InterOil tug-of-war hots up

AFTER almost three weeks of speculation, ExxonMobil has stepped out of the shadows and confirmed it is, indeed, the mysterious third party behind a spoiler offer that threatens to derail the $US2.2 billion marriage between Papua New Guinea-focused Oil Search and US-listed InterOil.
InterOil tug-of-war hots up InterOil tug-of-war hots up InterOil tug-of-war hots up InterOil tug-of-war hots up InterOil tug-of-war hots up

Haydn Black

Reporter

InterOil's board, headed by former Woodside Petroleum executive Michael Hession, told Oil Search that the PNG LNG operator's offer was superior to that offered by Oil Search and its partner Total.

InterOil has advised that it intends to make a change in its recommendation and enter into an arrangement agreement with ExxonMobil.

The proposal from ExxonMobil for InterOil comprises a fixed price of $US45 per InterOil share paid in ExxonMobil shares and a contingent resource payment of US$0.90 per million cubic feet equivalent of Elk-Antelope 2C resource in excess of 6.2Tcfe, subject to a cap of 10Tcfe.

Oil Search was offering shares valued at around $US40.25 at the time of the offer and a contingent payment of $US0.77/Mcfe.

Unlike Oil Search's offer, the ExxonMobil CRP will be will be payable in cash at resource certification and will not be transferable or listed on an exchange and its call cash offer will lock InterOil shareholders out of future growth.

Oil Search and Total now have to put a counter-offer to the InterOil board, before Hession and his colleagues enter into any binding agreement with ExxonMobil.

The Sydney-based Oil Search told the Australian Securities Exchange that it had the flexibility to submit a revised offer at any stage.

Forewarned is forearmed, and with speculation of the shape of the counterbid widespread, Oil Search and Total have put their heads together to consider how best to secure control of Elk-Antelope, and they remain in "active dialogue".

ExxonMobil's offer is likely to be very attractive to US investors given it is an all-cash offer, compared to Oil Search's largely scrip offer with a Total-backed contingent cash payment once certification is complete next year.

"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," Oil Search said.

"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 question for Oil Search and Total is whether they want to go head-to-head with the world's biggest public oil company, and whether ExxonMobil can see even more savings by integrating Elk-Antelope with PNG LNG in areas where Oil Search can't.

Savings identified by integrating the two projects are estimated to be as much as $US3 million.

In the event that the Oil Search agreement is terminated Oil Search is entitled to be paid a $60 million break fee, of which Total is entitled to 20%, which would more than cover the costs associated with its offer.

InterOil shareholders were expected to meet on July 26 to consider the Oil Search offer, but that meeting is now expected to be called off.

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