Interoil Exploration AS

Interoil
Exploration AS
1

Company objectives and strategy
• Main objective to develop InterOil as a production and exploration
company active primarily in South America and West Africa
• Growth phases
- Initial growth to come from purchase of junior oil and gas producers and/or producing assets
- Secondary growth to come from developing organically the acquired assets through drilling new
production wells, well operations and exploration / appraisal drilling
- Further growth to come from purchase of discoveries ready for development and participating in
strategic exploration opportunities
- Long-term goal to participate in both onshore and offshore exploration and production activity and
achieving a balanced portfolio consisting of exploration, appraisal, developing and producing assets
• Organizational development
- Build up local technical and operational competence in order to facilitate local demands and keep
costs to a minimum
- Build up a small and effective multi-discciplinary team of key professionals and outsource all
services to the extent practical
2

Organizational Structure of InterOil Exploration and Production Group*
Interoil Exploration &
Production ASA
a Norwegian company
Interoil E & P Peru AS
a Norwegian company
Interoil E & P Colombia
AS
a Norwegian company
Interoil E& P Nigeria
AS
a Norwegian company
Interoil Exploration
SA
a Swiss company
Mercantile Peru Oil & Gas, S.A.,
a Peruvian company
Compañía Petrolera Rio Bravo S.A.,
a Peruvian company
Mercantile Colombia Oil and Gas Inc.,
a British Virgin Islands company

Assets acquired in Peru and Colombia
• Talara, Piura District in the
Sechura Desert
Piedras, Tolima Department,
Middle Magdalena Valley
• Middle Magdalena Valley in
Colombia
Talara, Piura District,
Sechura Desert
4

Peruvian assets – Facts
Block IV
Block III
New Block
• Includes three companies
- Mercantile Peru Oil & Gas (Block III)
- Cia. Petrolera Rio Bravo S.A. (Block IV)
- Manitoba Services S.A. (Small service company)
• Block III – Operator
- Gross production approx. 900 bbl/d
- Total number of wells 157
- Operation start-up December 1995
- Area 88,000 acres (356 km 2 )
• Block IV – Partner (Rio Bravo operator)
- Gross production approx. 850 bbl/d
- Total number of wells 152
- Operation start-up November 1997
- Area 76,000 acres (307 km 2 )
• New exploration block adjacent to existing blocks
applied for and expected awarded soon
RESERVE CATEGORY / BLOCK BLOCK III BLOCK IV PERU TOTAL
P1 - Proven reserves (mill bbls) 4,3 2,8 7,0
P2 - Probable reserves (mill bbls) 0,8 0,8 1,5
P3 - Possible reserves (mill bbls) 0,8 0,7 1,4
TOTAL RESERVES 5,8 4,2 10,0
Reserves as of August 2, 2004. Source: Gaffney Cline & Associates
5

Peruvian assets – Production and upside potential
Oil production ('000 bbl/d)
Operating costs (USD/bbl)
5,0
4,0
3,0
2,0
1,0
0,0
20,0
18,0
16,0
14,0
12,0
10,0
8,0
6,0
4,0
2,0
0,0
Peru - Net oil production and CAPEX
Field CAPEX - right
Oil prod. before royalties - left
2001 2002 2003 2004 2005E
Peru - OPEX structure per bbl
10,0
8,0
6,0
4,0
2,0
CAPEX (USDm)
0,0
Site restoration
DD&A
G&A - Corporate
G&A - Peru
Opex
• Production
- Production today approx 1,750bbl/d .
- Realized oil price approx. USD 6.0 per bbl less than
WTI due to quality difference
• CAPEX
- Minimal investments in 2001-03 due to financial
distress
- All operating cash flow in 2004 used for
investments
- Reduced investments in 2005 due to unclarified
owner situation
- Assume considerable CAPEX increase the next
years
• OPEX
- Cost structure improved from 2001 to 2004
- Assume slightly increase in OPEX going forward
• Upside potential
- Increased recovery potential in the fields
- Appraisal and exploration potential in existing
blocks
2001 2002 2003 2004 2005E
7

Colombian assets – Facts
PULI ”C”
BLOCK
CONTRACTS
• Includes one company and six contract areas
- Toqui-Toqui field approx. 1,050 bbl/d (50% WI)
- Rio Opia contract approx. 200 bbl/d (70% WI)
- Ambrosia contract approx. 200 bbl/d (70% WI)
- Mana contract no production (70% WI)
- Armero contract no production (50% WI)
- Paraiso contract exploration (70% WI)
- Two additional exploration blocks adjacent to existing areas
recently awarded
• Gross production
• Net production
approx. 1450 bbl/d
approx. 900 bbl/d
• Total number of wells 38
RESERVE CATEGORY
COLOMBIA TOTAL
P1 - Proven reserves (mill bbls) 4,9
P2 - Probable reserves (mill bbls) 2,9
P3 - Possible reserves (mill bbls) 2,0
TOTAL RESERVES 9,8
• Operation start-up 1984 (Toqui + Puli)
• License expiry 2012 – 2034
• Area 62,945 acres (258 km 2 )
Reserves as of April 30, 2004. Source: Gaffney Cline & Associates
8

Colombian assets – Production and upside potential
Operating costs (USD/bbl)
Oil production ('000 bbl/d)
5,0
4,0
3,0
2,0
1,0
0,0
20,0
18,0
16,0
14,0
12,0
10,0
8,0
6,0
4,0
2,0
0,0
Colombia - Net oil production and CAPEX
Field CAPEX - right
Oil prod. before royalties - left
6,0
4,0
2,0
0,0
2001 2002 2003 2004 2005E
Colombia - OPEX structure per bbl
10,0
8,0
Site restoration
DD&A
G&A - Corporate
G&A - Colom bia
Opex
2001 2002 2003 2004 2005E
CAPEX (USDm)
• Production
- Production today approx. 900 bbl/d
- Realized oil price approx. USD 11.0 per bbl less
than WTI due to quality difference (USD 6.7) and
transportation costs (USD 4.3)
• CAPEX
- Minimal investments in 2001-03 due to financial
distress
- All operating cash flow in 2004 used for
investments
- Reduced investments in 2005 due to unclarified
owner situation
- Assume considerable CAPEX increase the next
years
• OPEX
- Stable cost structure from 2001 to 2004
- Assume slightly increase in OPEX going forward
• Upside potential
- Increased recovery potential in the fields
- Appraisal and exploration potential in existing
blocks
- Considerable resource potential in the exploration
blocks recently awarded
9

Toqui Toqui - Columbia
10

Financials – Mercantile International Petroleum Inc.
OIL PRODUCTION 2001 2002 2003 2004 2005 - H1
Net oil production before royalties - bbl/d 1 916 1 961 2 102 2 134 2 564
Net oil production before royalties - mmbbl 0,699 0,716 0,767 0,779 0,468
Net oil production after royalties - bbl/d 1 267 1 334 1 436 1 530 1 699
Net oil production after royalties - mmbbl 0,462 0,487 0,524 0,558 0,310
PROFIT & LOSS (USDm) 2001 2002 2003 2004 2005 - H1
Production revenues net of royalties 9,5 9,4 11,7 17,0 12,9
Total production revenues net of royalties 9,5 9,4 11,7 17,0 12,9
Field operating expenses (4,9) (3,9) (4,3) (4,3) (2,5)
Corporate overhead (2,0) (2,0) (2,4) (2,3) (1,5)
EBITDA 2,5 3,5 5,1 10,5 8,8
Depletion, depreciation and amortization (4,9) (4,9) (5,2) (4,6) (3,1)
Site restoration provision (0,1) (0,1) (0,1) (0,1) (0,1)
Other provisions and amortizations (0,5) (0,5)
EBIT (2,9) (2,0) (0,2) 5,8 5,6
Cash interests and other income 1,2 0,2 0,2 0,1 0,0
Debt interests and bank charges (0,2) (0,1) (0,1) (0,3) (0,1)
Loan interests (4,6) (1,7)
Retainer settlement (0,4)
Profit before taxes (6,6) (3,9) (0,1) 5,6 5,5
Payable taxes (0,3) (0,5) (0,6) (0,4) (0,5)
Deferred taxes 0,3 0,0 1,9 (1,1) (0,5)
Net profit (6,6) (4,4) 1,3 4,1 4,5
Tax rate 1 % -12 % 1495 % 27 % 19 %
• Strong improvement in financials from
2001 to H1 2005 due to
- Increased production
- Increased oil prices
- Reduced unit costs
- Debt conversion to equity in 2002
BALANCE SHEET (USDm) 2001 2002 2003 2004 2005 - H1
Tangible fixed assets 48,5 46,9 42,9 51,1 53,4
Other non-current assets & goodwill 0,5 - - - -
Interest bearing long-term receivables - - - - -
Other current assets 2,6 3,1 2,1 3,6 5,7
Cash and liquid assets 1,3 1,6 3,8 4,2 6,0
Total assets 52,8 51,6 48,8 58,9 65,1
Shareholders' equity (14,1) 40,9 42,2 46,3 50,8
Deferred tax 5,1 5,1 3,1 4,2 4,7
Site restoration 0,6 0,7 0,7 0,8 0,9
Interest bearing long-term debt 40,0 - - - -
Other current liabilities 3,3 4,6 2,8 6,5 7,8
Interest bearing current liabilities 18,0 0,3 - 1,1 0,9
Total equity & liabilites 52,8 51,6 48,8 58,9 65,1
Equity ratio -27 % 79 % 86 % 79 % 78 %
CASH FLOW (USDm) 2001 2002 2003 2004 2005 - H1
Profit before taxes (6,6) (3,9) (0,1) 5,6 5,5
Taxes paid (0,3) (0,5) (0,6) (0,4) (0,5)
Depletion, depreciation and amortization 4,9 4,9 5,2 4,6 3,1
Site restoration provision 0,1 0,1 0,1 0,1 0,1
Other non-cash items 4,1 2,3 - - -
Cash earnings 2,1 2,9 4,6 9,8 8,2
Change in current assets and liabilities (1,7) 1,2 (0,9) 2,2 (0,8)
Operating cash flow 0,4 4,0 3,7 12,0 7,4
Investing activities
Field development expenditures (0,9) (2,5) (1,2) (12,8) (5,5)
Net cash from investing activities (0,9) (2,5) (1,2) (12,8) (5,5)
Financing activities
Net change in interest bearing debt (0,2) (1,2) (0,3) 1,1 (0,2)
Net cash from financing activities (0,2) (1,2) (0,3) 1,1 (0,2)
Net change in cash and liquid assets (0,7) 0,3 2,2 0,3 1,8
11

West Africa
Interoil Exploration AS is
reviewing opportunities in:_
• Nigeria
• Congo
• Cote d’ Ivoire
• Angola
• Gabon
12

Management team and key personnel – CV’s
• Gian Angelo Perrucci, born 1943, is an Italian entrepreneur. He previously built up a major shipping company in USA and Europe. During
the last 15 years, he has developed a major logistics operation in West Africa including supply bases, engineering and production yards, and
offshore support vessels.
• Joseph von der Weid, born 1934, has long experience from executive positions for Shell in South America. Has been E&P Manager in Shell
Argentina, General Manager in Shell Peru (1981-86), President and CEO in Shell Columbia (1986-88) and President in Shell Argentina
(1988-91).
• Mårten Rød, born 1948, has long experience as entrepreneur and from the oil and gas industry both upstream and downstream. Was working
11 years for Arco in the North Sea, founded Northern Energy UK in 1998, an oil company with production in Texas and Oklahoma, President
in Interoil Norway from 1995, which participated in various oil and mineral projects in West-Africa.
• Nils N. Trulsvik, born 1948, is a petroleum explorationist with extensive experience throughout the world. Was working seven years with
Saga Petroleum with assignments in the North Sea, Mediterranean, Africa, South and North America. Co-founded Nopec in 1981, where he
was working for 13 years with assignments in Northwest Europe, Africa and the Far East. Managing Director from 1987 until 1993. Has been
working with various oil and gas projects the last 10 years.
• Rudolf Berends, born 1948, is Dutch and has a doctoral degree in geophysics and a MBA from Stanford. Has been working for Shell and
Chevron with worldwide exploration for more than 15 years, privatization manager for YPF/Worldbank in Argentina, senior vice president
for Bridas International in UK/Argentina and president of the American branch in Preussag Energie. From 2002 CEO in Mercantile
International.
• René Graf, born 1947, has long international experience covering all aspects of exploration with focus on geophysical field operations,
processing and interpretation, both 2-D and 3-D, land and marine. This experience has been acquired during a period of almost 20 years
working for Shell International in The Netherlands, France, Malaysia and Colombia.
• Beat Meier, born 1953, has long international experience covering all aspects of seismic interpretation including supervising the acquisition
of high resolution seismic data and interpreting analogue and digital high resolution data from numerous Shell operating companies around
the world. Special experience includes acreage evaluation studies, integrated structural and seismic stratigraphic studies using 2-D and 3-D
exploration seismic and well data.
• Peter Kuhn, born 1967, has experience covering all aspects of geophysical and petrophysical data acquisition, processing and interpretation.
Special experience includes analysis and interpretation of borehole geophysical data. He was responsible for well log analysis and
petrophysical evaluation for several energy related studies in Nigeria and Benin.
• The project managers, Stefan Schaub (born 1959), Philippe Roth (born 1963) and Berni Gunzenhauser (born 1953), has extensive
international experience within geology, sedimentology, geochemistry, geophysical data acquisition, seismic processing and interpretation
from a wide variety of countries, geological basins and exploration projects.
13

Realized oil prices
Realized oil price (USD per bbl)
Oil price spread (USD per bbl)
60,0
55,0
50,0
45,0
40,0
35,0
30,0
25,0
13,0
12,0
11,0
10,0
9,0
8,0
7,0
6,0
5,0
4,0
3,0
2,0
1,0
0,0
Peru and Colombia - Realized oil prices
WTI
Peru
Colom bia
2004 - 1
2004 - 2
2004 - 3
2004 - 4
2004 - 5
2004 - 6
2004 - 7
2004 - 8
2004 - 9
2004 - 10
2004 - 11
2004 - 12
2005 - 1
2005 - 2
2005 - 3
2005 - 4
2005 - 5
2005 - 6
2005 - 7
Peru and Colombia - Spread against WTI
2004 - 1
2004 - 2
2004 - 3
Peru spread
Colom bia spread
2004 - 4
2004 - 5
2004 - 6
2004 - 7
2004 - 8
2004 - 9
2004 - 10
2004 - 11
2004 - 12
2005 - 1
2005 - 2
2005 - 3
2005 - 4
2005 - 5
2005 - 6
2005 - 7
• Most oil in South American is sold related
to the South American basket consisting of
- Oman blend (Emirate of Oman) at 34 deg. API
- Forties (UK) at 36 deg. API
- Suez blend (Egypt) at 33 deg. API
• Peru
- Average realized oil prices in 2004 USD 6.25 per bbl less
than WTI
- Average realized oil prices first seven months of 2005
USD 5.23 per bbl less than WTI
- Oil transported by own trucks
• Colombia
- Average realized oil prices in 2004 USD 6.73 per bbl less
than WTI
- Average realized oil prices first seven months of 2005
USD 9.42 per bbl less than WTI
- Oil sale contract with EPC resigned at the end of 2004
due to price squeezing
- New contract entered into with Hocol, with real start-up
in April 2005 after a transition period
- Average realized oil prices excludes transportation costs
of USD 4.32 per bbl
- Oil transported by trucks to pipeline terminal and then by
pipeline
- Transportation costs of USD 1.50 per bbl for trucking
and USD 2.82 per bbl for pipeline transport
14

InterOil investment case
First building
block in place
Large growth
potential
Well positioned
to grow in West
Africa
Experienced
team
• Existing production in Peru
• Existing production in Colombia
• Existing local management in both countries
• Portfolio provides for substantial organic growth
• Considerable exploration potential in Columbia
• Exploration potential in Peru
• Strong historical presence in West Africa
• Several projects under evaluation / negotiations
• Awarded (not accepted) new license in Nigeria
• Strong management with extensive experience in South
America and West Africa
• Strong local management to develop existing and new
projects
15