##### 



InterOil CorporationRevised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)Three months and quarter ended March 31, 2007 and 2006




---



##### 



InterOil CorporationRevised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 Table of contents
 Revised Consolidated Balance Sheets
    
    
    1Revised Consolidated Statements of Operations
    
    
    2Revised Consolidated Statements of Cash Flows
    
    
    3Revised Consolidated Statements of Shareholders Equity
    
    
    4Revised Consolidated Statements of Comprehensive Income
    
    
    5Notes to the Revised Consolidated Financial Statements
    
    
    6




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##### 



InterOil CorporationRevised Consolidated Balance Sheets
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 As atMarch 31,
    
    
    December 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2006$ (Restated)
    
    
    $ (Restated)
    
    
    $ (Restated)AssetsCurrent assets:Cash and cash equivalents (note 6)
    
    
    24,102,123
    
    
    
    31,681,435
    
    
    
    38,434,605Cash restricted (note 8)
    
    
    34,930,567
    
    
    
    29,301,940
    
    
    
    13,568,494Trade receivables (note 9)
    
    
    30,765,770
    
    
    
    67,542,902
    
    
    
    35,085,219Commodity derivative contracts (note 8)
    
    
    
    
    
    
    1,759,575
    
    
    
    1,484,347Other assets
    
    
    603,399
    
    
    
    2,954,946
    
    
    
    539,574Inventories (note 10)
    
    
    109,549,340
    
    
    
    67,593,558
    
    
    
    50,062,226Prepaid expenses
    
    
    1,313,410
    
    
    
    880,640
    
    
    
    780,807Assets held for sale (note 11)
    
    
    
    
    
    
    
    
    
    
    3,368,750Total current assets
    
    
    201,264,609
    
    
    
    201,714,996
    
    
    
    143,324,022Deposit on business acquisition
    
    
    
    
    
    
    
    
    
    
    4,500,000Cash restricted (note 8)
    
    
    3,223,904
    
    
    
    3,217,284
    
    
    
    609,347Deferred financing costs (note 17)
    
    
    
    
    
    
    1,716,757
    
    
    
    1,215,852Plant and equipment (note 11)
    
    
    240,694,956
    
    
    
    242,642,077
    
    
    
    235,123,771Oil and gas properties (note 12)
    
    
    59,642,457
    
    
    
    54,524,347
    
    
    
    26,405,871Future income tax benefit
    
    
    1,601,550
    
    
    
    1,424,014
    
    
    
    998,113Total assets
    
    
    506,427,476
    
    
    
    505,239,475
    
    
    
    412,176,976Liabilities and shareholders equityCurrent liabilities:Accounts payable and accrued liabilities
    
    
    75,998,972
    
    
    
    73,310,793
    
    
    
    31,162,494Income tax payable
    
    
    3,363,357
    
    
    
    2,784,576
    
    
    
    3,057,393Commodity derivative contracts (note 8)
    
    
    227,980
    
    
    
    
    
    
    
    Working capital facility  crude feedstock (note 13)
    
    
    41,120,611
    
    
    
    36,873,508
    
    
    
    61,342,469Deferred hedge gain (note 8)
    
    
    
    
    
    
    1,385
    
    
    
    1,325,913Unsecured loan (note 16)
    
    
    
    
    
    
    
    
    
    
    22,856,684Deferred liquefaction project liability (note 17)
    
    
    6,553,080
    
    
    
    6,553,080
    
    
    
    Current portion of secured loan (note 17)
    
    
    13,500,000
    
    
    
    13,500,000
    
    
    
    9,000,000Current portion of indirect participation interest  PNGDV (note 18)
    
    
    1,116,634
    
    
    
    730,534
    
    
    
    Total current liabilities
    
    
    141,880,634
    
    
    
    133,753,876
    
    
    
    128,744,953Accrued financing costs (note 17)
    
    
    725,000
    
    
    
    1,087,500
    
    
    
    935,554Secured loan (note 17)
    
    
    184,147,381
    
    
    
    184,166,433
    
    
    
    71,500,000Indirect participation interest (note 18)
    
    
    96,086,369
    
    
    
    96,861,259
    
    
    
    96,861,259Indirect participation interest  PNGDV (note 18)
    
    
    807,860
    
    
    
    1,190,633
    
    
    
    9,685,830Total liabilities
    
    
    423,647,244
    
    
    
    417,059,701
    
    
    
    307,727,596Non-controlling interest (note 19)
    
    
    5,757,090
    
    
    
    5,759,206
    
    
    
    5,918,348Shareholders equity:Share capital (note 21)
    
    
    234,908,696
    
    
    
    233,889,366
    
    
    
    223,934,500Authorised  unlimitedIssued and outstanding  29,900,842
(Dec 31, 2006  29,871,180)
(Mar 31, 2006  29,163,320)Contributed surplus
    
    
    5,266,763
    
    
    
    4,377,426
    
    
    
    3,194,109Warrants (note 23)
    
    
    2,119,034
    
    
    
    2,137,852
    
    
    
    2,137,852Accumulated Other Comprehensive Income
    
    
    (279,986
    )
    
    
    1,492,869
    
    
    
    215,457Conversion options (note 24)
    
    
    19,840,000
    
    
    
    20,000,000
    
    
    
    20,000,000Accumulated deficit
    
    
    (184,831,365
    )
    
    
    (179,476,945
    )
    
    
    (150,950,886
    )Total shareholders equity
    
    
    77,023,142
    
    
    
    82,420,568
    
    
    
    98,531,032Total liabilities and shareholders equity
    
    
    506,427,476
    
    
    
    505,239,475
    
    
    
    412,176,976
 See accompanying notes to the consolidated financial statements. Commitments and contingencies (note 25)
On behalf of the Board  Phil Mulacek, Director            Christian Vinson, Director
 1




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##### 



InterOil CorporationRevised Consolidated Statement of Operations
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 Quarter endedMarch 31,
    
    
    March 31,2007
    
    
    2006$(Restated)
    
    
    $(Restated)RevenueSales and operating revenues
    
    
    125,918,198
    
    
    
    108,628,782Interest
    
    
    688,408
    
    
    
    607,080Other
    
    
    290,173
    
    
    
    655,987126,896,779
    
    
    
    109,891,849ExpensesCost of sales and operating expenses
    
    
    112,228,832
    
    
    
    110,195,321Administrative and general expenses
    
    
    6,480,970
    
    
    
    4,105,278Depreciation and amortization
    
    
    3,459,759
    
    
    
    2,837,184Exploration costs, excluding exploration impairment (note 12)
    
    
    3,321,944
    
    
    
    3,559,730Exploration impairment (note 12)
    
    
    14,283
    
    
    
    1,482,560Legal and professional fees
    
    
    745,462
    
    
    
    1,049,511Short term borrowing costs
    
    
    1,189,913
    
    
    
    1,646,177Long term borrowing costs
    
    
    3,831,665
    
    
    
    1,477,022Foreign exchange loss/(gain)
    
    
    463,750
    
    
    
    1,057,065131,736,578
    
    
    
    127,409,848Loss before income taxes and non-controlling interest
    
    
    (4,839,799
    )
    
    
    (17,517,999
    )Income taxesCurrent
    
    
    (499,865
    )
    
    
    176,083Future
    
    
    2,500
    
    
    
    (51,326
    )(497,365
    )
    
    
    124,757Loss before non-controlling interest
    
    
    (5,337,164
    )
    
    
    (17,393,242
    )Non-controlling interest (note 19)
    
    
    (17,256
    )
    
    
    120,488Net loss
    
    
    (5,354,420
    )
    
    
    (17,272,744
    )Basic loss per share(note 24)
    
    
    (0.18
    )
    
    
    (0.59
    )Diluted loss per share(note 24)
    
    
    (0.18
    )
    
    
    (0.59
    )Weighted average number of common shares outstandingBasic and diluted
    
    
    29,896,145
    
    
    
    29,163,320
 See accompanying notes to the consolidated financial statements
 2




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##### 



InterOil CorporationRevised Consolidated Statement of Cash Flows
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 Quarter endedMarch 31,
    
    
    March 31,2007
    
    
    2006$ (Restated)
    
    
    $ (Restated)Cash flows provided by (used in):Operating activitiesNet (loss) (note 5)
    
    
    (5,354,420
    )
    
    
    (17,272,744
    )Adjustments for non-cash transactionsNon-controlling interest
    
    
    17,256
    
    
    
    (120,498
    )Depreciation and amortization
    
    
    3,459,759
    
    
    
    2,837,184Future income tax asset
    
    
    (177,536
    )
    
    
    60,785Loss on sale of plant and equipment
    
    
    
    
    
    
    101,736Impairment of plant and equipment
    
    
    
    
    
    
    755,857Amortization of discount on debt
    
    
    
    
    
    
    14,445Amortization of deferred financing costs
    
    
    105,894
    
    
    
    40,964Gain/(loss) on unsettled hedge contracts
    
    
    (53,632
    )
    
    
    57,963Gain on derivative contracts
    
    
    247,580
    
    
    
    265,100Stock compensation expense
    
    
    889,337
    
    
    
    260,523Inventory revaluation
    
    
    
    
    
    
    3,944,819Oil and gas properties expensed
    
    
    3,336,227
    
    
    
    5,042,290Unrealized foreign exchange loss/(gain)
    
    
    463,750
    
    
    
    1,057,065Non-cash interest on secured loan facility
    
    
    1,507,517
    
    
    
    Change in non-cash operating working capitalDecrease/(increase) in trade receivables
    
    
    37,722,876
    
    
    
    14,703,463Decrease/(increase) in other assets and prepaid expenses
    
    
    1,918,777
    
    
    
    329,030(Increase)/decrease in inventories
    
    
    (42,166,839
    )
    
    
    (11,298,075
    )Decrease/(increase) in accounts payable, accrued liabilities
and income tax payable
    
    
    (6,895,988
    )
    
    
    7,387,292(4,979,442
    )
    
    
    8,167,199Investing activitiesExpenditure on oil and gas properties
    
    
    (11,652,767
    )
    
    
    (11,626,192
    )Proceeds from indirect participation interest on cash calls
    
    
    9,865,856
    
    
    
    Expenditure on plant and equipment
    
    
    (604,203
    )
    
    
    (4,800,292
    )Expenditure on oil and gas properties applied against
indirect participation interest (note 18)
    
    
    3,327
    
    
    
    Proceeds from PNG LNG cash call
    
    
    2,000,000
    
    
    
    Proceeds received on sale of assets
    
    
    
    
    
    
    12,142Acquisition of subsidiary (note 14)
    
    
    (1,815,660
    )
    
    
    Deposit on business acquisition
    
    
    
    
    
    
    (4,500,000
    )(Increase)/decrease in restricted cash held as security on
borrowings
    
    
    (5,635,247
    )
    
    
    2,484,428Change in non-cash working capitalIncrease/(decrease) in accounts payable and accrued liabilities
    
    
    926,100
    
    
    
    (2,926,186
    )(6,912,594
    )
    
    
    (21,356,100
    )Financing activitiesProceeds from/(repayments of) unsecured loan
    
    
    
    
    
    
    1,403,552Proceeds from/(repayments of) working capital facility
    
    
    4,247,103
    
    
    
    (9,381,853
    )Proceeds from conversion of warrants
    
    
    65,621
    
    
    
    4,312,724
    
    
    
    (7,978,301
    )Increase/(decrease) in cash and cash equivalents
    
    
    (7,579,312
    )
    
    
    (21,167,202
    )Cash and cash equivalents, beginning of period
    
    
    31,681,435
    
    
    
    59,601,807Cash and cash equivalents, end of period (note 6)
    
    
    24,102,123
    
    
    
    38,434,605
 See accompanying notes to the consolidated financial statements
 See note 7 for non cash financing and investing activities
 3




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##### 



InterOil Corporation
Revised Consolidated Statements of Shareholders Equity
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL CORPORATION LOGO)
 Quarter ended
    
    Year ended
    
    Quarter endedMarch 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006$ (Restated)
    
    $ (Restated)
    
    $ (Restated)Share capitalAt beginning of period
    
    
    233,889,366
    
    
    
    223,934,500
    
    
    
    223,934,500Issue of capital stock (note 21)
    
    
    1,019,330
    
    
    
    9,954,866
    
    
    
    At end of period
    
    
    234,908,696
    
    
    
    233,889,366
    
    
    
    223,934,500Contributed surplusAt beginning of period
    
    
    4,377,426
    
    
    
    2,933,586
    
    
    
    2,933,586Stock compensation (note 22)
    
    
    889,337
    
    
    
    1,443,840
    
    
    
    260,523At end of period
    
    
    5,266,763
    
    
    
    4,377,426
    
    
    
    3,194,109WarrantsAt beginning of period
    
    
    2,137,852
    
    
    
    2,137,852
    
    
    
    2,137,852Movement for period (note 23)
    
    
    (18,818
    )
    
    
    
    
    
    
    At end of period
    
    
    2,119,034
    
    
    
    2,137,852
    
    
    
    2,137,852Accumulated Other Comprehensive IncomeAt beginning of period
    
    
    1,492,869
    
    
    
    477,443
    
    
    
    477,443Deferred hedge gain recognised on transition
    
    
    1,385
    
    
    
    
    
    
    
    Deferred hedge gain/(loss) movement for period, net of tax
    
    
    (1,774,247
    )
    
    
    
    
    
    
    Foreign
currency translation adjustment movement for period, net of tax
    
    
    7
    
    
    
    1,015,426
    
    
    
    (261,986
    )At end of period
    
    
    (279,986
    )
    
    
    1,492,869
    
    
    
    215,457Conversion optionsAt beginning of period
    
    
    20,000,000
    
    
    
    20,000,000
    
    
    
    20,000,000Movement for period (note 18)
    
    
    (160,000
    )
    
    
    
    
    
    
    At end of period
    
    
    19,840,000
    
    
    
    20,000,000
    
    
    
    20,000,000Accumulated deficitAt beginning of period
    
    
    (179,476,945
    )
    
    
    (133,678,142
    )
    
    
    (133,678,142
    )Net (loss) for period
    
    
    (5,354,420
    )
    
    
    (45,798,803
    )
    
    
    (17,272,744
    )At end of period
    
    
    (184,831,365
    )
    
    
    (179,476,945
    )
    
    
    (150,950,886
    )Shareholders equity at end of period
    
    
    77,023,142
    
    
    
    82,420,568
    
    
    
    98,531,032
 See accompanying notes to the consolidated financial statements
 4




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##### 



InterOil Corporation
Revised Statements of Comprehensive Income
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL CORPORATION LOGO)
 Quarter endedMarch 31,
    
    March 31,2007
    
    2006$ (Restated)
    
    $ (Restated)Net loss
    
    
    (5,354,420
    )
    
    
    (17,272,744
    )Other comprehensive income, net of tax
    
    
    (1,772,855
    )
    
    
    (261,986
    )Comprehensive income/(loss)
    
    
    (7,127,275
    )
    
    
    (17,534,730
    )
 See accompanying notes to the consolidated financial statements
 5




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##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 1. Nature of operations and organization
    2. Restatement of Consolidated financial statements for the quarters ended March 31, 2007 and
2006
      6




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##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 2. Restatement of Consolidated financial statements for the quarters ended March 31, 2007 and
2006 (contd)
   Restatement to Consolidated Balance Sheets
 March 31, 2007
    
    March 31, 2006Original
    
    
    
    
    
    Restated
    
    Original
    
    
    
    
    
    RestatedBalance
    
    Adjustments
    
    Balance
    
    Balance
    
    Adjustments
    
    Balance
    
    Reference$
    
    $
    
    $
    
    $
    
    $
    
    $Non-current assetsOil and gas properties (note 12)
    
    
    42,567,844
    
    
    
    17,074,613
    
    
    
    59,642,457
    
    
    
    16,709,923
    
    
    
    9,695,948
    
    
    
    26,405,871
    
    
    (i), (ii)Current and Non-current liabilitiesIndirect participation interest (note 18)
    
    
    49,246,182
    
    
    
    46,840,187
    
    
    
    96,086,369
    
    
    
    55,993,003
    
    
    
    40,868,256
    
    
    
    96,861,259
    
    
    (i), (iii), (iv), (v)Indirect participation interest  PNGDV (note 18)
    
    
    1,781,271
    
    
    
    143,223
    
    
    
    1,924,494
    
    
    
    9,685,830
    
    
    
    
    
    
    
    9,685,830
    
    
    (vii)Shareholders EquityShare capital (note 21)
    
    
    234,571,924
    
    
    
    336,772
    
    
    
    234,908,696
    
    
    
    223,934,500
    
    
    
    
    
    
    
    223,934,500
    
    
    (iv)Conversion options (note 18)
    
    
    25,271,563
    
    
    
    (5,431,563
    )
    
    
    19,840,000
    
    
    
    25,475,368
    
    
    
    (5,475,368
    )
    
    
    20,000,000
    
    
    (iii), (iv)Accumulated deficit
    
    
    (160,017,361
    )
    
    
    (24,814,004
    )
    
    
    (184,831,365
    )
    
    
    (125,253,946
    )
    
    
    (25,696,940
    )
    
    
    (150,950,886
    )
 Restatement to Consolidated Statement of Operations
 Quarter ended March 31, 2007
    
    Quarter ended March 31, 2006Original
    
    
    
    
    
    Restated
    
    Original
    
    
    
    
    
    RestatedBalance
    
    Adjustments
    
    Balance
    
    Balance
    
    Adjustments
    
    Balance
    
    Reference$
    
    $
    
    $
    
    $
    
    $
    
    $ExpensesExploration costs, excluding exploration
impairment (note 12)
    
    
    3,367,903
    
    
    
    (45,959
    )
    
    
    3,321,944
    
    
    
    3,193
    
    
    
    3,556,537
    
    
    
    3,559,730
    
    
    (ii)Exploration impairment (note 12)
    
    
    14,283
    
    
    
    
    
    
    
    14,283
    
    
    
    241,553
    
    
    
    1,241,007
    
    
    
    1,482,560
    
    
    (ii)Accretion expense (note 18)
    
    
    340,347
    
    
    
    (340,347
    )
    
    
    
    
    
    
    1,888,191
    
    
    
    (1,888,191
    )
    
    
    
    
    
    (v), (vii)3,722,533
    
    
    
    (386,306
    )
    
    
    3,336,227
    
    
    
    2,132,937
    
    
    
    2,909,353
    
    
    
    5,042,290Net loss
    
    
    5,740,726
    
    
    
    (386,306
    )
    
    
    5,354,420
    
    
    
    14,363,391
    
    
    
    2,909,353
    
    
    
    17,272,744
 7




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##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 2. Restatement of Consolidated financial statements for the quarters ended March 31, 2007 and
2006 (contd)
  (i)
    
    Conveyance accounting under SFAS 19 adopted by the Company from day one under the original
model has been reversed and non-financial liability maintained at initially recognized value
of $105,000,000, being the estimated cost of completing the eight well program, less
transaction costs. The remaining $20,000,000 has been bifurcated and presented under equity
for conversion options under residual basis. Under the revised model, conveyance
accounting will be triggered only on the lapse of conversion option available to the investors
or they elect to participate in the PDL for a successful well. This adjustment has the effect
of increasing the IPI liability and Oil and gas properties from the superseded balance as at
March 31, 2007 by $51,213,190 (March 31, 2006  $42,928,569).(ii)
    
    As conveyance accounting is not triggered from day one under the revised model, the Company
will account for the exploration costs relating to the eight well program under successful
efforts accounting policy adopted by the Company as noted under note 3(r) of the audited
consolidated financial statements  Oil and gas properties. All geological and geophysical
(G&G) costs relating to the exploration program will be expensed as incurred and all
drilling costs will be capitalized and assessed for recovery at each period. Under the
earlier model, all costs relating to the eight well exploration program (covered by the IPI
Agreement) was directly offset against the IPI liability and not capitalized to Oil and gas
properties or expensed in InterOils Statement of income. This was based on Managements view
that the conveyance had occurred from day one of the Agreement and these exploration costs
were being expended on behalf of the IPI Investors, reducing the IPI liability in the process.
This adjustment has the effect of decreasing the exploration costs for the quarter ended March
31, 2007 by $45,958 (same period of 2006  increasing the exploration costs by $3,556,537).
The exploration impairment for the quarter ended March 31, 2006 increased by $1,241,007; there
was no impact due to the adjustment on the quarter ended March 31, 2007. The impact of this
profit and loss adjustment on the exploration costs have the corresponding effect on the Oil
and gas properties carried forward in the balance sheet.(iii)
    
    In the superseded financial statements, the conversion option feature in the IPI Agreement
was valued and bifurcated using relative fair value approach based on CICA 3861  Financial
Instruments Disclosure and Presentation. CICA 3861 Para .22 gives the option to value the
components using the relative fair value approach (as adopted earlier) or the residual method
by valuing the easier component first. Based on discussions with the SEC, Management has
adopted an accounting policy change to value the liability component first and assign the
residual value to the equity component. This revised residual basis methodology has been
adopted due to difficulties in reliably estimating the fair value of the equity component
(taking into account all the scenarios in which the values of both the drilling program
interests and common shares could change) and appropriately applying the relative fair value
approach. The non-financial liability has been valued at $105,000,000, being the estimated
expenditures to complete the eight well drilling program (same estimate as disclosed in
December 31, 2005 financials), and the residual value of $20,000,000 has been allocated to
conversion option presented under Shareholders equity. This revision was made as it was
determined that the non-financial liability component was more easily
measurable than the
conversion option feature. This adjustment has the effect of increasing the IPI liability and
correspondingly reducing the Conversion options from the superseded balance as at March 31,
2007 by $5,475,368 (March 31, 2006  $5,475,368).(iv)
    
    Should the conversion option be exercised by an investor, the non-financial liability and the
conversion feature relating to that investor would be transferred to share capital for the
number of shares issued. Under the original model if a conversion had taken place, the
proportionate portion of the remaining liability and the share conversion option under equity
would have been reclassified into share capital. Due to this adjustment an additional amount
of $336,772 has been credited to the share capital in the quarter ended March 31, 2007 for the
conversion by one of the investors of their interest into 26,667 shares. There were no
conversions in the quarter ended March 31, 2006.(v)
    
    As noted above, the Company had, under the original model, bifurcated the non-financial
liability and conversion option feature, and based on this allocation, the initial value of
the non-financial liability did not represent the total expected cash costs to fulfill the
contract. InterOil had drawn comparisons between this situation and the accounting approach
that is adopted with respect to mandatory redeemable securities, where there can also be a
difference between the initial value of the security and the redemption price, and accreted
the non-financial liability upwards to reflect the cost of completion of the eight well
program over the budgeted timeline of the program. Based on the revised model, the liability
is maintained at the undiscounted value and accretion costs are no longer recognized. This
adjustment has the effect of reducing the loss for the quarter ended March 31, 2007 by
$305,937 (2006  $1,888,191). These decreases to the accretion expense have the corresponding
effect of increasing the IPI liability in the balance sheet.
 8




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 2. Restatement of Consolidated financial statements for the quarters ended March 31, 2007 and
2006 (contd)
 (vi)
    
    When conveyance is triggered on election by the investors to participate in a PDL or when the
investor forfeits the conversion option, conveyance accounting will be applied. This would
entail determination of proceeds for the interests conveyed and the cost of that interest as
represented in the Oil and gas properties in the balance sheet. The difference between
proceeds on conveyance and capitalized costs to the interests conveyed will be recognized as
gain or loss in the Statement of operations following the guidance in paragraphs 47(h) and
47(j) of SFAS 19. There is no impact on the consolidated financial statements for the quarters
ended March 31, 2007 and 2006 due to this adjustment as conveyance has not been triggered
based on this revised model during these periods.(vii)
    
    Management has applied the same methodology on the discounting and accretion expense in
relation to the PNG Drilling Ventures liability and reversed the initial discounting of the
liability on recognition and the related accretion charges. This adjustment has the effect of
decreasing the loss for the quarter ended March 31, 2007 by $34,411 (2006  nil). This
adjustment also has the corresponding effect of decreasing the Indirect Participation Interest
  PNGDV liability.(viii)
    
    The impact of all the above adjustments on the consolidated statement of income for the
quarters ended March 31, 2007 and 2006 has been a decrease in the loss by $386,306 ($0.01 per
share) and an increase in the loss by $2,909,353 ($0.10 per share) respectively.(ix)
    
    In accordance with IPI Agreement, InterOil has made cash calls for the extended well programs
performed on the exploratory wells that form part of the IPI Agreement. These are additional
cash calls made from the IPI investors for their interest in specific extended well programs
undertaken by the Company. These cash calls were shown as a liability when received and
reduced as amounts were spent on the extended well programs. There has been no change to the
accounting treatment of the cash calls as these amounts are received for specific programs and
there is no conversion option feature or any changes to the investor participation interest
due to contributions to these cash calls.
  3. Significant accounting policies
  (a) Basis of preparation
    (b) Changes in accounting policies
 Financial instrument and hedging activities
  
    
    Section 1530, Comprehensive Income;
    
    Section 3251, Equity;
 9




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 3. Significant accounting policies (contd)
 
    
    Section 3855, Financial Instruments  Recognition and Measurement; and
    
    Section 3865, Hedges.
  Comprehensive Income
  Financial Instruments  Recognition and Measurement
  Derivatives
  Hedge Accounting
    Accounting Changes
  10




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 3. Significant accounting policies (contd)
 (c) Going concern
    (d) Reclassification
  4. Financial Risk Management
   (a) Market risk
 Foreign exchange risk
    Price risk
    11




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 4. Financial Risk Management (contd)
 Product risk
   (b) Credit risk
   (c) Liquidity risk
  (d) Cash flow and fair value interest rate risk
    (e) Geographic risk
  5. Segmented financial information (Restated)
    12




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 5. Segmented financial information (Restated) (contd)
   Notes to and forming part of the segment information
   Midstream Refining and
    
    Midstream 
    
    
    
    
    
    
    
    
    
    ConsolidationQuarter ended March 2007 (Restated)
    
    Upstream
    
    Marketing
    
    Liquefaction
    
    Downstream
    
    Corporate
    
    adjustments
    
    TotalRevenues from external customers
    
    
    
    
    
    
    48,212,750
    
    
    
    
    
    
    
    77,705,448
    
    
    
    
    
    
    
    
    
    
    
    125,918,198Intersegment revenues
    
    
    
    
    
    
    54,833,089
    
    
    
    
    
    
    
    19,676
    
    
    
    1,933,293
    
    
    
    (56,786,058
    )
    
    
    Interest revenue
    
    
    188,559
    
    
    
    9,485
    
    
    
    
    
    
    
    2,911
    
    
    
    526,512
    
    
    
    (39,058
    )
    
    
    688,409Other revenue
    
    
    205,948
    
    
    
    
    
    
    
    
    
    
    
    84,225
    
    
    
    
    
    
    
    
    
    
    
    290,173Total segment revenue
    
    
    394,507
    
    
    
    103,055,324
    
    
    
    
    
    
    
    77,812,260
    
    
    
    2,459,805
    
    
    
    (56,825,116
    )
    
    
    126,896,780Cost of sales and operating expenses
    
    
    
    
    
    
    94,841,693
    
    
    
    
    
    
    
    71,607,548
    
    
    
    
    
    
    
    (54,220,409
    )
    
    
    112,228,832Office and admin and other expenses
    
    
    814,727
    
    
    
    1,771,088
    
    
    
    322,640
    
    
    
    3,043,692
    
    
    
    3,747,249
    
    
    
    (1,933,293
    )
    
    
    7,766,103Foreign exchange loss/(gain)
    
    
    252,693
    
    
    
    107,449
    
    
    
    (458
    )
    
    
    132,558
    
    
    
    (28,492
    )
    
    
    
    
    
    
    463,750Exploration costs, excluding exploration impairment
    
    
    3,321,944
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,321,944Exploration impairment
    
    
    14,283
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,283Depreciation and amortisation
    
    
    308,876
    
    
    
    2,716,674
    
    
    
    
    
    
    
    455,634
    
    
    
    11,083
    
    
    
    (32,508
    )
    
    
    3,459,759Interest expense
    
    
    
    
    
    
    2,090,645
    
    
    
    
    
    
    
    39,519
    
    
    
    2,390,804
    
    
    
    (39,060
    )
    
    
    4,481,908Total segment expenses
    
    
    4,712,523
    
    
    
    101,527,549
    
    
    
    322,182
    
    
    
    75,278,951
    
    
    
    6,120,644
    
    
    
    (56,225,270
    )
    
    
    131,736,579(Loss)/income before income taxes and
non-controlling
interest
    
    
    (4,318,016
    )
    
    
    1,527,775
    
    
    
    (322,182
    )
    
    
    2,533,309
    
    
    
    (3,660,839
    )
    
    
    (599,846
    )
    
    
    (4,839,799
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (483,099
    )
    
    
    (14,266
    )
    
    
    
    
    
    
    (497,365
    )Non controlling interest
    
    
    
    
    
    
    (16,954
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (302
    )
    
    
    (17,256
    )Total net income/(loss)
    
    
    (4,318,016
    )
    
    
    1,510,821
    
    
    
    (322,182
    )
    
    
    2,050,210
    
    
    
    (3,675,105
    )
    
    
    (600,148
    )
    
    
    (5,354,420
    )Total assets
    
    
    83,626,084
    
    
    
    331,815,126
    
    
    
    (736,843
    )
    
    
    97,490,136
    
    
    
    392,868,906
    
    
    
    (398,635,933
    )
    
    
    506,427,476
 13




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 5. Segmented financial information (Restated) (contd)
 ConsolidationQuarter ended March 31, 2006 (Restated)
    
    Upstream
    
    Midstream
    
    Midstream  LNG
    
    Downstream
    
    Corporate
    
    adjustments
    
    TotalRevenues from external customers
    
    
    
    
    
    
    80,853,289
    
    
    
    
    
    
    
    27,775,493
    
    
    
    
    
    
    
    
    
    
    
    108,628,782Intersegment revenues
    
    
    
    
    
    
    22,155,343
    
    
    
    
    
    
    
    472
    
    
    
    1,717,712
    
    
    
    (23,873,527
    )
    
    
    Interest revenue
    
    
    353,773
    
    
    
    96,430
    
    
    
    
    
    
    
    31,735
    
    
    
    193,578
    
    
    
    (68,437
    )
    
    
    607,080Other revenue
    
    
    605,544
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,443
    
    
    
    
    
    
    
    655,987Total segment revenue
    
    
    959,317
    
    
    
    103,105,062
    
    
    
    
    
    
    
    27,807,700
    
    
    
    1,961,733
    
    
    
    (23,941,964
    )
    
    
    109,891,849Cost of sales and operating expenses
    
    
    
    
    
    
    105,550,437
    
    
    
    
    
    
    
    25,174,069
    
    
    
    
    
    
    
    (22,155,814
    )
    
    
    108,568,692Office and admin and other expenses
    
    
    970,153
    
    
    
    1,820,697
    
    
    
    
    
    
    
    2,949,929
    
    
    
    3,187,080
    
    
    
    (1,690,397
    )
    
    
    7,237,462Foreign exchange (gain)/loss
    
    
    83,042
    
    
    
    963,483
    
    
    
    
    
    
    
    9,624
    
    
    
    916
    
    
    
    
    
    
    
    1,057,065Exploration costs, excluding exploration impairment
    
    
    3,559,730
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,559,730Exploration impairment
    
    
    1,482,560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,482,560Depreciation and amortisation
    
    
    197,808
    
    
    
    2,598,000
    
    
    
    
    
    
    
    61,907
    
    
    
    11,976
    
    
    
    (32,507
    )
    
    
    2,837,184Interest expense (i)
    
    
    1,325
    
    
    
    2,342,353
    
    
    
    
    
    
    
    38,419
    
    
    
    353,495
    
    
    
    (68,437
    )
    
    
    2,667,155Total segment expenses
    
    
    6,294,618
    
    
    
    113,274,970
    
    
    
    
    
    
    
    28,233,948
    
    
    
    3,553,467
    
    
    
    (23,947,155
    )
    
    
    127,409,848(Loss)/income before income taxes and
non-controlling
interest
    
    
    (5,335,301
    )
    
    
    (10,169,908
    )
    
    
    
    
    
    
    (426,248
    )
    
    
    (1,591,734
    )
    
    
    5,191
    
    
    
    (17,517,999
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143,848
    
    
    
    (19,091
    )
    
    
    
    
    
    
    124,757Non controlling interest
    
    
    
    
    
    
    118,488
    
    
    
    
    
    
    
    
    
    
    
    2,010
    
    
    
    
    
    
    
    120,498Total net income/(loss)
    
    
    (5,335,301
    )
    
    
    (10,051,420
    )
    
    
    
    
    
    
    (282,400
    )
    
    
    (1,608,815
    )
    
    
    5,191
    
    
    
    (17,272,744
    )Total assets
    
    
    62,324,868
    
    
    
    308,652,928
    
    
    
    
    
    
    
    51,066,931
    
    
    
    306,555,808
    
    
    
    (316,423,559
    )
    
    
    412,176,976
 6. Cash and cash equivalents
  March 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006$
    
    $
    
    $Cash on deposit
    
    
    24,102,123
    
    
    
    31,681,435
    
    
    
    38,430,628Bank term deposits Papua New Guinea kina deposits
    
    
    
    
    
    
    
    
    
    
     Australian dollar deposits
    
    
    
    
    
    
    
    
    
    
    3,97724,102,123
    
    
    
    31,681,435
    
    
    
    38,434,605
  14




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 7. Supplemental cash flow information
 Quarter ended
    
    Year ended
    
    Quarter endedMarch 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006$
    
    $
    
    $Cash paid during the yearInterest
    
    
    2,044,020
    
    
    
    8,548,552
    
    
    
    953,725Income taxes
    
    
    46
    
    
    
    2,306,218
    
    
    
    632,380Interest received
    
    
    687,786
    
    
    
    3,154,380
    
    
    
    522,060Non-cash investing and financing activities:Deferred financing costs included in accounts payable and accrued liabilities
    
    
    
    
    
    
    500,000
    
    
    
    Decrease in plant and equipment as a result of impairment
    
    
    
    
    
    
    755,857
    
    
    
    755,857Transfer to
plant and equipment to assets held for sale
    
    
    
    
    
    
    
    
    
    
    3,368,750Deferred liquefaction project liability
    
    
    
    
    
    
    6,553,080
    
    
    
    Increase in share capital from:the exercise of share options
    
    
    
    
    
    
    532,232
    
    
    
    the exercise of warrants
    
    
    18,818
    
    
    
    
    
    
    
    conversion of indirect participation interest into share capital
    
    
    598,119
    
    
    
    7,948,691
    
    
    
    
 8. Financial instruments
 Cash and cash equivalents
   Cash restricted
  March 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006$
    
    $
    
    $Cash deposit on working capital facility (5.1%)
    
    
    34,930,567
    
    
    
    29,301,940
    
    
    
    13,568,494Cash restricted  Current
    
    
    34,930,567
    
    
    
    29,301,940
    
    
    
    13,568,494Cash deposit on secured loan (3.6%)
    
    
    652,923
    
    
    
    647,502
    
    
    
    506,466Debt reserve for secured loan
    
    
    2,420,000
    
    
    
    2,420,000
    
    
    
    Bank term deposits on Petroleum Prospecting Licenses (0.8%)
    
    
    108,168
    
    
    
    107,997
    
    
    
    102,881Cash deposit on office premises (6.0%)
    
    
    42,813
    
    
    
    41,785
    
    
    
    Cash restricted  Non-current
    
    
    3,223,904
    
    
    
    3,217,284
    
    
    
    609,34738,154,471
    
    
    
    32,519,224
    
    
    
    14,177,841
   15




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTER OIL CORPORATION LOGO)
 8. Financial instruments (contd)
   Commodity derivative contracts
    Derivative
    
    Type
    
    Notional volumes (bbls)Crude swap
    
    Buy crude
    
    
    150,000Naphtha swap
    
    Sell Naphtha
    
    
    250,000
  Derivative
    
    Type
    
    Notional volumes (bbls)Naphtha swap
    
    Sell Naphtha
    
    
    175,000
  Derivative
    
    Type
    
    Notional volumes (bbls)Crude swap
    
    Sell crude
    
    
    150,000Crude swap
    
    Buy crude
    
    
    300,000Naphtha swap
    
    Sell naphtha
    
    
    80,000Jet kerosene crack spread swap
    
    Sell jet kerosene/buy crude
    
    
    249,999
 9. Trade receivables
   16




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTER OIL CORPORATION LOGO)
 10. Inventories
 March 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006$
    
    $
    
    $Midstream  refining and marketing (crude oil feedstock)
    
    
    45,207,271
    
    
    
    12,795,356
    
    
    
    4,309,468Midstream  refining and marketing (refined petroleum product)
    
    
    33,343,400
    
    
    
    22,329,270
    
    
    
    28,336,641Midstream  refining and marketing (parts inventory)
    
    
    128,701
    
    
    
    46,636
    
    
    
    Downstream (refined petroleum product)
    
    
    30,869,969
    
    
    
    32,422,296
    
    
    
    17,416,117109,549,341
    
    
    
    67,593,558
    
    
    
    50,062,226
   11. Plant and equipment
   Corporate &March 31, 2007
    
    Upstream
    
    Midstream
    
    Downstream
    
    Consolidated
    
    TotalsPlant and equipment
    
    
    1,247,201
    
    
    
    249,776,157
    
    
    
    39,801,375
    
    
    
    167,459
    
    
    
    290,992,192Deferred project costs and work in progress
    
    
    
    
    
    
    737,447
    
    
    
    1,195,524
    
    
    
    
    
    
    
    1,932,971Consolidation entries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,958,181
    )
    
    
    (2,958,181
    )Accumulated depreciation and amortisation
    
    
    (174,145
    )
    
    
    (24,477,726
    )
    
    
    (24,580,918
    )
    
    
    (39,237
    )
    
    
    (49,272,026
    )Net book value
    
    
    1,073,056
    
    
    
    226,035,878
    
    
    
    16,415,981
    
    
    
    (2,829,959
    )
    
    
    240,694,956Capital expenditure for quarter ended Mar 2007
    
    
    
    
    
    
    50,705
    
    
    
    1,391,422
    
    
    
    20,662
    
    
    
    1,462,789
 Corporate &December 31, 2006
    
    Upstream
    
    Midstream
    
    Downstream
    
    Consolidated
    
    TotalsPlant and equipment
    
    
    1,247,201
    
    
    
    249,741,042
    
    
    
    37,697,458
    
    
    
    146,797
    
    
    
    288,832,498Deferred project costs and work in progress
    
    
    
    
    
    
    723,566
    
    
    
    715,653
    
    
    
    
    
    
    
    1,439,219Consolidation entries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,990,688
    )
    
    
    (2,990,688
    )Accumulated depreciation and amortisation
    
    
    (153,455
    )
    
    
    (21,760,341
    )
    
    
    (22,697,003
    )
    
    
    (28,153
    )
    
    
    (44,638,952
    )Net book value
    
    
    1,093,746
    
    
    
    228,704,267
    
    
    
    15,716,108
    
    
    
    (2,872,044
    )
    
    
    242,642,077Capital expenditure for year ended Dec 2006
    
    
    
    
    
    
    11,948,960
    
    
    
    10,543,842
    
    
    
    156,817
    
    
    
    22,649,619
 17




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTER OIL CORPORATION LOGO)
 11. Plant and equipment (contd)
 Corporate &March 31, 2006
    
    Upstream
    
    Midstream
    
    Downstream
    
    Consolidated
    
    TotalsPlant and equipment
    
    
    1,257,544
    
    
    
    238,072,614
    
    
    
    12,158,127
    
    
    
    85,741
    
    
    
    251,574,026Deferred project costs and work in progress
    
    
    
    
    
    
    6,099,260
    
    
    
    1,756,494
    
    
    
    
    
    
    
    7,855,754Consolidation entries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,088,211
    )
    
    
    (3,088,211
    )Accumulated depreciation and amortisation
    
    
    (106,046
    )
    
    
    (13,838,165
    )
    
    
    (7,259,374
    )
    
    
    (14,213
    )
    
    
    (21,217,798
    )Net book value
    
    
    1,151,498
    
    
    
    230,333,709
    
    
    
    6,655,247
    
    
    
    (3,016,683
    )
    
    
    235,123,771Capital expenditure for quarter ended Mar 2006
    
    
    
    
    
    
    4,106,245
    
    
    
    551,695
    
    
    
    63,602
    
    
    
    4,721,542
  12. Oil and gas properties (Restated)
   March 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006$(Restated)
    
    $ (Restated)
    
    $ (Restated)Drilling equipment
    
    
    20,125,225
    
    
    
    18,242,972
    
    
    
    15,365,718Petroleum Prospecting License drilling programs at cost
    
    
    39,517,232
    
    
    
    36,281,375
    
    
    
    11,040,15359,642,457
    
    
    
    54,524,347
    
    
    
    26,405,871
  Quarter ended
    
    Year ended
    
    Quarter endedMarch 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006$(Restated)
    
    $(Restated)
    
    $(Restated)Exploration costs, excluding exploration impairment
    
    
    3,367,903
    
    
    
    6,176,866
    
    
    
    3,559,730Exploration impairment
    
    
    14,283
    
    
    
    1,647,185
    
    
    
    241,5533,382,186
    
    
    
    7,824,051
    
    
    
    3,801,283
 13. Working capital facility  crude feedstock
    18




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTER OIL CORPORATION LOGO)
 13. Working capital facility  crude feedstock (contd)
  March 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006$
    
    $
    
    $Working capital credit facility
    
    
    170,000,000
    
    
    
    170,000,000
    
    
    
    150,000,000Less amounts included in the working capital facility liability:Short term advances
    
    
    (37,728,200
    )
    
    
    (13,201,940
    )
    
    
    (61,342,469
    )Discounted receivables (note 9)
    
    
    (3,392,411
    )
    
    
    (23,671,568
    )
    
    
    (41,120,611
    )
    
    
    (36,873,508
    )
    
    
    (61,342,469
    )Less: other amounts outstanding under the facility:Letters of credit outstanding
    
    
    (46,000,000
    )
    
    
    (79,000,000
    )
    
    
    (5,000,000
    )Hedging facility
    
    
    (1,500,000
    )
    
    
    (1,500,000
    )
    
    
    1,500,000Working capital credit facility available for use
    
    
    81,379,389
    
    
    
    52,626,492
    
    
    
    85,157,531
   14. Acquisition of a subsidiary
 IPL PNG Ltd.
     $Cash
    
    
    4,989,895Trade receivables
    
    
    6,288,834Inventory
    
    
    20,429,728Other assets
    
    
    2,190,226Future income tax benefit
    
    
    1,698,224Property, plant and equipment
    
    
    9,711,213Total assets acquired
    
    
    45,308,120Accounts payable and accrued liabilities
    
    
    (11,815,188
    )Net assets acquired
    
    
    33,492,932
 19




---



##### 



InterOil CorporationNotes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTER OIL CORPORATION LOGO)
 14. Acquisition of a subsidiary (contd)
 PNG LNG Inc. and Liquid Niugini Gas Ltd
  15. Related parties
 Petroleum Independent and Exploration Corporation (P.I.E)
  Breckland Limited
  Director fees
  BNP Paribas
  16. Unsecured loan
   20




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##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTER OIL LOGO)
 17.  Secured loan
 March ,31
    
    December ,31
    
    March 31,2007
    
    2006
    
    2006$
    
    $
    
    $Secured loan (OPIC)  current portion
    
    
    13,500,000
    
    
    
    13,500,000
    
    
    
    9,000,000Secured loan (OPIC)  non current portion
    
    
    62,500,000
    
    
    
    62,500,000
    
    
    
    71,500,000Secured loan (OPIC)  deferred financing costs
    
    
    (1,526,569
    )
    
    
    
    
    
    
    Secured loan (bridging facility)  non current portion
    
    
    123,173,950
    
    
    
    121,666,433
    
    
    
    Total non current secured loan
    
    
    184,147,381
    
    
    
    184,166,433
    
    
    
    71,500,000Total secured loan
    
    
    197,647,381
    
    
    
    197,666,433
    
    
    
    80,500,000
 OPIC Secured Loan
       Bridging Facility
   21




---



##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTER OIL LOGO)
 17. Secured loan (contd)
     18. Indirect participation interests (Restated)
 Indirect participation interest (IPI)
 March 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006$(Restated)
    
    $ (Restated)
    
    $ (Restated)Indirect participation interest (IPI)
    
    
    96,086,369
    
    
    
    96,861,259
    
    
    
    96,861,259
      22




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##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTER OIL LOGO)
 18. Indirect participation interests Restated (contd)
   Indirect participation interest  PNGDV (Restated)
 March 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006$(Restated)
    
    $ (Restated)
    
    $ (Restated)Current portion
    
    
    1,116,634
    
    
    
    730,534
    
    
    
    Non current portion
    
    
    807,860
    
    
    
    1,190,633
    
    
    
    9,685,830Total indirect participation interest  PNGDV
    
    
    1,924,494
    
    
    
    1,921,167
    
    
    
    9,685,830
     Other
  19. Non controlling interest
  23




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##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTER OIL LOGO)
 19. Non controlling interest (contd)
  20. Assets held for sale
  21. Share capital (Restated)
   Common shares 
 Number of shares
    
    $(Restated)January 1, 2004
    
    
    24,815,961
    
    
    
    157,449,200Shares issued for debt
    
    
    3,184,828
    
    
    
    56,698,121Shares issued on exercise of options
    
    
    310,095
    
    
    
    2,666,333December 31, 2004
    
    
    28,310,884
    
    
    
    216,813,654Shares issued for debt
    
    
    52,000
    
    
    
    923,000Shares issued on exercise of warrants
    
    
    19,168
    
    
    
    540,346Shares issued on exercise of options
    
    
    781,268
    
    
    
    5,657,500December 31, 2005
    
    
    29,163,320
    
    
    
    223,934,500Shares issued on exercise of options
    
    
    132,285
    
    
    
    2,006,176Shares issued on conversion of
indirect participation interest
    
    
    575,575
    
    
    
    7,948,691December 31, 2006
    
    
    29,871,180
    
    
    
    233,889,367Shares issued on conversion of
indirect participation interest
    
    
    26,667
    
    
    
    934,890Shares issued on conversion of warrants
    
    
    2,995
    
    
    
    84,439March 31, 2007
    
    
    29,900,842
    
    
    
    234,908,696
 22. Stock compensation
   24




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##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTER OIL LOGO)
 22. Stock compensation (contd)
 Quarter ended March 31,2007
    
    2006Number of
    
    Weighted average
    
    Number of
    
    Weighted averageStock options outstanding
    
    options
    
    exercise price $
    
    options
    
    exercise price $Outstanding at beginning of year
    
    
    1,013,500
    
    
    
    20.59
    
    
    
    746,800
    
    
    
    22.23Granted
    
    
    15,000
    
    
    
    25.50
    
    
    
    35,000
    
    
    
    14.88Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (5,000
    )
    
    
    (18.78
    )
    
    
    (30,000
    )
    
    
    (11.60
    )Expired
    
    
    (2,500
    )
    
    
    (27.00
    )
    
    
    (29,000
    )
    
    
    (23.27
    )Outstanding at end of quarter
    
    
    1,021,000
    
    
    
    20.66
    
    
    
    722,800
    
    
    
    22.28
 Options issued and outstanding
    
    
    
    
    
    Options exercisableRange of exercise
    
    Number of
    
    Weighted average
    
    Weighted average
    
    Number of
    
    Weighted averageprices $
    
    options
    
    exercise price $
    
    remaining term (years)
    
    options
    
    exercise price $5.01 to 8.00
    
    
    10,000
    
    
    
    5.27
    
    
    
    0.39
    
    
    
    10,000
    
    
    
    5.2713.01 to 24.00
    
    
    709,000
    
    
    
    18.03
    
    
    
    3.63
    
    
    
    150,000
    
    
    
    18.8424.00 to 31.00
    
    
    302,000
    
    
    
    27.35
    
    
    
    2.09
    
    
    
    90,000
    
    
    
    29.571,021,000
    
    
    
    20.66
    
    
    
    3.02
    
    
    
    250,000
    
    
    
    22.16
   Risk free
    
    
    
    
    
    
    
    Weighted averageinterest rate
    
    Dividend
    
    
    
    
    
    expected life forYear
    
    Period
    
    (%)
    
    yield
    
    Volatility (%)
    
    options2007
    
    
    January 1 to March 31
    
    
    4.6
    
    
    
    
    
    66
    
    
    
    5.02006
    
    
    January 1 to June 30
    
    
    4.4
    
    
    
    
    
    60
    
    
    
    4.82006
    
    
    July 1 to September 30
    
    
    5.1
    
    
    
    
    
    68
    
    
    
    4.22006
    
    
    October 1 to December 31
    
    
    4.6
    
    
    
    
    
    65
    
    
    
    5.02005
    
    
    January 1 to June 30
    
    
    2.5
    
    
    
    
    
    45
    
    
    
    3.22005
    
    
    July 1 to December 31
    
    
    2.5
    
    
    
    
    
    55
    
    
    
    3.6
 23. Debentures and warrants
   24. Loss per share
  25




---



##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTER OIL LOGO)
 25. Commitments and contingencies
  Less than 1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    year
    
    
    1-2 years
    
    
    2-3 years
    
    
    3-4 years
    
    
    4-5 years
    
    
    5 years000
    
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000
    
    
    000Secured loan obligations
    
    
    199,174
    
    
    
    13,500
    
    
    
    132,174
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    26,500Accrued financing costs
    
    
    1,450
    
    
    
    725
    
    
    
    725
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of subsidiary  IPL PNG Ltd
    
    
    863
    
    
    
    863
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect participation interest  PNGDV (note 18)
    
    
    1,924
    
    
    
    1,117
    
    
    
    807
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect participation interest (note 18) (a)
    
    
    96,086
    
    
    
    
    
    
    
    96,086
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Petroleum prospecting and retention licenses (b)
    
    
    5,237
    
    
    
    1,877
    
    
    
    3,360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    304,734
    
    
    
    18,082
    
    
    
    233,153
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    26,500
 (a)
    
    The liability presented in relation to indirect participation interest is not a cash
commitment and will be resolved once the IPI investors have elected to convert their
interests into a joint venture interest or shares in InterOil Corporation. InterOils
commitment is to complete the eight well drilling program. As at March 31, 2007,
management estimate that a further $48,171,000 will be required to be
spent to fulfill this
commitment.(b)
    
    The amount pertaining to the petroleum prospecting and retention licenses represents
the amount InterOil has committed to spend to its joint venture partners. In addition to
this amount, InterOil must drill an exploration well on PPL 237 in the two year period
commencing March 2007. As the cost of drilling this well cannot be estimated, it is not
included within the above table.
    26. Subsequent events
  26