PORT MORESBY, Papua New Guinea – Oil Search recently announced both an agreement to acquire InterOil Ltd. and signed a memorandum of understanding (MoU) with Total to “create a major independent PNG regional oil and gas champion.”
The InterOil acquisition is valued at about $2.2 billion, Oil Search said. Through the deal, the company said it “achieves alignment through complementary significant interests in two world-class LNG projects.
“Oil Search’s shareholders gain an increased interest in the Papua LNG project, providing the potential to double production by 2022-2023 and growth upside from surrounding exploration acreage.”
Significantly, InterOil’s assets include a 36.5% interest in the Papua LNG project, which houses the Elk-Antelope gas fields in the Gulf Province, and exploration licenses covering about 16,000 sq km (6,178 sq mi). InterOil says that the Elk-Antelope fields comprise “one of the largest gas discoveries in the Asia/Pacific in the past 20 years.” It had been developing the fields through a joint venture with Oil Search and Total.
Most recently, InterOil said in March that the second extended well test on Antelope-5 was completed. Preliminary analysis confirmed “excellent reservoir quality and connectivity seen in the initial Antelope-5 production test conducted in mid-2015,” it said.
Oil Search said it will also provide InterOil shareholders with a cash alternative for the share component up to a total of $770 million. Any cash not taken up by InterOil shareholders will be applied to an Oil Search share buyback following completion of the transaction.
The move was unanimously approved by both companies’ boards of directors, and Oil Search said that the InterOil board unanimously recommended to shareholders to approve the transaction.
Under Oil Search’s MoU with Total, Oil Search will sell for cash 60% of InterOil’s interest in petroleum retention license (PRL) 15, which holds the Elk-Antelope fields, and 62% of InterOil’s exploration assets to the French operator. It is subject to the transaction’s closing and entry into definitive documentation. Total assumed operatorship of PRL 15 in July 2015.
Oil Search said the Total agreement will de-risk the InterOil acquisition. It also noted that the MoU would establish a long-term alignment between the two Papua LNG project partners.
The two companies’ stated objectives through the MoU are to maximize the value of the project, such as considering new partners, including LNG buyers; schedule acceleration; and optimal resource utilization.
Following the sell-down to Total, Oil Search expects to have an equity interest in PRL 15 of up to 37.4%, or 29% (assuming the PNG government exercises its back-in rights), with Total holding an equity of up to 62.1%, or 48.1% post government back-in. This equates to Oil Search selling down 60% of InterOil’s 36.5% (28.3% post government back-in) PRL 15 interest to Total.
In addition to covering 60% of the InterOil acquisition cost (around $1.2 billion) upon settlement of purchase, Oil Search said that Total will pay it $141.6 million on July 1, 2017 and $230 million upon final investment decision of the Papua LNG project.