Oil Search Won't Counter Exxon Bid For Gas Explorer InterOil

(Bloomberg) -- Oil Search Ltd. declined to submit a counteroffer for Papua New Guinea-focused gas explorer InterOil Corp., leaving Exxon Mobil Corp. to wait and see if Total SA will challenge its bid alone.

Oil Search and Total had offered to buy InterOil in May in a deal that valued the company at $2.2 billion. The two companies agreed to terminate their joint effort if InterOil cancels their arrangement agreement to enter a deal with Exxon, which topped their bid July 18 with a $2.5 billion offer, Oil Search said in a statement Thursday.

Total on Wednesday said that its initial offer with Oil Search represented fair value for InterOil assets and that it was analyzing the Exxon proposal.

“Given the decision by ExxonMobil to make an offer for InterOil on the terms it has announced, we do not believe it is in the best interests of our shareholders for Oil Search to submit a revised offer to acquire InterOil,” Oil Search Managing Director Peter Botten said in the statement.

All four companies are involved in the Papua New Guinea gas industry. Exxon and Oil Search run the country’s only liquefied natural gas terminal, PNG LNG. Oil Search, Total and InterOil are partners in the Elk-Antelope gas field and a second proposed terminal, Papua LNG.

Oil Search shares in Sydney rose as much as 3 percent to A$7.55 and were trading at A$7.535 at 10:51 a.m. local time.

InterOil said Exxon had offered it a fixed price of $45 per share, which values the company at $2.5 billion, including $188 million in net debt. Exxon also included a so-called contingent-value right, offering $7.07 per share for each trillion cubic feet of likely gas reserves above 6.2 trillion found in InterOil’s Elk-Antelope fields, capped at 10 trillion cubic feet.

While gas-export projects globally are being delayed or scrapped amid a downturn in the energy industry, Papua New Guinea is seen as one of the most promising locations due to lower development costs and gas reserves that also include condensates, a type of light oil that adds extra revenue.

Elk-Antelope fields are 340 kilometers (211 miles) away from the proposed site of the LNG plant near the capital, Port Moresby, less than half the distance for the resources feeding the PNG LNG project, according to an InterOil presentation in January.

Integrating Projects

If construction of a separate Papua LNG project starts in 2018, it would take until 2022 before first shipments leave the terminal, according to BMI Research. Papua New Guinea exported 8.76 billion cubic meters of LNG last year, a level that should increase to more than 20 billion by 2024, BMI said in a report e-mailed Friday.

If the companies integrate PNG LNG and Papua LNG, they could save $2 billion to $3 billion in capital costs by sharing assets and power generation, Oil Search said in a June presentation.

Exxon buying InterOil would give both Exxon and Oil Search joint stakes in both LNG projects and would enhance the likelihood that the two projects work together, Botten said.

“For Oil Search shareholders, the successful takeover of InterOil by ExxonMobil will deliver a major part of our original objectives in the acquisition of InterOil and our agreement with Total SA, without shareholder dilution and any acquisition risk,” Botten said in the statement.

To contact the reporter on this story: Dan Murtaugh in Singapore at dmurtaugh@bloomberg.net To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net Aaron Clark


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