"This program comprises eight wells, of which six will be drilled at locations selected by InterOil and two will be drilled at locations approved by the investors, in the three petroleum prospecting licences in Papua New Guinea held solely by InterOil," the company said.

"Forty prospective structures have been identified by InterOil within these licences and the well locations will be chosen from 22 leads over independent structures. If the exploration program discovers oil or gas in commercial quantities, the investors have the right to participate pro-rata in the development of the fields discovered."

In addition, each investor can convert its indirect working interest percentage into InterOil common shares at any time between 15 June 2006 and 15 December 2006 or 90 days after the completion of the eighth well, whichever comes last, at a conversion price of US$37.50 per common share.

If all the investors choose to convert all of the indirect participation interest into common shares, this would result in InterOil issuing 3,333,333 common shares during the second half of 2006.

Of the US$125 million proposed investment, US$33 million, backed by convertible securities for 877,420 shares, is subject to receiving a waiver from the Australian Stock Exchange (ASX).

PNG minister for petroleum and energy Sir Moi Avei welcomed the exploration program.

“Papua New Guinea, with all of our vast resources, welcomes the investment by InterOil in the largest exploration program in Papua New Guinea history,” Sir Moi said.

“This investment enhances the downstream and petrochemical industry potential and confirms that our fiscal policy reforms have made Papua New Guinea globally competitive.”