InterOil Corp. (IOC, $63, Overweight, Price Target $115)

Pull-back Represents Buying
Opportunity Supported by
Gas and Condensate Value

Investment opportunity in IOC. Despite 2009’s
defining events that included the Antelope natural gas
discoveries and successful early developments in the
monetization efforts (PNG approval of IOC’s LNG facility
and execution of the key terms agreement with Mitsui for
the liquid stripping facility), investors continue to doubt
IOC. We believe the pullback is an opportunity for
investors that missed IOC’s first run on the Antelope
discovery to participate in the next move relating to
further definition of IOC resources and monetization.
IOC is now trading modestly above our distressed sale
price for its stranded gas/condensate, over 50%
discount to our un-risked, base NAV and $49 discount to
our 2010 price target with several material catalysts in
1Q2010 - all of which assume no value for oil potential.
Today’s update. We view today’s drilling update as
positive with an increase in porosity in “zone of interest”
where a horizontal test in March will provide results on
any oil potential. However, at $62, we see little
“expectation for oil” and find significant value on gas and
condensate resource and monetization thereof. We
believe that the recent focus on oil potential has
overshadowed the core value proposition of gas and
condensate monetization.
Why the pullback? In the last several weeks, IOC has
reverted to its pre-Antelope volatility levels where, in our
view, the recent sell-off has been excessive and
primarily attributable to market factors, negative press,
and a reduction of oil expectations.
New personnel additions are positive. On January
18, 2010, Henry Aldorf, formerly the President of
Marathon International, joined an IOC affiliate. We
believe he augments IOC’s LNG execution skill-set
(prior EG LNG responsibility) and provides another
material vote of confidence in IOC and its planned LNG
and liquid stripping projects by an industry executive.
InterOil Corp. (IOC, $63, Overweight, Price Target $115)

Why Overweight?

• Strong value proposition as market overlooks and discounts resource and potential monetization.
• We expect IOC to enter a partnership in next 6 months to develop LNG facility/
monetize its natural gas and associated liquids.
• Trading at 50% of our un-risked NAV (NAV omits any value for oil resource or
exploration acreage).
• Largest exploration land position in PNG with over a decade of drilling experience.
• Niche refining exposure levered to substantial economic growth forecasted in PNG.

Potential Catalysts/Key Value Drivers
• Liquid stripping commercialization agreement (~$450m credit facility) probable during early 1Q10.
• Antelope-2 horizontal drilling (higherflow rate potential) March 2010.
• GLJ/Knowledge Reservoir Resource improvement due in February/March 2010.
• Antelope-3 results expected late 2Q/early 3Q 2010.
• LNG Partnership/upstream sell down expected in 1H10 (fully fund development and future exploration).
• Additional Exploration as we believe IOC will likely test another structure within its exploration portfolio by year-end.

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