The InterOil board has authorised the buy-back to be done periodically on the open market, based on the stock price and other market factors.
InterOil CEO Dr Michael Hession said the move made strategic sense at current share valuations.
"In the past six months, we have signed a multi-billion-dollar LNG development program with Total, secured our highly prospective exploration acreage for up to another 11 years and divested our refinery and downstream assets so we can fully focus on exploration and LNG development," Hession said.
"At the same time, we have strengthened our balance sheet and have more than $US580 million in cash, an undrawn credit facility of $300 million, and only the $70 million convertible notes due 2015 outstanding.
Growth prospects make buy-back a good investment
"With our drilling campaign fully funded through to the end of 2015 and significant growth prospects in our development and exploration program, we fully expect this buy-back to deliver long-term shareholder value."
Macquarie Capital has been appointed to act for the company during the buy-back process.
Last month, InterOil announced the sale of its PNG oil refinery and petroleum products distribution businesses to Singapore-based Puma Energy for $US525.6 million.
The deal includes adjustments for cash and working capital and is intended to allow InterOil to focus on its higher-returning upstream and LNG business.