InterOil USA : Q3 2016 MD&A

 InterOil Corporation Management Discussion and Analysis

For the quarter and nine months ended September 30, 2016 November 14, 2016

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS 2 ABBREVIATIONS AND EQUIVALENCIES 3 CONVERSION 4 OIL AND GAS DISCLOSURES 4 GLOSSARY OF TERMS 4 INTRODUCTION 6 BUSINESS STRATEGY 6 OPERATIONAL HIGHLIGHTS 7 OVERVIEW OF THE PENDING EXXON TRANSACTION 7 SELECTED FINANCIAL INFORMATION AND HIGHLIGHTS 9 LIQUIDITY AND CAPITAL RESOURCES 15 RISK FACTORS 18 CRITICAL ACCOUNTING ESTIMATES 19 NEW ACCOUNTING STANDARDS 19 NON-GAAP MEASURES AND RECONCILIATION 19 PUBLIC SECURITIES FILINGS 20 DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING 20

This MD&A (as defined herein) should be read in conjunction with our Condensed Consolidated Interim Financial Statements (as defined herein) and accompanying notes, our Consolidated Financial Statements (as defined herein) and our 2015 AIF (as defined herein). This MD&A was prepared by management and provides a review of our performance for the quarter and nine months ended September 30, 2016, and of our financial condition and future prospects.

Our financial statements and the financial information contained in this MD&A have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board applicable to the preparation of financial statements and are presented in United States dollars ("USD" or "$") unless otherwise specified.

In this MD&A, references to "we," "us," "our," "the Company," and "InterOil" refer to InterOil Corporation or InterOil Corporation and its subsidiaries as the context requires. Information is presented in this MD&A as at September 30, 2016 and for the quarter and nine months ended September 30, 2016 unless otherwise specified. A listing of specific defined terms can be found in the "Glossary of Terms" section of this MD&A.

FORWARD-LOOKING STATEMENTS

This MD&A contains "forward-looking statements" as defined in U.S. federal and Canadian securities laws. Such statements are generally identifiable by the terminology used such as "may," "plans," "believes," "expects," "anticipates," "intends," "estimates," "forecasts," "budgets," "targets" or other similar wording suggesting future outcomes or statements regarding an outlook. We have based these forward-looking statements on our current expectations and projections about future events. All statements, other than statements of historical fact, included in or incorporated by reference in this MD&A are forward-looking statements.

Forward-looking statements include, without limitation, statements regarding the pending transaction with Exxon; the timing to consummate the proposed transaction with Exxon; the ability to satisfy the conditions to consummation of the proposed transaction; our business strategies and plans; plans for and anticipated timing of our exploration and appraisal (including drilling plans) and other business activities and results therefrom; anticipated timing of certain well testing and resource certifications under the Total SSA (as defined herein); characteristics of our properties; construction and development of a proposed liquefaction plant and central processing facility in Papua New Guinea; the timing and cost of such construction and development; commercialization and monetization of any resources; whether sufficient resources will be established; the likelihood of successful exploration for gas and gas condensate or other hydrocarbons; cash flows from operations; sources of capital and its sufficiency; operating costs; contingent liabilities; environmental matters; plans and objectives for future operations; and timing, maturity and amount of future capital and other expenditures and the ability to obtain requisite financing in the future.

Many risks and uncertainties may affect matters addressed in these forward-looking statements, including but not limited to:

• the risk that we may not be able to close the pending transaction with Exxon in accordance with the terms of the arrangement agreement;

• uncertainties associated with the pending transaction with Exxon;

• our financial condition may be adversely affected if there are long term declines in oil and natural gas prices;

• the uncertainty associated with the availability, terms and deployment of capital;

• our limited sources of revenue;

• our ability to obtain and maintain necessary permits, concessions, licenses and approvals from relevant State (as defined herein) authorities to develop our gas and condensate resources within reasonable periods and on reasonable terms or at all;

• inherent uncertainty of oil and gas exploration;

• the difficulties with recruitment and retention of qualified personnel;

• the political, legal and economic risks in Papua New Guinea;

• landowner claims and disruption;

• compliance with and changes in Papua New Guinean laws and regulations, including environmental laws;

• the exploration and production businesses are competitive;

• the inherent limitations in all control systems, and misstatements due to errors that may occur and not be detected;

• exposure to certain uninsured risks stemming from our operations;

• contractual defaults;

• weather conditions and unforeseen operating hazards;

• compliance with environmental and other government regulations could be costly and could negatively impact our business;

• general economic conditions, including further economic downturn, availability of credit and the decline in commodity prices, including hydrocarbon commodity prices;

• risk of legal action against us;

• law enforcement difficulties;

• the outcome of the resource certification process for the Elk-Antelope field as applicable to the contingent resource payment contemplated by the pending transaction with Exxon; and

  • dilution of our common shares.

Forward-looking statements and information are based on our current beliefs as well as assumptions made by, and information currently available to us concerning anticipated financial conditions and performance, business prospects, strategies, regulatory developments, the ability to attract joint venture partners, future hydrocarbon commodity prices, the ability to secure adequate capital funding, the ability to obtain equipment and qualified personnel in a timely manner to develop resources, the ability to obtain financing on acceptable terms, and the ability to develop reserves and production through development and exploration activities.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate, and, therefore, we cannot assure you that the forward-looking statements will eventuate.

In light of the significant uncertainties inherent in our forward-looking statements, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

Some of these assumptions and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described under the heading "Risk Factors" in our 2015 AIF and in our Management Information Circular dated August 16, 2016.

Further, forward-looking statements contained in this MD&A are made as of the date hereof and, except as required by applicable law, we will not update publicly or revise any of these forward-looking statements. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.

ABBREVIATIONS AND EQUIVALENCIES

Abbreviations

Crude Oil and Natural Gas Liquids Natural Gas

bbl one barrel equaling 34.972 Imperial gallons or 42 U.S. gallons

btu British Thermal Units

bblspd barrels per day mcf thousand standard cubic feet

boe(1) barrels of oil equivalent mcfpd thousand standard cubic feet per

boepd	barrels of oil equivalent per day	MMbtu	day million British Thermal Units
bpsd	barrels per stream day	MMbtupd	million British Thermal Units per day
Mbbl	thousand barrels	MMcf	million standard cubic feet
Mboe	thousand barrels of oil equivalent	MMcfpd	million standard cubic feet per day
MMbbls	million barrels	scfpd	standard cubic feet per day
MMboe	million barrels of oil equivalent	Tcfe(2)	trillion standard cubic feet equivalent
MMstb	millions of stock tank barrels	psi	pounds per square inch
WTI	West Texas Intermediate crude oil delivered at Cushing, Oklahoma
bscf	billion standard cubic feet

Note:

1. All calculations converting natural gas to crude oil equivalent have been made using a ratio of six mcf of natural gas to one barrel of crude equivalent. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of six mcf of natural gas to one barrel of crude oil equivalent is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

2. Tcfe's may be misleading, particularly if used in isolation. A tcfe conversion ratio of one barrel of oil to six thousand cubic feet of gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

CONVERSION

This table outlines certain standard conversions between Standard Imperial Units and the International System of Units (metric units).

To Convert From	To	Multiply By
mcf	cubic meters	28.317
cubic meters	cubic feet	35.315
bbls	cubic meters	0.159
cubic meters	bbls	6.289
feet	meters	0.305
meters	feet	3.281
miles	kilometers	1.609
kilometers	miles	0.621
acres	hectares	0.405
hectares	acres	2.471

OIL AND GAS DISCLOSURES

We are required to comply with the Canadian Securities Administrators' NI 51-101 (as defined herein), which prescribes disclosure of oil and gas reserves and resources. As at December 31, 2015 and in accordance with NI 51-101, (i) GLJ Petroleum Consultants Ltd., an independent qualified reserve evaluator based in Calgary, Canada, has evaluated our resources data for the Elk and Antelope field and Triceratops field; and (ii) RISC Operations Pty Limited, an independent qualified reserve evaluator based in Perth, Australia has evaluated our resources data for the Raptor and Bobcat fields. These evaluations are summarized in our 2015 AIF available at www.sedar.com. We do not have any production or reserves, including proved reserves, as defined under NI 51-101 or as per the guidelines set by the SEC (as defined herein), as at September 30, 2016.

Well flow test results are not necessarily indicative of long-term performance or of ultimate recovery.

The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, possible and probable reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We include in this MD&A information that the SEC's guidelines generally prohibit U.S registrants from including in filings with the SEC.

GLOSSARY OF TERMS

"2015 AIF" means InterOil's Annual Information Form for the year ended December 31, 2015.

"2015 MD&A" means Management's Discussion and Analysis for the year ended December 31, 2015.

"ANZ" means Australia and New Zealand Banking Group Limited.

"ANZ Facility" means the $400.0 million senior secured capital expenditure facility on a syndicated basis arranged by ANZ as sole mandated lead arranger and book runner and entered into by the Company on April 21, 2016.