Exxon Mobil (NYSE: XOM) has successfully bid for InterOil (NYSE: IOC), the biggest Papua New Guinea oil company. The proposal from the former is made of US$45 fixed price for every InterOil share. It is to be paid in the Exxon Mobil shares. There is also a clause of contingnent resource payment. According to data provided by Thomson Reuters, the current market capitalization of InterOil is about $2.38 billion. The company’s shares rose 50 percent in 2016.
Benefit for all
Oil Search, the competitor in the bid, stands to benefit from the arrangement of Exxon taking over InterOil as there is an increased chance of blending the two projects in Papua New Guinea where Oil Search is already involved. The company is all set to be the recipient of a $48 million break fee. This new arrangement, other than Exxon paying $45 per share in its shares, will also provide bonus payment if contingent resources at Elk-Antelope project go past 6.2 trillion cubic feet. This bonus payment will be about $7.07 for every share for each of the trillion cubic feet if it goes above 6.2 tcge. The maximum is pegged at 10tcfe.
The present assets of InterOil include 36.5 percent in Papua LNG Project. This includes ELK-Antelope- considered to be one of the biggest untapped gas fields in Asia. The company also owns exploration licenses that span 16,000 square kilometers. Oil Search, as per the agreement, has a total of three days to submit any revised offer prior to the Exxon InterOil deal going ahead. The company, in its statement to ASZ, said that it is considering its position.
Oil Search, in its ASX statement, said that the company holds the view that the Exxon Mobil proposal endorses its view on quality of gas fields in Elk-Antelope and value of Papua LNG Project. It added that as per its existing material interests, the company is well suited to participate in extremely significant benefits. These benefits are expected as a result of coopeation of integration or between two projects.
Oil Search also said that in the event of termination of agreement, following a change of recommendation of the board at InterOil, the company will be entitled to a break fee of $160 million. From this fee, Total of France will take a share of 20 percent. Analysts are of the opinion that the entry of Exxon to Elk-Antelope JV is concurrent with both Total and Oil Search’s best interests.