InterOil 6K Current report | IOC 14 Nov 16

Exhibit 2

InterOil Corporation

Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

Quarter and nine months ended September 30, 2016 and 2015

InterOil Corporation

Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

Table of contents

Consolidated Balance Sheets	1

Consolidated Income Statements	2

Consolidated Statements of Comprehensive Income	3

Consolidated Statements of Changes in Equity	4

Consolidated Statements of Cash Flows	5

Notes to the Condensed Consolidated Interim Financial Statements	6

InterOil Corporation

Consolidated Balance Sheets

(Unaudited, Expressed in United States dollars)

	As at
	September 30,			December 31,			September 30,
	2016			2015			2015
	$			$			$

Assets
Current assets:
Cash and cash equivalents		8,916,506			33,069,122			118,077,110
Cash restricted		10,187,832			7,966,601			7,964,702
Trade and other receivables (note 4)		556,333,322			608,838,604			602,817,890
Other current assets		1,934,919			2,222,952			2,235,366
Assets classified as held for sale (note 6)		567,085			6,701,472			-
Prepaid expenses		591,616			1,627,003			865,177
Total current assets		578,531,280			660,425,754			731,960,245
Non-current assets:
Cash restricted		150,136			228,286			235,538
Plant and equipment		8,265,619			4,223,335			9,843,500
Exploration and evaluation assets (note 5)		565,266,175			501,724,126			460,183,610
Other non-current receivables		26,185,489			24,793,218			29,700,534
Total non-current assets		599,867,419			530,968,965			499,963,182
Total assets		1,178,398,699			1,191,394,719			1,231,923,427
Liabilities and shareholders' equity
Current liabilities:
Trade and other payables (note 7)		72,900,212			172,119,677			179,881,533
Income tax payable		1,602,553			2,014,414			1,890,166
Secured loans (note 8)		290,000,000			130,000,000			-
Indirect participation interest		-			-			7,449,409
2.75% convertible notes liability		-			-			69,535,121
Total current liabilities		364,502,765			304,134,091			258,756,229
Non-current liabilities:
Indirect participation interest		7,449,409			7,449,409			-
Other non-current liabilities		84,638,446			80,138,254			96,000,000
Total non-current liabilities		92,087,855			87,587,663			96,000,000
Total liabilities		456,590,620			391,721,754			354,756,229
Equity:
Equity attributable to owners of InterOil Corporation:
Share capital (note 9)		1,023,888,101			1,000,358,320			999,701,798
Authorized - unlimited
Issued and outstanding - 50,147,354
(Dec 31, 2015 - 49,572,811)
(Sep 30, 2015 - 49,560,160)
2.75% convertible notes		-			-			14,297,627
Contributed surplus		35,691,739			36,880,264			16,903,110
Accumulated deficit		(337,771,761	)		(237,565,619	)		(153,735,337	)
Total equity attributable to owners of InterOil Corporation		721,808,079			799,672,965			877,167,198
Total liabilities and equity		1,178,398,699			1,191,394,719			1,231,923,427

See accompanying notes to the condensed consolidated interim financial statements

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 1

InterOil Corporation

Consolidated Income Statements

(Unaudited, Expressed in United States dollars)

	Quarter ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2016			2015			2016			2015
	$			$			$			$

Revenue
Interest revenue (note 10)		7,066,636			11,243,704			(3,189,492	)		8,379,741
Other revenue		97,333			578,070			578,316			3,013,423
		7,163,969			11,821,774			(2,611,176	)		11,393,164

Administrative and general expenses (note 12)		(14,301,551	)		(6,102,878	)		(54,959,876	)		(19,761,872	)
Legal and professional fees		(2,120,830	)		414,534			(9,074,244	)		(2,345,224	)
Exploration costs (note 5)		(2,988,366	)		(27,172,202	)		(3,047,040	)		(54,143,596	)
Exploration impairment (note 5)		-			(78,235,581	)		-			(78,235,581	)
Finance costs (note 11)		(5,588,730	)		(3,430,019	)		(21,630,587	)		(14,996,751	)
Depreciation and amortization		(234,538	)		(118,359	)		(978,154	)		(373,171	)
Legal settlement expense (note 14)		(7,500,000	)		-			(7,500,000	)		-
Foreign exchange gains/(losses)		11,984			(645,996	)		136,619			871,586
		(32,722,031	)		(115,290,501	)		(97,053,282	)		(168,984,609	)

Loss before income taxes		(25,558,062	)		(103,468,727	)		(99,664,458	)		(157,591,445	)

Income taxes
Current tax expense		(123,929	)		(256,498	)		(541,684	)		(534,288	)
		(123,929	)		(256,498	)		(541,684	)		(534,288	)

Loss for the period		(25,681,991	)		(103,725,225	)		(100,206,142	)		(158,125,733	)

Loss is attributable to:
Owners of InterOil Corporation		(25,681,991	)		(103,725,225	)		(100,206,142	)		(158,125,733	)
		(25,681,991	)		(103,725,225	)		(100,206,142	)		(158,125,733	)

Loss per share attributable to owners of InterOil Corporation during the period
Basic loss per share from loss for the period		(0.51	)		(2.09	)		(2.01	)		(3.19	)
Diluted loss per share from loss for the period		(0.51	)		(2.09	)		(2.01	)		(3.19	)
Weighted average number of common shares outstanding
Basic (Expressed in number of common shares)		50,042,013			49,549,590			49,809,149			49,501,962
Diluted (Expressed in number of common shares)		50,042,013			49,549,590			49,809,149			49,501,962

See accompanying notes to the condensed consolidated interim financial statements

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 2

InterOil Corporation

Consolidated Statements of Comprehensive Income

(Unaudited, Expressed in United States dollars)

	Quarter ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2016			2015			2016			2015
	$			$			$			$

Loss for the period		(25,681,991	)		(103,725,225	)		(100,206,142	)		(158,125,733	)

Other comprehensive loss for the period, net of tax		-			-			-			-
Total comprehensive loss for the period		(25,681,991	)		(103,725,225	)		(100,206,142	)		(158,125,733	)

Total comprehensive loss for the period is attributable to:
Owners of InterOil Corporation		(25,681,991	)		(103,725,225	)		(100,206,142	)		(158,125,733	)
		(25,681,991	)		(103,725,225	)		(100,206,142	)		(158,125,733	)

See accompanying notes to the condensed consolidated interim financial statements

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 3

InterOil Corporation

Consolidated Statements of Changes in Equity

(Unaudited, Expressed in United States dollars)

	Nine months ended
	September 30,			September 30,
	2016			2015
	$			$
Transactions with owners as owners:
Share capital
At beginning of period		1,000,358,320			991,693,780
Issue of capital stock (note 9)		23,529,781			8,008,018
At end of period		1,023,888,101			999,701,798
2.75% convertible notes
At beginning and end of period		-			14,297,627
Contributed surplus
At beginning of period		36,880,264			18,270,837
Fair value of options and restricted stock transferred to share capital		(23,719,687	)		(8,304,333	)
Stock compensation expense		22,531,162			6,936,606
At end of period		35,691,739			16,903,110
Accumulated deficit
At beginning of period		(237,565,619	)		4,390,396
Net loss for the period		(100,206,142	)		(158,125,733	)
At end of period		(337,771,761	)		(153,735,337	)
Total InterOil Corporation shareholders' equity at end of period		721,808,079			877,167,198

See accompanying notes to the condensed consolidated interim financial statements

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 4

InterOil Corporation

Consolidated Statements of Cash Flows

(Unaudited, Expressed in United States dollars)

	Quarter ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2016			2015			2016			2015
	$			$			$			$

Cash flows generated from/(used in):

Operating activities
Net loss for the period		(25,681,991	)		(103,725,225	)		(100,206,142	)		(158,125,733	)
Adjustments for non-cash and non-operating transactions
Depreciation and amortization		234,538			118,359			978,154			373,171
Impairment of exploration and evaluation assets		-			78,235,581			-			78,235,581
Accretion of convertible notes liability		-			1,026,110			-			3,033,129
Stock compensation expense, including restricted stock		5,865,612			581,868			22,531,161			4,801,016
Accretion of receivable from Total S.A. (note 4)		(10,876,548	)		(11,015,238	)		(33,338,200	)		(33,053,681	)
Adjustment to carrying amount of receivable from Total S.A. (note 4)		3,835,913			-			36,617,836			25,878,655
Change in operating working capital
(Increase)/decrease in trade and other receivables		(820,122	)		4,939			1,591,997			238,315
Decrease in other current assets and prepaid expenses		347,861			262,608			1,323,418			1,954,397
(Decrease)/increase in trade and other payables		(11,441,801	)		17,810,702			(31,024,072	)		15,539,113
Net cash used in operating activities		(38,536,538	)		(16,700,296	)		(101,525,848	)		(61,126,037	)

Investing activities
Expenditure on exploration and evaluation assets net of JV contributions (note 5)		(16,470,063	)		(38,386,765	)		(64,332,057	)		(208,189,125	)
Expenditure on plant and equipment		109,900			131,151			(306,540	)		(423,558	)
Proceeds from sale of drilling consumables and spares		269,682			-			9,980,015			-
Proceeds from disposal of plant and equipment		449,493			-			2,641,196			720,000
(Increase)/decrease in restricted cash held as security on borrowings		(5,217	)		86,610			(2,143,081	)		100,893
Change in non-operating working capital
(Increase)/decrease in trade and other receivables		(586,343	)		(33,948,107	)		39,339,927			(33,948,107	)
(Decrease)/increase in trade and other payables		(2,094,704	)		14,629,045			(67,806,228	)		27,537,846
Net cash used in investing activities		(18,327,252	)		(57,488,066	)		(82,626,768	)		(214,202,051	)

Financing activities
Proceeds from drawdown of Credit Suisse secured facility		-			-			60,000,000			-
Repayment of Credit Suisse secured facility		-			-			(190,000,000	)		-
Proceeds from drawdown of ANZ secured facility		60,000,000			-			290,000,000			-
Net cash generated from financing activities		60,000,000			-			160,000,000			-

Increase/(decrease) in cash and cash equivalents		3,136,210			(74,188,362	)		(24,152,616	)		(275,328,088	)
Cash and cash equivalents, beginning of period		5,780,296			192,265,472			33,069,122			393,405,198
Cash and cash equivalents, end of period		8,916,506			118,077,110			8,916,506			118,077,110
Comprising of:
Cash on Deposit		8,916,506			67,294,966			8,916,506			67,294,966
Short Term Deposits		-			50,782,144			-			50,782,144
Total cash and cash equivalents, end of period		8,916,506			118,077,110			8,916,506			118,077,110

See accompanying notes to the condensed consolidated interim financial statements

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 5

InterOil Corporation

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

General information

InterOil Corporation (the "Company" or "InterOil") is a publicly traded, independent oil and gas business with a sole focus on Papua New Guinea. The Company is incorporated and domiciled in Canada and was continued under theBusiness Corporations Act (Yukon Territory) on August 24, 2007. The address of its registered office is Suite 300-204 Black Street, Whitehorse, Yukon, Canada.

On July 21, 2016, the Company and Exxon Mobil Corporation (“Exxon”) announced that they had entered into an arrangement agreement under which Exxon agreed to acquire all of the outstanding common shares of the Company pursuant to a statutory plan of arrangement under the Business Corporations Act (Yukon).

Under the terms of the transaction, holders of common shares of the Company would receive, in exchange for each common share (including each common share issued to holders of restricted share units pursuant to the transaction):

US$45.00 of shares of Exxon, calculated based on the volume weighted average price of Exxon’s shares on the New York Stock Exchange for the ten (10) consecutive trading days ending on the second trading date immediately prior to closing of the transaction; and

the right to receive a contingent resource payment equal to an additional cash payment of $7.07 per common share for each tcfe gross resources certification of the Elk-Antelope field above 6.2 tcfe, up to a maximum of 10 tcfe.

On September 21, 2016, the Company’s shareholders, stock option holders and restricted stock unit holders voted to approve the transaction. The transaction also required approval by the Supreme Court of Yukon and on October 7, 2016, the Supreme Court of Yukon approved the transaction with Exxon. Subsequent to such approval, a shareholder, Mr. Phil Mulacek, filed a notice of appeal. On November 4, 2016, the Court of Appeal of Yukon upheld the appeal and overturned the Supreme Court of Yukon’s approval of the transaction.

The Company is currently in discussions with Exxon with respect to extending the outside date of the proposed transaction, which is currently December 14, 2016. The Company is also considering options to file for leave to appeal to the Supreme Court of Canada. If the transaction is not effected prior to the outside date, either party has the right to terminate the arrangement agreement. No assurances can be made that the Company and Exxon will agree on an extension of the outside date and/or that the Company will be able to effect the transaction with Exxon under the arrangement agreement. On completion of the transaction, financial advisor fees will become payable.

These condensed consolidated interim financial statements were approved by the Directors for issue on November 13, 2016. The Board of Directors has the power to amend and reissue these financial statements.

Significant accounting policies

These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as applicable to the preparation of interim financial statements including IAS 34 – ‘Interim Financial Reporting’, and should be read in conjunction with the annual financial statements for the year ended December 31, 2015 which have been prepared in accordance with IFRS, as issued by the IASB.

The condensed consolidated interim financial statements for the quarter and nine months ended September 30, 2016 have been prepared under the historical cost convention.

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 6

InterOil Corporation

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

Significant accounting policies (cont’d)

(a)

Statement on liquidity, capital resources and capital requirements

These condensed consolidated interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they become due.

The net current assets of the Company as at September 30, 2016 amounted to $214.0 million compared to $473.2 million as at September 30, 2015. The Company has cash, cash equivalents and cash restricted of $19.3 million as at September 30, 2016 (September 2015 - $126.3 million), of which $10.3 million is restricted (September 30, 2015 - $8.2 million).

The Company’s primary use of capital resources has been for exploration and development activities. The Company has to execute exploration activities within a set timeframe to meet the minimum license commitments in relation to the Company’s Petroleum Prospecting Licenses (“PPLs”) and Petroleum Retention Licenses (“PRLs”). Refer to note 14 for further information on these commitments. Subject to meeting the license commitment requirements, the Company’s capital expenditures can be accelerated or decelerated at its discretion.

On April 21, 2016, the Company entered into a $400.0 million senior secured capital expenditure facility on a syndicated basis (“ANZ Facility”) arranged by Australia and New Zealand Banking Group Limited. The ANZ Facility expires on December 31, 2017 subject to certain interim milestones being achieved. Refer to note 8 for further information on the ANZ Facility.

During the quarter ended June 30, 2016, the PRL 15 joint venture comprising of Total S.A. (“Total”), Oil Search Limited and InterOil (“the PRL 15 Joint Venture”) approved the drilling of a further appraisal well (the Antelope-7 well) within the Antelope field to appraise for additional volumes over the western flank of the field, as indicated by the Antelope-5 well results and seismic reprocessing. As a result, in June 2016 the Company estimated that the interim resource certification payment under the share sale agreement with Total (“Total SSA”) would be received by the end of the first quarter of 2017 as opposed to the end of September 2016. In September 2016 the Company further adjusted the expected timing of the payment from the end of the first quarter of 2017 to April 2017 to take into account the timing of the spudding of Antelope-7. Refer to note 4. The Company believes that the ANZ Facility will enable the Company to fund operations until the estimated interim certification payment is received. The Company can also raise additional funding through asset sales or additional equity to ensure sufficient cash is available to further its development plans.

In addition, in July 2015, the Company filed a short form base shelf prospectus with the Alberta Securities Commission and a corresponding registration statement on Form F-10 with the United States Securities and Exchange Commission (the "SEC") pursuant to the multi-jurisdictional disclosure system. These filings will enable the Company to add financial flexibility, if needed, in the future and issue, from time to time, up to an aggregate of $1.0 billion of securities in one or more offerings for a period of 25 months from the effective date of the prospectus. These securities may be debt securities, common shares, preferred shares, warrants or a combination thereof. Management expects that the Company will be able to secure the necessary financing through one, or a combination of, the aforementioned alternatives.

Oil and gas exploration, development and liquefaction are capital intensive. The Company’s PRL 15 Joint Venture share of the costs of construction of an LNG plant and other infrastructure associated with the proposed Elk-Antelope liquefied natural gas joint venture project operated by Total on behalf of the PRL 15 Joint Venture (the “Papua LNG Project”) may amount to billions of dollars and thus exceed the Company’s existing cash balances. The Company’s ability to raise capital depends, among other things, on market conditions. No assurances can be given that the Company will be successful in obtaining new capital or refinance current facilities on terms that are acceptable to the Company, particularly with market volatility.

Accordingly, these condensed consolidated interim financial statements have been prepared on a going concern basis in the belief that the Company will realize its assets and settle its liabilities and commitments in the normal course of business and for at least the amounts stated, for a period not less than one year from the date of this financial report.

(b)

Accounting policies

The accounting policies followed in these condensed consolidated interim financial statements are consistent with those of the previous financial year.

(c)

New standards issued but not yet effective

The following new standards have been issued but are not yet effective for the financial year beginning January 1, 2016 and have not been early adopted:

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 7

InterOil Corporation

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

Significant accounting policies (cont’d)

IFRS 9 ‘Financial Instruments’(effective from January 1, 2018):This addresses the classification and measurement of financial assets. The standard is not applicable until January 1, 2018 but is available for early adoption. The Company is yet to assess IFRS 9’s full impact, but does not expect any material changes due to this standard. The Company has not yet decided to early adopt IFRS 9.

IFRS 15 ‘Revenue from contracts with customers’(effective from January 1, 2018):The new standard is based on the principle that revenue is recognized when control of a good or service transfers to a customer, so the notion of control replaces the existing notion of risks and rewards. The Company is evaluating the impact of this standard.

IFRS 16 ‘Leases’(effective from January 1, 2019):The new standard now requires lessees to recognize a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The standard has an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. The standard also provides guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts). The Company is evaluating the impact of this standard.

Financial risk management

The Company’s activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and geographic risk. The Company’s overall risk management program focuses on the unpredictability of markets and seeks to minimize potential adverse effects on the financial performance of the Company.

Risk management is carried out under policies approved by the board of directors of InterOil. The Finance Department identifies, evaluates and actively mitigates financial risks in close cooperation with the Company’s operations. The board of directors of InterOil provides written principles for overall risk management, as well as written policies covering specific areas. The Company’s overall risk management program seeks to minimize potential adverse effects of these risks on the Company’s financial performance.

(a)

Fair values

	September 30, 2016					December 31, 2015				September 30, 2015				Method of
	Carrying amount		Fair value			Carrying amount		Fair value		Carrying amount		Fair value		measurement
	$		$			$		$		$		$
Financial instruments
Financial assets
Loans and receivables
Cash and cash equivalents		8,916,506		8,916,506			33,069,122		33,069,122		118,077,110		118,077,110	Amortized Cost
Cash restricted		10,337,968		10,337,968			8,194,887		8,194,887		8,200,240		8,200,240	Amortized Cost
Receivables		556,333,322		556,333,322			608,838,604		608,838,604		602,817,890		602,817,890	Amortized Cost
Other non-current receivable		26,185,489		26,185,489	��		24,793,218		24,793,218		-		-	Amortized Cost

Financial liabilities
Current liabilities:
Accounts payable and accrued liabilities		72,900,212		72,900,212			172,119,677		172,119,677		179,881,533		179,881,533	Amortized Cost
2.75% Convertible notes liability		-		-			-		-		69,535,121		69,535,121	Amortized Cost
Secured loans		290,000,000		290,000,000			130,000,000		130,000,000		-		-	Amortized cost
Non-current liabilities
Other non-current liabilities		84,638,446		84,638,446			80,138,254		80,138,254		-		-	Amortized Cost

The net fair value of cash and cash equivalents and non-interest bearing financial assets and financial liabilities of the Company approximates their carrying amounts.

The carrying values (less impairment provision if provided) of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The carrying value of financial liabilities approximates their fair values which, for disclosure purposes, are estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Company for similar financial instruments.

All the financial assets and financial liabilities in the above table are measured at a fair value on a non-recurring basis and are maintained at historical amortized cost.

All secured loans are subject to floating interest rates and as such the carrying values of these loans are assumed to approximate their fair values.

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 8

InterOil Corporation

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

Trade and other receivables

	September 30,		December 31,		September 30,
	2016		2015		2015
	$		$		$
Trade and other receivables		2,658,755		49,363,739		54,579,405
Sale proceeds receivable from Total		553,674,567		559,474,865		548,238,485
Total		556,333,322		608,838,604		602,817,890

Trade and other receivables mainly relates to cash calls receivable from joint venture partners.

Sale proceeds receivable from Total

Refer to note 5 for details of the Total SSA. The “Interim Resource Payment”, as defined under the Total SSA is due to the Company following the interim certification and has been calculated to be $593.9 million based on a certification provided by Gaffney Cline & Associates, an independent qualified reserves evaluator, which certified a best case scenario of 7.1 tcfe of natural gas and natural gas liquids in the Elk-Antelope field.

Under the assumption that receipt of Interim Resource Payment was to take place before the end of the first quarter of 2017, the expected discounted value of this cash flow as at September 30, 2016 was $557.5 million. However, during the quarter ended September 30, 2016, the Company adjusted the expected cash flow timing of the Interim Resource Payment from March 2017 to April 2017 to accommodate the timing of spudding of Antelope-7. The Company recalculated the carrying amount of the receivable by computing the present value of estimated future cash flows at the original effective interest rate and the adjustment has been recognized in profit or loss. The Company recalculated the carrying amount of the receivable as at September 30, 2016 to be $553.7 million, with the resulting adjustment of $3.8 million being recognized in the income statement during the quarter ended September 30, 2016. During the six months ended June 30, 2016, similar adjustments totaling $32.8 million were recognised for changes in the cash flow timing of the Interim Resource Payment from June 2016 to March 2017, resulting in a total adjustment of $36.6 million recognized in the income statement during the nine months ended September 30, 2016.

The Company has recognized $33.3 million as a result of unwinding the discount on the receivable as interest income during the nine months ended September 30, 2016. In addition, this receivable has been reduced by $2.5 million during the nine months ended September 30, 2016, which represents the carry received from Total for development activities undertaken over PRL 15, which is to be offset against the Interim Resource Payment when due. The following table shows the movement in the receivable during the period.

	September 30,			December 31,			September 30,
	2016			2015			2015
	$			$			$
Balance at beginning of period		559,474,865			545,154,761			545,154,761
Interest accretion income on receivable from Total		33,338,200			44,290,061			33,053,681
Adjustment due to change in timing of estimated cash flows		(36,617,836	)		(25,878,655	)		(25,878,655	)
less amounts to be deducted for Total carry of appraisal costs		(2,520,662	)		(4,091,302	)		(4,091,302	)
Balance at end of period		553,674,567			559,474,865			548,238,485

Exploration and evaluation assets

Costs of exploration and evaluation assets which are not subject to depletion are as follows:

	September 30,		December 31,		September 30,
	2016		2015		2015
	$		$		$
Infrastructure and drilling and construction equipment		-		-		2,588,871
Drilling consumables and spares		-		-		26,196,496
Petroleum Retention License drilling programs (Unproved)		376,986,803		312,289,360		251,705,781
Petroleum Prospecting License drilling programs (Unproved)		188,279,372		189,434,766		179,692,462
Gross Capitalized Costs		565,266,175		501,724,126		460,183,610
Accumulated depletion and amortization		-		-		-
Net Capitalized Costs		565,266,175		501,724,126		460,183,610

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 9

InterOil Corporation

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

Exploration and evaluation assets (cont’d)

The majority of the costs capitalized under ‘Petroleum Retention License drilling programs (Unproved)’ above relate to the exploration and development expenditure on the Elk-Antelope and Triceratops fields. The majority of the costs capitalized under ‘Petroleum Prospecting License drilling programs (Unproved)’ above relates to the exploratory drilling costs relating to Bobcat-1 and Raptor-1 wells.

The following table discloses a breakdown of the exploration and evaluation costs incurred for the periods ended:

	Nine months ended			Year ended			Nine months ended
	September 30,			December 31,			September 30,
	2016			2015			2015
	$			$			$
Opening balance		501,724,126			325,041,973			325,041,973
Property Acquisition Costs		-			-			-
Exploration Costs		(235,244	)		120,201,009			33,828,804
Development Costs		67,657,387			331,641,037			292,039,823
Less: Costs transferred to income statement on impairment		-			(78,235,581	)		-
Less: Costs recovered through cash calls from joint venture partners		(3,880,094	)		(196,924,312	)		(190,726,990	)
Total Costs capitalized		63,542,049			176,682,153			135,141,637
Closing balance		565,266,175			501,724,126			460,183,610
Charged to expense
Exploration impairment		-			78,235,581			78,235,581
Exploration costs, excluding exploration impairment		3,047,040			121,829,502			54,143,596
Total charged to expense		3,047,040			200,065,083			132,379,177
Exploration and Evaluation Assets Net Additions (capitalized and expensed)		66,589,089			376,747,236			267,520,814

Gross and Net Cash Expenditure on exploration and evaluation assets:

The following table discloses a breakdown of the net cash expenditure on exploration and evaluation assets as disclosed in the consolidated statements of cash flows for the periods ended:

	Quarter ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2016			2015			2016			2015
	$			$			$			$
Expenditure on exploration and evaluation assets		(16,614,963	)		(108,982,533	)		(65,005,914	)		(400,509,568	)
Proceeds from joint venture cash calls		144,900			70,595,768			673,857			192,320,443
Net expenditure on exploration and evaluation assets		(16,470,063	)		(38,386,765	)		(64,332,057	)		(208,189,125	)

Total Sale and Purchase Agreement for PRL 15:

On March 26, 2014, the Company signed and closed the Total SSA, under which Total acquired through the purchase of all shares in a wholly owned subsidiary of InterOil, a gross 40.1275% interest in PRL 15, which contains the Elk and Antelope gas fields. InterOil received $401.3 million as a completion payment, and became entitled to receive $73.3 million upon a final investment decision on the Papua LNG Project, and $65.5 million upon the first LNG cargo from such LNG project. In addition to these fixed amounts, Total is obliged to make variable payments for gas amounts in PRL 15 that are in excess of 3.5 tcfe, based on certification by two independent certifiers following the results of the appraisal program in PRL 15. Payment for resources greater than 5.4 tcfe will be paid at certification, and payment for resources between 3.5 tcfe and up to 5.4 tcfe wll be paid on final investment decision of the Papua LNG Project.

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 10

InterOil Corporation

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

Assets classified as held for sale

	September 30,		December 31,		September 30,
	2016		2015		2015
	$		$		$
Land and buildings		567,085		6,611,818		-
Plant and equipment		-		89,654		-
		567,085		6,701,472		-

At December 31, 2015, the Company classified certain assets from plant and equipment to assets classified as held for sale on the balance sheet as the Company expected a possible sale of these assets in 2016. However, due to the potential sale of the Company and the associated agreements entered into with various parties, some of these assets are now restricted from being sold and therefore, they have been reclassified from assets classified as held for sale to plant and equipment on the balance sheet as at September 30, 2016.

Trade and other payables

	September 30,		December 31,		September 30,
	2016		2015		2015
	$		$		$
Onerous contracts and restructuring provisions		26,896,927		59,414,419		-
Other accounts payable and accrued liabilities		30,568,285		97,270,258		164,446,533
Petromin cash calls received		15,435,000		15,435,000		15,435,000
Total trade and other payables		72,900,212		172,119,677		179,881,533

Onerous contracts and restructuring provision

During the year ended December 31, 2015, the Company began a restructuring project as a result of the transition of operatorship of PRL 15 to Total and the reduction in activity in the Company’s other license areas. As at September 30, 2016, the Company has a provision of $5.6 million (December 2015 - $10.9 million, September 2015 – nil) in relation to retrenchment of employees and onerous telecommunications contracts. In addition to these costs, the Company has a provision at September 30, 2016 for onerous rig rental of $21.3 million (December 2015 - $48.5 million, September 2015 - nil). During the nine months ended September 30, 2016, the PRL 15 Joint Venture approved an additional appraisal well, Antelope-7, and the temporary assignment of a rig contracted to the Company to Total for the drilling of Antelope-7, resulting in a $9.1 million reduction to the previously provided for onerous rig contract and a reversal of the previously expensed exploration costs, which is included in the consolidated income statement for the nine months ended September 30, 2016.

Secured loans

	September 30,		December 31,		September 30,
	2016		2015		2015
	$		$		$
Secured loan (Credit Suisse)		-		130,000,000		-
Secured loan (ANZ)		290,000,000		-		-
Total secured loans		290,000,000		130,000,000		-

Credit Suisse led Syndicated Secured Loan Facility

On June 17, 2014, the Company entered into a $300.0 million syndicated, senior secured capital expenditure facility through a consortium of banks led by Credit Suisse A.G. (“Credit Suisse Facility”). The facility was supported by the participating lenders Commonwealth Bank of Australia, Australia and New Zealand Banking Group (PNG) Limited, UBS A.G., Macquarie Group Limited, Bank of South Pacific Limited, Westpac Bank PNG Limited, The Bank of Tokyo-Mitsubishi UFJ and Societe Generale S.A. The facility was secured by the Company’s subsidiaries’ assets and had an annual interest rate of LIBOR plus 5% and was due to mature at the end of 2016.

During the nine months ended September 30, 2016, the total interest expense under this facility included in finance costs was $3.2 million (September 2015 - nil). In addition, financing costs relating to this facility of $1.2 million were expensed during the nine months ended September 30, 2016 (September 2015 - $10.5 million).

The syndicated secured loan facility was repaid in full and replaced by the ANZ Facility during the quarter ended June 30, 2016.

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 11

InterOil Corporation

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

Secured loans (cont’d)

ANZ Facility

On April 21, 2016, the Company entered into the ANZ Facility which replaced the Credit Suisse Facility. The ANZ Facility has an annual interest rate of LIBOR plus 6% and terminates on December 31, 2017. Other lenders in the syndicate include Westpac PNG Limited, Bank of South Pacific Limited, Intesa Sanpaolo SPA, Credit Suisse AG, Société Générale, Morgan Stanley and UBS AG. Security for the ANZ Facility includes certain of the Company’s subsidiaries’ assets. Draw downs of $290.0 million were made under the facility during the nine months ended September 30, 2016 and part of the drawings were used to repay the loan under Credit Suisse Facility in full.

As at September 30, 2016, the Company was in compliance with the applicable debt covenants, which include a defined calculation for gearing not to exceed 60% at any time, and a requirement that the equity does not fall below $500.0 million at any time. In addition, the covenants include agreed expenditure limits tested for the six months period ending each quarter and a requirement to obtain consent to redraw the facility after receipt of the interim certification payment under the Total SSA.

During the nine months ended September 30, 2016, the total interest expense under the ANZ Facility included in finance costs was $7.0 million (September 2015 - nil). In addition, financing costs relating to this facility of $10.3 million were expensed during the nine months ended September 30, 2016 (September 2015 - nil).

Share capital and reserves

The authorized share capital of the Company consists of an unlimited number of common shares with no par value and an unlimited number of preferred shares, of which 1,035,554 Series A preferred shares are authorized. Each common share entitles the holder to one vote.

Common shares -Changes to issued share capital were as follows:

	Number of shares		$

January 1, 2015		49,414,801		991,693,780

Shares issued on vesting of restricted stock units under Stock Incentive Plan		158,010		8,664,540

December 31, 2015		49,572,811		1,000,358,320

Shares issued on vesting of restricted stock units under Stock Incentive Plan		574,543		23,529,781

September 30, 2016		50,147,354		1,023,888,101

Preferred shares -No preferred shares are issued, or were issued at any time during the nine months ended September 30, 2016 (September 2015 – nil).

10.

Interest revenue

	Quarter ended					Nine months ended
	September 30,			September 30,		September 30,			September 30,
	2016			2015		2016			2015
	$			$		$			$

Interest income on short term deposits		26,001			228,466		90,144			1,204,715
Interest accretion income on receivable from Total (note 4)		10,876,548			11,015,238		33,338,200			33,053,681
Adjustment due to change in timing of estimated cash flows on receivable from Total (note 4)		(3,835,913	)		-		(36,617,836	)		(25,878,655	)
Interest revenue		7,066,636			11,243,704		(3,189,492	)		8,379,741

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 12

InterOil Corporation

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

11.

Finance costs

	Quarter ended				Nine months ended
	September 30,		September 30,		September 30,		September 30,
	2016		2015		2016		2015
	$		$		$		$

Interest expense on Credit Suisse Secured Loan		-		-		3,201,211		-
Interest expense on ANZ Secured Loan		4,620,391		-		6,951,540		-
Interest expense on Convertible Notes		-		481,236		-		1,443,709
Interest accretion on Convertible Notes		-		1,026,110		-		3,033,129
Financing fees on Credit Suisse Secured Loan		-		1,916,667		1,216,395		10,513,907
Financing fees on ANZ Secured Loan		968,334		-		10,255,417		-
Other finance costs		5		6,006		6,024		6,006
Finance costs		5,588,730		3,430,019		21,630,587		14,996,751

12.

Administrative and general expenses

	Quarter ended				Nine months ended
	September 30,		September 30,		September 30,		September 30,
	2016		2015		2016		2015
	$		$		$		$
Stock compensation	5,554,037		814,559		21,141,813		2,684,053
Salaries and other employee related expenses		6,585,362		3,101,317		25,568,191		8,683,546
Computing and communications		343,395		36,968		2,242,735		2,978,911
Flights, charters and logistics		828,118		583,140		1,896,274		2,019,288
Others		990,639		1,566,894		4,110,863		3,396,074
Administrative and general expenses		14,301,551		6,102,878		54,959,876		19,761,872

Increase in stock compensation and salaries and other employee related costs for the nine months ended September 30, 2016 was mainly due to the restricted stock units granted and other employee entitlements in connection with the approval by the Board of the proposal for Exxon to acquire all of the outstanding common shares of the Company.

13.

Loss per share

Stock options and restricted stock units totaling 657,272 common shares at prices ranging from $13.12 to $67.74 were outstanding as at September 30, 2016.

	Number of shares		Number of shares
Potential dilutive instruments outstanding	September 30, 2016		September 30, 2015
Employee stock options		60,000		210,000
Employee Restricted Stock		597,272		195,205
2.75% Convertible notes		-		732,004
Total stock options/shares outstanding		657,272		1,137,209

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 13

InterOil Corporation

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

14.

Commitments and contingencies

(a) Exploration and debt commitments

Payments due by period contractual obligations are as follows:

	Total		Less than 1 year		1-2 years		2-3 years		3-4 years		4-5 years		More than 5 years
	'000		'000		'000		'000		'000		'000		'000
Petroleum prospecting and retention licenses		280,281		418		84,563		-		195,300		-		-
Secured loans		293,645		293,645		-		-		-		-		-
Other non-current liabilities		96,000		-		96,000		-		-		-		-
		669,926		294,063		180,563		-		195,300		-		-

The PPL and PRL amounts represent the Company’s commitments on these licenses as at September 30, 2016. On March 6, 2014, the Company’s applications for new PPLs were approved and included new license commitments. On May 6, 2016, the Company’s applications to vary the PPLs years three and four commitments were approved. The original commitments and the approved variations require the Company to spend an additional $252.5 million over the remainder of their six-year terms.

Further, the terms of grant of PRL 39 requires the Company to spend $27.8 million on the license area by the end of 2018.

(b) Contingencies:

From time to time the Company is involved in various claims and litigation arising in the course of its business. While the outcome of these matters is uncertain and there can be no assurance that such matters will be resolved in the Company’s favor, the Company does not currently believe that the outcome of adverse decisions in any pending or threatened proceedings or any amount which it may be required to pay by reason thereof would have a material adverse impact on its financial position, results of operations or liquidity.

During April 2016, the Company received notice from Puma Energy Pacific Holdings Pte Ltd (Puma) of a claim in relation to sludge which Puma assert was found in the tanks of the refinery at the time the refinery was sold to Puma in June 2014. During the quarter ended September 30, 2016, without any admission of liability by InterOil, the parties agreed to settle the claim for an amount of $7.5 million.

15.

Subsequent events

On July 21, 2016, the Company and Exxon announced that they had entered into an arrangement agreement under which Exxon agreed to acquire all of the outstanding common shares of the Company pursuant to a statutory plan of arrangement under the Business Corporations Act (Yukon).

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 14

InterOil Corporation

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited, Expressed in United States dollars)

15.

Subsequent events (cont’d)

In certain circumstances, the termination of the arrangement agreement entered into with Exxon may result in the Company being required to pay a termination fee of $67 million. The obligation to pay the termination fee will arise where thearrangementagreement is terminated inter alia:

(a)

by Exxon, because of a change to the InterOil board’s recommendation of the arrangement, except where the change in recommendation resulted from the occurrence of an ExxonMobil Material Adverse Effect (as defined in the arrangement agreement);

(b)

by the Company in order to enter into a Superior Proposal (as defined in the arrangement agreement); or

(c)

by Exxon, as a result of a breach of InterOil’s non-solicitation covenants (as set out in the arrangement agreement).

Condensed Consolidated Interim Financial Statements INTEROIL CORPORATION 15

InterOil (IOC) Inactive 6-KCurrent report (foreign)