06 June 2016

Oil Search to consolidate interests in Papua New Guinea

On 20th May Papua New Guinea-based Oil Search agreed to buy Canadian oil exploration firm InterOil for around USD 2,200 million. The acquisition, which will be carried out by way of a court-approved plan of arrangement, is poised to be Oil Search’s largest to date, according to Zephyr, the M&A database published by Bureau van Dijk.

As consideration, the buyer agreed to issue new shares to InterOil’s stockholders, which will also have the alternative to receiving up to USD 770 million in cash.  The offer price (being USD 40 apiece) represents a 27 per cent premium over the target’s close of USD 31 on 19th May, the last trading day prior to the transaction being announced. Pending appraisals of InterOil’s reserves in the Elk-Antelope fields in Papua New Guinea, the sellers may additionally receive a further cash payment. The deal, which has been approved by the boards of both energy companies, is expected to close this year. According to the Wall Street Journal, the acquisition will increase Oil Search’s exposure to Papua New Guinea, which is likely to be the next major gas-export project.

Following the InterOil takeover, Australian Stock Exchange (ASX)-listed Oil Search plans to sell most of the target’s exploration and gas assets, which include an Elk-Antelope gas discovery project known as Papua LNG, to French energy company Total for about USD 1,200 million. Assuming the Papua New Guinean government will exercise its right to take 23 per cent of Papua LNG alongside landowners, Oil Search’s interest in the project will increase from almost 23 per cent to 29 per cent, while Total’s stake will be up 8 per cent to just over 48 per cent as a result of the asset sale.

Commenting on the side deal, Total chief executive Patrick Pouyanné, said: “In line with our strategy to hold significant interest when we are operator, we will increase our operated interest to a more material level to drive the future development of the Papua LNG project, a low cost onshore LNG [liquefied natural gas] project close to Asian markets.” He also added that his company may seek opportunities for collaboration and/or integration with Oil Search’s other Papua New Guinea-based gas project, PNG LNG, which is being led by US energy giant Exxon Mobil.

From Oil Search’s perspective, the disposal will enhance liquidity and reduce the risk it has to bear after the InterOil deal, while allowing it to establish an aligned business relationship with Total. Moreover, the partnership is expected to minimise costs, enable optimal resource utilisation and accelerate project schedules, as stated in their joint press release.

Last year, Woodside Petroleum, an ASX-listed oil and gas exploration firm, offered to acquire Oil Search for around AUD 11,641 million (EUR 7,541 million). The deal was later rejected by Oil Search’s board, which stated that it “grossly undervalued the company”. According to Zephyr, the transaction would have been the largest takeover of an energy company in Asia-Pacific.

© Zephyr