##### 



InterOil Corporation
Management
Discussion and Analysis
    

(INTEROIL LOGO)For the Year Ended December 31, 2007
March 28, 2008
 TABLE OF CONTENTS
  
 LEGAL NOTICE  RISK FACTORS AND FORWARD-LOOKING STATEMENTS
    
    
    2INDUSTRY TRENDS
    
    
    3RISK MANAGEMENT
    
    
    5BUSINESS STRATEGY
    
    
    5INTRODUCTION
    
    
    5FINANCIAL RESULTS
    
    
    6YEAR AND QUARTER IN REVIEW
    
    
    11LIQUIDITY AND CAPITAL RESOURCES
    
    
    32CRITICAL ACCOUNTING ESTIMATES
    
    
    39NEW ACCOUNTING STANDARDS
    
    
    41NON-GAAP MEASURES AND RECONCILIATION
    
    
    42STATEMENT REGARDING DISCLOSURE CONTROLS
    
    
    44PUBLIC SECURITIES FILINGS
    
    
    44GLOSSARY OF TERMS
    
    
    44
    Management
Discussion and Analysis INTEROIL CORPORATION
      1




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##### Table of Contents



LEGAL NOTICE  RISK FACTORS AND FORWARD-LOOKING STATEMENTS
 This MD&A contains forward-looking statements as defined in U.S. federal and Canadian securities
laws. Such statements are generally identifiable by the terminology used, such as may, plans,
believes, expects, anticipates, intends, estimates, forecasts, budgets, targets or
other similar wording suggesting future outcomes or statements regarding an outlook. We have based
these forward-looking statements on our current expectations and projections about future events.
All statements, other than statements of historical fact, included in or incorporated by reference
in this MD&A are forward-looking statements. Forward-looking statements include, without
limitation, statements regarding our plans for our exploration activities and other business
segments and results therefrom, expanding our business segments, operating costs, business
strategy, contingent liabilities, environmental matters, and plans and objectives for future
operations, the timing, maturity and amount of future capital and other expenditures.
 Many risks and uncertainties may impact the matters addressed in these forward-looking statements,
including but not limited to:
 
    
    the inherent uncertainty of oil and gas exploration activities;
    
    the uncertain outcome of our negotiations with the Papua New Guinea government to
determine the price at which our refined products may be sold;
    
    the availability of crude feedstock at economic rates;
    
    uncertainty in our ability to attract capital;
    
    refinancing risk;
    
    interest rate risk;
    
    general economic conditions and illiquidity in the credit markets;
    
    the recruitment and retention of qualified personnel;
    
    the availability and cost of drilling rigs, oilfield equipment, and other oilfield
exploration services;
    
    our ability to finance the development of our LNG facility;
    
    our ability to timely construct and commission our LNG facility;
    
    political, legal and economic risks in Papua New Guinea;
    
    our ability to renew our petroleum licenses;
    
    landowner claims;
    
    the uncertainty in being successful in pending lawsuits and other proceedings;
    
    compliance with and changes in foreign governmental laws and regulations, including
environmental laws;
    
    the inability of our refinery to operate at full capacity;
    
    difficulties in marketing our refinerys output;
    
    exposure to certain uninsured risks stemming from our refining operations;
    
    weather conditions and unforeseen operating hazards;
    
    losses from our hedging activities;
    
    the impact of competition;
    
    the impact of legislation regulating emissions of greenhouse gases on current and
potential markets for our products; and
    
    fluctuations in currency exchange rates.
 Forward-looking statements and information are based on our current beliefs as well as assumptions
made by, and information currently available to, us concerning anticipated financial performance,
business prospects, strategies, regulatory developments, future oil and natural gas commodity
prices, the ability to obtain equipment in a timely manner to carry out development activities, the
ability to market products successfully to current and new customers, the impact of increasing
competition, the ability to obtain financing on acceptable terms, and the ability to develop
production and reserves through development and exploration activities. Although we consider these
assumptions to be reasonable based on information currently available to us, they may prove to be
incorrect.
 Although we believe that the assumptions underlying our forward-looking statements are reasonable,
any of the assumptions could be inaccurate, and, therefore, we cannot assure you that the
forward-looking statements included in this MD&A will prove to be accurate. In light of the
significant uncertainties inherent in our forward-looking statements, the inclusion of such
information should not be regarded as a representation by us or any other person that our
objectives and plans will be achieved. Some of these and other risks and uncertainties that could
cause actual results to differ materially from such forward-looking statements are more fully
described under the heading Risk Factors in the AIF.
 Furthermore, the forward-looking information contained in this MD&A is made as of the date hereof,
unless otherwise specified and, except as required by applicable law, we have no obligation to
update publicly or to revise any of this forward-looking information. The forward-looking
information contained in this report is expressly qualified by this cautionary statement.
 We currently have no production reserves or resources as defined in Canadian National Instrument
51-101 Standards of Disclosure for Oil and Gas Activities. All information contained in this MD&A
regarding resources are references to undiscovered resources under Canadian National Instrument
51-101, whether stated or not.
 Management
Discussion and Analysis INTEROIL CORPORATION       2




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INDUSTRY TRENDS
 Competitive Environment and Regulated Pricing
   Interest Rates
   Skill and Resource Scarcity
  Crude Prices
  Refining Margin
  Management
Discussion and Analysis INTEROIL CORPORATION
      3




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Exchange Rates
  Domestic
Demand
    Impact of Key Factors on Earnings
  Annual Net Earnings ImpactFactor(1)(2)
    
    Change (+)
    
    (thousands of dollars)
    
    ($/share)(3)Change in domestic demand
    
    
    1
    %
    
    
    379
    
    
    
    0.01Change in hydro-skimming margin
    
    $1.00/bbl
    
    
    6,685
    
    
    
    0.22Change in ICCC pricing margin for retail and distribution business
    
    0.01 PGK/litre
    
    
    1,424
    
    
    
    0.05Change in LIBOR rate
    
    
    1
    %
    
    
    389
    
    
    
    0.01
 
 (1)
    
    The impact of a change in one factor may be compounded or offset by changes in other factors.
This table does not consider the impact of any inter-relationship among the factors.(2)
    
    The impact of these factors is illustrative and based on sales and borrowings made during the
2007 year.(3)
    
    Per share amounts are based on the number of basic shares outstanding at December 31, 2007. Management
Discussion and Analysis INTEROIL CORPORATION
      4




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##### Table of Contents



RISK MANAGEMENT
 Risk Factors www.sedar.com.
 
 BUSINESS STRATEGY
  1.
    
    capitalizing on and expanding on existing business assets,2.
    
    targeted acquisitions and growth opportunities in Papua New Guinea and
the surrounding regions,3.
    
    Positioning InterOil for long term oil and gas business success.
 www.sedar.com
 
 INTRODUCTION
  Segments
    
    OperationsUpstream
    
    Exploration and Production  Explores and appraises potential
oil and natural gas structures in Papua New Guinea with a view
to commercializing significant discoveries.Midstream
    
    Refining  Produces refined petroleum products at Napa Napa in
Port Moresby Papua New Guinea for domestic market and for spot
export.
Liquefaction  Developing an onshore liquefied natural gas
processing facility in Papua New Guinea.Downstream
    
    Wholesale and Retail Distribution  Markets and distributes
refined petroleum products domestically in Papua New Guinea on
a wholesale and retail basis.Corporate
    
    Corporate  Provides support to the other business segments by
engaging in business development and improvement activities and
providing general and administrative services and management,
undertakes financing and treasury activities, and is
responsible for government and investor relations. General and
administrative and integrated costs are recovered from business
segments on an equitable basis. Our corporate segment results
also include consolidation adjustments.
 Management
Discussion and Analysis INTEROIL
CORPORATION       5




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FINANCIAL RESULTS
 Summary of Consolidated Financial Results for the Year and Quarter ended December 31, 2007
 Highlights for year ended December 31, 2007
   ü
    
    improved refinery margins resulting from optimization efforts and capital works
undertaken during 2006.ü
    
    increased Downstream sales volume margins resulting from the Shell acquisition.ü
    
    recognition of a deferred gain during the period due to signing of the LNG
Shareholders Agreement on July 31, 2007.
  ü
    
    additional seismic costs in relation to the Elk extended well seismic program.ü
    
    additional expenses related to our share of preliminary costs of the LNG Project.ü
    
    additional office and administration expenses associated with the LNG Project and
higher share compensation expense.
 Highlights for quarter ended December 31, 2007
    ü
    
    increased seismic costs in relation to the Elk extended well seismic program.ü
    
    additional expenses related to our share of preliminary costs of the LNG Project preliminary costs.
  Management
Discussion and Analysis INTEROIL CORPORATION
      6




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Annual Consolidated Financial Results
 Consolidated results for year ended December 31, 2007 compared to year ended December 31, 2006 and
2005
 Consolidated  Operating results
    
    Years ended December 31,($ thousands, unless otherwise indicated)
    
    2007(1)
    
    2006(1)
    
    2005Sales and operating revenues
    
    
    625,526
    
    
    
    511,088
    
    
    
    481,181Interest revenue
    
    
    2,180
    
    
    
    3,224
    
    
    
    1,831Other non-allocated revenue
    
    
    2,667
    
    
    
    3,748
    
    
    
    528Total revenue
    
    
    630,373
    
    
    
    518,060
    
    
    
    483,540Cost of sales and operating expenses
    
    
    (573,609
    )
    
    
    (499,495
    )
    
    
    (467,247
    )Office and administration and other expenses
    
    
    (43,468
    )
    
    
    (24,834
    )
    
    
    (23,296
    )Gain on LNG shareholder agreement
    
    
    6,553
    
    
    
    
    
    
    
    Exploration costs
    
    
    (13,305
    )
    
    
    (6,177
    )
    
    
    (11,009
    )Exploration impairment
    
    
    (1,243
    )
    
    
    (1,647
    )
    
    
    (19,570
    )Earnings before interest, taxes, depreciation and amortization (unaudited)(2)
    
    
    5,301
    
    
    
    (14,094
    )
    
    
    (37,582
    )Depreciation and amortization
    
    
    (13,024
    )
    
    
    (12,353
    )
    
    
    (11,037
    )Interest expense
    
    
    (20,005
    )
    
    
    (17,273
    )
    
    
    (10,987
    )Loss from ordinary activities before income taxes
    
    
    (27,728
    )
    
    
    (43,720
    )
    
    
    (59,606
    )Income tax expense
    
    
    (1,207
    )
    
    
    (2,343
    )
    
    
    (2,832
    )Non-controlling interest
    
    
    22
    
    
    
    264
    
    
    
    368Total net loss
    
    
    (28,913
    )
    
    
    (45,799
    )
    
    
    (62,070
    )Net loss per share (dollars) (basic)
    
    
    (0.96
    )
    
    
    (1.55
    )
    
    
    (2.15
    )Net loss per share (dollars) (diluted)
    
    
    (0.96
    )
    
    
    (1.55
    )
    
    
    (2.15
    )Total assets
    
    
    537,815
    
    
    
    505,239
    
    
    
    432,897Total liabilities
    
    
    441,712
    
    
    
    417,060
    
    
    
    311,068Cash flows (used in)/provided by
    
    
    (40,716
    )
    
    
    2,187
    
    
    
    (22,713
    )Cash dividends declared per share
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Our wholesale and retail distribution business segment acquired the business of Shell PNG
Limited on October 1, 2006 and information in this table includes the results of the Shell
business from this date.(2)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure and is
reconciled to GAAP under Non-GAAP measures and reconciliation section in this document. Analysis of Consolidated Financial Results for year ended December 31, 2007 compared to year ended
December 31, 2006
  ü
    
    $28.5 million improvement in gross margin (sales and operating revenues less cost of
sales and operating expenses) from refinery operations primarily due to the positive impact
of revamp and optimization efforts, improved margins on export products and revised IPP
pricing for refined products in place during December 2007.
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Discussion and Analysis INTEROIL CORPORATION
      7




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##### Table of Contents



ü
    
    $9.7 million improvement in gross margin from our Downstream segment mainly due to
margins from additional volumes resulting from the business acquired from Shell and
increased domestic demand coupled with a positive effect on Gross Margin due to IPP price
movements over the current year.ü
    
    $6.6 million recognition of a deferred gain on the discounted interest rate on the
bridging loan facility entered into in May 2006 with Merrill Lynch Commodities (Europe)
Limited and Pacific LNG Operations Ltd,ü
    
    $0.3 million increase in foreign exchange gain compared to the prior year due to the
strengthening of the PGK against the USD from 0.3300 in December 2006 to 0.3525 in December
2007.
  ü
    
    $7.1 million increase in exploration costs in our Upstream segment relating to our
portion of Elk geophysics and geology costs, which are expensed as incurred under the
successful efforts method of accounting.ü
    
    $19.0 million additional office and administration and other expenses mainly with
derivative losses, higher share compensation expense and with the LNG Project,ü
    
    $2.7 million increase in interest expense for the year as a result of the $130.0 million
secured loan financing obtained during the second quarter of 2006.
 Management
Discussion and Analysis INTEROIL CORPORATION
      8




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Summary of Consolidated Quarterly Financial Results for Past Eight Quarters
 Consolidated Quarterly Financial Results by Quarter for 2007 and 2006
  Quarters ended($ thousands unless stated
    
    2007
    
    2006otherwise)
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31Upstream
    
    
    579
    
    
    
    1,176
    
    
    
    397
    
    
    
    395
    
    
    
    705
    
    
    
    900
    
    
    
    2,684
    
    
    
    959Midstream  Refining
    
    
    137,509
    
    
    
    168,737
    
    
    
    114,584
    
    
    
    103,055
    
    
    
    147,538
    
    
    
    94,687
    
    
    
    106,825
    
    
    
    103,105Midstream  Liquefaction
    
    
    26
    
    
    
    10
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Downstream
    
    
    118,495
    
    
    
    102,786
    
    
    
    93,186
    
    
    
    77,812
    
    
    
    91,990
    
    
    
    39,527
    
    
    
    37,995
    
    
    
    27,807Corporate and Consolidated
    
    
    (83,776
    )
    
    
    (82,605
    )
    
    
    (67,633
    )
    
    
    (54,366
    )
    
    
    (67,457
    )
    
    
    (24,132
    )
    
    
    (23,095
    )
    
    
    (21,979
    )Sales and operating revenues
    
    
    172,833
    
    
    
    190,105
    
    
    
    140,539
    
    
    
    126,896
    
    
    
    172,776
    
    
    
    110,982
    
    
    
    124,409
    
    
    
    109,892Upstream
    
    
    (3,128
    )
    
    
    (5,015
    )
    
    
    (5,492
    )
    
    
    (4,009
    )
    
    
    (719
    )
    
    
    (1,107
    )
    
    
    (1,922
    )
    
    
    (5,136
    )Midstream  Refining
    
    
    9,589
    
    
    
    (1,332
    )
    
    
    3,775
    
    
    
    6,336
    
    
    
    9,144
    
    
    
    1,674
    
    
    
    (8,188
    )
    
    
    (5,229
    )Midstream  Liquefaction
    
    
    (797
    )
    
    
    (4,104
    )
    
    
    (444
    )
    
    
    (322
    )
    
    
    (396
    )
    
    
    (298
    )
    
    
    
    
    
    
    Downstream
    
    
    3,627
    
    
    
    3,301
    
    
    
    2,760
    
    
    
    3,028
    
    
    
    1,143
    
    
    
    1,954
    
    
    
    3,559
    
    
    
    (326
    )Corporate and Consolidated
    
    
    (2,394
    )
    
    
    (3,105
    )
    
    
    4,959
    
    
    
    (1,931
    )
    
    
    (2,299
    )
    
    
    (853
    )
    
    
    (3,770
    )
    
    
    (1,321
    )Earnings before interest, taxes, depreciation and amortization(1)
    
    
    6,897
    
    
    
    (10,255
    )
    
    
    5,557
    
    
    
    3,102
    
    
    
    6,873
    
    
    
    1,370
    
    
    
    (10,323
    )
    
    
    (12,014
    )Upstream
    
    
    (3,262
    )
    
    
    (4,716
    )
    
    
    (5,831
    )
    
    
    (4,318
    )
    
    
    (954
    )
    
    
    (1,310
    )
    
    
    (2,098
    )
    
    
    (5,335
    )Midstream  Refining
    
    
    2,990
    
    
    
    (12,199
    )
    
    
    (1,117
    )
    
    
    1,511
    
    
    
    3,818
    
    
    
    (4,309
    )
    
    
    (13,408
    )
    
    
    (10,052
    )Midstream  Liquefaction
    
    
    (825
    )
    
    
    (4,104
    )
    
    
    (444
    )
    
    
    (322
    )
    
    
    (396
    )
    
    
    (298
    )
    
    
    
    
    
    
    Downstream
    
    
    670
    
    
    
    (255
    )
    
    
    2,242
    
    
    
    2,050
    
    
    
    (427
    )
    
    
    1,278
    
    
    
    2,426
    
    
    
    (282
    )Corporate and Consolidated
    
    
    (2,286
    )
    
    
    3,382
    
    
    
    2,196
    
    
    
    (4,275
    )
    
    
    (5,420
    )
    
    
    (2,684
    )
    
    
    (4,745
    )
    
    
    (1,603
    )Net income (loss) per segment
    
    
    (2,713
    )
    
    
    (17,892
    )
    
    
    (2,954
    )
    
    
    (5,354
    )
    
    
    (3,379
    )
    
    
    (7,323
    )
    
    
    (17,825
    )
    
    
    (17,272
    )Net income (loss) per share (dollars)Per Share  Basic
    
    
    (0.09
    )
    
    
    (0.60
    )
    
    
    (0.10
    )
    
    
    (0.18
    )
    
    
    (0.11
    )
    
    
    (0.25
    )
    
    
    (0.60
    )
    
    
    (0.59
    )Per Share  Diluted
    
    
    (0.09
    )
    
    
    (0.60
    )
    
    
    (0.10
    )
    
    
    (0.18
    )
    
    
    (0.11
    )
    
    
    (0.25
    )
    
    
    (0.60
    )
    
    
    (0.59
    )
 
 (1)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure and is
reconciled to GAAP under Non-GAAP measures and reconciliation section in this document. Analysis of Consolidated Quarterly Financial Results Comparing the Quarters Ended December 31, 2007
and 2006
  ü
    
    $5.3 million improvement in gross margin (sales and operating revenues less cost of
sales and operating expenses) from Midstream Refinery operations between fourth quarter of
2007 and same quarter of 2006 primarily due to reduced fuel and operating costs and
improved margins on export products.
 Management
Discussion and Analysis INTEROIL CORPORATION
      9




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##### Table of Contents



ü
    
    $4.6 million improvement in gross margin from our Downstream segment for fourth quarter
of 2007 over fourth quarter of 2006, mainly due to increased domestic demand and favorable
IPP movements compared to prior period.ü
    
    $2.6 million increase in foreign exchange gain for the fourth quarter of 2007 as
compared to the same quarter of 2006 due to the strengthening of the PGK against the USD.
  ü
    
    $1.2 million increase in exploration costs in our Upstream segment relating to our
portion of Elk geophysics and geology costs, which are expensed as incurred under the
Successful Efforts method of accounting.ü
    
    $9.7 million additional office and administration and other expenses mainly associated
derivative losses, higher share compensation expense and the LNG Project.ü
    
    $1.0 million impairment write down booked on barge held for sale.
  Management
Discussion and Analysis INTEROIL CORPORATION
      10




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##### Table of Contents



YEAR AND QUARTER IN REVIEW
  UPSTREAM  YEAR AND QUARTER IN REVIEW
 Upstream Business Summary
     Upstream Operating Review
 Key Upstream Metrics
    
    2007
    
    2006Wells spudded in the period
    
    
    2
    
    
    
    1Cumulative IPWI Exploration wells drilled
    
    
    3
    
    
    
    3Cumulative IPWI Appraisal wells drilled
    
    
    1
    
    
    
    0Total footage drilled (Total Vertical Depth  feet)
    
    
    13,602
    
    
    
    6,0872D seismic miles acquired
    
    
    144
    
    
    
    79Airborne gravity and magnetic survey miles acquired
    
    
    0
    
    
    
    6,244Total gross expenditure on 2D seismic acquisition ($ millions)
    
    $
    19.5
    
    
    $
    6.8Total Gross expenditure on drilling and testing ($ millions)
    
    $
    44.5
    
    
    $
    37.9
 Management
Discussion and Analysis INTEROIL
CORPORATION       11




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Elk-1 Well
  Elk-1 Well Control Insurance Claim
   Elk-2 Drilling and Testing
     Elk Appraisal Seismic
    Management
Discussion and Analysis INTEROIL CORPORATION
      12




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##### Table of Contents




    
    The Elk structure extends further to the south than previously projected.
    
    A major fault separates the southern portion of the Elk structure into a different
structure that we have named Antelope.
    
    A reef structure exists on the Antelope structure.
     Elk-4 Drilling
  Antelope-1 Well
   Management
Discussion and Analysis INTEROIL
CORPORATION       13




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##### Table of Contents



PRL 4  Operated By Austral Pacific Energy Limited
 
    
    During fourth quarter of 2007 we participated in a non-operated, 26 mile (43 kilometer)
2D seismic program over the Stanley gas/condensate discovery in the PRL 4 license. The
extent of our interest in this license is 43.13%.
    
    The joint venture has engaged in negotiations to provide gas to an electrical power
generation company. Gas composition and well deliverability are required to progress to
financial close and the PRL 4 partners are planning a reentry and production test of the
Stanley-1 discovery well, to validate the resource.
    
    In February 2008, Austral Pacific resigned as operator of PRL 4 and InterOil was elected
the new operator with effect from March 3, 2008.
 PRL 5  Operated By Santos
  PPL244  Operated By Talisman
  Outlook for 2008
 2008 planned activity
 ü
    
    Complete drilling and testing of the Elk-4 appraisal wellü
    
    Drill the exploration well Antelope-1 to the south of the Elk structureü
    
    Operate the re-entry and testing of the Stanley-1 gas condensate well and Drill Stanley-2ü
    
    Participate in the drilling of one well in PRL 5
 Key factors that will affect our 2008 progress
 ü
    
    The nature of the results derived from Elk-4 and Antelope-1ü
    
    The continued ability to attract and retain key staff in a competitive oil and gas industryü
    
    Obtaining further funding for our exploration program, including concluding an agreement with an
industry majorü
    
    Proving sufficient gas reserves to guarantee the LNG liquefaction project
 Management
Discussion and Analysis INTEROIL
CORPORATION       14




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Upstream Financial Results
 Upstream - Operating results
    
    Years ended December 31,($ thousands)
    
    2007
    
    2006
    
    2005Other non-allocated revenue
    
    
    2,547
    
    
    
    5,249
    
    
    
    1,295Total segment revenue
    
    
    2,547
    
    
    
    5,249
    
    
    
    1,295Office and administration and other expenses
    
    
    (5,643
    )
    
    
    (6,310
    )
    
    
    (1,738
    )Exploration costs
    
    
    (13,305
    )
    
    
    (6,177
    )
    
    
    (11,009
    )Exploration impairment
    
    
    (1,243
    )
    
    
    (1,647
    )
    
    
    (19,570
    )Earnings before interest, taxes, depreciation and amortization (unaudited)(1)
    
    
    (17,644
    )
    
    
    (8,885
    )
    
    
    (31,022
    )Depreciation and amortization
    
    
    (483
    )
    
    
    (806
    )
    
    
    (314
    )Interest expense
    
    
    
    
    
    
    (5
    )
    
    
    Loss from ordinary activities before income taxes
    
    
    (18,127
    )
    
    
    (9,696
    )
    
    
    (31,336
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    Total net loss
    
    
    (18,127
    )
    
    
    (9,696
    )
    
    
    (31,336
    )
 (1)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure
and is reconciled to GAAP under Non-GAAP measures and reconciliation section in this
document. Upstream Financial Results Analysis
   ü
    
    $7.1 million additional exploration costs expensed in 2007 due to our portion of Elk
seismic and geology costs, which are expensed as incurred under the successful efforts
method of accounting.ü
    
    $2.4 million decrease in interest revenue due to lower cash and cash equivalents
available on account of usage of cash on deposit.ü
    
    $0.3 million decrease in other unallocated revenue in 2007 due to lower third party
rental income from our rig.ü
    
    $0.7 million decrease in office and administration and other expenses related mainly due
to lower rig expenses.
 Management
Discussion and Analysis INTEROIL
CORPORATION       15




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##### Table of Contents



Upstream Financial Results for Quarter Ended December 31, 2007 and the Preceding Seven Quarters
 Upstream  Operatingresults($ thousands)
    
    2007
    
    2006Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31Other non-allocated revenue
    
    
    579
    
    
    
    1,176
    
    
    
    397
    
    
    
    395
    
    
    
    705
    
    
    
    900
    
    
    
    2,684
    
    
    
    959Total segment revenue
    
    
    579
    
    
    
    1,176
    
    
    
    397
    
    
    
    395
    
    
    
    705
    
    
    
    900
    
    
    
    2,684
    
    
    
    959Office and administration and other expenses
    
    
    (1,756
    )
    
    
    (1,453
    )
    
    
    (1,366
    )
    
    
    (1,068
    )
    
    
    (1,354
    )
    
    
    (1,531
    )
    
    
    (2,370
    )
    
    
    (1.053
    )Exploration costs
    
    
    (1,234
    )
    
    
    (4,232
    )
    
    
    (4,518
    )
    
    
    (3,322
    )
    
    
    50
    
    
    
    (505
    )
    
    
    (2,162
    )
    
    
    (3,560
    )Exploration impairment
    
    
    (717
    )
    
    
    (505
    )
    
    
    (6
    )
    
    
    (14
    )
    
    
    (119
    )
    
    
    30
    
    
    
    (76
    )
    
    
    (1,482
    )Earnings before interest, taxes, depreciation
and amortization(1)
    
    
    (3,128
    )
    
    
    (5,015
    )
    
    
    (5,493
    )
    
    
    (4,009
    )
    
    
    (717
    )
    
    
    (1,106
    )
    
    
    (1,924
    )
    
    
    (5,136
    )Depreciation and amortization
    
    
    (134
    )
    
    
    299
    
    
    
    (338
    )
    
    
    (309
    )
    
    
    (233
    )
    
    
    (202
    )
    
    
    (173
    )
    
    
    (198
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )Loss from ordinary activities before income taxes
    
    
    (3,262
    )
    
    
    (4,716
    )
    
    
    (5,831
    )
    
    
    (4,318
    )
    
    
    (953
    )
    
    
    (1,309
    )
    
    
    (2,098
    )
    
    
    (5,335
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net loss
    
    
    (3,262
    )
    
    
    (4,716
    )
    
    
    (5,831
    )
    
    
    (4,318
    )
    
    
    (953
    )
    
    
    (1,309
    )
    
    
    (2,098
    )
    
    
    (5,335
    )
 (1)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure
and is reconciled to GAAP under Non-GAAP measures and reconciliation section in this
document. Analysis of Upstream Financial Results Comparing Quarter Ended December 31, 2007 and 2006
   ü
    
    $1.2 million additional exploration costs expensed in the fourth quarter of 2007 due to
our portion of Elk geophysics and geology costs, which are expensed as incurred under the
successful efforts method of accounting. The seismic program ended on October 7, 2007.ü
    
    $0.6 million additional exploration impairment due to the write off of cash calls paid
by us for exploratory activities in PRL 4 and 5 conducted by the joint venture operator.ü
    
    $0.2 million increase in other unallocated revenue due to higher third party rental
income from our rig.ü
    
    $0.4 million increase in office and administration and other expenses relates mainly to
impairment write down on barge held for sale partially offset by lower rig expenses.
 Management
Discussion and Analysis INTEROIL CORPORATION
      16




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##### Table of Contents



MIDSTREAM REFINING  YEAR AND QUARTER IN REVIEW
 Midstream Refining Business Summary
   Midstream Refining Operating Review
 Key Refining Metrics
    
    2007
    
    2006Net income/(loss) ($ millions)
    
    
    ($8.8
    )
    
    
    ($24.0
    )EBITDA ($ millions) (1)
    
    $
    18.4
    
    
    
    ($2.6
    )Throughput (barrels per day)(2)
    
    
    19,680
    
    
    
    19,784Cost of production per barrel(3)
    
    $
    2.53
    
    
    $
    3.46Working capital financing cost per barrel of production(2)
    
    $
    0.83
    
    
    $
    1.16Distillates as percentage of production
    
    
    65
    %
    
    
    65
    %
 
 (1)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure and is
reconciled to GAAP under Non-GAAP measures and reconciliation section in this document.(2)
    
    Throughput per day has been calculated excluding shut down days.(3)
    
    Our cost of production per barrel and working capital financing cost per barrel have been
calculated based on a notional throughput. Our actual throughput has been adjusted to include
the throughput that would have been necessary to produce the equivalent amount of diesel that
we imported during the year.     Management Discussion and
Analysis INTEROIL CORPORATION       17




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##### Table of Contents



+
    
    Improved yield structure post revamp (whole year vs part year)+
    
    Decreased fuel consumption post revamp (whole year vs part year)+
    
    Decreased fuel cost post revamp (whole year vs part year)+
    
    Improved premiums negotiated on export products (whole year vs part year)+
    
    Decreased direct operating costsNon controllable+
    
    Increasing price environment including revised IPP pricing-
    
    Significantly reduced margins on domestic sales of distillates-
    
    Increasing crude premiums over Tapis benchmarkü
    
    $5.9 million increase in interest expense comprised of a $7.7 million charge from the Corporate
segment that was not charged in 2006 offset by a $1.8 million interest reduction due to
increased utilization of the cash backing component of our working capital facility balance,
decreased working capital loan balances, decreased LIBOR rates and reduced interest on OPIC loan
balances due to repayment of capital during 2006.ü
    
    $1.5 million decrease in office and administration and other expenses due to a number of
factors, including lower fees on letters of credit raised with BNP Paribas, reduced consultancy
fees and lower repair and maintenance costs, as compared to the same period in 2006.ü
    
    $0.3 million decrease to depreciation charge in 2007 as compared to 2006ü
    
    $1.3 million increase in foreign exchange gain is mainly due to the appreciation of the PGK
against the US dollar.ü
    
    $9.8 million decrease to the gain on derivative contracts deemed not to be subject to hedge
accounting. This movement is primarily due to upward price trends during the year which have
resulted in losses on derivative contracts used to manage price and margin exposure (refer
section on liquidity and capital resources  derivative instruments in this MD&A). This loss
partially offsets the improved physical sales prices achieved reflected within sales.
 Outlook for 20082007 improvements expected to show full year benefit in 2008ü
    
    Potential revision to IPP pricing formula for refined products (benchmarked to MOPS and Tapis
rather than posted prices)ü
    
    Contract premium improvements to export productsü
    
    Increased sales of InterOil Power Fuelü
    
    Reducing working capital interest rates (reducing LIBOR rates)2008 Initiatives:ü
    
    Eliminate unplanned downtimeü
    
    Continue to expand niche market for InterOil Power Fuelü
    
    Continue to seek out niche export opportunities
 Management Discussion and
Analysis INTEROIL CORPORATION       18




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##### Table of Contents



Midstream Refining Annual Financial Results
 MidstreamRefining  Operating results
    
    Years ended December 31,($ thousands)
    
    2007
    
    2006
    
    2005External sales
    
    
    233,869
    
    
    
    315,211
    
    
    
    356,327Inter-segment revenue
    
    
    289,947
    
    
    
    136,584
    
    
    
    80,094Interest and other revenue
    
    
    70
    
    
    
    360
    
    
    
    245Total segment revenue
    
    
    523,886
    
    
    
    452,155
    
    
    
    436,666Cost of sales and operating expenses
    
    
    (495,059
    )
    
    
    (451,374
    )
    
    
    (436,491
    )Office and administration and other expenses
    
    
    (10,460
    )
    
    
    (3,381
    )
    
    
    (10,639
    )Earnings before interest, taxes, depreciation
and amortization (unaudited)(1)
    
    
    18,367
    
    
    
    (2,600
    )
    
    
    (10,464
    )Depreciation and amortization
    
    
    (10,405
    )
    
    
    (10,729
    )
    
    
    (10,598
    )Interest expense
    
    
    (16,798
    )
    
    
    (10,881
    )
    
    
    (10,162
    )Loss from ordinary activities before income taxes
    
    
    (8,836
    )
    
    
    (24,210
    )
    
    
    (31,224
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    Non controlling interest
    
    
    21
    
    
    
    259
    
    
    
    362Total net loss
    
    
    (8,815
    )
    
    
    (23,951
    )
    
    
    (30,862
    )
 (1)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure
and is reconciled to GAAP under Non-GAAP measures and reconciliation section in this
document. Midstream Refining Annual Financial Results Analysis
   ü
    
    An increase in Gross Margin of $28.5 million for the year ended December 31, 2007 when
compared to the same period in 2006 was primarily due to a combination of movements in the
following:Elements within our control+
    
    Improved yield structure post revamp (whole year vs part year)+
    
    Decreased fuel consumption post revamp (whole year vs part year)+
    
    Decreased fuel cost post revamp (whole year vs part year)+
    
    Improved premiums negotiated on export products (whole year vs part year)+
    
    Decreased direct operating costsElements outside our control+
    
    Increasing price environment including revised IPP pricing-
    
    Significantly reduced margins on domestic sales of distillates-
    
    Increasing crude premiums over Tapis benchmarkü
    
    $7.1 million increase in office and administration and other expenses due to the following factors:- lower fees on letters of credit raised with BNP Paribas, decreased external consultant costs
and decreased repair and maintenance costs, as compared to the same period in 2006.
 Management Discussion
and Analysis INTEROIL CORPORATION       19




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##### Table of Contents



- $9.8 million decrease to the gain on derivative contracts deemed not to be subject to hedge
accounting. This movement is primarily due to upward price trends during the year which have
resulted in losses on derivative contracts used to manage price and margin exposure (See under
the heading  Liquidity and Capital Resources  Derivative instruments). These derivative
losses are partially offset by the improved physical sales prices achieved during the year,
reflected within sales revenue.- $1.3 million increase in foreign exchange gains due to the appreciation of the PGK against the US dollar.ü
    
    $5.9 million increase in interest expense comprised of a $7.7 million charge from the Corporate segment that was not
charged in 2006 offset by a $1.8 million interest reduction due to increased utilization of the cash backing component
of our working capital facility balance, decreased working capital loan balances, decreased LIBOR rates and reduced
interest on OPIC loan balances due to repayment of capital during 2006.
 Management Discussion
and Analysis INTEROIL CORPORATION       20




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##### Table of Contents



Midstream Refining Financial Results for the Quarter Ended December 31, 2007 and the Preceding
Seven Quarter
 Operating results
    
    2007
    
    2006($ thousands)
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31External sales
    
    
    53,385
    
    
    
    85,733
    
    
    
    46,538
    
    
    
    48,213
    
    
    
    79,634
    
    
    
    69,901
    
    
    
    84,823
    
    
    
    80,854Inter-segment
revenue
    
    
    84,094
    
    
    
    82,989
    
    
    
    68,031
    
    
    
    54,833
    
    
    
    67,894
    
    
    
    24,665
    
    
    
    21,870
    
    
    
    22,155Interest and other
revenue
    
    
    30
    
    
    
    15
    
    
    
    15
    
    
    
    9
    
    
    
    10
    
    
    
    121
    
    
    
    132
    
    
    
    96Total segment
revenue
    
    
    137,509
    
    
    
    168,737
    
    
    
    114,584
    
    
    
    103,055
    
    
    
    147,538
    
    
    
    94,687
    
    
    
    106,825
    
    
    
    103,105Cost of sales and
operating expenses
    
    
    (123,363
    )
    
    
    (166,780
    )
    
    
    (110,074
    )
    
    
    (94,841
    )
    
    
    (138,664
    )
    
    
    (95,052
    )
    
    
    (112,108
    )
    
    
    (105,550
    )Office and
administration and
other expenses
    
    
    (4,557
    )
    
    
    (3,289
    )
    
    
    (735
    )
    
    
    (1,878
    )
    
    
    270
    
    
    
    2,039
    
    
    
    (2,905
    )
    
    
    (2,784
    )Earnings before
interest, taxes,
depreciation and
amortization
(1)
    
    
    9,589
    
    
    
    (1,332
    )
    
    
    3,775
    
    
    
    6,336
    
    
    
    9,144
    
    
    
    1,674
    
    
    
    (8,188
    )
    
    
    (5,229
    )Depreciation and
amortization
    
    
    (2,158
    )
    
    
    (2,781
    )
    
    
    (2,748
    )
    
    
    (2,717
    )
    
    
    (2,806
    )
    
    
    (2,699
    )
    
    
    (2,626
    )
    
    
    (2,598
    )Interest expense
    
    
    (4,397
    )
    
    
    (8,155
    )
    
    
    (2,156
    )
    
    
    (2,091
    )
    
    
    (2,478
    )
    
    
    (3,330
    )
    
    
    (2,731
    )
    
    
    (2,342
    )Loss from ordinary
activities before
income taxes
    
    
    3,034
    
    
    
    (12,268
    )
    
    
    (1,129
    )
    
    
    1,528
    
    
    
    3,860
    
    
    
    (4,355
    )
    
    
    (13,545
    )
    
    
    (10,169
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non- controlling
Interest
    
    
    (44
    )
    
    
    69
    
    
    
    12
    
    
    
    (17
    )
    
    
    (42
    )
    
    
    46
    
    
    
    137
    
    
    
    117Total net
income/(loss)
    
    
    2,990
    
    
    
    (12,199
    )
    
    
    (1,117
    )
    
    
    1,511
    
    
    
    3,818
    
    
    
    (4,309
    )
    
    
    (13,408
    )
    
    
    (10,052
    )
 (1)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure
and is reconciled to GAAP under Non-GAAP measures and reconciliation section in this
document. Management Discussion and
Analysis INTEROIL CORPORATION       21




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##### Table of Contents



Analysis of Midstream Refining Financial Results Comparing the Quarters Ended December 31, 2007 and
2006
   ü
    
    An increase in gross margin of $5.3 million for the fourth quarter of 2007 mainly due to revised IPP pricingü
    
    $4.8 million increase in office and administration and other expenses due to of the following factors:- lower fees on letters of credit raised with BNP Paribas, decreased external consultant costs
and decreased repair and maintenance costs, as compared to the same period in 2006.- $8.0 million decrease to the gain on derivative contracts deemed not to be subject to hedge
accounting. This movement is primarily due to upward price trends during the year which have
resulted in losses on derivative contracts used to manage price and margin exposure (refer
section on liquidity and capital resources  derivative instruments in this MD&A). This loss
partially offsets the improved physical sales prices achieved reflected within sales.- $3.0 million increase in foreign exchange gains due to the appreciation of the PGK against the US dollar.ü
    
    $1.9 million increase in interest expense due to an additional $1.9 million interest charge from the Corporate segment.
 Management Discussion and
Analysis INTEROIL CORPORATION       22




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##### Table of Contents



MIDSTREAM LIQUEFACTION YEAR IN REVIEW
 Midstream Liquefaction Operating Review
        Management Discussion and
Analysis INTEROIL CORPORATION       23




---



##### Table of Contents



Outlook for 20082008 goals:ü
    
    Execution of an appropriate Project Agreement with the Papua New guinea governmentü
    
    Awarding front end engineering and design (FEED)/engineering procurement and construction (EPC) contractü
    
    Confirmation of gas reservesü
    
    Agreement reached for the participation of a strategic industry based shareholder in the project
 Midstream Liquefaction Annual Financial Results
 MidstreamLiquefaction  Operating results
    
    Years ended December 31,($ thousands)
    
    2007
    
    
    2006
    
    2005(1)Interest and other revenue
    
    
    41
    
    
    
    
    
    
    
    Total segment revenue
    
    
    41
    
    
    
    
    
    
    
    Office and administration and other expenses
    
    
    (5,708
    )
    
    
    (694
    )
    
    
    Earnings before interest, taxes, depreciation
and amortization (unaudited)(2)
    
    
    (5,667
    )
    
    
    (694
    )
    
    
    Depreciation and amortization
    
    
    (16
    )
    
    
    
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    Loss from ordinary activities before income taxes
    
    
    (5,683
    )
    
    
    (694
    )
    
    
    Income tax expense
    
    
    (13
    )
    
    
    
    
    
    
    Total net loss
    
    
    (5,696
    )
    
    
    (694
    )
    
    
    
 (1)
    
    Our liquefaction segment was formed in 2006 and as a result there is no comparative
information for 2005. The liquefaction segment is in its early stage of development.(2)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure and is
reconciled to GAAP under Non-GAAP measures and reconciliation section in this document. Analysis of Midstream Liquefaction Financial Results Comparing the Year and Quarter Ended December
2007 and 2006:
   Management Discussion and
Analysis INTEROIL CORPORATION       24




---



##### Table of Contents



Midstream Liquefaction Quarterly Financial Results by Quarter for 2007 to date and the Preceding
Seven Quarters
 Midstream LiquefactionOperating results
    
    2007
    
    2006($ thousands)
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31Interest and other revenue
    
    
    26
    
    
    
    10
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total segment revenue
    
    
    26
    
    
    
    10
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Office and administration
and other expenses
    
    
    (823
    )
    
    
    (4,114
    )
    
    
    (449
    )
    
    
    (322
    )
    
    
    (396
    )
    
    
    (298
    )
    
    
    
    
    
    
    Earnings beforeinterest, taxes,
depreciation and
amortization(1)
    
    
    (797
    )
    
    
    (4,104
    )
    
    
    (444
    )
    
    
    (322
    )
    
    
    (396
    )
    
    
    (298
    )
    
    
    
    
    
    
    Depreciation and amortization
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from ordinary
activities before income
taxes
    
    
    (812
    )
    
    
    (4,104
    )
    
    
    (444
    )
    
    
    (322
    )
    
    
    (396
    )
    
    
    (298
    )
    
    
    
    
    
    
    Income tax expense
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net income/(loss)
    
    
    (825
    )
    
    
    (4,104
    )
    
    
    (444
    )
    
    
    (322
    )
    
    
    (396
    )
    
    
    (298
    )
    
    
    
    
    
    
    
 (1)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure
and is reconciled to GAAP under Non-GAAP measures and reconciliation section in this
document. Management Discussion and
Analysis INTEROIL CORPORATION       25




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##### Table of Contents



DOWNSTREAM YEAR IN REVIEW
 Downstream Business Summary
    Downstream Operating Review
 Key Downstream Metrics
    
    2007
    
    2006Net income ($ millions)
    
    $
    4.7
    
    
    $
    3.0EBITDA ($ millions) (1)
    
    $
    12.7
    
    
    $
    6.3Sales volumes (millions of liters)(2)
    
    
    556.4
    
    
    
    291.8Cost of distribution per liter ($  per liter)(3)
    
    $
    0.06
    
    
    $
    0.06
 
 (1)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure and is
reconciled to GAAP under Non-GAAP measures and reconciliation section in this document.(2)
    
    Sales volumes reflect the actual sales volumes achieved for the year and therefore only
include the effect of the Shell acquisition from October 1, 2006.(3)
    
    Cost of distribution per liter includes land based freight costs and operational costs. It
excludes depreciation and interest.   Management Discussion and
Analysis INTEROIL CORPORATION       26




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##### Table of Contents



Outlook for 2008
 2008 capital spending plans
 ü
 ü
 ü
 2008 growth plans:
 ü
 ü
 ü
 ü
 ü
 Management Discussion and
Analysis INTEROIL CORPORATION       27




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##### Table of Contents



Downstream Financial Results
 Downstream  Operating results
    
    Years ended December 31,($ thousands)
    
    2007
    
    2006(1)
    
    2005External sales
    
    
    391,657
    
    
    
    195,877
    
    
    
    124,854Inter-segment revenue
    
    
    81
    
    
    
    22
    
    
    
    6Interest and other revenue
    
    
    541
    
    
    
    1,421
    
    
    
    341Total segment revenue
    
    
    392,279
    
    
    
    197,320
    
    
    
    125,201Cost of sales and operating expenses
    
    
    (368,803
    )
    
    
    (183,511
    )
    
    
    (110,857
    )Office and administration and other expenses
    
    
    (10,759
    )
    
    
    (7,479
    )
    
    
    (4,725
    )Earnings before interest, taxes, depreciation and
amortization (unaudited)(2)
    
    
    12,717
    
    
    
    6,330
    
    
    
    9,619Depreciation and amortization
    
    
    (2,205
    )
    
    
    (910
    )
    
    
    (204
    )Interest expense
    
    
    (4,438
    )
    
    
    (152
    )
    
    
    (226
    )Income from ordinary activities before income taxes
    
    
    6,074
    
    
    
    5,268
    
    
    
    9,189Income tax expenses
    
    
    (1,366
    )
    
    
    (2,273
    )
    
    
    (2,756
    )Total net income
    
    
    4,708
    
    
    
    2,995
    
    
    
    6,433
 (1)
    
    Our wholesale and retail distribution business segment acquired the business of Shell Papua
New Guinea Limited on October 1, 2006 and contains the results of the Shell business from this
date.(2)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure and is
reconciled to GAAP under Non-GAAP measures and reconciliation section in this document. Downstream Financial Results Analysis
   ü
    
    $9.7 million increase in gross margin in year ended December 31, 2007 over same period
last year was mainly due to added volumes from the Shell acquisition and increased domestic
demand, coupled with a net positive effect on due to IPP price movements as applied to the
inventory sold during the period.ü
    
    $3.1 million increase in office and administration and other expenses due to a number of
factors including added insurance costs from the acquisition and inclusion of the Shells
retail business. Also the Downstream operations incurred higher Corporate allocations,
increased repairs and maintenance costs, and increased travel costs.ü
    
    $1.3 million increase in depreciation expense over the year ended December 31, 2006
related primarily to the addition of the Shell assets on October 1, 2006.ü
    
    $4.3 million increase in interest expense over the previous period due to interest
charges from Corporate to Downstream during the year on intercompany loans mainly relating
to funding provided for the BP and Shell acquisitions.
 Management Discussion and
Analysis INTEROIL CORPORATION       28




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##### Table of Contents



Downstream Financial Results for Quarter Ended December 31, 2007 and the Preceding Seven Quarters
 Downstream  Operatingresults
    
    2007
    
    2006($ thousands)
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31External sales
    
    
    118,538
    
    
    
    102,632
    
    
    
    92,782
    
    
    
    77,705
    
    
    
    90,695
    
    
    
    39,451
    
    
    
    37,955
    
    
    
    27,775Inter-segment revenue
    
    
    18
    
    
    
    16
    
    
    
    27
    
    
    
    20
    
    
    
    (29
    )
    
    
    43
    
    
    
    8
    
    
    
    Interest and other revenue
    
    
    (61
    )
    
    
    138
    
    
    
    377
    
    
    
    87
    
    
    
    1,324
    
    
    
    33
    
    
    
    32
    
    
    
    32Total segment revenue
    
    
    118,495
    
    
    
    102,787
    
    
    
    93,186
    
    
    
    77,812
    
    
    
    91,990
    
    
    
    39,527
    
    
    
    37,995
    
    
    
    27,807Cost of sales and operating
expenses
    
    
    (109,391
    )
    
    
    (98,324
    )
    
    
    (88,236
    )
    
    
    (72,853
    )
    
    
    (87,521
    )
    
    
    (35,743
    )
    
    
    (33,447
    )
    
    
    (26,801
    )Office and administration
and other expenses
    
    
    (5,477
    )
    
    
    (1,161
    )
    
    
    (2,190
    )
    
    
    (1,931
    )
    
    
    (3,326
    )
    
    
    (1,830
    )
    
    
    (989
    )
    
    
    (1,333
    )Earnings before interest,
taxes, depreciation and
amortization(1)
    
    
    3,627
    
    
    
    3,301
    
    
    
    2,760
    
    
    
    3,028
    
    
    
    1,143
    
    
    
    1,954
    
    
    
    3,559
    
    
    
    (327
    )Depreciation and amortization
    
    
    (700
    )
    
    
    (497
    )
    
    
    (552
    )
    
    
    (456
    )
    
    
    (537
    )
    
    
    (222
    )
    
    
    (90
    )
    
    
    (62
    )Interest expense
    
    
    (1,145
    )
    
    
    (3,320
    )
    
    
    66
    
    
    
    (39
    )
    
    
    (36
    )
    
    
    (38
    )
    
    
    (39
    )
    
    
    (38
    )Income from ordinary
activities before income
taxes
    
    
    1,782
    
    
    
    (516
    )
    
    
    2,274
    
    
    
    2,533
    
    
    
    570
    
    
    
    1,694
    
    
    
    3,430
    
    
    
    (427
    )Income tax expense
    
    
    (1,112
    )
    
    
    261
    
    
    
    (32
    )
    
    
    (483
    )
    
    
    (997
    )
    
    
    (416
    )
    
    
    (1,004
    )
    
    
    145Total net income/(loss)
    
    
    670
    
    
    
    (255
    )
    
    
    2,242
    
    
    
    2,050
    
    
    
    (427
    )
    
    
    1,278
    
    
    
    2,426
    
    
    
    (282
    )
 (1)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure and is
reconciled to GAAP under Non-GAAP measures and reconciliation section in this document. Downstream Financial Results Analysis Comparing Quarter Ended December 31, 2007 and 2006
   ü
    
    $4.6 million increase in gross margin during the fourth quarter of 2007 over the same
quarter of 2006 mainly due to increased domestic demand, coupled with a net positive effect
on gross margin due to IPP price movements as applied to the inventory sold during the
quarter. IPP review at the end of November resulted in an additional $0.10 per litre which
also was a significant contribution to Gross Margin.ü
    
    $2.2 million increase in office and administration and other expenses due to a number of
factors including added insurance costs from the acquisition and inclusion of the Shells
retail and distribution business. Also the Downstream operations incurred higher Corporate
allocations, increased repairs and maintenance costs, and increased travel costs.ü
    
    $1.1 million increase in interest expense over the previous period due to interest
charges from Corporate to Downstream during the quarter on intercompany loans mainly
relating to funding provided for BP and Shell acquisition.
 Management Discussion
and Analysis INTEROIL CORPORATION       29




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##### Table of Contents



CORPORATE YEAR IN REVIEW
  Corporate Annual Financial Results
 Corporate  Operating results
    
    Years ended December 31,($ thousands)
    
    2007
    
    2006
    
    2005External sales elimination
    
    
    
    
    
    
    
    
    
    
    Inter-segment revenue elimination(1)
    
    
    (290,028
    )
    
    
    (136,606
    )
    
    
    (80,101
    )Interest revenue
    
    
    1,648
    
    
    
    (58
    )
    
    
    480Other unallocated revenue
    
    
    
    
    
    
    
    
    
    
    (1
    )Total segment revenue
    
    
    (288,380
    )
    
    
    (136,664
    )
    
    
    (79,622
    )Cost of sales and operating expenses elimination(1)
    
    
    290,253
    
    
    
    135,391
    
    
    
    80,101Office and administration and other expenses(2)
    
    
    (10,897
    )
    
    
    (6,971
    )
    
    
    (6,193
    )Gain on LNG shareholder agreement
    
    
    6,553
    
    
    
    
    
    
    
    Earnings before interest, taxes, depreciation and
amortization (unaudited)(3)
    
    
    (2,471
    )
    
    
    (8,244
    )
    
    
    (5,714
    )Depreciation and amortization(4)
    
    
    83
    
    
    
    92
    
    
    
    79Interest expense(5)
    
    
    1,232
    
    
    
    (6,235
    )
    
    
    (599
    )Income from ordinary activities before income taxes
    
    
    (1,156
    )
    
    
    (14,387
    )
    
    
    (6,234
    )Income tax expenses
    
    
    171
    
    
    
    (69
    )
    
    
    (76
    )Non-controlling interest
    
    
    2
    
    
    
    4
    
    
    
    6Total net income
    
    
    (983
    )
    
    
    (14,452
    )
    
    
    (6,304
    )
 (1)
    
    Represents the elimination upon consolidation of our refinery sales to other segments and
other minor inter-company product sales.(2)
    
    Includes the elimination of inter-segment administration service fees.(3)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure and is
reconciled to GAAP under Non-GAAP measures and reconciliation section in this document.(4)
    
    Represents the amortization of a portion of costs capitalized to assets on consolidation.(5)
    
    Includes the elimination of interest accrued between segments. Corporate Annual Results Analysis
  ü
    
    $6.6 million gain recognized being the deferred gain on the $130.0 million secured
bridging facility realized on signing of PNG LNG Inc. shareholder agreement.ü
    
    $9.1 million increase in net interest revenue less interest expenses mainly on account
of interest costs recharged to other segments at market rates relating to the$130.0 million
secured bridging facilityü
    
    $3.9 million increase in office and administration expenses mainly relating to non-cash
stock compensation expense associated with our stock incentive plans for employees and
directors.
 Management Discussion and Analysis
INTEROIL CORPORATION       30




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##### Table of Contents



Corporate Consolidated Financial Results for Quarter Ended December 31, 2007 and the Preceding
Seven Quarters
 Corporate  Operatingresults
    
    2007
    
    2006($ thousands)
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31Inter-segment revenue
elimination
    
    
    (84,112
    )
    
    
    (83,005
    )
    
    
    (68,058
    )
    
    
    (54,853
    )
    
    
    (67,864
    )
    
    
    (24,708
    )
    
    
    (21,878
    )
    
    
    (22,154
    )Interest revenue
    
    
    336
    
    
    
    401
    
    
    
    424
    
    
    
    487
    
    
    
    457
    
    
    
    554
    
    
    
    (1,194
    )
    
    
    125Other unallocated revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    22
    
    
    
    (23
    )
    
    
    50Total segment revenue
    
    
    (83,776
    )
    
    
    (82,604
    )
    
    
    (67,634
    )
    
    
    (54,366
    )
    
    
    (67,457
    )
    
    
    (24,132
    )
    
    
    (23,095
    )
    
    
    (21,981
    )Cost of sales and operating
expenses elimination
    
    
    83,121
    
    
    
    83,005
    
    
    
    69,906
    
    
    
    54,220
    
    
    
    66,649
    
    
    
    24,708
    
    
    
    21,878
    
    
    
    22,156Office and administration
and other expenses
    
    
    (1,739
    )
    
    
    (3,506
    )
    
    
    (3,866
    )
    
    
    (1,785
    )
    
    
    (1,491
    )
    
    
    (1,429
    )
    
    
    (2,553
    )
    
    
    (1,498
    )Gain on LNG shareholder
agreement
    
    
    
    
    
    
    
    
    
    
    6,553
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings before
interest,
taxes,
depreciation
and amortization(1)
    
    
    (2,394
    )
    
    
    (3,105
    )
    
    
    4,959
    
    
    
    (1,931
    )
    
    
    (2,299
    )
    
    
    (853
    )
    
    
    (3,770
    )
    
    
    (1,321
    )Depreciation and amortization
    
    
    21
    
    
    
    20
    
    
    
    20
    
    
    
    21
    
    
    
    22
    
    
    
    24
    
    
    
    26
    
    
    
    21Interest expense
    
    
    99
    
    
    
    6,253
    
    
    
    (2,768
    )
    
    
    (2,352
    )
    
    
    (3,131
    )
    
    
    (1,981
    )
    
    
    (838
    )
    
    
    (285
    )Income from ordinary
activities before income
taxes
    
    
    (2,274
    )
    
    
    3,168
    
    
    
    2,211
    
    
    
    (4,262
    )
    
    
    (5,408
    )
    
    
    (2,810
    )
    
    
    (4,582
    )
    
    
    (1,585
    )Income tax expense
    
    
    (11
    )
    
    
    212
    
    
    
    (15
    )
    
    
    (13
    )
    
    
    (10
    )
    
    
    125
    
    
    
    (166
    )
    
    
    (20
    )Non-controlling interest
    
    
    (1
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    1
    
    
    
    3
    
    
    
    2Total net income/(loss)
    
    
    (2,286
    )
    
    
    3,382
    
    
    
    2,196
    
    
    
    (4,275
    )
    
    
    (5,420
    )
    
    
    (2,684
    )
    
    
    (4,745
    )
    
    
    (1,603
    )
 (1)
    
    Earnings before interest, taxes, depreciation and amortization is a non-GAAP measure and is
reconciled to GAAP under Non-GAAP measures and reconciliation section in this document. Analysis of Corporate Financial Results Comparing Quarter Ended December 31, 2007 and 2006
  ü
    
    $3.1 million increase in net interest revenue less interest expenses mainly on account
of interest costs recharged to other segments at market rates relating to the $130.0
million bridging facility.ü
    
    $0.2 million increase in office and administration expenses mainly relating to non-cash
stock compensation expense associated with our stock incentive plans for employees and
directors recognized during the quarter.
 Management Discussion and
Analysis INTEROIL CORPORATION       31




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Summary of Debt facilities
 Balanceoutstanding DecOrganization
    
    Facility
    
    31, 2007
    
    Maturity dateMerrill Lynch bridging facility
    
    $
    130,000,000
    
    
    $
    130,000,000
    
    
    May 3, 2008OPIC secured loan
    
    $
    85,000,000
    
    
    $
    71,500,000
    
    
    December 31, 2015BNP Paribas working capital facility
    
    $
    170,000,000
    
    
    $
    66,501,372
    (1)
    
    August 31, 2008
 
 (1) Excludes letters of
credit outstanding of $32.0 million and bank guarantees on hedging
facility outstanding of
     $2.5 million.
 Merrill Lynch bridging facility (Corporate)
    OPIC secured loan (Midstream)
   Management Discussion and
Analysis INTEROIL CORPORATION       32




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##### Table of Contents



BNP Paribas working capital facility (Midstream)
   Other Sources of Capital
 Upstream
   Downstream
  Summary of Cash Flows
 ($ thousands)
    
    2007
    
    
    2006
    
    
    2005Net cash inflows/(outflows) from:Operations
    
    
    (40,717
    )
    
    
    2,187
    
    
    
    (22,713
    )Investing
    
    
    (25,273
    )
    
    
    (97,071
    )
    
    
    (64,942
    )Financing
    
    
    78,170
    
    
    
    66,964
    
    
    
    118,712Net cash movement
    
    
    12,180
    
    
    
    (27,920
    )
    
    
    31,057Opening cash
    
    
    31,681
    
    
    
    59,601
    
    
    
    28,544Closing cash
    
    
    43,862
    
    
    
    31,681
    
    
    
    59,601
 Management Discussion and
Analysis INTEROIL CORPORATION       33




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##### Table of Contents



Operating Activities
  ü
    
    $5.0 million inflow in our cash provided by operations, prior to
changes in non-cash working capital, compared to a cash outflow of
$22.6 million in 2006. This was due to higher margins from our
Midstream and Downstream operations compared to the prior period.ü
    
    $45.7 million outflow in non-cash working capital as compared to
$24.8 million inflow for same period of 2006. These working
capital movements relate to the timing of receipts, payments and
inventory purchases, along with the increasing crude and product
price environment.
 Investing Activities
  ü
    
    $69.1 million outflow on oil and gas exploration expenditure for the year 2007 relating to Elk extended well program
versus $48.0 million in same period of 2006 related to drilling and seismic activities. The Elk extended well program
is not directly covered by the initial indirect participation interest contributions. Therefore, we must make separate
cash calls for the IPI Investors share of these costs.ü
    
    $7.0 million inflow in 2007 on settlement of the insurance claim for Elk well blowout.ü
    
    $21.8 million inflow from cash calls from IPI investors in relation to the Elk extended well programs.ü
    
    $10.1 million inflow due to decrease in our secured cash balances year 2007 versus an outflow due to increase of $15.9
million in same period of 2006.ü
    
    $3.3 million outflow as final payment in 2007 to acquire Shell Papua New Guinea as compared to $25.8 million payment in
same period of 2006 as deposit on acquisition of Shell which was effective October 1, 2006.ü
    
    $7.3 million outflow for plant and equipment in the year 2007 related to LNG project deferred costs proportionately
consolidated and Downstream projects versus $13.6 million in same period of 2006 which primarily related to revamp and
optimization activities undertaken by the refinery.
 Financing Activities
  ü
    
    $5.9 million inflow from Clarion Finanz on entering into an option agreement relating to the Elk well.ü
    
    $29.6 million inflow from the BNP Paribas working capital facility as compared to $33.9 million of repayments during
2006.ü
    
    $4.5 million outflow on repayment of the OPIC secured loan. During 2006, $125.3 million was received as draw down from
bridging facility, and $21.5 million and $4.5 million repaid of the unsecured and secured loans respectively.ü
    
    $9.5 million inflow from cash calls to joint venture partners in issue of B class sharesü
    
    $23.8 million inflow from the issuance of common shares in 2007 as compared to $1.5 million received in 2006.ü
    
    $14.3 million inflow from the issuance of preference shares in 2007.
 Management
Discussion and Analysis INTEROIL CORPORATION       34




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##### Table of Contents



Capital Expenditures
 Upstream Capital Expenditures
  ü
    
    $19.3 million for seismic acquisition costs relating to Elk extended well program.ü
    
    $25.8 million on drilling Elk-2 appraisal well as part of the Elk extended well program.ü
    
    $7.6 million on testing Elk-2 appraisal well as part of the Elk extended well program.ü
    
    $11.1 million on drilling Elk-4 appraisal well as part of the Elk extended well program.ü
    
    $2.7 million on preparatory costs on Antelope-1, being a potential exploratory well.ü
    
    Fixed assets and inventory movement made up the balance of the expenditure.
  Midstream Capital Expenditures
  Downstream Capital Expenditures
  Capital Requirements
  Upstream
  Management Discussion
and Analysis INTEROIL CORPORATION       35




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##### Table of Contents



Midstream  Refining
  Midstream  Liquefaction
  Downstream
  Management Discussion and Analysis
INTEROIL CORPORATION       36




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##### Table of Contents



Contractual Obligations and Commitments
  Payments Due by PeriodLess
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MoreContractual obligations
    
    
    
    
    
    than 1
    
    1  2
    
    2  3
    
    3  4
    
    4  5
    
    than 5($ thousands)
    
    Total
    
    year
    
    years
    
    years
    
    years
    
    years
    
    yearsSecured loan obligations
    
    
    199,310
    
    
    
    136,810
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    26,500Accrued financing costs
    
    
    1,088
    
    
    
    1,088
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect participation interest(1)
    
    
    1,924
    
    
    
    1,080
    
    
    
    844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indirect participation interest(2)
    
    
    96,086
    
    
    
    
    
    
    
    96,086
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    PNG LNG Inc.
Joint Venture (proportionate share of commitments)
    
    
    388
    
    
    
    
    
    
    
    236
    
    
    
    152
    
    
    
    
    
    
    
    
    
    
    
    Petroleum
prospecting and retention licenses(3)
    
    
    7,899
    
    
    
    2,183
    
    
    
    5,716
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    306,695
    
    
    
    141,161
    
    
    
    111,882
    
    
    
    9,152
    
    
    
    9,000
    
    
    
    9,000
    
    
    
    26,500
 (1)
    
    These amounts represent the estimated cost of completing our commitment to drill exploration
wells under our indirect participation interest agreement entered into in July 2003. See Note
18 to our audited financial statements for the year ended December 31, 2007.(2)
    
    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 December 31, 2007, management estimate that a
further $47.4 million will be required to be spent to fulfill this commitment.(3)
    
    The amount pertaining to the petroleum prospecting and retention licenses represents the
amount InterOil has committed to its joint venture partners to spend. In addition to this
amount, InterOil must drill an exploration well in Petroleum Prospecting License 237 prior to
the end of March 2009 in order to retain this license. As the cost of drilling this well
cannot be estimated, it is not included within the above table. Off Balance Sheet Arrangements
  Transactions with Related Parties
    Management Discussion
and Analysis INTEROIL CORPORATION       37




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##### Table of Contents



Share Capital
   Derivative Instruments
       Management Discussion
and Analysis INTEROIL CORPORATION       38




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##### Table of Contents



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
    
    
    250,000Jet kerosene crack spread swap
    
    Sell jet kero/buy crude
    
    
    249,999
   Derivative
    
    Type
    
    Notional volumes (bbls)Brent contracts to manage export price risk
    
    Sell Brent
    
    
    130,000Naphtha swap
    
    Sell Naphtha
    
    
    150,000
  Derivative
    
    Type
    
    Notional volumes (bbls)Brent contracts to manage export price risk
    
    Sell Brent
    
    
    320,000
  Derivative
    
    Type
    
    Notional volumes (bbls)Crude swap
    
    Sell Crude
    
    
    50,000
  
 CRITICAL ACCOUNTING ESTIMATES
  Income Taxes
  Management Discussion
and Analysis INTEROIL CORPORATION       39




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##### Table of Contents



Oil and Gas Properties
  Asset Retirement Obligations
  Environmental Remediation
  Impairment of Long-Lived Assets
  Management Discussion
and Analysis INTEROIL CORPORATION       40




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##### Table of Contents



Legal and Other Contingent Matters
  
 NEW ACCOUNTING STANDARDS
 Financial Instruments and Capital Disclosures
  CICA 3862  Financial Instruments  Disclosures
 
    
    CICA 3863  Financial Instruments  Presentation; and
    
    CICA 1535  Capital Disclosures
 Section 3862 and 3863  Financial Instruments  Disclosures and Presentation:
      Section 1535  Capital Disclosures:
  Management Discussion and
Analysis INTEROIL CORPORATION       41




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##### Table of Contents



NON-GAAP MEASURES AND RECONCILIATION
  Management Discussion and
Analysis INTEROIL CORPORATION       42




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##### Table of Contents



Quarters ended
    
    2007
    
    2006($ thousands)
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31
    
    Dec 31
    
    Sep 30
    
    Jun 30
    
    Mar 31Upstream
    
    
    (3,128
    )
    
    
    (5,015
    )
    
    
    (5,492
    )
    
    
    (4,009
    )
    
    
    (719
    )
    
    
    (1,107
    )
    
    
    (1,922
    )
    
    
    (5,136
    )Midstream  Refining
    
    
    9,589
    
    
    
    (1,332
    )
    
    
    3,775
    
    
    
    6,335
    
    
    
    9,144
    
    
    
    1,674
    
    
    
    (8,188
    )
    
    
    (5,229
    )Midstream  Liquefaction
    
    
    (797
    )
    
    
    (4,104
    )
    
    
    (444
    )
    
    
    (322
    )
    
    
    (396
    )
    
    
    (298
    )
    
    
    
    
    
    
    Downstream
    
    
    3,627
    
    
    
    3,301
    
    
    
    2,760
    
    
    
    3,028
    
    
    
    1,143
    
    
    
    1,954
    
    
    
    3,559
    
    
    
    (326
    )Corporate and Consolidated
    
    
    (2,394
    )
    
    
    (3,105
    )
    
    
    4,959
    
    
    
    (1,930
    )
    
    
    (2,299
    )
    
    
    (853
    )
    
    
    (3,770
    )
    
    
    (1,321
    )Earnings before interest,
taxes, depreciation and
amortization
    
    
    6,897
    
    
    
    (10,255
    )
    
    
    5,557
    
    
    
    3,102
    
    
    
    6,873
    
    
    
    1,370
    
    
    
    (10,323
    )
    
    
    (12,014
    )Subtract:Upstream
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    1Midstream  Refining
    
    
    4,397
    
    
    
    8,155
    
    
    
    2,156
    
    
    
    2,091
    
    
    
    2,479
    
    
    
    3,329
    
    
    
    2,731
    
    
    
    2,343Midstream  Liquefaction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Downstream
    
    
    1,145
    
    
    
    3,320
    
    
    
    (67
    )
    
    
    40
    
    
    
    37
    
    
    
    38
    
    
    
    39
    
    
    
    38Corporate and Consolidated
    
    
    (99
    )
    
    
    (6,252
    )
    
    
    2,768
    
    
    
    2,351
    
    
    
    3,131
    
    
    
    1,981
    
    
    
    838
    
    
    
    285Interest expense
    
    
    5,443
    
    
    
    5,223
    
    
    
    4,857
    
    
    
    4,482
    
    
    
    5,649
    
    
    
    5,349
    
    
    
    3,609
    
    
    
    2,667Upstream
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Midstream  Refining
    
    
    43
    
    
    
    (69
    )
    
    
    (12
    )
    
    
    17
    
    
    
    42
    
    
    
    (46
    )
    
    
    (137
    )
    
    
    (118
    )Midstream  Liquefaction
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Downstream
    
    
    1,112
    
    
    
    (261
    )
    
    
    32
    
    
    
    483
    
    
    
    996
    
    
    
    416
    
    
    
    1,005
    
    
    
    (144
    )Corporate and Consolidated
    
    
    12
    
    
    
    (214
    )
    
    
    15
    
    
    
    14
    
    
    
    11
    
    
    
    (126
    )
    
    
    163
    
    
    
    17Income taxes and
non-controlling interest
    
    
    1,180
    
    
    
    (544
    )
    
    
    35
    
    
    
    514
    
    
    
    1,049
    
    
    
    244
    
    
    
    1,031
    
    
    
    (245
    )Upstream
    
    
    134
    
    
    
    (299
    )
    
    
    338
    
    
    
    309
    
    
    
    233
    
    
    
    202
    
    
    
    173
    
    
    
    198Midstream  Refining
    
    
    2,159
    
    
    
    2,781
    
    
    
    2,749
    
    
    
    2,717
    
    
    
    2,805
    
    
    
    2,700
    
    
    
    2,626
    
    
    
    2,598Midstream  Liquefaction
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Downstream
    
    
    700
    
    
    
    497
    
    
    
    552
    
    
    
    455
    
    
    
    537
    
    
    
    222
    
    
    
    89
    
    
    
    62Corporate and Consolidated
    
    
    (21
    )
    
    
    (20
    )
    
    
    (20
    )
    
    
    (21
    )
    
    
    (21
    )
    
    
    (24
    )
    
    
    (26
    )
    
    
    (20
    )Depreciation and amortization
    
    
    2,987
    
    
    
    2,959
    
    
    
    3,619
    
    
    
    3,460
    
    
    
    3,554
    
    
    
    3,100
    
    
    
    2,862
    
    
    
    2,838Upstream
    
    
    (3,262
    )
    
    
    (4,716
    )
    
    
    (5,831
    )
    
    
    (4,318
    )
    
    
    (954
    )
    
    
    (1,310
    )
    
    
    (2,098
    )
    
    
    (5,335
    )Midstream  Refining
    
    
    2,990
    
    
    
    (12,199
    )
    
    
    (1,117
    )
    
    
    1,511
    
    
    
    3,818
    
    
    
    (4,309
    )
    
    
    (13,408
    )
    
    
    (10,052
    )Midstream  Liquefaction
    
    
    (825
    )
    
    
    (4,104
    )
    
    
    (444
    )
    
    
    (322
    )
    
    
    (396
    )
    
    
    (298
    )
    
    
    
    
    
    
    Downstream
    
    
    670
    
    
    
    (255
    )
    
    
    2,242
    
    
    
    2,050
    
    
    
    (427
    )
    
    
    1,278
    
    
    
    2,426
    
    
    
    (282
    )Corporate and Consolidated
    
    
    (2,286
    )
    
    
    3,382
    
    
    
    2,196
    
    
    
    (4,275
    )
    
    
    (5,420
    )
    
    
    (2,684
    )
    
    
    (4,745
    )
    
    
    (1,603
    )Net income (loss) per segment
    
    
    (2,713
    )
    
    
    (17,892
    )
    
    
    (2,954
    )
    
    
    (5,354
    )
    
    
    (3,379
    )
    
    
    (7,323
    )
    
    
    (17,825
    )
    
    
    (17,272
    )
 Management Discussion
and Analysis INTEROIL CORPORATION       43




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##### Table of Contents



STATEMENT REGARDING DISCLOSURE CONTROLS
  
 PUBLIC SECURITIES FILINGS
  
 GLOSSARY OF TERMS
 Barrel, Bbl (petroleum)
 BP
 Condensate
 Crack spread
 Crude Oil
 EBITDA
 Farm out
 FEED
 Feedstock
 FID
 GAAP
 Management Discussion and
Analysis INTEROIL CORPORATION       44




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##### Table of Contents



Gas
 ICCC
 IPF
 IPP
 IPWI
 LNG
 LPG
 LSWR
 Mark-to-market
 Naphtha
 Natural gas
 PGK
 PDL
 PPL
 PRL
 Sweet/sour crude
 Working interest
 Management Discussion and
Analysis INTEROIL CORPORATION       45




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##### Table of Contents



Natural gas measurements
 Mcf:
 Bil cu ft:
 Tcf:
 Management Discussion
and Analysis INTEROIL CORPORATION       46