In its 30 September, 2010 research report relating to Interoil?s...

In its 30 September, 2010 research report relating to Interoil?s HOA with EWC re: LNG project in PNG, Morgan Stanley nominated the raising, by Interoil, of cash proceeds of between US$500milion to US$1.5billion as the most critical catalyst. On 5 November, 2010 Interoil announced raising of US$231million by way of notes and common shares. The shares will be issued at US$75 per share. On 5 November, 2010, Interoil?s share price rose US$2.64 to US$78.43. Since 30 September, 2010, Interoil?s share price has risen 15% (from US$68.44 to US$78.43). Morgan Stanley?s one year price target is US$135.

Interoil intends to use these US$231million ??for the development and construction in Papua New Guinea of a proposed condensate stripping plant and related facilities and a liquefied natural gas plant and related facilities, exploration and development activities in Papua New Guinea, the repayment of the $25 million loan with Clarion Finanz AG, which matures in January 2011, and general corporate purposes?. The raising of these funds greatly reduces the extent of Interoil?s need (if any) to sell down its interest in PNG?s Elk/Antelope fields.

It appears that one of the critical milestones relating to this LNG project can be achieved and investors in Interoil seem to believe that the downside risks to this project have been reduced by this capital raising.

As far as EWC?s financial interest in this LNG project is concerned, Morgan Stanley projects, on the basis of a number of clearly stated assumptions), EWC to receive US$168million per year (14.5% fee on the proceeds of the sale of LNG). As part of the question and answer session during the 28 October, 2010 AGM, Stewart Elliot stated that these assumptions made by Morgan Stanley do reflect neither a ?best case nor a worst case scenario?. The revenue of US$168million is a ?middle of the road? figure.