##### 



InterOil Corporation
Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)




---



##### 



InterOil Corporation
Revised 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




---



##### 



InterOil Corporation
Revised Consolidated Balance Sheets 
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 As atJune 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006$ (Restated)
    
    $ (Restated)
    
    $ (Restated)AssetsCurrent assets:Cash and cash equivalents (note 6)
    
    
    22,406,039
    
    
    
    31,681,435
    
    
    
    61,036,551Cash restricted (note 8)
    
    
    20,055,745
    
    
    
    29,301,940
    
    
    
    24,424,625Trade receivables (note 9)
    
    
    57,535,357
    
    
    
    67,542,902
    
    
    
    33,034,214Commodity derivative contracts (note 8)
    
    
    
    
    
    
    1,759,575
    
    
    
    Other assets
    
    
    373,110
    
    
    
    2,954,946
    
    
    
    788,204Inventories (note 10)
    
    
    116,046,492
    
    
    
    67,593,558
    
    
    
    101,460,081Prepaid expenses
    
    
    521,773
    
    
    
    880,640
    
    
    
    1,525,056Total current assets
    
    
    216,938,516
    
    
    
    201,714,996
    
    
    
    222,288,218Deposit on business acquisition
    
    
    
    
    
    
    
    
    
    
    4,500,000Cash restricted (note 8)
    
    
    1,215,798
    
    
    
    3,217,284
    
    
    
    2,084,542Deferred financing costs (note 16)
    
    
    
    
    
    
    1,716,757
    
    
    
    1,258,475Plant and equipment (note 11)
    
    
    238,661,407
    
    
    
    242,642,077
    
    
    
    237,169,715Oil and gas properties (note 12)
    
    
    61,848,939
    
    
    
    54,524,347
    
    
    
    32,651,959Future income tax benefit
    
    
    1,583,767
    
    
    
    1,424,014
    
    
    
    962,476Total assets
    
    
    520,248,427
    
    
    
    505,239,475
    
    
    
    500,915,385Liabilities and shareholders equityCurrent liabilities:Accounts payable and accrued liabilities
    
    
    106,679,038
    
    
    
    73,310,793
    
    
    
    67,211,633Income tax payable
    
    
    2,323,733
    
    
    
    2,784,576
    
    
    
    3,429,304Commodity derivative contracts (note 8)
    
    
    46,800
    
    
    
    
    
    
    
    15,919Working capital facility  crude feedstock (note 13)
    
    
    29,522,326
    
    
    
    36,873,508
    
    
    
    78,623,126Deferred hedge gain (note 8)
    
    
    
    
    
    
    1,385
    
    
    
    Deferred liquefaction project liability (note 16)
    
    
    
    
    
    
    6,553,080
    
    
    
    3,574,565Current portion of secured loan (note 16)
    
    
    142,616,909
    
    
    
    13,500,000
    
    
    
    9,000,000Current portion of indirect participation interest  PNGDV (note 17)
    
    
    1,518,229
    
    
    
    730,534
    
    
    
    2,075,852Total current liabilities
    
    
    282,707,035
    
    
    
    133,753,876
    
    
    
    163,930,399Accrued financing costs (note 16)
    
    
    362,500
    
    
    
    1,087,500
    
    
    
    950,000Secured loan (note 16)
    
    
    56,529,417
    
    
    
    184,166,433
    
    
    
    143,273,802Indirect participation interest (note 17)
    
    
    96,086,369
    
    
    
    96,861,259
    
    
    
    96,861,259Indirect participation interest  PNGDV (note 17)
    
    
    406,265
    
    
    
    1,190,633
    
    
    
    Total liabilities
    
    
    436,091,586
    
    
    
    417,059,701
    
    
    
    405,015,460Non-controlling interest (note 18)
    
    
    5,764,521
    
    
    
    5,759,206
    
    
    
    5,763,235Shareholders equity:Share capital (note 19)
    
    
    235,327,636
    
    
    
    233,889,366
    
    
    
    232,519,987Authorised  unlimitedIssued and outstanding - 29,922,842(Dec 31, 2006 - 29,871,180)(Jun 30, 2006 - 29,799,513)Contributed surplus
    
    
    7,159,462
    
    
    
    4,377,426
    
    
    
    3,595,996Warrants (note 21)
    
    
    2,119,034
    
    
    
    2,137,852
    
    
    
    2,137,852Accumulated Other Comprehensive Income
    
    
    1,731,116
    
    
    
    1,492,869
    
    
    
    660,360Conversion options (note 17)
    
    
    19,840,000
    
    
    
    20,000,000
    
    
    
    20,000,000Accumulated deficit
    
    
    (187,784,928
    )
    
    
    (179,476,945
    )
    
    
    (168,777,505
    )Total shareholders equity
    
    
    78,392,320
    
    
    
    82,420,568
    
    
    
    90,136,690Total liabilities and shareholders equity
    
    
    520,248,427
    
    
    
    505,239,475
    
    
    
    500,915,385
 See accompanying notes to the consolidated financial statements. Commitments and
contingencies (note 23)
 On behalf of the Board  Phil Mulacek, Director Christian
Vinson, Director
 1




---



##### 



InterOil Corporation
Revised Consolidated Statement of Operations
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 Quarter ended
    
    Six months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006$ (Restated)
    
    $ (Restated)
    
    $ (Restated)
    
    $ (Restated)RevenueSales and operating revenues
    
    
    139,320,670
    
    
    
    122,777,853
    
    
    
    265,238,868
    
    
    
    231,406,635Interest
    
    
    544,919
    
    
    
    720,845
    
    
    
    1,233,327
    
    
    
    1,327,925Other
    
    
    673,401
    
    
    
    910,756
    
    
    
    963,574
    
    
    
    1,566,743140,538,990
    
    
    
    124,409,454
    
    
    
    267,435,769
    
    
    
    234,301,303ExpensesCost of sales and operating expenses
    
    
    127,276,947
    
    
    
    123,676,020
    
    
    
    239,505,779
    
    
    
    233,871,341Administrative and general expenses
    
    
    8,628,915
    
    
    
    6,031,046
    
    
    
    15,109,885
    
    
    
    10,136,314Depreciation and amortization
    
    
    3,619,128
    
    
    
    2,862,128
    
    
    
    7,078,887
    
    
    
    5,699,312Exploration costs, excluding exploration impairment (note 12)
    
    
    4,517,606
    
    
    
    2,161,522
    
    
    
    7,839,550
    
    
    
    5,721,252Exploration impairment (note 12)
    
    
    5,968
    
    
    
    76,552
    
    
    
    20,251
    
    
    
    1,559,112Legal and professional fees
    
    
    1,268,989
    
    
    
    867,748
    
    
    
    2,014,451
    
    
    
    1,917,259Short term borrowing costs
    
    
    3,037,161
    
    
    
    2,535,095
    
    
    
    4,227,074
    
    
    
    4,181,272Long term borrowing costs
    
    
    2,348,530
    
    
    
    2,291,838
    
    
    
    6,180,195
    
    
    
    3,768,860Loss on amendment of indirect participation interest  PNGDV (note 17)
    
    
    
    
    
    
    1,851,421
    
    
    
    
    
    
    
    1,851,421Gain on LNG shareholder agreement
    
    
    (6,553,080
    )
    
    
    
    
    
    
    (6,553,080
    )
    
    
    Foreign exchange gain
    
    
    (692,178
    )
    
    
    (1,148,607
    )
    
    
    (228,428
    )
    
    
    (91,542
    )143,457,986
    
    
    
    141,204,763
    
    
    
    275,194,564
    
    
    
    268,614,601Loss before income taxes and non-controlling interest
    
    
    (2,918,996
    )
    
    
    (16,795,309
    )
    
    
    (7,758,795
    )
    
    
    (34,313,298
    )Income taxesCurrent
    
    
    341,772
    
    
    
    (1,119,198
    )
    
    
    (158,093
    )
    
    
    (943,115
    )Future
    
    
    (388,264
    )
    
    
    (51,326
    )
    
    
    (385,764
    )
    
    
    (102,652
    )(46,492
    )
    
    
    (1,170,524
    )
    
    
    (543,857
    )
    
    
    (1,045,767
    )Loss before non-controlling interest
    
    
    (2,965,488
    )
    
    
    (17,965,833
    )
    
    
    (8,302,652
    )
    
    
    (35,359,065
    )Non-controlling interest (note 18)
    
    
    11,925
    
    
    
    139,214
    
    
    
    (5,331
    )
    
    
    259,702Net loss
    
    
    (2,953,563
    )
    
    
    (17,826,619
    )
    
    
    (8,307,983
    )
    
    
    (35,099,363
    )Basic loss per share (note 22)
    
    
    (0.10
    )
    
    
    (0.60
    )
    
    
    (0.28
    )
    
    
    (1.19
    )Diluted loss per share(note 22)
    
    
    (0.10
    )
    
    
    (0.60
    )
    
    
    (0.28
    )
    
    
    (1.19
    )Weighted average number of common shares outstandingBasic and diluted
    
    
    29,907,260
    
    
    
    29,596,287
    
    
    
    29,901,733
    
    
    
    29,380,999
 2




---



##### 



InterOil Corporation
Revised Consolidated Statement of Cash Flows
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 Quarter ended
    
    
    Six months endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006$ (Restated)
    
    
    $ (Restated)
    
    
    $ (Restated)
    
    
    $ (Restated)Cash flows provided by (used in):Operating activitiesNet loss
    
    
    (2,953,563
    )
    
    
    (17,826,619
    )
    
    
    (8,307,983
    )
    
    
    (35,099,363
    )Adjustments for non-cash transactionsNon-controlling interest
    
    
    (11,925
    )
    
    
    (139,204
    )
    
    
    5,331
    
    
    
    (259,702
    )Depreciation and amortization
    
    
    3,619,128
    
    
    
    2,862,128
    
    
    
    7,078,887
    
    
    
    5,699,312Future income tax asset
    
    
    (139,904
    )
    
    
    35,637
    
    
    
    (317,440
    )
    
    
    96,422Fair value adjustment on IPL PNG Ltd. acquisition
    
    
    (367,935
    )
    
    
    
    
    
    
    (367,935
    )
    
    
    Loss on sale of plant and equipment
    
    
    
    
    
    
    154,657
    
    
    
    
    
    
    
    256,393Impairment of plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    755,857Amortization of discount on debt
    
    
    
    
    
    
    14,446
    
    
    
    
    
    
    
    28,891Amortization of deferred financing costs
    
    
    104,655
    
    
    
    57,377
    
    
    
    210,549
    
    
    
    98,341Accretion of discount on indirect participation interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain/(loss) on unsettled hedge contracts
    
    
    6,318
    
    
    
    532,757
    
    
    
    (47,314
    )
    
    
    590,720Gain/(loss) on derivative contracts
    
    
    1,604,720
    
    
    
    (393,800
    )
    
    
    1,852,300
    
    
    
    (128,700
    )Stock compensation expense
    
    
    1,995,539
    
    
    
    542,348
    
    
    
    2,884,876
    
    
    
    802,871Inventory revaluation
    
    
    1,411,022
    
    
    
    3,127,541
    
    
    
    1,411,022
    
    
    
    7,072,360Oil and gas properties expensed
    
    
    4,523,574
    
    
    
    2,238,074
    
    
    
    7,859,801
    
    
    
    7,280,364Loss on amendment of indirect participation interest  PNGDV
    
    
    
    
    
    
    1,851,421
    
    
    
    
    
    
    
    1,851,421Gain on LNG shareholder agreement
    
    
    (6,553,080
    )
    
    
    
    
    
    
    (6,553,080
    )
    
    
    Unrealized foreign exchange gain
    
    
    (692,178
    )
    
    
    (1,148,607
    )
    
    
    (228,428
    )
    
    
    (91,542
    )Non-cash interest on secured loan facility
    
    
    1,526,291
    
    
    
    392,378
    
    
    
    3,033,808
    
    
    
    392,378Change in non-cash operating working capital(Increase)/decrease in trade receivables
    
    
    (23,413,773
    )
    
    
    2,363,294
    
    
    
    14,309,103
    
    
    
    17,066,757Decrease/(increase) in other assets and prepaid expenses
    
    
    1,021,926
    
    
    
    (992,879
    )
    
    
    2,940,703
    
    
    
    (663,849
    )(Increase)/decrease in inventories
    
    
    (6,596,736
    )
    
    
    (52,880,748
    )
    
    
    (48,763,575
    )
    
    
    (64,178,823
    )Increase in accounts payable, accrued liabilities
and income tax payable
    
    
    29,781,856
    
    
    
    33,978,531
    
    
    
    22,885,868
    
    
    
    41,365,8234,865,935
    
    
    
    (25,231,268
    )
    
    
    (113,507
    )
    
    
    (17,064,069
    )Investing activitiesExpenditure on oil and gas properties
    
    
    (16,748,555
    )
    
    
    (8,605,079
    )
    
    
    (28,401,322
    )
    
    
    (20,231,271
    )Proceeds from IPI cash calls
    
    
    
    
    
    
    
    
    
    
    9,865,856
    
    
    
    Expenditure on plant and equipment
    
    
    (1,059,957
    )
    
    
    (5,428,801
    )
    
    
    (1,664,160
    )
    
    
    (10,229,093
    )Expenditure on oil and gas properties applied against
indirect participation interest (note 17)
    
    
    
    
    
    
    (1,512,707
    )
    
    
    3,327
    
    
    
    (1,512,707
    )Proceeds from PNG LNG cash call
    
    
    2,076,596
    
    
    
    
    
    
    
    4,076,596
    
    
    
    Proceeds received on sale of assets
    
    
    
    
    
    
    3,734,822
    
    
    
    
    
    
    
    3,746,964Acquisition of subsidiary (note 14)
    
    
    (863,775
    )
    
    
    
    
    
    
    (2,679,435
    )
    
    
    Deposit on business acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,500,000
    )Decrease/(increase) in restricted cash held as security on
borrowings
    
    
    16,882,928
    
    
    
    (12,331,326
    )
    
    
    11,247,681
    
    
    
    (9,846,898
    )Change in
non-cash working capital
(Decrease)/increase in accounts payable and accrued liabilities
    
    
    (467,072
    )
    
    
    2,200,008
    
    
    
    459,028
    
    
    
    (726,178
    )(179,835
    )
    
    
    (21,943,083
    )
    
    
    (7,092,429
    )
    
    
    (43,299,183
    )Financing activitiesRepayments of unsecured loan
    
    
    
    
    
    
    (22,856,684
    )
    
    
    
    
    
    
    (21,453,132
    )Repayments of secured loan
    
    
    
    
    
    
    (4,500,000
    )
    
    
    
    
    
    
    (4,500,000
    )Proceeds from bridging facility, net of transaction costs
    
    
    
    
    
    
    79,455,989
    
    
    
    
    
    
    
    79,455,989Financing fees related to bridging facility
    
    
    (100,000
    )
    
    
    (100,000
    )
    
    
    (100,000
    )
    
    
    (100,000
    )Proceeds from Clarion Finanz for Elk option agreement
    
    
    5,000,000
    
    
    
    
    
    
    
    5,000,000
    
    
    
    (Repayments of)/proceeds from working capital facility
    
    
    (11,598,285
    )
    
    
    17,280,657
    
    
    
    (7,351,182
    )
    
    
    7,898,804Proceeds from issue of common shares
    
    
    316,101
    
    
    
    496,335
    
    
    
    316,101
    
    
    
    496,335Proceeds from conversion of warrants
    
    
    
    
    
    
    
    
    
    
    65,621
    
    
    
    (6,382,184
    )
    
    
    69,776,297
    
    
    
    (2,069,460
    )
    
    
    61,797,996(Decrease)/increase in cash and cash equivalents
    
    
    (1,696,084
    )
    
    
    22,601,946
    
    
    
    (9,275,396
    )
    
    
    1,434,744Cash and cash equivalents, beginning of period
    
    
    24,102,123
    
    
    
    38,434,605
    
    
    
    31,681,435
    
    
    
    59,601,807Cash and cash equivalents, end of period (note 6)
    
    
    22,406,039
    
    
    
    61,036,551
    
    
    
    22,406,039
    
    
    
    61,036,551
 See accompanying notes to the consolidated financial
statements
 See note 7 for non cash financing and investing
activities
 3




---



##### 



InterOil Corporation
Revised Consolidated Statements of Shareholders Equity
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 Six months ended
    
    Year ended
    
    Six months endedJune 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006$ (Restated)
    
    $ (Restated)
    
    $ (Restated)Share capitalAt beginning of period
    
    
    233,889,366
    
    
    
    223,934,500
    
    
    
    223,934,500Issue of capital stock (note 19)
    
    
    1,438,270
    
    
    
    9,954,866
    
    
    
    8,585,487At end of period
    
    
    235,327,636
    
    
    
    233,889,366
    
    
    
    232,519,987Contributed surplusAt beginning of period
    
    
    4,377,426
    
    
    
    2,933,586
    
    
    
    2,933,586Stock compensation (note 20)
    
    
    2,782,036
    
    
    
    1,443,840
    
    
    
    662,410At end of period
    
    
    7,159,462
    
    
    
    4,377,426
    
    
    
    3,595,996WarrantsAt beginning of period
    
    
    2,137,852
    
    
    
    2,137,852
    
    
    
    2,137,852Movement for period (note 21)
    
    
    (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 (loss)/gain movement for period, net of tax
    
    
    (1,385
    )
    
    
    
    
    
    
    Foreign
currency translation adjustment movement for period, net of tax
    
    
    238,247
    
    
    
    1,015,426
    
    
    
    182,917At end of period
    
    
    1,731,116
    
    
    
    1,492,869
    
    
    
    660,360Conversion optionsAt beginning of period
    
    
    20,000,000
    
    
    
    20,000,000
    
    
    
    20,000,000Movement for period (note 17)
    
    
    (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
    
    
    (8,307,983
    )
    
    
    (45,798,803
    )
    
    
    (35,099,363
    )At end of period
    
    
    (187,784,928
    )
    
    
    (179,476,945
    )
    
    
    (168,777,505
    )Shareholders equity at end of period
    
    
    78,392,320
    
    
    
    82,420,568
    
    
    
    90,136,690
 4




---



##### 



InterOil Corporation
Revised Statements of Comprehensive Income
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 Quarter ended
    
    
    Six months endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006$ (Restated)
    
    
    $ (Restated)
    
    
    $ (Restated)
    
    
    $ (Restated)Net loss
    
    
    (2,567,257
    )
    
    
    (20,735,972
    )
    
    
    (8,307,983
    )
    
    
    (35,099,363
    )Other comprehensive income, net of tax
    
    
    2,011,102
    
    
    
    444,903
    
    
    
    238,247
    
    
    
    182,917Comprehensive loss
    
    
    (556,155
    )
    
    
    (20,291,069
    )
    
    
    (8,069,736
    )
    
    
    (34,916,446
    )
 5




---



##### 



InterOil Corporation
Notes 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 June 30, 2007 and
2006
      6




---



##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 2.
    
    Restatement of Consolidated financial statements for the
quarters ended June 30, 2007 and
2006 (contd)
   Restatement to Consolidated Balance Sheets
 June 30, 2007
    
    
    
    
    
    
    
    
    
    June 30, 2006Original
    
    
    
    
    
    Restated
    
    Original
    
    
    
    
    
    RestatedBalance
    
    Adjustments
    
    Balance
    
    Balance
    
    Adjustments
    
    Balance
    
    Reference$
    
    $
    
    $
    
    $
    
    $
    
    $Non-current assetsOil and gas properties (note 12)
    
    
    44,774,326
    
    
    
    17,074,613
    
    
    
    61,848,939
    
    
    
    18,874,550
    
    
    
    13,777,409
    
    
    
    32,651,959
    
    
    (i), (ii)Current and Non-current liabilitiesIndirect participation interest (note 17)
    
    
    49,554,321
    
    
    
    46,532,048
    
    
    
    96,086,369
    
    
    
    49,288,602
    
    
    
    47,572,657
    
    
    
    96,861,259
    
    
    (i), (iii), (iv), (v)Indirect participation interest  PNGDV (note 17)
    
    
    1,816,427
    
    
    
    108,067
    
    
    
    1,924,494
    
    
    
    1,743,533
    
    
    
    332,319
    
    
    
    2,075,852
    
    
    (vii)Shareholders EquityShare capital (note 19)
    
    
    234,990,864
    
    
    
    336,772
    
    
    
    235,327,636
    
    
    
    232,519,987
    
    
    
    
    
    
    
    232,519,987
    
    
    (iv)Conversion options (note 17)
    
    
    25,271,563
    
    
    
    (5,431,563
    )
    
    
    19,840,000
    
    
    
    25,475,368
    
    
    
    (5,475,368
    )
    
    
    20,000,000
    
    
    (iii), (iv)Accumulated deficit
    
    
    (163,314,218
    )
    
    
    (24,470,710
    )
    
    
    (187,784,928
    )
    
    
    (143,014,529
    )
    
    
    (25,762,976
    )
    
    
    (168,777,505
    )
 Restatement to Consolidated Statement of Operations
 Six months ended June 30, 2007
    
    
    Six months ended June 30, 2006Original
    
    
    
    
    
    
    Restated
    
    
    Original
    
    
    
    
    
    
    RestatedBalance
    
    
    Adjustments
    
    
    Balance
    
    
    Balance
    
    
    Adjustments
    
    
    Balance
    
    
    Reference$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $ExpensesExploration costs, excluding exploration
impairment (note 12)
    
    
    7,885,508
    
    
    
    (45,958
    )
    
    
    7,839,550
    
    
    
    1,663,370
    
    
    
    4,057,882
    
    
    
    5,721,252
    
    
    (ii)Exploration impairment (note 12)
    
    
    20,251
    
    
    
    
    
    
    
    20,251
    
    
    
    264,818
    
    
    
    1,294,294
    
    
    
    1,559,112
    
    
    (ii)Accretion expense (note 17)
    
    
    683,642
    
    
    
    (683,642
    )
    
    
    
    
    
    
    2,781,307
    
    
    
    (2,781,307
    )
    
    
    
    
    
    (v), (vii)Loss on amendment of indirect participation
interest  PNGDV (note 17)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,446,901
    
    
    
    404,520
    
    
    
    1,851,421
    
    
    (vii)8,589,401
    
    
    
    (729,600
    )
    
    
    7,859,801
    
    
    
    6,156,396
    
    
    
    2,975,389
    
    
    
    9,131,785Net loss
    
    
    9,037,583
    
    
    
    (729,600
    )
    
    
    8,307,983
    
    
    
    32,123,974
    
    
    
    2,975,389
    
    
    
    35,099,363
 7




---



##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 2.
    
    Restatement of Consolidated financial statements for the
quarters ended June 30, 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 borne by the investors. 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 June 30, 2007
by $51,213,190 (June 30, 2006  $47,564,663).
 (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 six month period
ended June 30, 2007 by $45,958 (same period of 2006  increasing the exploration costs by
$4,057,882). The exploration impairment for the six month period ended June 30, 2006
increased by $1,294,294; there was no impact due to the adjustment on the six month ended June
30, 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 June 30,
2007 by $5,475,368 (June 30, 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 $336,771 has been credited to the share capital in the six month period ended June 30, 2007
for the conversion by one of the investors of their interest into 26,667 shares. There were
no conversions in the six month ended June 30, 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 six months ended June 30, 2007 by
$614,075 (2006  $2,691,520). These decreases to the accretion expense have the corresponding
effect of increasing the IPI liability in the balance sheet.
 8




---



##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 2.
    
    Restatement of Consolidated financial statements for the
quarters ended June 30, 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 quarter
and six months ended June 30, 2007 and 2006 due to this adjustment as conveyance has not been
triggered based on this alternate 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
increasing the Loss on amendment of Indirect Participation Interest  PNGDV for the six
month period ended June 30, 2007 by nil (2006  $404,520) and decreasing the accretion expense
by $69,537 (2006  $89,787) resulting in a net income statement impact of decreasing the loss
for the for the six month periods ended June 30, 2007 by $69,537 (2006  increasing the loss
$314,733). This adjustments also have 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 six
month period ended June 30, 2007 and 2006 has been a decrease in the loss by $729,600 ($0.02
per share) and an increase in the loss by $2,975,389 ($0.10 per share) respectively. The
impact of all the above adjustments on the consolidated statement of income for the quarters
ended June 30, 2007 and 2006 has been a decrease in the loss by $343,294 ($0.01 per share) and
an increase in the loss by $66,036 (nil per share impact) 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
    9




---



##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 3.
    
    Significant accounting policies (contd)
 (b)

    Changes in accounting policies
 Financial instrument and hedging activities
  
    
    Section 1530, Comprehensive Income;
    
    Section 3251, Equity;
    
    Section 3855, Financial Instruments  Recognition and Measurement; and
    
    Section 3865, Hedges.
  Comprehensive Income
  Financial Instruments  Recognition and Measurement
  Derivatives
  Hedge Accounting
   10




---



##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 3.
    
    Significant accounting policies (contd)
  Accounting Changes
  (c)
    
    Going concern
      (d)
    
    Reclassification
  4.
    
    Financial Risk Management
   11




---



##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 4.
    
    Financial Risk Management (contd)
 (a)
    
    Market risk
 Foreign exchange risk
    Price risk
    Product risk
   (b)
    
    Credit risk
   (c)
    
    Liquidity risk
  (d)
    
    Cash flow and fair value interest rate risk
    12




---



##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 4. Financial Risk Management (contd)
 (a) Geographic risk
  5. Segmented financial information (Restated)
      Notes to and forming part of the segment information
   Midstream Refining and
    
    Midstream 
    
    
    
    
    
    
    
    
    
    ConsolidationQuarter ended June 30, 2007 (Restated)
    
    Upstream
    
    Marketing
    
    Liquefaction
    
    Downstream
    
    Corporate
    
    adjustments
    
    TotalRevenues from external customers
    
    
    
    
    
    
    46,538,477
    
    
    
    
    
    
    
    92,782,193
    
    
    
    
    
    
    
    
    
    
    
    139,320,670Intersegment revenues
    
    
    
    
    
    
    68,030,987
    
    
    
    
    
    
    
    27,035
    
    
    
    2,090,555
    
    
    
    (70,148,577
    )
    
    
    Interest revenue
    
    
    100,824
    
    
    
    14,798
    
    
    
    5,433
    
    
    
    (13
    )
    
    
    464,213
    
    
    
    (40,337
    )
    
    
    544,918Other revenue
    
    
    296,482
    
    
    
    
    
    
    
    
    
    
    
    376,919
    
    
    
    
    
    
    
    
    
    
    
    673,401Total segment revenue
    
    
    397,306
    
    
    
    114,584,262
    
    
    
    5,433
    
    
    
    93,186,134
    
    
    
    2,554,768
    
    
    
    (70,188,914
    )
    
    
    140,538,989Cost of sales and operating expenses
    
    
    
    
    
    
    110,073,604
    
    
    
    
    
    
    
    87,109,311
    
    
    
    
    
    
    
    (69,905,967
    )
    
    
    127,276,948Office and admin and other expenses
    
    
    968,827
    
    
    
    1,762,573
    
    
    
    450,499
    
    
    
    3,478,324
    
    
    
    5,856,731
    
    
    
    (2,090,562
    )
    
    
    10,426,392Foreign exchange loss/(gain)
    
    
    397,176
    
    
    
    (1,028,015
    )
    
    
    (849
    )
    
    
    (160,700
    )
    
    
    100,210
    
    
    
    
    
    
    
    (692,178
    )Gain on LNG shareholder agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,553,080
    )
    
    
    
    
    
    
    (6,553,080
    )Exploration costs, excluding exploration impairment
    
    
    4,517,606
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,517,606Exploration impairment
    
    
    5,968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,968Depreciation and amortisation
    
    
    338,835
    
    
    
    2,748,598
    
    
    
    
    
    
    
    551,985
    
    
    
    12,217
    
    
    
    (32,507
    )
    
    
    3,619,128Accretion expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    
    
    
    
    2,155,827
    
    
    
    
    
    
    
    (66,776
    )
    
    
    2,808,484
    
    
    
    (40,334
    )
    
    
    4,857,201Total segment expenses
    
    
    6,228,412
    
    
    
    115,712,587
    
    
    
    449,650
    
    
    
    90,912,144
    
    
    
    2,224,562
    
    
    
    (72,069,370
    )
    
    
    143,457,985(Loss)/income before income taxes
and non-controlling interest
    
    
    (5,831,106
    )
    
    
    (1,128,325
    )
    
    
    (444,217
    )
    
    
    2,273,990
    
    
    
    330,206
    
    
    
    1,880,456
    
    
    
    (2,918,996
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,543
    )
    
    
    (14,949
    )
    
    
    
    
    
    
    (46,492
    )Non controlling interest
    
    
    
    
    
    
    11,702
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    223
    
    
    
    11,925Total net income/(loss)
    
    
    (5,831,106
    )
    
    
    (1,116,623
    )
    
    
    (444,217
    )
    
    
    2,242,447
    
    
    
    315,257
    
    
    
    1,880,679
    
    
    
    (2,953,563
    )Total assets
    
    
    18,234
    
    
    
    5,896,109
    
    
    
    2,366,852
    
    
    
    21,540,451
    
    
    
    (49,862
    )
    
    
    (15,950,833
    )
    
    
    13,820,951
 13




---



##### 



InterOil Corporation
Notes to Revised Consolidated Financial Statements
(Unaudited, Expressed in United States dollars)
    
    (INTEROIL LOGO)
 5. Segmented financial information (Restated) (contd)
 ConsolidationQuarter ended June 30, 2006 (Restated)
    
    Upstream
    
    Midstream
    
    Midstream - LNG
    
    Downstream
    
    Corporate
    
    adjustments
    
    TotalRevenues from external customers
    
    
    
    
    
    
    84,823,185
    
    
    
    
    
    
    
    37,954,668
    
    
    
    
    
    
    
    
    
    
    
    122,777,853Intersegment revenues
    
    
    
    
    
    
    21,869,755
    
    
    
    
    
    
    
    8,442
    
    
    
    2,275,827
    
    
    
    (24,154,024
    )
    
    
    Interest revenue
    
    
    1,750,404
    
    
    
    132,247
    
    
    
    
    
    
    
    32,045
    
    
    
    285,191
    
    
    
    (1,479,042
    )
    
    
    720,845Other revenue
    
    
    934,056
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,300
    )
    
    
    
    
    
    
    910,756Total segment revenue
    
    
    2,684,460
    
    
    
    106,825,187
    
    
    
    
    
    
    
    37,995,155
    
    
    
    2,537,719
    
    
    
    (25,633,066
    )
    
    
    124,409,453Cost of sales and operating expenses
    
    
    
    
    
    
    112,107,517
    
    
    
    
    
    
    
    31,820,070
    
    
    
    
    
    
    
    (21,878,196
    )
    
    
    122,049,391Office and admin and other expenses
    
    
    2,490,896
    
    
    
    3,977,241
    
    
    
    
    
    
    
    2,632,570
    
    
    
    4,821,593
    
    
    
    (2,328,006
    )
    
    
    11,594,294Foreign exchange (gain)/loss
    
    
    (120,916
    )
    
    
    (1,071,122
    )
    
    
    
    
    
    
    (16,453
    )
    
    
    59,883
    
    
    
    
    
    
    
    (1,148,608
    )Exploration costs, excluding exploration impairment
    
    
    2,161,522
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,161,522Exploration impairment
    
    
    76,552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,552Depreciation and amortisation
    
    
    173,087
    
    
    
    2,625,582
    
    
    
    
    
    
    
    89,467
    
    
    
    6,500
    
    
    
    (32,508
    )
    
    
    2,862,128Accretion expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    1,345
    
    
    
    2,730,913
    
    
    
    
    
    
    
    39,001
    
    
    
    2,317,258
    
    
    
    (1,479,043
    )
    
    
    3,609,474(Loss)/income before income taxes
and non-controlling interest
    
    
    (2,098,026
    )
    
    
    (13,544,944
    )
    
    
    
    
    
    
    3,430,500
    
    
    
    (4,667,515
    )
    
    
    84,687
    
    
    
    (16,795,299
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,004,697
    )
    
    
    (165,827
    )
    
    
    
    
    
    
    (1,170,524
    )Non controlling interest
    
    
    
    
    
    
    136,522
    
    
    
    
    
    
    
    
    
    
    
    (2,010
    )
    
    
    4,692
    
    
    
    139,204Total net income/(loss)
    
    
    (2,098,026
    )
    
    
    (13,408,422
    )
    
    
    
    
    
    
    2,425,803
    
    
    
    (4,835,352
    )
    
    
    89,379
    
    
    
    (17,826,619
    )
 Midstream Refining and
    
    Midstream 
    
    
    
    
    
    
    
    
    
    ConsolidationSix months ended June 30, 2007 (Restated)
    
    Upstream
    
    Marketing
    
    Liquefaction
    
    Downstream
    
    Corporate
    
    adjustments
    
    TotalRevenues from external customers
    
    
    
    
    
    
    94,751,227
    
    
    
    
    
    
    
    170,487,641
    
    
    
    
    
    
    
    
    
    
    
    265,238,868Intersegment revenues
    
    
    
    
    
    
    122,864,076
    
    
    
    
    
    
    
    46,711
    
    
    
    4,023,848
    
    
    
    (126,934,635
    )
    
    
    Interest revenue
    
    
    289,383
    
    
    
    24,283
    
    
    
    5,433
    
    
    
    2,898
    
    
    
    990,725
    
    
    
    (79,395
    )
    
    
    1,233,327Other revenue
    
    
    502,430
    
    
    
    
    
    
    
    
    
    
    
    461,144
    
    
    
    
    
    
    
    
    
    
    
    963,574Total segment revenue
    
    
    791,813
    
    
    
    217,639,586
    
    
    
    5,433
    
    
    
    170,998,394
    
    
    
    5,014,573
    
    
    
    (127,014,030
    )
    
    
    267,435,769Cost of sales and operating expenses
    
    
    
    
    
    
    204,915,297
    
    
    
    
    
    
    
    158,716,859
    
    
    
    
    
    
    
    (124,126,376
    )
    
    
    239,505,780Office and admin and other expenses
    
    
    1,783,554
    
    
    
    3,533,661
    
    
    
    773,139
    
    
    
    6,522,016
    
    
    
    9,603,980
    
    
    
    (4,023,855
    )
    
    
    18,192,495Foreign exchange loss/(gain)
    
    
    649,869
    
    
    
    (920,566
    )
    
    
    (1,307
    )
    
    
    (28,142
    )
    
    
    71,718
    
    
    
    
    
    
    
    (228,428
    )Gain on LNG shareholder agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,553,080
    )
    
    
    
    
    
    
    (6,553,080
    )Exploration costs, excluding exploration impairment
    
    
    7,839,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,839,550Exploration impairment
    
    
    20,251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,251Depreciation and amortisation
    
    
    647,711
    
    
    
    5,465,272
    
    
    
    
    
    
    
    1,007,619
    
    
    
    23,300
    
    
    
    (65,015
    )
    
    
    7,078,887Accretion expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    
    
    
    
    4,246,472
    
    
    
    
    
    
    
    (27,257
    )
    
    
    5,199,288
    
    
    
    (79,394
    )
    
    
    9,339,109Total segment expenses
    
    
    10,940,935
    
    
    
    217,240,136
    
    
    
    771,832
    
    
    
    166,191,095
    
    
    
    8,345,206
    
    
    
    (128,294,640
    )
    
    
    275,194,564(Loss)/income before income taxes
and non-controlling interest
    
    
    (10,149,122
    )
    
    
    399,450
    
    
    
    (766,399
    )
    
    
    4,807,299
    
    
    
    (3,330,633
    )
    
    
    1,280,610
    
    
    
    (7,758,795
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (514,642
    )
    
    
    (29,215
    )
    
    
    
    
    
    
    (543,857
    )Non controlling interest
    
    
    
    
    
    
    (5,252
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79
    )
    
    
    (5,331
    )Total net income/(loss)
    
    
    (10,149,122
    )
    
    
    394,198
    
    
    
    (766,399
    )
    
    
    4,292,657
    
    
    
    (3,359,848
    )
    
    
    1,280,531
    
    
    
    (8,307,983
    )Total assets
    
    
    83,644,318
    
    
    
    337,711,235
    
    
    
    1,630,009
    
    
    
    119,030,587
    
    
    
    392,819,044
    
    
    
    (414,586,766
    )
    
    
    520,248,427
 14




---



##### 



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

(INTEROIL LOGO)
 5. Segmented financial information (Restated) (contd)
 ConsolidationSix months ended June 30, 2006 (Restated)
    
    Upstream
    
    Midstream
    
    Midstream - LNG
    
    Downstream
    
    Corporate
    
    adjustments
    
    TotalRevenues from external customers
    
    
    
    
    
    
    165,676,474
    
    
    
    
    
    
    
    65,730,161
    
    
    
    
    
    
    
    
    
    
    
    231,406,635Intersegment revenues
    
    
    
    
    
    
    44,025,098
    
    
    
    
    
    
    
    8,914
    
    
    
    3,993,539
    
    
    
    (48,027,551
    )
    
    
    Interest revenue
    
    
    2,104,177
    
    
    
    228,677
    
    
    
    
    
    
    
    63,780
    
    
    
    478,769
    
    
    
    (1,547,479
    )
    
    
    1,327,925Other revenue
    
    
    1,539,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,143
    
    
    
    
    
    
    
    1,566,743Total segment revenue
    
    
    3,643,777
    
    
    
    209,930,249
    
    
    
    
    
    
    
    65,802,855
    
    
    
    4,499,451
    
    
    
    (49,575,030
    )
    
    
    234,301,303Cost of sales and operating expenses
    
    
    
    
    
    
    217,657,954
    
    
    
    
    
    
    
    56,994,139
    
    
    
    
    
    
    
    (44,034,010
    )
    
    
    230,618,083Office and admin and other expenses
    
    
    3,461,049
    
    
    
    5,797,938
    
    
    
    
    
    
    
    5,582,499
    
    
    
    8,008,673
    
    
    
    (4,018,403
    )
    
    
    18,831,756Foreign exchange (gain)/loss
    
    
    (37,874
    )
    
    
    (107,639
    )
    
    
    
    
    
    
    (6,829
    )
    
    
    60,799
    
    
    
    
    
    
    
    (91,543
    )Exploration costs, excluding exploration
impairment
    
    
    5,721,252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,721,252Exploration impairment
    
    
    1,559,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,559,112Depreciation and amortisation
    
    
    370,895
    
    
    
    5,223,582
    
    
    
    
    
    
    
    151,374
    
    
    
    18,476
    
    
    
    (65,015
    )
    
    
    5,699,312Accretion expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    2,670
    
    
    
    5,073,266
    
    
    
    
    
    
    
    77,420
    
    
    
    2,670,753
    
    
    
    (1,547,480
    )
    
    
    6,276,629(Loss)/income before income taxes
and non-controlling interest
    
    
    (7,433,327
    )
    
    
    (23,714,852
    )
    
    
    
    
    
    
    3,004,252
    
    
    
    (6,259,249
    )
    
    
    89,878
    
    
    
    (34,313,298
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (860,849
    )
    
    
    (184,918
    )
    
    
    
    
    
    
    (1,045,767
    )Non controlling interest
    
    
    
    
    
    
    255,010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,692
    
    
    
    259,702Total net income/(loss)
    
    
    (7,433,327
    )
    
    
    (23,459,842
    )
    
    
    
    
    
    
    2,143,403
    
    
    
    (6,444,167
    )
    
    
    94,570
    
    
    
    (35,099,363
    )Total assets
    
    
    98,219,329
    
    
    
    353,047,953
    
    
    
    
    
    
    
    55,416,926
    
    
    
    354,534,056
    
    
    
    (360,302,879
    )
    
    
    500,915,385
 6. Cash and cash equivalents
  June 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006$
    
    $
    
    $Cash on deposit
    
    
    22,406,039
    
    
    
    31,681,435
    
    
    
    61,036,551Bank term deposits- Papua New Guinea kina deposits
    
    
    
    
    
    
    
    
    
    
    - Australian dollar deposits
    
    
    
    
    
    
    
    
    
    
    22,406,039
    
    
    
    31,681,435
    
    
    
    61,036,551
  15




---



##### 



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

(INTEROIL LOGO)
 7. Supplemental cash flow information
 Quarter ended
    
    Six months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006$
    
    $
    
    $
    
    $Cash paid during the yearInterest
    
    
    2,115,418
    
    
    
    5,596,652
    
    
    
    4,159,438
    
    
    
    6,550,377Income taxes
    
    
    45
    
    
    
    681,059
    
    
    
    91
    
    
    
    1,313,439Interest received
    
    
    543,771
    
    
    
    678,562
    
    
    
    1,231,557
    
    
    
    1,200,622Non-cash investing and financing activities:Fair value adjustment on IPL PNG Ltd. acquisition
    
    
    (367,935
    )
    
    
    
    
    
    
    (367,935
    )
    
    
    Decrease in plant and equipment as a result of impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    755,857Transfer to
plant and equipment to assets held for sale
    
    
    
    
    
    
    (3,368,750
    )
    
    
    
    
    
    
    (Decrease)/increase in deferred liquefaction project liability
    
    
    (6,553,080
    )
    
    
    3,574,565
    
    
    
    (6,553,080
    )
    
    
    3,574,565Increase in share capital from:the exercise of share options
    
    
    102,840
    
    
    
    140,461
    
    
    
    102,840
    
    
    
    140,461the exercise of warrants
    
    
    
    
    
    
    
    
    
    
    18,818
    
    
    
    conversion of indirect participation interest into share capital
    
    
    
    
    
    
    7,948,691
    
    
    
    598,119
    
    
    
    7,948,691
 8. Financial instruments
 Cash and cash equivalents
   Cash restricted
  June 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006$
    
    $
    
    $Cash deposit on working capital facility (4.7%)
    
    
    17,635,745
    
    
    
    29,301,940
    
    
    
    24,424,625Debt reserve for secured loan
    
    
    2,420,000
    
    
    
    
    
    
    
    Cash restricted  Current
    
    
    20,055,745
    
    
    
    29,301,940
    
    
    
    24,424,625Cash deposit on secured loan (3.5%)
    
    
    1,061,502
    
    
    
    647,502
    
    
    
    636,923Debt reserve for secured loan
    
    
    
    
    
    
    2,420,000
    
    
    
    1,300,000Bank term deposits on Petroleum Prospecting Licenses (0.7%)
    
    
    109,319
    
    
    
    107,997
    
    
    
    104,849Cash deposit on office premises (6.2%)
    
    
    44,977
    
    
    
    41,785
    
    
    
    42,770Cash restricted  Non-current
    
    
    1,215,798
    
    
    
    3,217,284
    
    
    
    2,084,54221,271,543
    
    
    
    32,519,224
    
    
    
    26,509,167
  16




---



##### 



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

(INTEROIL LOGO)
 8. Financial instruments (contd)
    Commodity derivative contracts
     Derivative
    
    Type
    
    Notional volumes (bbls)Naphtha swap
    
    Sell Naphtha
    
    175,000
  Derivative
    
    Type
    
    Notional volumes (bbls)Crude swap
    
    Sell crude
    
    300,000Crude swap
    
    Buy crude
    
    500,000Jet kerosene crack spread swap
    
    Sell jet kerosene/buy crude
    
    150,000
  9. Trade receivables
   17




---



##### 



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

(INTEROIL LOGO)
 10. Inventories
 June 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006$
    
    $
    
    $Midstream  refining and marketing (crude oil feedstock)
    
    
    22,609,840
    
    
    
    12,795,356
    
    
    
    38,135,041Midstream  refining and marketing (refined petroleum product)
    
    
    54,922,877
    
    
    
    22,329,270
    
    
    
    45,916,767Midstream  refining and marketing (parts inventory)
    
    
    202,780
    
    
    
    46,636
    
    
    
    Downstream (refined petroleum product)
    
    
    38,310,995
    
    
    
    32,422,296
    
    
    
    17,408,273116,046,492
    
    
    
    67,593,558
    
    
    
    101,460,081
   11. Plant and equipment
   Corporate &June 30, 2007
    
    Upstream
    
    Midstream
    
    Downstream
    
    Consolidated
    
    TotalsPlant and equipment
    
    
    1,247,201
    
    
    
    249,816,698
    
    
    
    40,988,037
    
    
    
    219,152
    
    
    
    292,271,088Deferred project costs and work in progress
    
    
    
    
    
    
    770,853
    
    
    
    1,609,617
    
    
    
    
    
    
    
    2,380,470Consolidation entries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,925,673
    )
    
    
    (2,925,673
    )Accumulated depreciation and amortisation
    
    
    (194,360
    )
    
    
    (27,227,158
    )
    
    
    (25,591,507
    )
    
    
    (51,453
    )
    
    
    (53,064,478
    )Net book value
    
    
    1,052,841
    
    
    
    223,360,393
    
    
    
    17,006,147
    
    
    
    (2,757,974
    )
    
    
    238,661,407Capital expenditure for six months ended Jun 2007
    
    
    
    
    
    
    137,872
    
    
    
    2,843,329
    
    
    
    72,355
    
    
    
    3,053,556
 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
 18




---



##### 



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

(INTEROIL LOGO)
 11. Plant and equipment (contd)
 Corporate &June 30, 2006
    
    Upstream
    
    Midstream
    
    Downstream
    
    Consolidated
    
    TotalsPlant and equipment
    
    
    1,247,201
    
    
    
    239,151,458
    
    
    
    12,658,445
    
    
    
    77,495
    
    
    
    253,134,599Deferred project costs and work in progress
    
    
    
    
    
    
    9,268,229
    
    
    
    1,669,915
    
    
    
    
    
    
    
    10,938,144Consolidation entries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,055,703
    )
    
    
    (3,055,703
    )Accumulated depreciation and amortisation
    
    
    (118,851
    )
    
    
    (16,343,299
    )
    
    
    (7,375,792
    )
    
    
    (9,383
    )
    
    
    (23,847,325
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net book value
    
    
    1,128,350
    
    
    
    232,076,388
    
    
    
    6,952,568
    
    
    
    (2,987,591
    )
    
    
    237,169,715
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital expenditure for six months ended Jun 2006
    
    
    
    
    
    
    8,552,690
    
    
    
    992,480
    
    
    
    87,514
    
    
    
    9,632,684
  12. Oil and gas properties (Restated)
   June 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006$ (Restated)
    
    $ (Restated)
    
    $ (Restated)Drilling equipment
    
    
    21,497,122
    
    
    
    18,242,972
    
    
    
    15,311,318Petroleum Prospecting License drilling programs at cost
    
    
    40,351,817
    
    
    
    36,281,375
    
    
    
    3,563,23261,848,939
    
    
    
    54,524,347
    
    
    
    18,874,550
   Six months ended
    
    Year ended
    
    Six months endedJune 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006$ (Restated)
    
    $ (Restated)
    
    $ (Restated)Exploration costs, excluding exploration impairment
    
    
    7,885,508
    
    
    
    6,176,866
    
    
    
    5,721,252Exploration impairmentCosts incurred in prior years
    
    
    
    
    
    
    
    
    
    
    Costs incurred in current year
    
    
    20,251
    
    
    
    1,647,185
    
    
    
    264,818Total exploration impairment
    
    
    20,251
    
    
    
    1,647,185
    
    
    
    264,8187,905,759
    
    
    
    7,824,051
    
    
    
    5,986,070
 19




---



##### 



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

(INTEROIL LOGO)
 13. Working capital facility  crude feedstock
     June 30,
    
    December 31,
    
    June 30,2007
    
    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
    
    
    (29,522,326
    )
    
    
    (13,201,940
    )
    
    
    (73,978,979
    )Discounted receivables (note 8)
    
    
    
    
    
    
    (23,671,568
    )
    
    
    (4,644,147
    )(29,522,326
    )
    
    
    (36,873,508
    )
    
    
    (78,623,126
    )Less: other amounts outstanding under the facility:Letters of credit outstanding
    
    
    (55,156,400
    )
    
    
    (79,000,000
    )
    
    
    (42,000,000
    )Bank guarantees on hedging facility
    
    
    (3,500,000
    )
    
    
    (1,500,000
    )
    
    
    (1,500,000
    )Working capital credit facility available for use
    
    
    81,821,274
    
    
    
    52,626,492
    
    
    
    27,876,874
   20




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##### 



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

(INTEROIL LOGO)
 14. Acquisition of a subsidiary
 InterOil LNG Holdings Inc.
  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
    
    
    9,713,556Total assets acquired
    
    
    45,310,463Accounts payable and accrued liabilities
    
    
    (11,815,188
    )Net assets acquired
    
    
    33,495,275
 PNG LNG Inc. and Liquid Niugini Gas Ltd
  15. Related parties
 Petroleum Independent and Exploration Corporation (P.I.E)
  21




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##### 



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

(INTEROIL LOGO)
 15. Related parties (contd)
 Breckland Limited
  Director fees
  BNP Paribas
  16. Secured loan
 June 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006$
    
    $
    
    $Secured loan (OPIC)  current portion
    
    
    18,000,000
    
    
    
    13,500,000
    
    
    
    9,000,000Secured loan (bridging facility)  current portion
    
    
    124,700,242
    
    
    
    
    
    
    
    Secured loan (bridging facility)  deferred financing costs
    
    
    (83,333
    )
    
    
    
    
    
    
    Total current secured loan
    
    
    142,616,909
    
    
    
    13,500,000
    
    
    
    9,000,000Secured loan (OPIC)  non current portion
    
    
    58,000,000
    
    
    
    62,500,000
    
    
    
    67,000,000Secured loan (OPIC)  deferred financing costs
    
    
    (1,470,583
    )
    
    
    
    
    
    
    Secured loan (bridging facility)  non current portion
    
    
    
    
    
    
    121,666,433
    
    
    
    76,273,802Total non current secured loan
    
    
    56,529,417
    
    
    
    184,166,433
    
    
    
    143,273,802Total secured loan
    
    
    199,146,325
    
    
    
    197,666,433
    
    
    
    152,273,802
 OPIC Secured Loan
     22




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##### 



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

(INTEROIL LOGO)
 16. Secured loan (contd)
   Bridging Facility
       17. Indirect participation interests (Restated)
 Indirect participation interest (IPI) (Restated)
 June 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006$ (Restated)
    
    $ (Restated)
    
    $ (Restated)Indirect participation interest (IPI)
    
    
    96,086,369
    
    
    
    96,861,259
    
    
    
    96,861,259
   23




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##### 



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

(INTEROIL LOGO)
 17. Indirect participation interests (contd)
     Indirect participation interest  PNGDV (Restated)
 June 30,
    
    December 31,
    
    June 30,2007
    
    2006
    
    2006$ (Restated)
    
    $ (Restated)
    
    $ (Restated)Current portion
    
    
    1,518,229
    
    
    
    730,534
    
    
    
    1,761,120Non current portion
    
    
    406,265
    
    
    
    1,190,633
    
    
    
    Total indirect participation interest  PNGDV
    
    
    1,924,494
    
    
    
    1,921,167
    
    
    
    1,761,120
    24




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##### 



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

(INTEROIL LOGO)
 17. Indirect participation interests (contd)
   Other
  18. Non controlling interest
   19. Share capital
   Common shares 
 Number of shares
    
    $January 1, 2005
    
    
    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 exercise of options
    
    
    22,000
    
    
    
    418,940Shares issued on conversion of indirect participation interest
    
    
    26,667
    
    
    
    934,890Shares issued on conversion of warrants
    
    
    2,995
    
    
    
    84,439June 30, 2007
    
    
    29,922,842
    
    
    
    235,327,636
 25




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##### 



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

(INTEROIL LOGO)
 20. Stock compensation
   Quarter ended June 30,
    
    Six months ended June 30,2007
    
    2006
    
    2007
    
    2006Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    average
    
    
    
    
    
    average
    
    
    
    
    
    averageNumber of
    
    exercise price
    
    Number of
    
    exercise price
    
    Number of
    
    exercise price
    
    Number of
    
    exercise priceStock options outstanding
    
    options
    
    $
    
    options
    
    $
    
    options
    
    $
    
    options
    
    $Outstanding at beginning of
period
    
    
    1,021,000
    
    
    
    20.66
    
    
    
    722,800
    
    
    
    22.28
    
    
    
    1,013,500
    
    
    
    20.59
    
    
    
    746,800
    
    
    
    22.23Granted
    
    
    314,750
    
    
    
    34.74
    
    
    
    247,500
    
    
    
    13.89
    
    
    
    329,750
    
    
    
    34.32
    
    
    
    282,500
    
    
    
    14.01Exercised
    
    
    (22,000
    )
    
    
    (14.37
    )
    
    
    (60,618
    )
    
    
    (8.19
    )
    
    
    (22,000
    )
    
    
    (14.37
    )
    
    
    (60,618
    )
    
    
    (8.19
    )Forfeited
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    (10.25
    )
    
    
    (5,000
    )
    
    
    (18.78
    )
    
    
    (228,500
    )
    
    
    (15.69
    )Expired
    
    
    
    
    
    
    
    
    
    
    (21,000
    )
    
    
    (22.19
    )
    
    
    (2,500
    )
    
    
    (27.00
    )
    
    
    (29,082
    )
    
    
    (12.00
    )Outstanding at end of period
    
    
    1,313,750
    
    
    
    24.14
    
    
    
    888,600
    
    
    
    20.90
    
    
    
    1,313,750
    
    
    
    24.14
    
    
    
    943,100
    
    
    
    20.95
 Options issued and outstanding
    
    
    
    
    
    Options exercisableRange of exercise
    
    
    
    
    
    Weighted average
    
    Weighted average
    
    
    
    
    
    Weighted averageprices $
    
    Number of options
    
    exercise price $
    
    remaining term (years)
    
    Number of options
    
    exercise price $12.01 to 24.00
    
    
    697,000
    
    
    
    17.96
    
    
    
    3.17
    
    
    
    150,000
    
    
    
    18.8424.01 to 31.00
    
    
    482,750
    
    
    
    28.06
    
    
    
    2.86
    
    
    
    90,000
    
    
    
    29.5731.01 to 41.00
    
    
    44,000
    
    
    
    39.88
    
    
    
    0.64
    
    
    
    
    
    
    
    41.01 to 51.00
    
    
    90,000
    
    
    
    43.22
    
    
    
    1.43
    
    
    
    90,000
    
    
    
    43.221,313,750
    
    
    
    24.14
    
    
    
    2.69
    
    
    
    330,000
    
    
    
    28.41
   Weighted averageRisk free interest rate
    
    
    
    
    
    
    
    
    
    expected life forYear
    
    
    
    Period
    
    (%)
    
    Dividend yield
    
    Volatility (%)
    
    options2007
    
    
    
    
    January 1 to June 30
    
    
    5
    
    
    
    
    
    
    
    63
    
    
    
    5.02006
    
    
    
    
    October 1 to December 31
    
    
    4.6
    
    
    
    
    
    
    
    65
    
    
    
    5.02006
    
    
    
    
    July 1 to September 30
    
    
    5.1
    
    
    
    
    
    
    
    68
    
    
    
    4.22006
    
    
    
    
    January 1 to June 30
    
    
    4.4
    
    
    
    
    
    
    
    60
    
    
    
    4.82005
    
    
    
    
    July 1 to December 31
    
    
    2.5
    
    
    
    
    
    
    
    55
    
    
    
    3.62005
    
    
    
    
    January 1 to June 30
    
    
    2.5
    
    
    
    
    
    
    
    45
    
    
    
    3.2
 26




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##### 



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

(INTEROIL LOGO)
 21. Warrants
   22. Loss per share
  23. 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
    
    
    200,700
    
    
    
    142,700
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    22,000Accrued financing costs
    
    
    1,450
    
    
    
    1,088
    
    
    
    363
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect participation interest  PNGDV (note 17)
    
    
    1,924
    
    
    
    1,518
    
    
    
    406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect participation interest (note 17) (a)
    
    
    96,086
    
    
    
    
    
    
    
    96,086
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Petroleum prospecting and retention licenses (b)
    
    
    4,184
    
    
    
    824
    
    
    
    3,360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    304,345
    
    
    
    146,130
    
    
    
    109,215
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    22,000
 (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 June 30, 2007, management
estimate that a further $45,550,000 will be required to be spent to fulful 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.
   24. Subsequent events
   27