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Executives

Wayne W. Andrews - Vice President of Capital Markets

Gaylen J. Byker - Chairman, Interim Chief Executive Officer, Chairman of Compensation Committee, Chairman of Nominating and Corporate Governance Committee, Member of Audit Committee and Member of Reserves Committee

Collin Francis Visaggio - Chief Financial Officer

William J. Jasper - President and Chief Operating Officer

David John Holland - General Manager Exploration & Production

Analysts

Evan Calio - Morgan Stanley, Research Division

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

William Christopher McDougall - Westlake Securities LLC, Research Division

InterOil (IOC) Q1 2013 Earnings Call May 14, 2013 8:30 AM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to InterOil's First Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Wayne Andrews. Please go ahead, sir.

Wayne W. Andrews

Thank you, Roxanne, and hello, everyone. This is Wayne Andrews, VP of Capital Markets for InterOil Corporation.

Before we start, I want to briefly remind everyone that some of the statements made during this conference call constitute forward-looking statements within the meaning of the U.S securities laws, including such statements as those regarding expectations of future results, general financial performance, future business prospects and strategies. These statements are based on management's current expectations and are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Investors are cautioned not to place undue reliance on these statements.

Additional information about factors that could cause our results to differ materially from those in the forward-looking statements can be found in the company's filings with the U.S. Securities and Exchange Commission and SEDAR.

The speakers from management on the call today are Gaylen Byker, our Chairman; Bill Jasper, President; Collin Visaggio, CFO; and Dave Holland, Upstream Manager.

We have a presentation to accompany our comments today. The presentation can be accessed on our website at www.interoil.com. You can find the link under the Investor Relations section on the homepage.

At this time, I'd like to turn the call over to Dr. Gaylen Byker. Please go ahead, Gayle.

Gaylen J. Byker

Well, thank you, Wayne, and thank you, all, for participating in today's first quarter results conference call. Please forgive the sound of my voice as I'm having some problems with allergies today, but would try to be as articulate as possible.

I'd like to start with a brief summary of our first quarter context and results, and Collin Visaggio, our CFO, will provide additional financial details.

We are pleased to announce that our operating businesses of Refining and Downstream continue to generate profits that support the investment expenditures in our development segments of Upstream and Midstream Liquefaction.

Our first quarter profit was $4 million compared to $9.4 million in the same period a year ago. The variance is largely driven by weakening of the PNG kina during the quarter compared to the strengthening of the kina a year ago. Despite a slightly weakening first quarter, the continuing strength of the PNG economy is reflected in the profitability of our operating businesses. Bill Jasper will review our operating businesses later on the call.

Additionally, we are fortunate to have the developing segments of Upstream and Midstream Liquefaction where our investments today are being used to create value for the future. Directly addressing our partner selection process, we are well aware that our shareholders are eager for us to conclude the long-running sell-down and LNG partnering process. I assure you that we, too, are eager to complete this process as are our potential partners and the PNG government, and all parties remain hard at work on moving the process forward.

On today's call, we will detail a number of changes in PNG, the LNG industry and at InterOil that create a favorable environment in which to complete our partnering process.

First, PNG. Following the election last year, the parliament has formed the strongest coalition government in the country's history. The current Prime Minister has been given an unprecedented 30 months before a vote of no confidence can be taken, underscoring the stability of the current administration. A major objective of the O'Neill administration is to build critical infrastructure in the country, including roadways and power generation.

In line with this goal, the PNG state has reorganized the entities that managed the government's interest in petroleum projects, and the current and former prime ministers of PNG will act as voting members of the new entity.

Next, in the LNG industry. The forecasted growth in demand for LNG and the natural depletion of existing reserves means that there's a constant need to bring on new LNG projects. At the same time, one Australian project has been canceled and 2 others are significantly delayed. Cost overruns on other projects already under construction have caused the dominant LNG players to reevaluate their portfolios. The tension between these 2 trends has resulted in an ever greater interest in new LNG projects with attractive economics.

And finally, at InterOil, we, too, have been positioning for the next phase of growth. Our progress in defining our resource, particularly at the Antelope field, has demonstrated a high quality reservoir capable of supporting large-scale LNG development. The Triceratops discovery, while in early-delineation stage, provides an opportunity for further upside to our resource estimates.

On the corporate governance front, our company's board and senior management have begun positioning the company for the next phase of its development. InterOil's founding CEO, Phil Mulacek, an accomplished entrepreneur, has retired after building a multibillion-dollar New York Stock Exchange listed traded company from scratch. We are thankful for Phil's many years of dedication and hard work and pleased that he will advise the company as we continue our very successful exploration program and finalize our LNG partnering arrangements.

We have engaged Spencer Stuart to conduct a global search for a new CEO to lead the company through its next stage of development. Discussions with a number of candidates, several with project management experience, are underway, and we look forward to introducing the next leader of InterOil. Our 8 members of the Board of Directors will make the decision on our LNG partnering process independent of our CEO search. The company and its investment banking advisors are in final discussions with multiple parties, including major oil companies and a national oil company, each of whom we believe, if chosen, would satisfy the PNG government's objectives. This is an advantageous position for us to be in, and we believe that it is best to allow our advisors and our board the time they need to finalize the most beneficial transaction for our stakeholders.

The PNG government has been kept apprised of our discussions and continue to support our plans to partner with a qualified operator. This will be a multibillion-dollar transaction and we are fortunate to be in a competitive process. We appreciate your patience and support and are confident of a successful outcome.

On the Upstream businesses, I am glad to report that the Department of Petroleum & Energy has approved well commitment variations on PPL 236 and PPL 238. This allows us to focus on further delineating our existing resources at Elk, Antelope and Triceratops.

All of our licenses are in good standing. As we have previously announced, the joint venture operating agreement relating to the operations in Petroleum Retention License 15 and Petroleum Prospecting License 237 have been approved by the Ministry of Petroleum & Energy and registered under the Oil and Gas Act. With the incoming partner, the joint venture intends to finalize the development plan for the LNG project and complete the proper documentation to move the LNG project forward.

In a gas agreement with the PNG state, which is currently being drafted by the government, will supersede our 2009 project agreement and control the project development. It will be finalized with the government and the LNG partner we select. Dave Holland will comment on our current Upstream operations and future drilling and plans a little bit later in the call.

I'd now like to turn the call over to CFO, Mr. Collin Visaggio, to cover the financials in more detail.

Collin Francis Visaggio

Thanks, Gaylen, and welcome to everyone listening to today's presentation.

As Gaylen stated, our net profit for the quarter ended March 31, 2013, was $4 million. The operating segments of Corporate, Midstream Refining and Downstream, collectively derived a net profit for the quarter of $18.5 million, mainly due to an increase in gross margins attributable to the positive crude and product price movements and higher margins from export cargoes.

Our balance sheet remains robust with our debt-to-capital ratio at 19%. As of the 31st of March 2013, our total book assets amounted to $1.4 billion, and our total liabilities amounted to $589 million. Our current ratio and quick ratio were 1.5x and 0.8x, respectively. The quick ratio was below our internal target of 1, however, the closing of the sell-down transaction, whereby a party will participate in the development of the LNG project and acquire an interest in the Elk and Antelope fields will bring this ratio well below our internal target. The Farm-In Agreement with Pacific Rubiales Energy was completed during the quarter, and we received a completion settlement from Pacific Rubiales of $56 million on March 24, 2013.

Firstly, summarizing our results for the group. As we mentioned, our operating business segments had a combined net profit of $18.5 million, and the investments in our developing business segments resulted in a net loss of $14.5 million, for a consolidated profit of $4 million. Our EBITDA for the quarter was $18 million. The decrease in net profit after tax for the quarter compared to $5.4 million in the same period of 2012 was mainly the result of a $58.6 million increase in foreign exchange losses due to the weakening of the PNG kina against the U.S. dollar. The foreign exchange rate decreased from 0.4755 to 0.4675. Compared to the first quarter of 2012, the foreign exchange rate had increased during that period from 0.4665 to 0.4820, and the one-off transfer of $7.8 million in foreign exchange gains previously included in other comprehensive income to the profit and loss upon repayment of certain intercompany loans during the prior quarter ended March 31, 2012; and a $1.7 million increase in other income, primarily attributable to the low recovery of expenses related to Upstream construction and drilling-related activities.

These decreases in profit had been partially offset by a $6.9 million reduction in exploration costs incurred primarily for the seismic activity on PPL 236 in the prior period and a $4.7 million decrease in income tax expenses resulting mainly from the lower Downstream current quarter profit earned and the impact of unfavorable foreign exchange movement impacting temporary differences on translation of the nonmonetary assets of the Midstream refinery operation using period-end rates.

The total volume of oil products sold by us was 2.4 million barrels for the quarter ended March 31, 2013, compared with 2.2 million barrels in the same period of 2012. A full detailed analysis for your review is available in the press release and in the filed financials and management discussion and analysis document.

Analyzing the cash position of the group. As of the 31st of March 2013, we had cash, cash equivalents and cash restricted of $107 million. Since the start of 2013, we have spent $7 million on Antelope-3 drilling and testing works; $4 million on Elk-3 site preparation, pre-spud, drilling and standby works; $3 million on the Gulf LNG project; $20 million on other Upstream infrastructure works; and $4 million on the operating business maintenance upgrades.

As of the 31st of March 2013, the company has capacity to increase debt levels. Based on existing book values, a gain of 50% allows open debt from $600 million, more than sufficient available cash as we continue progress towards achieving our near-term strategic objectives. During the quarter ended March 31, 2013, we filed a new shelf of $1 billion, which will add to our financial flexibility.

We are focused on our strategic plan to monetize the Elk and Antelope fields through an integrated development project. As of March 31, 2013, $384 million has been spent on the Elk and Antelope fields; $52 million on the LNG joint venture; $141 million on construction equipment, roads, logistics and site works associated with the Upstream development sites; and $53 million has been spent on the condensate stripping front-end engineering and design. In addition, we spent $74 million on the Triceratops-2 field.

We're working very closely with the government of PNG to keep them updated on the strategic partnering process and the licensing applications. We're certainly very excited about the opportunities ahead of us, and we look forward to maintaining momentum and concluding the strategic partner process and satisfying the requirements of the government and the stakeholders to proceed to final investment decision on the Gulf LNG project.

With that, I will hand back to Gaylen.

Gaylen J. Byker

Well, thank you, Collin. I'd like to move on to the refinery and Downstream operations, so I'll pass the call to our President, Mr. Bill Jasper.

William J. Jasper

Thanks, Gaylen, and good morning, everyone. I'm pleased to report that the first quarter this year has produced another quarter of great gross refining margin for the refinery and that is at $19.9 million gross refining margin for the quarter.

This quarter was notable as being the highest-ever quarterly run rate for the refinery at 27,500 barrels a day per calendar day and the highest level of sales for any quarter. The main reason for this is our switch to a naptha-rich crude diet, as the premiums for these crudes are currently much lower than the higher-value middle distillate crudes, which we traditionally prefer. As a result, we are running the refinery at higher rates to meet the diesel demand and overall, gaining a higher gross margin.

Domestic sales remain very strong, with this quarter only marginally lower than the first quarter of 2012, which was a record quarter for the refinery. When combined with the increased naptha exports, this results in a record total sales level for the quarter.

The Downstream business had a sales volume for the first quarter of 2013 were 183.7 million liters, which is a 2.8% decrease on the volume sold in the first quarter of 2012.

The PNG economy has slowed slightly in the first quarter as the construction phase of the Exxon Mobil-led LNG project nears completion, and the construction contractors complete their projects. This trend may continue in the short term. Our retail business accounted for approximately 15% of our total Downstream sales in the first quarter, and we continue to invest in new forecourt technology and in new retail fuel distribution systems. During the quarter, we reopened one new retail site after it was purchased from a previous dealer and completely refurbished.

We are also about to commence operations on 2 newly constructed truck stop commercial sites. And our safety record at the end of the first quarter of 2013 has the refinery achieving a total of 5.2 million man-hours without a lost-time injury. This great achievement, coupled with our continued focus in the remainder of the corporation, has us with just over 9 million man-hours without a lost-time injury.

And with that, Gaylen, I'll turn it back to you.

Gaylen J. Byker

Thank you, Bill. We'll move on to exploration and production. I hand the call over to General Manager of Exploration, Mr. Dave Holland.

David John Holland

Thanks, Gaylen. Good morning, everyone. I take pleasure in providing an update on our exploration activities.

In the first quarter of 2013, we completed the Antelope-3 well and our resource assessment of the Elk, Antelope and Triceratops fields. As reported in our last call, the very positive results of Antelope-3 and Triceratops-2 this quarter took InterOil's net resource base to over 1 billion barrels of oil equivalent on a 2C basis.

During this quarter, we continue to work finalizing infrastructure at Hou Creek and Herd Base, which will support further appraisal drilling of Antelope and our new discovery, Triceratops.

During this quarter, we also completed the farm-in with a new partner, Pacific Rubiales Energy, into our PPL 237. And shortly after, as a new joint venture, submit an application for a Petroleum Retention License over the Triceratops gas field.

The Triceratops gas fields discovery has generated significant interest, and InterOil has finalized an agreement to require a joint seismic program of covering the areas of the North Triceratops and the Northwest Triceratops prospects, which based on the current mapping of the seismic, extend from PPL 237 into a neighboring license, PPL 338. The PPL 338 joint venture will fund most of this program. We see this as a very positive step and recognition of the prospective potential of this new discovery.

In other regulatory activity, during the quarter, the DPE approved our joint venture operating agreement relating to operations in PRL 15. Also, following the success of the Triceratops gas discovery and the better-than-expected results in Antelope-3, we have had discussions with the DPE on our forward-focus and priorities. We concluded our key mutual objective is to focus on progressing the Gulf LNG project. Subsequently, we applied for variations to modify our well commitments for our licenses of PPL 236 and PPL 238. And on March 28 of this year, the DPE approved these variations and the deferral of well commitments for both PPL 236 and 238.

So in summary, at InterOil, we look forward to resuming seismic acquisition with PPL 338 in early next week, and after that, resumption of our drilling program with the Elk-3 well once our partnering for the LNG project is finalized. We remain excited by the prospectivity of our licenses and look forward to the opportunity to make further announcements on our future exploration seismic and drilling activity as our plans are finalized.

And with that, I would like to hand you back to Gaylen.

Gaylen J. Byker

Well, thank you, Dave. In closing, I'd like to assure everyone that the InterOil Management and the Board of Directors are firmly committed to our stakeholders.

My mandate as Chairman and Interim CEO is to drive the sell-down and partnering process to closing as swiftly as possible while maximizing the value for all. We look forward to working with a qualified LNG partner, simultaneously creating value for our stakeholders and satisfying the objectives with the PNG government. We are excited to be in the final stage of our LNG partnering process. We thank our shareholders, our staff, our coworkers, our partners and the PNG government for their continued support.

That concludes our prepared remarks, and we will now open the call up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Evan Calio with Morgan Stanley.

Evan Calio - Morgan Stanley, Research Division

I just want to open and again congratulate Phil Mulacek, who was largely responsible for the vision and formation of InterOil and wish him the best going forward. Let me start with a question on his replacement. I think, Gaylen, you mentioned that the CEO and sell-down process are independent. But just to clarify, I mean, do you intend or does the board need to announce a new CEO prior to the finalization of the partnership sell-down process? Or is the board going to complete this prior to determining who the next leader is?

Gaylen J. Byker

No, we will not have to announce a new CEO before we go the next step in the partnering process. Those are quite independent, and we anticipate that we will be announcing the partnering process before we find a new CEO.

Evan Calio - Morgan Stanley, Research Division

Excellent. And then I mean, generally, there are clearly a lot of transformative events on the horizon for the company, and there may be ultimate options or multiple options today. And the change in the CEO, the only -- only the firm's second and first outside, the founder is one of them. I mean, can you discuss generally what the board is looking for? Are there particularly different skill set or a different vision of InterOil going forward? Or might this even be a fluid process here?

Gaylen J. Byker

Well, I can give you just a brief summary of the board's perspective is that we have transitioned from being a very entrepreneurial company to being a much more highly developed and diversified operation. And we're looking for someone with very extensive management experience, but also experienced with exploration and production and with LNG project development. The growth of the company, I think, has been astonishing. And we need to make sure that we have a sustainable management structure and processes and procedures and people to carry it to a whole new level.

Evan Calio - Morgan Stanley, Research Division

Got it. And maybe if I could shift gears on a question, if I could. On the seismic joint venture that you've announced today, can you discuss where Oil Search's block is relative or how close the border of that block is relative to the Triceratops discovery? I mean, do you believe that the structure extends across the lease line into their structure? And obviously, is there agreement to fund the seismic indication of some potential for a unitization or something in that regard?

David John Holland

Yes, sure. Sure. I think it's probably best if people have access to the presentation or, if not now, at least take note of the map on Page 18. And there you'll see there the -- outlined in yellow is the prospective areas of North Triceratops and the Northwest Triceratops. Also on that map is the PPL 338 license and the PPL 337 license boundary. And from that, you can see that based on the current mapping of the existing seismic that both of those prospects extend north into PPL 338. And in terms of -- after the acquisition of seismic and mapping, I believe that the joint venture would be looking to drill a well as part of the farm-in process that Oil Search is undertaking with the current license holder, Kina petroleum. If that were to be a discovery, then obviously down the track, under the PNG Oil and Gas Act, we would be looking at the requirement to form a unit.

Evan Calio - Morgan Stanley, Research Division

Has there been any kind of volume metric on the area under closure of what that structure is? Can you mention the size of that structure for us?

David John Holland

Well, on our mapping, the total closure we think with what we can map with our seismic is of the order of about 128 square kilometers for the prospective area. However, we believe that, that extends with our current seismic control and potentially extends east of our seismic control. So we would be looking to resume seismic after this joint program, and we would definitely be focusing on testing the limits of the closure and also focusing on significant other potential prospects that we have in PPL 237. Based on the gravity, we believe we have a number of gravity anomalies, which run between Triceratops to the West and Elk and Antelope to the East, and we think and believe that this is a really -- potentially a significant resource trend that with the addition of seismic in this area, that we would be looking to mature probably at least 2 more prospects on that train between Triceratops and Elk and Antelope.

Evan Calio - Morgan Stanley, Research Division

And in terms of new activity, I mean, is it safe to say that you're not -- you won't be drilling or spending additional CapEx until a deal is signed because it might reduce InterOil's financial obligations with regard to those wells? Is that an accurate statement?

David John Holland

Yes. That's an accurate statement.

Operator

The next question comes from the line Pavel Molchanov with Raymond James.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

First, just on the timing for a partnership announcement. I mean, correct me if I'm wrong, is there a June 30 deadline under the existing project agreement to reach a partnership deal or is that not the case?

Gaylen J. Byker

No, there's not. I mean, there are a number of parts to your question there that relate implications of your question. The 2009 project agreement was entered into with a different project in mind and predates the current partnering process. It's our expectation that when the partnering process is completed, we, together with our partners, will negotiate a gas agreement with the state. And by the way, the state has already started drafting that, and that will replace the project agreement. The gas agreement is the way that PNG state under the Oil and Gas Act usually controls the development of an LNG project. There may be some changes, but we expect that most of the provisions in the project agreement will be incorporated into the gas agreement and it is not a deadline for the partnering process. Now the partnering process is a multiple negotiations of a major multibillion-dollar project and has long-term significance for all of the InterOil stakeholders. And so that isn't going to be rushed, but those 2 are not in the same category in the sense of timing.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Okay, I understood. Another question on kind of the regulatory front. Last November, when the cabinet approved the revised project, there was a cabinet committee formed that was supposed to negotiate a gas purchase from the Antelope field for the purpose of domestic gas projects, power plants and so on. Has that committee been in discussions with the company, and what is the status of that?

Gaylen J. Byker

Yes, the state negotiate team has met with the company on a number of occasions and has basically suspended the process other than the drafting of the gas agreement until the partnering agreement is confirmed.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Okay. And then just last one from me. Have you disclosed the names of the final bidders to the government? And has the government explicitly told you that all of them qualify under the government criteria?

Gaylen J. Byker

The government is aware of all of the people that we are negotiating with, and they are in the category that the government has said they would approve.

Operator

[Operator Instructions] Our next question comes from the line of Chris McDougall with Westlake Securities.

William Christopher McDougall - Westlake Securities LLC, Research Division

A few questions on the joint venture operating agreement on Triceratops and 237. So now that you've laid out and gotten an agreement approved, could you just share with us a little bit more on what the plans are there? You've got the seismic as the next step, and have you identified well locations and kind of the timing of those? And what level of that work is going to be carried over the next year from the Rubiales agreement?

David John Holland

Okay. Yes, we have an agreed work program between InterOil and Pacific Rubiales Energy, which forms the basis of the funding of the timing. There is a carry associated with that, and we would be looking to complete a program of at least 250 kilometers of seismic with PRE and multiple wells. At this stage, we are completing some of our technical studies. We have a -- and we will have several technical committee meetings before we finalize that. But at this stage, loosely would be looking to pick up the seismic group will be completing this joint program and is continuing on with seismic as soon as we came after that. Then, obviously, we had some of the seismic results in. We would be looking to make some decisions on the sighting...

[Technical Difficulty]

Gaylen J. Byker

Sorry about that.

David John Holland

Yes, sorry about that. I think I've just got most of the way through my answer before I cut out. Just my conclusion, I think, to that was that we would be looking to acquire additional seismic after this joint program with the PPL 338 joint venture, and we will be looking to use that seismic to mature well locations for Triceratops' appraisal and then also mature well locations for exploration on that new trend that I identified earlier.

William Christopher McDougall - Westlake Securities LLC, Research Division

Okay. And those wells are planed for 2014 drilling or what would you expect?

David John Holland

We would be looking and we think at this stage to -- as a target to potentially spud a well, either a Triceratops appraisal well or an exploration well this year. And if the seismic goes particularly well, then we may look at accelerating an exploration well into this year as well.

William Christopher McDougall - Westlake Securities LLC, Research Division

Great. And while we're talking about seismic, so Oil Search working with you guys on their seismic program, how much approximately do you think they're spending on this where you're the full benefit of it but not having to spend?

David John Holland

I think that's commercially insensitive. I really can't comment though.

William Christopher McDougall - Westlake Securities LLC, Research Division

Okay, fair enough. And then let's see, Dr. Byker, just to clean up the language a little better or to make sure our expectations are aligned, is there any difference between a super major and a major oil company in your communication with the market?

Gaylen J. Byker

No. No.

William Christopher McDougall - Westlake Securities LLC, Research Division

I'm sorry, I thought you said no.

Gaylen J. Byker

Yes, the answer is no. There's not a distinction. A major is a common term and that -- okay.

William Christopher McDougall - Westlake Securities LLC, Research Division

Fair enough. And I guess at a higher level, Dr. Byker, I was -- I wanted to give you an opportunity just to talk a little bit more on your strategy for coming in to the interim CEO role and as you look to select the CEO, will the partnership chosen, kind of the winning bidding contingent, will that have a bearing on the CEO selection or are those completely independent?

Gaylen J. Byker

I've just 2 comments. I've been involved with InterOil for 17 years, so that I think I understand the trajectory quite well. Secondly, on choosing the CEO, we really -- I think keep those 2 things separate, we're looking at a long-term project to develop multibillion-dollar facilities and we need to be drilling a new seismic -- it's a very, I think, extensive company for its size and we need a CEO who can manage that. And I don't think that the partnering process will affect what we're looking for or what we select.

William Christopher McDougall - Westlake Securities LLC, Research Division

Great. And building on that comment about the kind of long nature of this opportunity, the current expectations are for the first stage here to be around the 4 million ton a year train, but I would assume there are some expectations and I'd love to get some more color around that, that, that would be a starting point and with 10 Tcf of growth gas in the area that you would expect to add a second train in the kind of coming years. Is that a fair expectation?

Gaylen J. Byker

Yes, it is. And I think that what Dave described in Triceratops and some of our other prospects, we anticipate that this will be a series of opportunities for trains to be developed over the coming years.

William Christopher McDougall - Westlake Securities LLC, Research Division

Great. And then we've seen in the news just -- well, I guess, my question would be I'd love to understand a little difference between the Gulf province and the Highlands region as it relates to population density and potential land owner relationships and just understand how you've advance along the way of managing all the stakeholders in the region of potential development?

Gaylen J. Byker

The Gulf region is a very lightly populated part of Papua New Guinea, not nearly as dense as the Highlands. And the development of the area is also far less advanced. And my sense is that we have done a lot more work up front than we've done in the Highlands, and that the number of land owners and the level of cooperation has been really -- has boomed for us, and there have been no problems to date. And we've done a lot of work in the area. We're doing a lot with community development, in education and health care even though we've never taken any resources out of the region yet. We understand that, and I think that both the number of people and the level of cooperation are very much in our favor.

William Christopher McDougall - Westlake Securities LLC, Research Division

Great. Collin, a couple of last questions for you. On the income statement, there was an uptick in the legal and professional fees during the quarter. I assume that relates to the agreement. And I want to get a sense of what we should expect going forward and if you could provide any color on the split for those expenses between the bankers and potentially the lawyers that might be drafting agreements?

Collin Francis Visaggio

Yes, you're right. In terms of the income statement, the uptick is related to the asset sell-down process. And in terms of going forward, obviously, again, it's a commercially sensitive matter between ourselves and the investment bank. So I really don't want to go into the detail of that.

Operator

And at this time, there are no other questions in queue. Please continue.

Wayne W. Andrews

That ends the formal remarks from the call. We'll be available to take questions. And I thank you, all, for your participation today and look forward to updating you on our next quarterly briefing. Thank you.

Operator

And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.

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