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Financing buoys InterOil's Papua New Guinea hopes

CALGARY -- Cash-strapped energy company InterOil Corp. says it has secured new lines of financing that have enabled it to pay off a major creditor, effectively keeping alive the company's dream of developing a liquefied natural gas project in Papua New Guinea.

The future of InterOil, which has a market capitalization of $884-million and counts legendary investor T. Boone Pickens among its stockholders, has been in question, given it was due to pay off a $70-million (U.S.) credit line to investment bank Merrill Lynch & Co. Inc. by yesterday, but didn't have the cash to do so. But InterOil has now secured $95-million from selling convertible debentures to institutional investors, enabling it to pay its debt to Merrill and also help fund future drilling, the company said in a press release. It didn't give details of who bought the debentures, and didn't return phone calls seeking comment.

InterOil had been due to pay off both the Merrill debt and an extra $60-million line, held with Swiss bank Clarion Finanzis, by May 3. However, the company announced on May 1 that it had discovered an undetermined amount of natural gas at its Antelope field in Papua New Guinea.

The company, which has executive offices in Australia, has its legal headquarters in Yukon, and is listed on the Toronto Stock Exchange.

The Antelope discovery prompted Clarion Finanzis to agree to convert its debt into InterOil equity, and Merrill agreed to allow more time for debt repayment.

InterOil currently produces no oil or gas, but does operate a fuel distribution network in Papua New Guinea and an oil refinery there that has a capacity of 32,500 barrels a day. The company hopes that future gas production from its Elk and Antelope fields there will provide the basis for the construction of a $6-billion LNG plant, which would export gas from 2012, but hasn't yet definitively proved it has the reserves to support the development.

In a research note, Raymond James & Assoc. analyst Wayne Andrews said the new financing deal is "very positive for InterOil, as it completes the restructuring of [its] budget sheet." He said future catalysts for the company stock price could include an independent assessment of its reserve potential, and the possibility InterOil could farm out equity in Elk to strategic partners.


Close: $27.28, down $1.20

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