##### 



AMENDED INDIRECT PARTICIPATION INTEREST
AGREEMENT
 BETWEEN
 INTEROIL CORPORATION
(InterOil)
 AND
 PNG ENERGY INVESTORS, LLC
(PNGEI)




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TABLE OF CONTENTS
 1.
    
    INTERPRETATION
    
    
    12.
    
    INDIRECT PARTICIPATION INTEREST
    
    
    53.
    
    CONVERSION RIGHTS
    
    
    54.
    
    PHASE ONE EXPLORATION PROGRAM
    
    
    65.
    
    DISCOVERIES AND SUBSEQUENT WORK
    
    
    66.
    
    PHASE TWO EXPLORATION PROGRAM AND PNGEI OPTION
    
    
    67.
    
    ASSIGNMENT
    
    
    98.
    
    CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS
    
    
    109.
    
    TERM AND TERMINATION
    
    
    1110.
    
    FORCE MAJEURE
    
    
    1111.
    
    NOTICES
    
    
    1112.
    
    AMENDMENT
    
    
    1213.
    
    ENTIRE AGREEMENT
    
    
    1214.
    
    COSTS
    
    
    1215.
    
    GOVERNING LAW
    
    
    1216.
    
    RELATIONSHIP OF PARTIES
    
    
    1317.
    
    COUNTERPARTS
    
    
    13SCHEDULE OF JVOA TERMSDISTRIBUTIONS SCHEDULEPARTICIPATION NOTICE
 ANNEXURE I:
    
    EXPLORATION MAP #1 EXPLORATION PROGRAM PROSPECTIVE FIELDS & EXPLORATION MAP #2
EXPLORATION PROGRAM PROSPECTIVE FIELDS
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AMENDED INDIRECT PARTICIPATION INTEREST AGREEMENT
  BETWEEN:
 InterOil Corporation, InterOil)
 AND:
 PNG Energy Investors, LLC, th PNGEI)
 WHEREAS:
 A.
    
    InterOil, through its relevant wholly owned Affiliate, is conducting exclusive exploration
drilling programs within the Licence Areas in Papua New Guinea and intends to develop and produce
Petroleum in any new PDL issued from and out of that area.B.
    
    InterOil sought an investor to participate in funding these drilling programs in exchange for
a beneficial interest (the Indirect Participation Interest or IPI) in InterOils
Participation Interest, and PNGEI agrees to be one such investor under the terms of this
Agreement.C.
    
    PNGEI is converting its Cost of IPI in the first eight wells in the Phase One Exploration
Program under clause 3.1 of this Agreement, and is granted an option to participate in up to
4.25% IPI in up to 16 exploration wells, which are the last eight wells of the Phase One
Exploration Program (exploration well #9 to exploration well #16), and the eight wells of the
Phase Two Exploration Program (exploration well #17 to exploration well #24).
 NOW THIS AGREEMENT
 1.
    
    INTERPRETATION1.1
    
    Unless a contrary intention appears, in this Agreement (including its Recitals):Affiliatemeans, in relation to a party, a related body corporate as defined in the
Corporations Law;barrelmeans that quantity of petroleum, which will occupy a volume of 42 U.S. standard
gallons measured at 60 degrees Fahrenheit (which volume shall be deemed equivalent to
0.158987 cubic metres when measured at 15.55 degrees Celsius);Blockmeans a block constituted as provided by Section 17 of the Oil and Gas Act;Commercial Interest Ratemeans the sum of (a) the Prime Rate as reported in the Wall
Street Journal on every Tuesday in the Money Rates section; and (b) 500 basis points (or
Prime +5.0%);Confidential Informationmeans data and information concerning the fact of this Agreement
and the Phase One and Phase Two Exploration Programs, which the Parties are concerned to
keep confidential;Conversion Rightsmeans PNGEIs rights under clause 3 to convert its IPI to common shares in InterOil;




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Corporations Lawmeans the Business Corporations Act (New Brunswick) as amended;Current Export Market Pricemeans the current commercially available price for Petroleum at the
time of delivery of the Petroleum to the InterOil Refinery or Marine Jetty. PNGEI or a qualified
agent has the right to audit this pricing information, based on the export price, net of all costs
after the related transportation of such produced crude to the refinery;Discoverymeans the discovery of Petroleum not previously known to have existed, recoverable at
the surface of any well bore in a significant amount measurable by conventional petroleum industry
testing methods and which may reasonably be considered to be an indication of a potentially
commercial accumulation of Petroleum. The verb Discover means the act of making a Discovery;Discovery Fieldmeans a Petroleum Field Discovered as a result of drilling and testing any
exploratior well which PNGEI participates in, which may be any one or more of exploration well #9
to exploratior well #16 in the Phase One Exploration Program or exploration well #17 to exploration
well #24 in the Phase Two Exploration Program within the Licence Areas or any PDL issued from or
granted out of the Participation Area;Distributionsis defined in the attached Distributions Schedule; Drilling Programmeans the drilling program prepared by InterOil for each well hereunder at least
in the level of detail as set out in section 104 of the Regulation;Fieldmeans the minimum area required to contain the maximum reasonably interpreted area of a
Zone as defined by the most likely petroleum-water fluid contact or contacts on a structural map
delineating the single structural closure of each Zone.For the avoidance of doubt:
 (a)
    
    where two or more Zones include a common Petroleum Pool these structures comprise a single
Field; and(b)
    
    where two or more Zones are found adjacent to, above or below each other, with separate
interpreted structural, spill points, different pressures or stratigraphic closures and which
do not include a common Petroleum Pool, such structures are separate Fields;
 Indirect Participation Interestor IPImeans the percentage interest share, referred to as the
Indirect Participation Interest Percentage, of the whole (100%) of the undivided interest in the
Participation Area, provided that such share shall only ever burden InterOils Participation
Interest in and Petroleum Share from the Participation Area, whatever that may be from time to
time, and InterOil shall not transfer or assign PNGEIs interest to any other party. Nothing shall
prevent or frustrate InterOil from selling down to a 5% working interest in any well, field or
prospect;Indirect Participation Interest Development Rights or IPI Development Rightsmeans PNGEIs
option, when elected and paid for according to this Agreement, to participate in the whole (100%)
of the undivided interest in the Participation Area in accordance with its IPI Percentage interest
of up to 4.25%, limited to exploration well # 9 to exploration well #16 drilled as part of the
Phase One Exploration Program and exploration well #17 to exploration well #24 drilled as part of
the Phase Two Exploration Program (if applicable), and including any Subsequent Work Program (if
applicable), in the Participation Area;Indirect Participation Interest Percentage or IPI Percentagemeans an interest of up to 4.25%
interest in each of exploration well #9 to exploration well #16 in the Phase One Exploration
Program exploration well #17 to exploration well #24 in the Phase Two Exploration Program, where
PNGEIs option in respect of each such well is exercised under this Agreement;
 2




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InterOil Refinerymeans the oil refinery at Napa Napa near Port Moresby in Papua New Guinea;JVOAmeans the InterOils standard Joint Venture Operating Agreement to be entered into by PNGEI
and InterOil or its nominated Affiliate, and any other working interest parties, in respect of the
Licence at time of PDL application, which JVOA shall include, but not be limited to, terms and
conditions such as those attached to this Agreement;Licencemeans PPL 236, PPL 237 and/or PPL 238 in Papua New Guinea or any PDL that may be issued
or granted out of any such PPL, and includes any extension, renewal or variation of such Licence
including but not limited to PDLs;Licence Areasmeans the area covered by any or all of PPL 236, PPL 237 and PPL 238 in Papua New
Guinea, and includes the area covered by any extension, renewal or variation of such Licence;Non Consent Penaltymeans for any Subsequent Work Program payment that PNGEI would have made in
accordance with its IPI (excluding the Cost of IPI, the payment under clause 6.2 or debt financing
under clause 7.4), but did not for any reason, PNGEI will not receive any Distributions for its
IPI from InterOil until InterOil has received from Distributions associated with PNGEIs IPI the
sum_of:
 (a)
    
    800% of the total amount InterOil paid on behalf of PNGEIs IPI; and(b)
    
    interest on the total amount InterOil paid on behalf of PNGEIs IPI accruing daily at
the Commercial Interest Rate, and;
 thereafter, PNGEI will receive all Distributions in accordance with its IPI;Oil and Gas Actmeans the Oil and Gas Act 1998(No. 49 of 1998), PNG, as amended from time
to time;Operatormeans InterOil or its wholly owned affiliate, designated and acting as Operator
under the terms of the JVOA;Participation Areameans the area within the Licence Areas in which PNGEI is entitled to the
Indirect Participation Interest in accordance with this Agreement, including the full extent,
regardless of the number of wells, required to exploit fully all commercially recoverable
Petroleum in any and all Zones drilled pursuant to any of exploration well #9 to exploration well
#16 in the Phase One Exploration Program and exploration well #17 to exploration well #24 Phase
Two Exploration Program in which PNGEI participates and that result in a Discovery Field;Participation Interestmeans, with respect to a party to the JVOA, that partys undivided
interest, expressed as a percentage and determined in accordance with the JVOA, in all rights,
interests, benefits, obligations and liabilities derived under and by virtue of the JVOA;PDLmeans a Petroleum Development Licence granted under the Oil and Gas Act;Petroleummeans:
 (a)
    
    any naturally occurring hydrocarbons, whether in a gaseous, liquid, or solid state; or(b)
    
    any naturally occurring mixture of hydrocarbons, whether in a gaseous, liquid, or solid state;
or(c)
    
    any naturally occurring mixture of one or more hydrocarbons, whether in a gaseous, liquid, or
solid state and any other substance; or(d)
    
    any fraction, mixture or product derived from sub-paragraphs (a), (b) or (c) as a result of
Production or processing; or


3







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(e)
    
    any Petroleum as defined in sub-paragraphs (a), (b), (c) or (d) which has been
returned to a narura reservoir, but does not include coal or any other substance which can
only be recovered by mechanical mining processes;
 Petroleum Poolmeans a naturally occurring discrete accumulation of Petroleum;Petroleum Sharemeans the Participation Interest share of Petroleum to which a party is entitled
pursuant to the JVOA;Phase One Exploration Programmeans the exploration program conducted by InterOil for Petroleum
within the Licence Areas comprising: (i) all necessary work relating to preparation for drilling
exploration wells, which will include geological and other studies; (ii) drill the well bores of
up to 16 consecutive exploration wells (exploration wells #1 to #16) to the Total Depth of each
such well into separate prospective Zones;Phase Two Exploration Programmeans the exploration program conducted at InterOils election for
Petroleum within the Licence Areas comprising: (i) all necessary work relating to preparation for
drilling exploration wells, which will include geological and other studies; and (ii) drill the
well bores of the next 8 consecutive exploration wells (exploration wells #17 to #24) to the Total
Depth of each such well into at least 8 separate, distinct Zones within the Licence Areas that are
separate and distinct from the Zones to be drilled during the Phase One Exploration Program.;PPL means a Petroleum Prospecting Licence granted under the Oil and Gas Act; PPL
236means Petroleum Prospecting Licence 236 granted under the Oil and Gas Act; PPL
237 means Petroleum Prospecting Licence 237 granted under the Oil and Gas Act; PPL
238means Petroleum Prospecting Licence 238 granted under the Oil and Gas Act;
Regulationmeans the Oil and Gas Regulation 2002(No. 10 of 2002), PNG; State
means the Independent State of Papua New Guinea; Subsequent Work Programis defined
in clause 7;Total Depthmeans the depth reached in each exploration well. InterOil shall use all reasonable
commercial efforts to drill to target depth stipulated in the relevant Drilling Program on each
well.Wilful Misconductmeans, in relation to any provision of this Agreement, such wanton or reckless
act or omission not justified by any special circumstances as amounts to a wilful and utter
disregard for the harmful and avoidable consequences thereof, but shall not include any error of
judgment, mistake, act or omission, whether negligent or not, made by the Operator or any
director, employee, agent or contractor of the Operator in the exercise, in good faith of any
function, authority or discretion conferred upon the Operator;Zonemeans a discrete stratigraphic interval within a geological structure containing or thought
to contain a Petroleum Pool, or other common accumulation of Petroleum separately producible from
any other common accumulation of Petroleum.For the avoidance of doubt, where two or more porous zones a re found adjacent to each other, with
separate interpreted structural, spill points, different pressures or stratigraphic closures such
zones are separate Zones.


4







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1.2
    
    The parties agree that:reference to the singular includes the plural and vice
versa;reference to a clause means a clause of this Agreement; andreference to legislation or any document includes any amendments or replacements to the
legislation or document.2.
    
    INDIRECT PARTICIPATION INTEREST2.1
    
    InterOil hereby grants to PNGEI the Conversion Rights under clause 3 hereof and the option
for up to 4.25% Indirect Participation Interest (IPI) and IPI Development Rights in each of
exploration well #9 to exploration #16 drilled as part the Phase One Exploration Program and
exploration well #17 to exploration well #24 drilled as part of the Phase Two Exploration
Program.2.2
    
    In consideration of InterOil granting to PNGEI the IPI, IPI Development Rights and Conversion
Rights, PNGEI paid to InterOil the amount of US$7,650,000 (hereinafter referred to as the
Cost of IPI). InterOil will classify this amount as a deposit until the conversion: of 100%
of the Cost of IPI to InterOil  common shares under clause 3.2.3
    
    Such payment was deposited in InterOils account by wire transfer as follows: (a)
US$540,000 of the Cost of IPI by April 9, 2003; and (b) an additional US$6,610,000 of the Cost
of IPI by May 9, 2003 and (c) the remaining balance of US$500,000 paid by March 15, 2004.2.4
    
    Any IPI will be reduced proportionally to the reduction in InterOiPs Participation Interest
as a result of the States election under the Petroleum Agreement to participate in a PDL by
taking a Participation Interest of up to 22.5% or any other State reversionary interest
entitlement.2.5
    
    PNGEI shall be entitled to receive Distributions (net of State royalties and other State
imposts and levies of whatever kind as provided by the Distributions Schedule, providing that
InterOil and PNGEI shall cooperate to ensure the correct amounts are paid), in accordance with
the Distributions Schedule, either directly from InterOil or from InterOiPs wholly owned
affiliate producing and selling Petroleum from the Participation Area.3.
    
    CONVERSION RIGHTS3.1
    
    PNGEI hereby undertakes to immediately convert US$5,400,000 of its Cost of IPI into fully
paid common shares in InterOil, at Fifteen Canadian dollars (C$15.00) per share, and the
remaining US$2,250,000 of its Cost of EPI into fully paid common shares in InterOil, at
Seventeen Canadian dollars (C$17.00) per share, using the appropriate foreign exchange rate
from the Wall Street Journal Currency Trading section for the business day prior to the
conversion date. Issuance of such stock to and its subsequent sale by PNGEI will be governed
by the rules and requirements of the stock exchanges having jurisdiction over InterOil.3.2
    
    The conversion of PNGEIs IPI into and the issuance of common shares to PNGEI under clause
3.1 eliminates for PNGEI any IPI or IPI Development Rights, or options to the first 8 wells
drilled in the Phase One Exploration Program. PNGEIs conversion of its EPI under this
clause 3 does not affect PNGEIs right to exercise its options to elect and pay for up to
4.25% IPI in each of exploration well #9 to exploration well #16 drilled in the Phase One
Exploration Program and up to a 4.25% IPI in each of exploration well #17 to exploration well
#24 in the Phase Two Exploration Program, whereby PNGEI can elect on a well by well basis
prior to such wells being drilled, and shall pay for such interest in accordance to this
Agreement.


5







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4.
    
    PHASE ONE EXPLORATION PROGRAM4.1
    
    InterOil hereby intends to conduct the Phase One Exploration Program in accordance with this
clause 4. InterOil will be the Operator of the Program and is not legally obligated to
drilling all 16 wells, regardless of any option that is granted to PNGEI.4.2
    
    The Phase One Exploration Program will be conducted within specific areas covering the
prospective Fields within the Licence Areas (where the specific areas of up to 16 consecutive
wells located in PPL 236, PPL 237 and PPL238, which may be one or more Blocks or portions of
Blocks (the Phase One Area). Upon the Discovery of any commercial Field(s) by wells drilled
in the Phase One Exploration Program, InterOil will request the declaration of a location
under the Oil and Gas Act, which will include sufficient Blocks or portions of Blocks to cover
fully the Field(s) to the extent that such Blocks are in the Licence Areas (Phase One
Participation Area).4.3
    
    InterOil will perform all necessary work in preparation and drilling of the exploration wells
referred to in clause 6.1, including undertaking geological and other studies, on a reasonable
commercial efforts basis.4.4
    
    InterOil will carry out and perform the Phase One Exploration Program in accordance with
this Agreement (see definition in section I, Phase One Exploration Program).4.5
    
    Each well drilled within this Program ends upon that well reaching its Total Depth. If
InterOil decides to continue operations on a well, itwill design a work program which may
include (a) logging or other evaluation or analysis, setting casing and or running tubing,
perforating, and testing the well, (Completion) and/or (b) appraisal drilling, extended
well testing and full field development and production (Subsequent Work Program).4.6
    
    Work on the Phase One Exploration Program commenced between 23rd March 2003 and
15th April 2003 and, if reasonably possible, all drilling is to be completed by
31st December 2005. InterOil will provide monthly drilling reports to PNGEI in
respect of all wells in which PNGEI elects to exercise its option to participate, and all such
well information will be available at InterOils office in Cairns, Queensland upon reasonable
request for review by or on behalf of PNGEI. InterOil agrees to use reasonable efforts to
make as much relevant well information as possible available in electronic media accessible by
PNGEI.4.7
    
    InterOil will be responsible for all costs of the Phase One Exploration Program as it is
defined in this Agreement.5.
    
    PHASE TWO EXPLORATION PROGRAM5.1
    
    InterOil hereby intends, subject to clause 5.2, to conduct, at its own cost, the drilling of
up to eight wells for the Phase Two Exploration Program in accordance with this section 5.
InterOil will be the Operator of the Program and is not legally obligated to drilling all 8
wells, regardless of any option that is granted to PNGEI.5.2
    
    InterOil agrees not to make a decision to proceed with the Phase Two Exploration Program
until the earlier of:
 (a)
    
    30 days after completion of the Phase One Exploration Program; and(b)
    
    30 days after the first cash flow from a commercial Discovery of Petroleum from the
Phase One Exploration Program provided Well No 12 in the Phase One Exploration Program
has commenced drilling and that this is a special exception to and shall not derogate
from the consecutive nature of the Phase One Exploration Program.


6







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5.3
    
    Upon the Discovery of a commercial Field(s) by wells drilled in the Phase Two Exploration
Program InterOil will request the declaration of a location under the Oil and Gas Act, which
will include sufficient Blocks or portions of Blocks to cover fully the Field(s), to the
extent such Blocks are in the Licence Areas (Phase Two Participation Area).5.4
    
    InterOil will perform all necessary work in preparation and drilling of the exploration wells
referred to in clause 5.1, including undertaking geological and other studies, on a reasonable
commercial efforts basis.5.5
    
    InterOil will carry out and perform the Phase Two Exploration Program in accordance with this
Agreement (see definition in section 1, Phase Two Exploration Program).5.6
    
    Each well drilled within this Program ends upon that well reaching its Total Depth. If
InterOil decides to continue operations on a well, it will design a work program which may
include (a) logging or other evaluation or analysis, setting casing and or running tubing,
perforating, and testing the well, (Completion)and/or (b) appraisal drilling, extended
well testing and full field development and production (Subsequent Work Program).5.7
    
    InterOil will provide monthly drilling reports to PNGEI in respect of all wells in which
PNGEI elects to exercise its option to participate, and all such well information will be
available at InterOils office in Cairns, Queensland upon reasonable request for review by or on behalf of PNGEI. InterOil
agrees to use reasonable efforts to make as much relevant well information as possible
available in electronic media accessible by PNGEI.5.8
    
    InterOil will be responsible for all costs of the Phase Two Exploration Program as it is
defined in this Agreement.6.
    
    PNGEI OPTIONS6.1
    
    Upon InterOils decision to proceed with any exploration well after the eighth exploration
well in the Phase One Exploration Program and any exploration well in the Phase Two
Exploration Program, InterOil will give written notice in the form of Annexure I hereto
(Offer of Participation Notice) of its decision (including a Drilling Program and relevant
geological and other information for making an election for that proposed well) to PNGEI and,
within 15 days of receiving such notice and relevant information, PNGEI may give notice to
InterOil in the form of Annexure I hereto (Acceptance of Offer to Participate Notice) that
it wishes to purchase an IPI of up to 4.25% in the Participation Area defined by said
exploration well, and PNGEI must pay the full amount of such payment on a date no later than
21 days after giving the notice under clause 6.2, or otherwise lose the right to purchase an
IPI in the Participation Area defined by said exploration well.6.2
    
    If PNGEI gives an Acceptance of Offer to Participate Notice that it wishes to participate in
respect of an exploration well, then PNGEI must to InterOil either a) for a well less than
US$112,500 for each 1% IPI (as it is defined in this Agreement), or (b) where the well is
planned to drill beyond 2,000 meters, the PNGEI portion of costs shall be US$112,500 per
percentage point, plus the actual cost over US$1 million charged prorata per percentage point
(see example below) to be paid upon determination of the actual cost.
 For example, the cost to PNGEI of a one percent IPI in the Participation Area to be
defined by a US$3,000,000 dollar exploration well to 3,000 meters shall be US$112,500 plus
one percent of US$2,000,000, or US$112,500 plus US$20,000 for a total of US$132,500 per
percent of participation.
 The payment obligation under this clause 6.2 will not be subject to or eligible for a
Non-Consent Penalty provision, and must be paid in full.


7







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(i)
    
    give written notice to InterOil that PNGEI intends to pay its IPI share of
the costs of the aforementioned Completion and make such payment within 30 days
of notice given under clause 7.1 (b); or(ii)
    
    give written notice to InterOil that PNGEI intends not to pay its
IPI share of the costs of the aforementioned Completion, and forfeit the rights
to that well and any commercial discovery from such well.
 (c)
    
    In the event that PNGEI does not pay within the period referred to in clause 7.1
(b)(i), for any reason, for all or a part of its IPI share of the costs of any
Completion work notified under clause 7.1 (a) and (b), PNGEI will forfeit its right in
such well for electing to participate and failing to pay.
 7.2
    
    In respect of PNGEIs IPI Development Rights, Non Consent cannot apply to testing and
Completion of a Discovery. Non-Consent only applies to the full development of a field after
initial exploration drilling, testing and Completion of a Discovery in clause 7.3.
 7.3
    
    Before PNGEI can be billed for any commitment or incurring any expenditure for a. Subsequent
Work Program that is not included in the Phase One or Phase Two Exploration Program or
Completion, the following will occur:
 (a)
    
    InterOil must submit an AFE (as defined in the JVOA) for that Subsequent Work
Program to PNGEI for its consideration. PNGEI must within 15 days after receipt of
that AFE, and in accordance with the terms of the JVOA, either:
 (i)
    
    give written notice to InterOil that PNGEI intends to pay its IPI
share of the costs of the aforementioned Subsequent Work Program and make such
payment within 30 days of notice given under this clause 7.3(a)(i); or(ii)
    
    give written notice to InterOil that PNGEI intends not to pay its IPI
share of the costs of the aforementioned Subsequent Work Program and incur a
Non-Consent Penalty.
 (b)
    
    In the event that PNGEI does not pay within the period referred to in clause
7.3(a), for any reason except clause 7.4, for all or a part of its IPI share of the
costs of any Subsequent Work Program notified under clause 7.3(a), PNGEI will incur a
Non-Consent Penalty for the amount InterOil paid on behalf of PNGEIs IPI share of the
costs of that Subsequent Work Program.
 7.4
    
    In the event that InterOil or one of its Affiliates raises debt financing (including
principle, interest and fees) on behalf of InterOil and PNGEIs IPI share, for all or a
portion of any expenditure related to the Participation Area, including a Subsequent Work
Program, using as security the rights to the Participation Area, then the Non-Consent Penalty
shall not apply to PNGEIs IPI share of the costs financed under any circumstances.
 8.
    
    ASSIGNMENT
 8.1
    
    A party to this Agreement may a assign or transfer or purport to assign or transfer any of
its interests, rights and obligations in and under this Agreement to a person or entity
without the prior written consent of the other party to this Agreement, provided that PNGEI
may only do so after paying to InterOil all of the agreed amounts described herein, subject to
PNGEIs Non-Consent rights in regard any expenditures in addition to the Cost of IPI.
 8.2
    
    An assignment or transfer pursuant to the provisions of this section 8 shall not be effective
until the assignee or transferee is bound by the provisions of this Agreement.


9







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8.3
    
    Nothing contained in this section 8 shall be deemed or construed so as to:
 (a)
    
    prevent InterOil from freely mortgaging or encumbering its Petroleum Share of
production and transferring or assigning to such mortgagee or lender the rights to the
proceeds of sale of any Petroleum sold hereunder on behalf of InterOil as security for
such debt. The provisions of this section 8 shall not apply to the granting of any such
security interest; or(b)
    
    prevent PNGEI from freely mortgaging or encumbering its DPI and assigning to such
mortgagee or lender the rights to the proceeds from PNGEIs IPI as defined in this
Agreement as security for such debt.
 8.4
    
    If InterOil assigns or transfers any of its interests or rights under this Agreement or its
Participation Interest, whereby InterOil holds less than 50% Participating Interest, PNGEI may
within 15 days notice by InterOil, elect to participate on the same terms, in such transaction
by assigning, for the same pro-rata value to its account, the same proportion of its
beneficial interest in the IPI to the same assignee or transferee. InterOil has unencumbered
rights to conclude any transaction to sell its interest without frustration.
 9.
    
    CONFIDENTIALITY AND PUBLICANNOUNCEMENTS
 9.1
    
    Confidential Information acquired or received by any party under this Agreement shall be
held confidential during the continuance of this Agreement and until the cessation of
commercial production of Petroleum from the Discovery Field plus a period of 2 years
thereafter and shall not be divulged in any way to any third party, without the prior written
approval of all the Producers which shall not be unreasonably withheld provided that any
party to this Agreement may, without such approval, disclose Confidential Information: -
 (a)
    
    to any Affiliate or bonafide intended assignee of such party upon obtaining a
similar undertaking of confidentiality from such Affiliate or assignee in favour of all
Producers;(b)
    
    to any outside consultants, upon obtaining a similar undertaking of confidentiality
from such consultants in favour of all Producers;(c)
    
    to any bank or financial institution from whom such party is seeking or obtaining
finance, upon obtaining a similar undertaking of confidentiality from such bank or
institution;(d)
    
    to the extent required by the Act, the Licence, any other applicable laws or
regulations or the Securities and Exchange Commission of Australia or any other Security
Commission having jurisdiction over a party to this Agreement or the regulations of any
recognised stock exchange on which are listed for quotation shares in the capital of such
party or any Affiliate of such party;(e)
    
    in a prospectus registered by the Australian Securities Commission, or any delegate
thereof, where such disclosure is required by law;(f)
    
    to the extent that the same has become generally available to the public; or(g)
    
    to the extent acquired independently from a third party whom the disclosing party
believed on reasonable grounds was under no obligation of confidentiality relating
thereto.


10







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##### 



10.
    
    TERM AND TERMINATIONThe term of this Agreement shall be for the period commencing on the date as of which
this Agreement is made (notwithstanding later execution hereof) and shall continue to be
effective until: (a) 4 years from the date of this Agreement; (b) immediately upon the
completion of the Phase One Exploration Program and the Phase Two Exploration Program, or (c)
until the final Distributions after cessation of commercial production of Petroleum from the
last Discovery Field, whichever is later.11.
    
    FORCE MAJEURE11.1
    
    If any party to this Agreement is prevented or delayed, wholly or in part, by Force
Majeure (as defined in clause 11.2) to carry out its obligations under this Agreement, other
than the obligation to make payment of monies due, upon such party giving notice and
reasonably full particulars of such Force Majeure to the other party within a reasonable time
after the occurrence of the cause relied upon, the obligations of the party giving notice, so
far as they are affected by such Force Majeure, shall be suspended during but no longer than
the continuance of the inability so caused and such further period thereafter as shall be
reasonable in the circumstances provided always that the cause of the Force Majeure as far as
possible shall be remedied with all reasonable dispatch by the party whose performance
hereunder is adversely affected.11.2
    
    Force Majeureshall mean, strike, lockout, ban and limitation of work, or other industrial
disturbance; act of the public enemy, war, whether declared or undeclared, blockade, riot,
insurrection; malicious damage; earthquake, landslide, lightning, fire, storm, flood, tidal
wave, epidemic or other act of god; explosion; the order of any court or governmental
authority; shortage or unavailability of equipment, materials or labour, or restriction
thereon, or limitations upon the use thereof, delay in transportation or communication,
breakage of or accidental damage to machinery or lines of pipe, freezing of well or delivery
facilities, cratering, washout, well blowout, necessity for making repairs to or
reconditioning wells, restraint on access to the Licence Areas in the vicinity of the
Discovery Field, termination or suspension of any licence concerning the Discovery Field and
any other cause, whether of the kind herein enumerated or otherwise, not reasonably within the
control of the party to this Agreement concerned.11.3
    
    Notwithstanding anything hereinbefore contained, the settlement of a strike, lockout, ban and
limitation of work or other industrial disturbance shall be entirely within the discretion of
the party to this Agreement concerned.12.
    
    NOTICES12.1
    
    Any notice (including invoices) given under this Agreement shall be given to a party in
writing at its nominated address, and sent whenever practicable and possible by post,
facsimile transmission, personal delivery or email. Such notices shall be effective upon
receipt which shall be deemed to have occurred on the working day following dispatch, except
in the case of emails, receipt of which shall occur when confirmation of receipt has been
received from the recipient. Such confirmation may be a reply to or acknowledgement of the
notice sent by the recipient himself, or a return message automatically generated by the
recipients system.
 11







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12.2
    
    The nominated addresses of the parties to this Agreement at the date hereof are as follows:
 Party
    
    AddressInterOil Corporation (or its nominated Affiliate)INTEROIL
    
    25025 I-45 NorthSuite 420The Woodlands TX 77380USAPNGEI
    
    PNG Energy Investors, LLCc/o Global Asset Management,LLC 2905 Wilson Ave., Suite 100P.O. Box 158Grandville, ML USA 49468-0158Non P.O. Box Deliveries: 49418Telephone: 616-534-8100Fax: 616-534-4806
 12.3
    
    Any party to this Agreement may at any time by notice to the other party notify any change of
address, facsimile number or email address and, upon receipt of the notice, such address shall
become the address of that party for the purposes of this Agreement.13.
    
    AMENDMENT13.1
    
    This Agreement may be amended only by written agreement of all of the parties to this
Agreement.13.2
    
    No waiver of any breach of this Agreement or of any provisions hereof shall be effective
unless such waiver is in writing and signed by the party to this Agreement from whom such
waiver is requested. No waiver of any breach shall be deemed to be a waiver of any other or
subsequent breach.14.
    
    ENTIRE AGREEMENTThis Agreement contains the entire agreement among the parties and supersedes and replaces
all earlier agreements, documents, correspondence and conduct by the parties with respect to
the subject matter, including, but not limited to, the Indirect Participation Interest
Agreements dated April 3, 2003 and April 16, 2003, respectively.15.
    
    COSTSEach Parrys costs of negotiating and entering into the Agreement, and any costs associated
with obtaining authorisation or approval of this Agreement from any government or regulatory
body shall be borne by the Party accruing such costs.16.
    
    GOVERNING LAWThis Agreement shall be governed by and construed in accordance with the laws of the Province
of Ontario and the laws of Canada.
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17.
    
    RELATIONSHIP OF PARTIESNeither this Agreement nor any rights or obligations of any party under this
Agreement shall constitute any of the parties as partners.18.
    
    COUNTERPARTSThis Agreement may be executed in multiple counterparts, each such Agreement
so executed shall have the effect of an original, but all such counterparts shall
together constitute but one and the same instrument and this Agreement shall be
binding on the Parties.
 WITNESS WHEREOF
 Signed for and on behalf of INTEROIL
CORPORATION
    
    
    
    Signed for and on behalf of PNG ENERGY
INVESTORS, LLCBy: Phil E. Mulacek
    
    
    
    By: Global Asset Management LLC-s- Phil E. Mulacek
    
    
    
    ManagerName/Title
    
    
    
    TitleBy: Patrick Ian Phair-s- Patrick Ian Phair/Managing MemberSignature/Title
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SCHEDULE OF JVOA TERMS
 Party Participation:
    
    All rights, benefits and interests derived from each Licence and
all Petroleum produced from the Licence are owned by the Parties in
accordance with their respective Participation Interests.State Participation:
    
    State (through a nominee) can elect to participate as a joint owner of
up to 22.5% Participation Interest in the development of any discovery, by
pro-rata contribution by the parties.Management Committee:
    
    Joint Operations to be authorised, supervised and directed by a
Management Committee. Each Party may designate a representative, who
has a vote equal to his Partys Participation Interest.Voting:
    
    Affirmative vote by Parties holding an aggregate at least 65%
Participation Interest.Default for approval of minimum work obligations: proposal with
largest aggregate Participation Interest.Unanimous voting: for work in excess of minimum work obligations,
relinquishment of the Licence Areas, etc.Operator:
    
    InterOil to be Operator for all Joint Operations. Operator has exclusive
charge of and conducts Joint Operations under overall supervision and
direction of Management Committee. Operator can resign, be removed
automatically or be removed by the vote of all non-operators for
material breach, gross negligence etc.Liabilities:
    
    All damage, loss or liability incurred in Joint Operations to be borne by
the Parties in proportion to their respective Participation Interests.
Operator (except as a Party) is not liable except for damage or less
resulting from Operators gross negligence or wilful misconduct.AFE Procedure:
    
    Before entering into any commitment or incurring any expenditure,
Operator must submit an AFE to the Parties for Management Committee
approval.Accounting Procedure:
    
    All costs, expenses, credits etc will be ascertained,
computed, accounted for in accordance with the Accounting Procedure. Operator is
entitled to cash call for monthly project expenditures in advance, in
respect of direct and indirect charges to the Joint Account; the latter
as a percentage (0.5%  3%) of annual Joint Account Costs.




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Default Provisions:
    
    On non-payment of Participation Interest share of Joint Account Costs.
Transfer of Participation Interest to other Parties if Default not
remedied within 90 days.Joint Participation
    
    If all Parties agree to participate, operations will be carried out as a
Joint Operation. Approval of Appraisal Programs and budgets and
development plans to be by unanimous determination of the Management
Committee. Parties not participating in a Development Program forfeit
all rights to the Sub-Area and the Development Licence Areas the
subject of the Development Plan and transfer all rights and interests
etc in that Area to participating Parties.Sole Risk Operation:
    
    If less than all Parties agree to participate in a Well Proposal, Proposal
will be carried out as a Sole Risk Operation: Specifically for
Exploration Wells; Testing, Extended Well Testing, Completion,
Deepening, Sidetracking, Appraisal or Development Programs.Non Consent:
    
    Right of election not to participate in a Joint Operation which a Party
has voted against whereby the Non Consent Penalty is 800% of the
amount that the non-consenting party would have paid had it elected to
participate.Transfer of Interest:
    
    Each party has the right from time to time to transfer all or part of its
Participation Interest with the consent of the other parties, except
with respect to transfers to Affiliates.
 2




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DISTRIBUTIONS SCHEDULE
   -
    
    Operators Direct Charges, calculated in accordance with the Accounting
Procedures in the JVOA, and including InterOils actual direct costs to produce, stabilize,
separate, transport and sell Petroleum, including repayment of any and all borrowings
(principal interest, and fees etc.) secured by the rights to the Participation Area-
    
    Operators Indirect Charges, calculated in accordance with the Accounting Procedures in
the JVOA, including transportation costs, and third party costs, insurances, etc-
    
    US$0.45 per barrel infrastructure fee for Petroleum produced and transported to InterOils
Refinery or Marine Terminal-
    
    State royalties and other State imposts and levies of whatever kind including income tax, value
added or goods and services taxes or dividend withholding taxes (providing that InterOil and
PNGEI shall cooperate to ensure the correct amounts are paid for each parties respective
interest)=
    
    Sub-totalx
    
    PNGEIsIPI%=
    
    PNGEIs Sub-total-
    
    Non-Consent Penalty outstanding, (if any)-
    
    PNGEIs IPI% share of Abandonment Security funding (if any)=
    
    Distribution to PNGEI




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ANNEXURE I
 PARTICIPATION NOTICE AND SIGNATURE PAGE FOR
 INDIRECT PARTICIPATION INTEREST AGREEMENT FOR [NAME OF ELECTION
WELL], EXPLORATION WELL # [ ]
 Offer of Participation Notice
 Offer of Participation Notice Date),
    CORPORATION
  
 Acceptance of Offer to Participate Notice
 Acceptance of Offer to Participate Date),  IP I




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ENERGY INVESTORS, LLC
  
  
 2




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ANNEXURE II: EXPLORATION MAP #1 EXPLORATION PROGRAM
PROSPECTIVE FIELDS




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ANNEXURE II: EXPLORATION MAP #2 EXPLORATION PROGRAM
PROSPECTIVE FIELDS
 
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ii