Coverage: Exxon makes $2.2B offer for InterOil

Exxon Mobil Corp. offered a $2.2 billion bid for InterOil Corp., higher than the one made in may by Oil Search Ltd., on Sunday to acquire the owner of large natural gas reserves in Papua New Guinea.

Dan Murtaugh of Bloomberg News has the news:

Exxon is offering a fixed price of $45 per each InterOil share, Oil Search said in a release on Monday. As part of Oil Search’s $2.2 billion bid in May, it offered 8.05 shares for each of InterOil’s, valuing each InterOil share at $40.25.

Exxon is targeting gas fields that hold enough reserves to supply the U.K. for three years. The Irving, Texas-based giant already operates the existing $19 billion PNG LNG gas-liquefaction plant in Papua New Guinea, and the purchase would add a new source of the fuel for export. InterOil and its partners have planned the nation’s second export project, Papua LNG. Oil Search is a shareholder in both ventures and has encouraged a tie-up to lower development costs.

Papua New Guinea has lower costs than rival LNG sources, making it a more attractive place to invest in an oversupplied market for the seaborne fuel. A deal for InterOil could speed up a boom in fuel sales from the nation, which began exporting LNG in 2014.

Robb M. Stewart and David Winning of Dow Jones note that Exxon and Oil Search are already partners in Papua New Guinea:

Adding further spice to the bid contest: Exxon and Oil Search are partners in Papua New Guinea’s sole operating gas- export facility, the US$19 billion PNG LNG plant.

Oil Search, which based in Port Moresby, the capital of Papua New Guinea, though it is listed in Australia, in May said it had struck a deal with InterOil’s board that was at the time worth at least US$2.2 billion. It offered 8.05 of its own shares for each InterOil share, or a cash alternative of up to US$770 million in all, plus a contingent right of A$6.044 a share in cash for each trillion cubic feet equivalent of gas above the same 6.2 trillion cubic feet threshold.

A separate agreement would have seen Oil Search sell on some of InterOil’s interests to Total, and increase its stake in the proposed Papua LNG project that would compete with the PNG LNG facility for customers.

Oil Search had hoped to leverage that position in the Papua LNG project as well as a nearly 39% holding in the PNG LNG project to find ways for both operations to collaborate and generate savings that would allow both to expand. It has estimated the potential for up to US$3 billion in capital savings plus US$100 million a year in cost savings.

Sonali Paul of Reuters reported that the Exxon bid may spark a bidding war:

ExxonMobil’s move pits it against French giant Total SA , which is backing Oil Search’s offer with an agreement to buy part of InterOil’s stake in the potentially lucrative Elk-Antelope gas field.

Oil Search has at least until July 21 to submit a revised offer and said it was talking to Total about making a higher bid.

“The parties are in active dialogue and have the flexibility to submit a revised offer either during the three day notice period or after InterOil enters into an Arrangement Agreement with ExxonMobil,” Oil Search said.

ExxonMobil has offered $45 worth of its own shares for each InterOil share plus a payment of $0.90 per million cubic feet equivalent (mcfe) for resources of more than 6.2 trillion cubic feet at the Elk-Antelope gas field.

Read more: http://www.nasdaq.com/article/oil-search-says-exxon-trumps-its-bid-for-interoil-20160717-00031#ixzz4Eij7BLN5