Elk #1 Gas Discovery

Mid-October Test Results

Elk #1 Discovery Status Summary
(Gas and Condensate Confirmed)
InterOil announces a gas and gas liquids discovery at the Elk #1 well, Papua New Guinea, in J une 2006 with a flow test
confirming gas and condensate to surface.
On October 16, 2006 after additional drilling a second drill stem test, DST #2, was performed over the open hole interval
from 5,381 to 6,090 feet.
The well flowed 21.7 MMcfd through 2 inch ID drill string at 1,200 psi of pressure through a 60/64
th
inch choke.
The well produced high quality stabilized condensate with a gravity of 49 to 46 API.
Shut-in surface gas pressures have remained consistent in the range 3,150 psi to 3,165 psi throughout testing since
J une.
The drilling has indicated approximately 709 feet of gross limestone reservoir, with the top of the Puri Limestone at
5,471 feet (1,668 meters).
Down hole tools recorded detailed bottom hole pressure and temperature data which are currently being retrieved.
The Australian Government research agency, CSIRO, analysis indicates the Elk condensate originated in the peak to
late oil generation window of the source rock, materially increasing the possibility of an oil leg deeper in the Elk structure
and/or the adjacent Antelope structure
InterOil plans to run a preliminary test string of 5 inch production tubing to enable a larger condensate and gas flow test
on the Elk well, as the current 2 inch ID drill pipe test string restricted the flow of gas and condensate production.
Information from the Elk well to date is very encouraging. The test reports are only partially complete at this
date. Additional data will be obtained and continued interpretation will be done. Logging and more testing
through a larger production string will be done over the coming weeks.
Elk #1 Test June 2006
Elk #1 Discovery
(Fractured Reservoir Summary)
Elk #1 was drilled to a total measured depth of 6,506 feet (1,983 meters), with the top of
the Puri limestone being encountered at 5,473 ft (1,668m) based on mud log data.
The total reservoir thickness drilled at the current location was limited to an estimated
709 feet (216 meters), as result of down hole instability.
The reservoir is a heavily fractured system with high permeability which enhances the
capacity of the well to flow.
Seismic information from the Elk survey and nearby outcrop data indicate the limestone
thicknesses may be 1,500 to 2,000 feet thick.
Prior to the first Drill Stem Test, DST #1, the well had experienced 4 gas kicks. The first
DST recorded a shut-in surface pressure of 3,150 psi.
The estimated potential hydrocarbon column height is calculated at up to 4,000 feet
based on recorded surface pressures.
Drilling and testing has been completed only in the top section of the hydrocarbon column
as calculated from the recorded gas pressures.
Further drilling will be done to confirm the total column height and
potential for oil
Aquifer Gradient Elk #1 Theoretical Gas Column ~ 4,000 feet
The separation between aquifer
pressure and formation pressure
at Elk is second to Hides
(largest in PNG).
Hides reservoir ~net 116 feet (35m) of sandstone Column est. @ 5,600 feet, est. GIP 9.7 TCF
Elk reservoir est. ~2,000 feet (~600-650m) of Tertiary Limestone, Current thickness ~700 feet;
Est. Elk Column at ~4,000 feet
5,910 ft
4,000 ft
Top of Puri Limestone
Elk #1 Formation confirmed at a depth 1,668m. Chart shows the transition from basal Orbulina Marl
to Puri Limestone with calcimetry at 57% below the empirical limestone cut off of 55% to 70%
established from offset wells.
Elk #1 Discovery
(Condensate and Gas DST Summary)
On the basis of DST #1, the Elk #1 well has been classified as a gas and
condensate discovery, with potential for oil at deeper intervals confirmed
by data from DST #1 - J une 2006 and DST #2 - October 2006.
High quality stabilized condensate has been produced with a 46 to 49 API
gravity. The gas oil ratio (GOR) will be evaluated with an additional test
once a 5 inch production test string is installed in the Elk #1 well.
Well Test Data: 7Flow 1
st
DST 2
nd
DST
Estimated bottom hole pressure3,700 psi 3,700 psi 3,750 psi
Wellhead surface pressure 3,150 psi 3,150 psi 3,165 psi
Calculated AOF 150 MMcfd 150 MMcfd To be determined
Sample test Flow 50MMcfd 7.1MMcfd 21.7MMcfd
Pipe size 7 inch 2 inch ID 2 inch ID
Pressure 2,000psi 500 psi 1,200 psi
Choke size 1 inch 48/64 inch 60/64 inch
Wel l c l eaned up and f l ow i ng
gas w i t h some c ondensat e
Gas and Condensate
Potential for Oil at Elk
Offset wells established an oil system in the Puri limestone
Puri flowed oil at a peak rate of 1,610 bopd (10 miles west)
Moose #1 and #2 had live oil shows (5 miles north)
Heavy condensate was recovered high in the potential 4,000 feet hydrocarbon
column
API Gravity of the condensate is at the lower range at 46 to 49 and below the
condensate gravity of 51.7 at the Puri oil discovery
Condensate from the Elk well was sent to the independent labs of CSIRO for detailed
study. CSIRO has initially determined that liquids produced fromthe Elk reservoir
originated in the peak to late oil generation window.
The vast majority of the producing oil fields in PNG have a gas cap.
This information gives InterOil encouragement to pursue an oil leg in the Elk
and Antelope structures
Condensate samples at the refinery lab
Improved quality as well cleans up
Elk - Forward Program
The well will be logged to confirm the following:
Net reservoir column thickness
Dip of reservoir, image logs - fracture sizes
Conventional reservoir parameters (porosity, saturation, formation water resistivity)
Obtain down hole reservoir pressure and temperature for Calculated Absolute Open
Flow (CAOF)
Production testing will be performed
Complete Elk #1 with 5 inch tubing
Establish higher gas flow rates
Evaluate condensate yield,GOR, for possible increases in liquids at higher flow rates
Hydrocarbon composition (condensate quality)
Additional pressure and reservoir studies
InterOils appraisal plan will be initiated
Appraise Elk structure with additional wells to locate possible oil leg, increases in
condensate with depth, and determine the total thickness of the hydrocarbon column
and resource size for LNG facility
Drill Antelope structure to add gas volume, confirm condensate economics, potential
oil, and scope for an increased LNG facility
Elk #1 Conclusions
(Mid-October)
Milestone event for InterOil
A new gas and condensate discovery
for InterOil and PNG
Shallow high pressure gas
High quality condensate
High permeability fractured reservoir
Demonstrated high flow rates
Potential 4,000 feet hydrocarbon column
Potential for oil
Elk #1 Test - October 2006
Detailed Test Data
(Appendix)
Current and past test data:
DST 2: The following are the results of DST #2 conducted to 16
th
October 2006
Surface pressure 3,190 psi through a 3 1/2 inch drill pipe test string (2 1/2ID), stable at 3,165 psi
Gas and gas liquids to surface with a stable flow rate of ~21.7 MMSCFGPD@ 1,200 psi with a 60/64th inch choke,
tested through 2 1/2 inch drill string, stabilized condensate gravity 46 API
Gas and gas liquids to surface with a stable flow rate of ~15 MMSCFGPD@ 2,440 psi with a 34/64
th
inch choke,
tested through 2 1/2 inch drill string, stabilized condensate gravity 47 API
Gas and gas liquids to surface with a stable flow rate of ~10 MMSCFGPD@ 2,830 psi with a 26/64
th
inch choke,
tested through a 2 1/2 inch drill string, stabilized condensate gravity 50 API
No pressure depletion was observed from surface pressures throughout the test and subsequent build up.
Stabilized condensate liquids of 49 to 46 API were recovered during the test and are undergoing further lab
evaluation.
DST 1: The following are the results of DST #1 conducted between J une 22 and 24, 2006
Surface pressure at 3,150 psi recorded on 7 inch casing
Estimated bottom hole pressure of 3,700 psi
Gas and gas liquids to surface with an estimated flow rate of ~7.1MMSCFGPD @ 500 psi, through a 48/64th inch
choke, through 2 1/2 inch ID drill pipe, with a further downhole restriction of a stuck tool to limit the flow rates.
Estimated Calculated Absolute Open Flow (CAOF) for gas was calculated at 150 MMSCFGPD
No pressure depletion was observed from surface pressures throughout the test and subsequent build up.
Hydrocarbon liquids were recovered during the test and confirmed origination from a source in the peak to late oil
generation window.
J UNE 11
th
2006 flow through 7casing
Gas and gas liquids to surface with an estimated flow rate of ~50 MMSCFGPD @ 2,000 psi, through a 1 3/4 inch
choke.
This press release contains forward-looking statements as defined in U.S. federal and Canadian
securities laws. All statements, other than statements of historical facts, included in this release are
forward-looking statements. Forward-looking statements include, without limitation, statements
regarding our drilling plans, plans for expanding our business segments, business strategy, plans and
objectives for future operations, future capital and other expenditures, and those statements preceded
by, followed by or that otherwise include the words may, plans believe, expects," anticipates,
intends, estimates or similar expressions or variations on such expressions. Each forward-looking
statement reflects our current view of future events and is subject to risks, uncertainties and other
factors that could cause our actual results to differ materially from any results expressed or implied by
our forward-looking statements. These risks and uncertainties include, but are not limited to, the ability
of our refinery to operate at full capacity and to operate profitability; uncertainty involving the geology
of oil and gas deposits and reserve estimates; delays and changes in plans with respect to exploration
or development projects or capital expenditures; political, legal and economic risks related to Papua
New Guinea; the impact of competition; the volatility of prices for crude oil and the volatility of the
difference between our purchase price of crude oil feedstocks and the sales price of our refined
products; the uncertainty of our ability to attract capital; and the risks described under the heading
Risk Factors in our 2005 Annual Information Form dated March 31, 2006 and our Managements
Discussion and Analysis for the Second Quarter of 2006.
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. Except as may be required by applicable law, we undertake no obligation to publicly update
or advise of any change in any forward-looking statement, whether as a result of new information, future
events or otherwise. Our forward-looking statements are expressly qualified in their entirety by this
cautionary statement.
We currently have no reserves as defined in Canadian National Instrument 51-101 Standards of
Disclosure for Oil and Gas Activities. All information contained herein regarding resources are
references to undiscovered resources under Canadian National Instrument 51-101, whether stated or
not.
Cautionary &
Forward Looking Statements