US major ExxonMobil has been confirmed as the spoiler to Australian independent Oil Search's $2.2 billion plan to acquire LNG hopeful InterOil and its gas assets in Papua New Guinea.
InterOil has notified Oil Search that it has received a "superior proposal" from ExxonMobil, Oil Search said in a statement Monday. As a result, InterOil plans to withdraw its recommendation of the proposed merger with Oil Search, first unveiled in May, in favor of an arrangement agreement with ExxonMobil, the company added.
InterOil is in play due to its interest in the Elk and Antelope gas fields, which are being eyed for development to supply the proposed Papua LNG project, operated by France's Total, but which could also support an expansion of ExxonMobil's Papua New Guinea LNG project. Oil Search already holds a 22.9% stake in Elk and Antelope, where proven and probable contingent resources were last week certified at 6.43 Tcf of gas.
ExxonMobil is the operator and a 33.2% stakeholder in the PNG LNG project, and has been looking at options for an expansion of the facility through the addition of a third production train. Oil Search is also a 29% equity holder in PNG LNG.
The proposal from ExxonMobil comprises a fixed price of $45/share for InterOil, plus a contingent resource payment of up to $7.07/share for each Tcf of gas confirmed at Elk-Antelope above 6.2 Tcf, to a maximum of 10 Tcf.
Under the agreement between Oil Search and InterOil signed in May, Oil Search has until July 21 to submit a revised offer. The company added that Total, a potential player in any counterbidding war, was aware of the developments.
"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.
"Oil Search's board and management are committed to acting in the best interests of shareholders at all times and are presently considering their position," the company added. "The proposal from ExxonMobil endorses Oil Search's view on the quality of the Elk-Antelope gas fields and the value of the Papua LNG project. Given its existing material interests in both the PNG LNG project and in the Papua LNG project, Oil Search is well placed to participate in the potentially very significant benefits that are expected to arise from cooperation between, and/or integration of, the projects."
The $19 billion PNG LNG project started up in 2014 and has since been producing at well above its nameplate capacity of 6.9 million mt/year, achieving output of around 8 million mt/year in the first three months of this year. The other partners in the project are the PNG government's National Petroleum Company (16.8%), Australia's Santos (13.5%), JX Nippon Oil & Gas Exploration (4.7%) and local landowner company MRDC (2.8%).
