ExxonMobil to acquire InterOil in deal valued at more than $2.5 billion

ExxonMobil Corp. has agreed to acquire all outstanding shares of InterOil Corp. for more than $2.5 billion. The deal is expected to close in September. Oil Search Ltd. in turn has withdrawn from its InterOil takeover attempt. An initial agreement between Oil Search and InterOil was announced in May (OGJ Online, May 20, 2016).  

Under terms of the agreement, InterOil shareholders will receive $45.00/share of InterOil paid in ExxonMobil shares at closing, and a contingent resource payment (CRP), which will be an additional cash payment of $7.07/share for each tcfe gross resource certification of Elk-Antelope field above 6.2 tcfe up to 10 tcfe.

InterOil’s resource base includes interests in six licenses in Papua New Guinea covering about 4 million acres, including PRL 15. Elk-Antelope field in PRL 15 is the anchor field for the proposed Total SA-led Papua LNG project. ExxonMobil says its separately developed PNG LNG project is now exceeding production design capacity, and the firm will work with coventurers and the government to evaluate processing of gas from Elk-Antelope field by expanding the PNG LNG project.

InterOil earlier this week confirmed the bid from ExxonMobil, which was deemed superior by InterOil’s board compared with its May agreement with Oil Search (OGJ Online, July 18, 2016).

Under its $2.2-billion deal with Oil Search, InterOil was permitted to engage in further discussions and negotiations with any third party after the agreement (OGJ Online, July 1, 2016). InterOil terminated its agreement with Oil Search immediately prior to entering into its agreement with ExxonMobil, which is paying Oil Search a termination fee on behalf of InterOil.

Oil Search's standing

In deciding to step back from its offer, Oil Search has paved the way for greater synergy, perhaps even some form of unitization, between the PNG-LNG and the Papua LNG projects. ExxonMobil’s agreement for InterOil means Oil Search and ExxonMobil will be members of both the PNG-LNG and Papua LNG consortia.

Oil Search Managing Director Peter Botten said that Total and Oil Search had already signaled their desire to cooperate with the PNG-LNG project to maximize synergy values for all stakeholders. “Should ExxonMobil be successful in its proposed bid for InterOil, its entry into Papua LNG would significantly enhance the likelihood of material project cooperation,” he said prior to the deal's formal announcement.

“Opportunities to add value include possible project acceleration, capital and operating cost savings, resource utilization optimization, and various operating, financing, and marketing synergies.” Botten added, “Considerable work remains to be done by all stakeholders to realize these opportunities, but the entry of ExxonMobil into Papua LNG would be a material step forward.”

He went on to say that Oil Search was pleased to have created a catalyst for potential LNG project cooperation in PNG. “For Oil Search shareholders a successful takeover of InterOil by ExxonMobil will deliver a major part of our original objectives in the acquisition of InterOil and our agreement with Total, without shareholder dilution and any acquisition risk,” Botten said.

Oil Search is now keen to continue strong working relationships with all PNG-LNG joint venturers and the PNG government so that there can be a progression of the potential expansion of PNG-LNG and the development of Papua LNG as soon as possible.

In Oil Search’s second-quarter report, also released July 21, Botten said that based on current forecast cash flows, which assume an ongoing gradual recovery in oil prices, Oil Search expects to be able to fund all its proposed capital expenditure programs, including its share of LNG expansion project, right through to the beginning of production.

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