International Petroleum: 6M Review and Update

International Petroleum Limited (NSX: IOP) (“International Petroleum” or the “Company”), an oil and gas exploration company is pleased to present its quarterly activities report for the quarter ended 31 March 2014 and the quarter ended 30 June 2014.

UPDATE ON KEY ISSUES

• US$121k cash at bank at 31 March 2014 & US$10,540k cash at bank at 30 June 2014
• Sale of Russian Assets and update on Kazakhstan Assets
• Sale of Non-Core South African Assets
• Conversion of Loans Outstanding
• NSX suspension from official quotation

CORPORATE

Sale of Russian Assets and update on Kazakhstan Assets

The Company received Shareholder Approval in 2013 for the sale of its Kazakhstan Assets and Russian Assets to a Hong Kong company for gross proceeds of approx. US$60m. During Quarter 1, 2014 the Company continued its negotiations with this buyer to determine proof of financial capacity and confirmation of its completion of due diligence, however unfortunately this transaction was unable to be settled.

The Company has since held discussions with a number of additional potential purchasers of the Kazakhstan Assets and/or the Russian Assets that had been introduced by its corporate advisors Strand Partners. On 9 May 2014, the Company (through its wholly owned subsidiary) entered into a share purchase agreement with a third party (the “Buyer”) for the sale of 100% of the issued shares of IPL Siberia Limited (a company incorporated in the Cayman Islands) (“IPL Siberia”) and International Petroleum Company LLC (a company incorporated in Russia) (“IPL Russia”) for proceeds of US$13million (the “Transaction”).

IPL Siberia indirectly holds the Yuzhno-Sardakovsoye Block Licence, the Yanchinsky Block Licence, the Zapadno-Novomolodezhnoye Block Licence, the Krasnoleninsky Block Licences and the Druzhny Block Licences in Russia (together, the “Russian Assets”). These licenses comprise all of the Group’s interests in Russia.

A summary of the key terms of the share purchase agreement are set out below:
•the Company (through its wholly owned subsidiary) will transfer 100% of the issued shares in IPL Siberia and IPL Russia to the Buyer for US$13million (“Acquisition”) • as part of the Transaction, International Petroleum Limited (a company incorporated in the Cayman Islands) (“IPL Cayman”) will novate to the Buyer, any and all debts owed to it or the Company by IPL Russia or IPL Siberia, including debts owed by IPL Siberia’s subsidiary companies (“Novated Loans”)• as part of the Transaction, the Buyer, with such reasonable assistance as may be requested from IPL Cayman, shall use reasonable efforts to negotiate and settle other third party debts of IPL Siberia and IPL Russia (and their subsidiaries) (“Third Party Debts”) within 4 and a half months after Acquisition. If the Buyer fails to achieve any settlement agreement in respect to any of the Third Party Debts which exceed US$80,000 or are in respect to salaries of employees of Russian subsidiaries within 4 and a half months after Acquisition, the Buyer agrees to promptly pay such non-settled Third Party Debts. All remaining Third Party Debts below US$80,000 are to be settled no later than 6 months after Acquisition.

• IPL Cayman provided warranties to the Buyer in respect to the status of IPL Siberia and IPL Russia and its assets and liabilities, including in respect to the total debts owed by IPL Siberia and IPL Russia as at 31 March 2014.

• following the claims process outlined in the share purchase agreement the Buyer has the right to lodge financial claims with the Seller, not later than the second anniversary of the date of Completion, in respect of undisclosed Third Party Debts as at the date of the transaction. The
aggregate liability of the Seller in respect of all claims is limited to the consideration amount of US$13 million.

The Transaction was approved via General Meeting resolution on 8 September 2014.

The proceeds of US$13 million was received during Quarter 2, 2014. The company will apply the funds received from the Transaction towards repayment of creditors, general working capital and future exploration expenditure. As at the date of this quarterly update no financial claims have been lodged by the Buyer.

In August 2014 the Group received notification from the Kazakhstan Ministry of Oil & Gas (“MOG”) that its rights to the Alakol licence have been withdrawn by MOG unilaterally. The Group does not accept this as being justified and has written to MOG requesting that the licence be reinstated. At the date of approval of this update the dispute has not yet been resolved.

Potential strategic merger with Range Resources Limited

During Quarter 1, 2014 discussions with Range Resources Limited (“Range Resources”) confirmed that they would not be proceeding with the original merger proposal and although the companies had considered a range of corporate alternatives, the delayed sale and clarity over the sale of the Company’s assets, had meant that Range had elected not to pursue with a merger.

The Company has drawn approximately US$8m under an unsecured loan facility provided by Range. Amounts drawn under the loan have been used to pay the Company’s trade creditors and meet working capital requirements. On 2 October 2014 the Company issued shares, options and later that month paid US$500,000 in satisfication of the loan amount, including interest, owed to Range Resouces. Refer details
below.

Conversion of loans

On 8 September 2014, a General Meeting was held whereby shareholder approval was obtained for the conversion of loans to fully paid ordinary shares of the Company. A summary of the loan conversions approved is set out below:
– US$13,184,231 of loans, associated commitment fees and interest, payable to African Petroleum Corporation Limited (“African Petroleum”), into 233,890,450 fully paid ordinary shares at a deemed price of A$0.06 per share
– US$8,331,560 of loans and interest, payable to Range Resources, into 147,803,270 fully paid ordinary shares at a deemed price of A$0.06 per share
– US$5,200,000 of loans, payable to Varesona Participation Corporation (“Varesona”), into 79,070,457 fully paid ordinary shares at a deemed price of A$0.07 per share
– US$6,000,000 of loans, payable to Varesona, into 42,576,400 fully paid ordinary shares at a deemed price of A$0.15 per share

The loan conversions to fully paid ordinary shares, as detailed above, were completed on 2 October 2014. In addition to the loans converted, 5,000,000 options exercisable at A$0.06 per Option were issued to each of African Petroleum and Range Resources on 2 October 2014, and both companies will be entitled to nominate one person to the Board of the Company.

As part of the agreement with Range Resources the Company paid US$500,000 on 21 October 2014, as final settlement of the borrowings owed to Range Resources.

Following the cash settlement with Range Resources and the conversion of the loans and interest payable to African Petroleum, Range Resources and Varesona, the Company does not have any outstanding loans payable.

NSX suspension from official quotation

Since 27 March 2013, the Company’s shares have been suspended from trading on the NSX market, at the Company’s request, and suspension from trading is not expected to be lifted until the Company has filed its audited financial statements for the half years ended 30 June 2013 and 30 June 2014, and for the year ended 31 December 2013, which is expected to occur during Quarter 4, 2014.