Oil Search Abandons Bid for InterOil, Clears Path for Exxon
July 20 2016 - 9:30PM
Dow Jones News
SYDNEY—Oil Search Ltd. dropped out of bidding for U.S.-listed
InterOil Corp. after its earlier offer was trumped by Exxon Mobil
Corp.
On Thursday, Oil Search said it won't make a higher offer for
InterOil, which owns the Elk-Antelope natural-gas discoveries in
Papua New Guinea and had proposed building a second gas project to
compete with the existing Exxon-led PNG LNG facility.
"Given the decision by Exxon Mobil 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.
Still, Exxon's all-stock offer for InterOil—estimated to be
worth US$2.5 billion—highlighted the potential value that would be
created by cooperation between two LNG projects, he said.
Analysts had expected Oil Search to abandon its pursuit of
InterOil rather than enter a bidding war with Exxon, which has a
much stronger balance sheet.
Oil Search owns a minority stake in the US$19 billion PNG LNG
project, and has been seeking an opportunity to expand in the South
Pacific country so that it can capitalize on rising Asian demand
for cleaner-burning fuels.
In May, Oil Search struck a deal to acquire InterOil 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 SA, and increase its stake in
InterOil's 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.
Exxon's all-scrip offer is worth US$45 per InterOil share, and
the U.S. major also intends to make a cash payment to InterOil
shareholders if InterOil's Elk-Antelope discoveries are found to
contain more than 6.2 trillion cubic feet of natural gas. The value
of the additional component is US$7.07 per share for each trillion
cubic feet of gas, and would be payable when Elk-Antelope's
contingent resources are formally certified.
Oil Search is set to receive a US$60 million break fee from
InterOil, of which Total is entitled to 20%, after abandoning its
bid.
Write to David Winning at david.winning@wsj.com
(END) Dow Jones Newswires
July 20, 2016 21:15 ET (01:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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