ExxonMobil places superior bid for InterOil

20 July 2016, Week 28 Issue 534

US super-major ExxonMobil has offered to buy out Papua New Guinea (PNG) focused InterOil, challenging a takeover bid placed two months ago by Australia’s Oil Search.

In a statement last week, Oil Search said it had been informed by InterOil that ExxonMobil had made a superior offer, confirming media reports from earlier this month.

The Texas-based producer is offering US$45 per InterOil share, which will be paid with the issue of ExxonMobil shares. An additional cash payment is contingent on the certification of reserves at InterOil’s Elk-Antelope field, believed to be one of the largest untapped gas fields in Asia.

ExxonMobil has said it will pay out US$7.07 per share for every trillion cubic feet (28.32 billion cubic metres) of best estimate resources at the site above 6.2 tcf (175.58 bcm) but not beyond 10 tcf (283.2 bcm).

This trumps a previous agreement reached between Oil Search and InterOil in May, which valued the latter at US$2.2 billion or US$40.25 per share. Under that deal, InterOil’s owners were to receive US$6.05 per share for every trillion cubic feet confirmed at Elk-Antelope beyond the 6.2 tcf threshold. It did not include a 10 tcf cap, however.

In a separate statement, InterOil conceded that ExxonMobil’s bid was superior, but said its board still advised shareholders to support the previous arrangement with Oil Search.

“InterOil notes that there can be no assurances that the ExxonMobil offer will lead to the termination of the Oil Search agreement,” the firm said.

Oil Search, however, claimed it had been notified by InterOil that it intended to make changes to the agreement currently in place and a strike a new deal with ExxonMobil. If InterOil breaks off the existing arrangement, it will be required to pay a US$60 million break fee to Oil Search, 20% of which will be passed on to France’s Total, the financial backer of Oil Search’s takeover bid.

As per the agreement in May, Oil Search has three days to submit a revised offer for InterOil. The Sydney-listed producer may be reluctant to do so, however.

Elk-Antelope has been designated as a primary production source for Total’s planned Papua LNG export terminal. The French major owns a 40.1% stake in both the terminal and the Elk-Antelope’s licence, PRL 15. InterOil and Oil Search, meanwhile, own 36.5% and 22.8% respectively.

Total supported Oil Search’s takeover bid as it would ensure that Elk-Antelope’s gas was directed to its own export terminal.

Under a memorandum of understanding (MoU) signed in May, Oil Search was to sell 60% of what was InterOil’s stake in PRL 15 as well as 62% of the company’s exploration assets to the French major.

ExxonMobil, however, is eager to use Elk-Antelope’s gas to support construction of a third train at its rival PNG LNG terminal. This arrangement may be more ideal for Oil Search, which has long called for the two export projects to be combined in order to maximise efficiency.

It was the main rationale behind the company’s bid for InterOil, but a takeover by ExxonMobil could achieve the same end without Oil Search having to fork out shares.

ExxonMobil’s bid certainly did not harm Oil Search’s share price, which climbed to a four-month high after the super-major’s offer was announced.

Edited by

Andrew Kemp


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