Exxon Wins Bidding War for InterOil After Oil Search Pulls Out -- Update
July 21 2016 - 1:56PM
Dow Jones News
By Lynn Cook and David Winning
Exxon Mobil Corp. won a bidding war to but U.S.-listed InterOil
Corp. for an estimated $2.5 billion after Oil Search Ltd. dropped
out of the process Thursday.
The boards of Exxon and InterOil unanimously approved terms of
the $45-a-share agreement, the companies announced. The deal is
expected to close in September, subject to shareholder and
regulatory review.
In May, Oil Search offered $2.2 billion for InterOil, which
holds six licenses to develop energy projects in Papua New Guinea
that cover four million acres. InterOil has announced plans to
build a massive liquefied natural gas export terminal in Papua New
Guinea, using the large Elk-Antelope field as an anchor for the
project.
Exxon Mobil developed the first gas exporting plant in the
country. The PNG LNG plant is a nearly $20 billion megaproject on
the island north of Australia that first began shipping gas cargoes
two years ago. InterOil's proposed LNG project in Papua New Guinea
was seen as stiff competition for Exxon's existing customers.
However, there may be a wrinkle in the InterOil deal: Exxon's
partner in the PNG LNG project is Oil Search, which holds a 39%
stake.
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. Experts have also said that Oil Search
should benefit regardless of the outcome -- either through a
stand-alone deal for InterOil or as a partner of Exxon.
It is highly likely that Exxon will build additional gas
liquefaction trains at its existing plant in Papua New Guinea and
tap InterOil's gas fields to feed that project rather than building
a separate LNG export facility.
On Thursday, Peter Botten, managing director of Oil Search, said
the company wouldn't make a higher offer, but pointed to Exxon's
bid as reason to believe there is much to be gained through
cooperating or combining on future gas projects.
Oil Search previously estimated that buying InterOil could
generate up to $3 billion in capital savings, plus $100 million a
year in cost savings.
Rex Tillerson, chairman and chief executive of Exxon, called the
deal a value creator for shareholders and the people of Papua New
Guinea.
"InterOil's resources will enhance Exxon Mobil's already
successful business in Papua New Guinea and bolster the company's
strong position in liquefied natural gas," he said.
Many big energy companies, including Exxon and Royal Dutch Shell
PLC, have raced to capitalize on rising Asian demand for
cleaner-burning fuels. Liquefied natural gas, which can be shipped
around the world on tankers in the same fashion as crude oil, is
burned to generate electricity. Demand for natural gas is rising is
many new markets, too, including the Middle East and Latin
America.
In addition to Exxon's all-stock offer, the company intends to
make a cash payment to InterOil shareholders if its Elk-Antelope
discoveries contain more than 6.2 trillion cubic feet of natural
gas. Another exploration well is set to be drilled later this year.
The value of the additional component is $7.07 a share for each
trillion cubic feet of gas up to 10 trillion cupic feet, payable
when Elk-Antelope's reserve numbers are formally certified.
Write to Lynn Cook at lynn.cook@wsj.com and David Winning at
david.winning@wsj.com
(END) Dow Jones Newswires
July 21, 2016 14:41 ET (18:41 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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