work program obligations for
PRL 15 and will provide valuable reservoir data for further production development planning.
PPL236 and PPL 238
The acquisition of the Seismic Strike KW08IOL12 and TU04IOL12 and processing of the data has been
completed. Detailed mapping of InterOil’s recent seismic and available legacy seismic acquired by
previous operators has been completed. The selection of potential exploratory well locations for future
lease obligation wells has been completed.
Planned Elk-3 and Antelope-3 Drilling Locations
Hou Creek Camp – Northern access to PRL 15
Elk-3 Drilling location
Phil Mulacek - CEO
InterOil Has Created Value and Has Upside Potential
InterOil is currently trading with a resource valuation of approximately $0.75per mcf
IOC enterprise value ~ $4.2 Billion, as of August 13, 2012 ($87 per share)
IOC ownership of Elk and Antelope = 58.6% of ~9.4 Tcfe* or ~5.6 Tcfe*
$4.2 B/5.6 Tcfe = $0.75/mcfe
Valuation excludes any consideration for Triceratops discovery, 40 additional exploration
prospects, refinery and downstream assets
InterOil believes that recent transactions of economically advantaged assets imply
significant upside potential
Growth opportunities across the value chain
Distribution of refined product
Capacity utilization of refinery
Monetization of the Elk and Antelope resources
Condensate stripping plant development
LNG plant development
Exploration potential on 3.9 million acres
The estimate of resources of 9.4 tcfe (“best estimate” of gross contingent resources) and
5.6 tcfe (“best estimate” of net contingent resources) is based on the independent
resources report prepared by GJL Petroleum Consultants dated March 7, 2011 with an
effective date of December 31, 2011 setting forth certain information regarding contingent
resources of InterOil’s interests in the Elk and Antelope fields in PNG. Please refer to the
statement of resources in the company’s 2011 Annual Information Form filed on Triceratops-2 DST#8 May 14, 2012
www.sedar.com for additional disclosure.
Closing remarks and Corporate Operating Goals
Near term corporate goals:
Generate positive EBITDA from our operating businesses and have a positive year end financial
File an application for a PRL (Petroleum Retention License) for Triceratops Development
Ramp up to two rig drilling program at Elk and Antelope.
Continue LNG pre-investment to drive the development timeline and reduce EPC contractor and
Strategic LNG Partner bid risks
Enter into an agreement with an LNG partner
IOC LNG Activities
Our sell down and partnering process has now reached a stage where we expect to be able to
demonstrate to the DPE, in the coming weeks, our ability to abide by all of the terms of the 2009
LNG Project Agreement.
This accords with our stated intention since the previously announced engagement of advisors for
this process at the end of last year.
InterOil, and the partner we select, intend to bring an LNG processing facility to Papua New
Guinea of a nature and in a manner which will be satisfactory to the State.
Our overarching goal remains to continue driving value for our shareholders,
continue supporting safe and efficient operations for our employees, and
continue to be a good partner to those with whom we do business.
“An Energy Development Company With
Significant Exploration Potential”