Our Downstream segment distributes refined products domestically in Papua New Guinea on a wholesale and retail basis.

We have the largest wholesale, retail and aviation petroleum product distribution base in Papua New Guinea. This is the result of the acquisition of BP's entire commercial and retail distribution assets through BP Papua New Guinea in April 2004 and the subsequent acquisition of Shell Papua New Guinea on October 1, 2006.

Our wholesale and retail distribution business supplies petroleum products nationally through an extensive portfolio of sea-board terminals & inland depots and retail service stations. We currently supply approximately 70% of Papua New Guinea's refined petroleum product needs.

Supply of Products

Our retail and wholesale distribution business distributes diesel, jet fuel, gasoline, kerosene and fuel oil as well as Shell and BP branded commercial and industrial lubricants, such as engine and hydraulic oils. In general, all of the refined products sold pursuant to our wholesale and retail distribution business are purchased from our refinery. We import the commercial and industrial lubricants and fuel oil, which constitute a small percentage of our sales.

We deliver refined products from our refinery to two tankers. These tankers deliver the refined products to distribution terminals and depots, including those owned by us. We do not own these tankers but rather lease them on a full time charter basis. We are responsible for the scheduling of all the deliveries made by these tankers to the petroleum industry participants and customers in Papua New Guinea. Our inland depots are supplied by road tankers which are owned and operated by third party independent transport operators. Our terminal and depot network distributes refined petroleum products to retail service stations and commercial customers. We supply retail service stations and commercial customers with petroleum products using trucks or, in the case of some commercial customers, coastal ships. We do not own any of these shipping or trucking distribution assets. We pass transportation costs through to our customers.

Wholesale Distribution

We also supply petroleum products as a wholesaler to commercial clients. We operate 12 aviation refueling stations throughout Papua New Guinea. In 2007, we acquired three additional aviation fuelling depots, making us the largest aviation supplier in PNG outside the main center, Port Moresby. We own and operate six large terminals and eleven depots that we use to supply product throughout Papua New Guinea. We enter into commercial supply agreements with mining, agricultural, fishing, logging and similar commercial clients whereby we supply their petroleum product needs. Pursuant to many of these agreements, we supply and maintain company-owned above-ground storage tanks and pumps that are used by these customers. More than two-thirds of the volume of petroleum products that we sold during 2008 was supplied to commercial customers. Although the volume of sales to commercial customers is far larger than through our retail distribution network, these sales have a lower margin.

Retail Distribution

We provide petroleum products to 51 retail service stations operating under the InterOil brand name. Of the 51 service stations that we supply, 19 are either owned by or head leased to us with a sublease to company-approved operators. The remaining 32 service stations are independently owned and operated. We supply products to each of these service stations pursuant to distribution supply agreements. Under the cover of an equipment loan agreement, we also provide fuel pumps and related infrastructure to the operators of the majority of these retail service stations that are not owned or leased by us.