Interoil Reverses Share Downslide

InterOil Corp. (IOC) shares shot up more than 25% Tuesday morning after the company announced Monday that its C$130-million secured credit facility related to the company's Papua New Guinea liquid natural gas project was amended to extend the existing 4% interest rate from June 30, 2007 to July 31, 2007.

As part of the amendment, if a shareholder agreement covering the LNG project can be executed by the company and the lenders of the credit facility – Merrill Lynch Capital Corporation and Clarion Finanz AG acting through an affiliate, Pacific LNG Operations Ltd – on or before July 31, 2007, the interest rate will continue to be 4% for the full term of the loan, which ends May 2008.

If an agreement is not realized, the interest rate will increase to 10% unless the lower rate is further extended by the parties.

"We have made major progress on the negotiations covering the LNG project and are close to finalizing the documentation on a definitive shareholder agreement," InterOil Chairman and CEO Phil Mulacek said in a statement.

Both Merrill Lynch and Pacific LNG have reiterated their commitment to the LNG project, following the confirmation of a large gas column in the Elk structure. All parties are encouraged with the interim results of Elk-2, and the overall resource potential in the structure, which can underpin the joint LNG project.

The rise in InterOil's share price dropped by more than half last week after investors seemed less than impressed with the Elk-2 drilling results, which uncovered tight rock, meaning the likelihood of flowing gas coming from the reservoir appears less likely.