Exxon grabs reins in InterOil hunt as rivals bow out of deal

SINGAPORE: Exxon Mobil Corp has a clear path to expanding its reach in Papua New Guinea after its rivals said they wouldn’t counter a $2.5 billion bid for gas explorer InterOil Corp.

Oil Search Ltd and Total SA had offered to buy InterOil in May in a deal that valued the company at $2.2 billion. Exxon topped it with its offer July 18. Oil Search said Exxon buying InterOil will achieve the same synergies it sought with its bid. A Total spokesman said by e-mail that it won’t make a counter offer because its original bid represented fair value. InterOil officials said they planned to release a statement later on Thursday.

An Exxon deal is welcome for Oil Search because it would drive integration between Papua New Guinea’s two liquefied natural gas projects, lowering costs and making them more competitive in an oversupplied market, Oil Search Managing Director Peter Botten said in an interview with Bloomberg TV. Exxon already operates the existing PNG LNG plant, and buying InterOil would give it a portion of the proposed Papua LNG terminal. Oil Search has stakes in both.

“We work very well with Exxon Mobil as we do with Total,” Botten said in an interview in Bloomberg’s Sydney office. “The cooperation between the two projects does have the capacity to drive down the capital costs, optimize the timing, the use of resources and contributions of various fields into the next phase of growth.”

An Exxon spokeswoman said the company doesn’t comment on commercial discussions.

All four companies are involved in the Papua New Guinea gas industry. Exxon and Oil Search run the country’s only liquefied natural gas terminal, PNG LNG. Oil Search, Total and InterOil are partners in the Elk-Antelope gas field and a second proposed terminal, Papua LNG. Exxon buying InterOil means that two and possibly three new liquefaction trains will be built in Papua New Guinea, according to Botten.

Oil Search shares in Sydney rose as much as 3.1 per cent and closed up 1.1 per cent to A$7.41.

“We see Oil Search as the winner of this arrangement as they get the alignment without dilution,” Neil Beveridge, a Hong Kong-based analyst with Sanford C Bernstein & Co said in a research report. With Exxon’s entry, the probability that two additional LNG trains or more will be sanctioned has “increased significantly.”