Oil Search boosts LNG push in PNG
Australia's Oil Search Ltd. agreed to a $2.2-B deal to acquire InterOil Corp., aiming to pave the way for two rival liquefied natural gas (LNG) projects led by global majors to work together in Papua New Guinea (PNG).
In the face of weak oil prices, PNG is considered one of the best locations for LNG projects, thanks to its high-quality gas and low costs. The country has the existing PNG LNG project, run by ExxonMobil Corp., and the proposed Papua LNG project, run by Total SA.
Possible collaboration. For Total, which will boost its stake in Papua LNG as part of the deal, Oil Search's move will open opportunities for collaboration and possible integration with ExxonMobil's project, said CEO Patrick Pouyanné.
"It was a deal waiting to happen, a consolidation of the JV," said RBC analyst Ben Wilson. "Conceptually, it makes a lot of sense and should allow them to go forward to the development phase a lot faster than otherwise would be the case."
Oil Search co-owns Papua LNG and PNG LNG, and has been pushing them to cooperate to avoid wasting money on duplicating infrastructure, as happened on Australia's east coast, where three LNG plants were built next to each other at a cost of $64 B. The takeover of InterOil will give it a bigger stake in Total's project.
"The days of industry profligacy are past with these sorts of oil and gas prices that we're experiencing and are likely to experience for some years to come," Oil Search CEO Peter Botten said.
ExxonMobil said it was "open to discussing infrastructure-sharing opportunities with other operators where it is technically feasible and commercially attractive for both parties."
InterOil is coveted for its stake in the Elk-Antelope fields, which could hold at least 6.2 Tcf of gas, more than enough to fill one LNG processing train. Drilling of one more well this year could prove it holds much more.
InterOil CEO Michael Hesson said the company had received a number of other proposals, but declined to give details.
Oil Search is offering 8.05 of its shares for each InterOil share, plus a contingent value right tied to the size of the eventual reserves in Elk-Antelope. Oil Search said the offer valued InterOil at $40.25/share up front, a 27% premium to its close on Thursday.
Oil Search said the deal could see it double its output by 2023.
Total boosts PNG stake. As part of the plan, Oil Search has agreed to sell more than half of Interoil's stake in Papua LNG to Total. As a result, Oil Search will end up with a 29% stake in the Papua LNG project, complementing its 29% stake in PNG LNG.
Total's stake in Papua LNG will increase to 48%.
The deal follows Oil Search's rejection last year of an $8-B takeover offer from Woodside Petroleum, which wanted Oil Search for its stakes in the PNG LNG project and Elk-Antelope.
Oil Search and InterOil said they expect the deal to close in the 3Q of this year, pending approval from InterOil's shareholders.
(Reporting by Sonali Paul; Additional reporting by James Regan in Sydney; Editing by Richard Pullin)
Comments