Total and Australia’s Oil Search have agreed exclusive Memorandum of Understanding (MoU) to acquire InterOil in a $2.2billion deal .
The move paves the way for two rival liquefied natural gas projects led by global majors to work together in Papua New Guinea.
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.
Oil Search and Total said their objectives are to maximise the value of the Papua LNG Project through capital and operating cost minimisation, project acceleration and optimal resource utilisation.
Oil Search and Total have agreed to pursue cooperation and/or integration opportunities between the Papua LNG Project and the PNG LNG Project, to maximise value.
Oil Search co-owns Papua LNG and PNG LNG and has been pushing them to cooperate in order 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 billion. The takeover of InterOil will give it a bigger stake in Total’s project.
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.
InterOil is coveted for its stake in the Elk-Antelope fields, which could hold at least 6.2 trillion cubic feet of gas, more than enough to fill one LNG processing train. Drilling of one more well this year could prove it holds much more.
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 a share up front, a 27 percent premium to its close on Thursday.
Oil Search said the deal could see it double its output by 2023.
Oil Search has agreed to sell more than half of Interoil’s stake in Papua LNG to Total. 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 billion 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 third quarter of this year, pending approval from InterOil’s shareholders
Oil Search’s Managing Director, Peter Botten, said: “This MoU, along with our proposed acquisition of InterOil, is a tangible step forward to optimising cooperation between PNG’s two world-class LNG projects, where we now have complementary significant interests.
“This has the potential to deliver capital efficient, high returning investments which is especially important in periods of low oil and gas prices. This agreement between Oil Search and Total, supported by the PNG government is a major advance in maximising value in these world-class assets for all stakeholders, while also facilitating the entry of potential new parties, including LNG buyers, into Papua LNG.”
Pouyanné, said: “This agreement between Total and Oil Search demonstrates Total’s strong commitment to the development of PNG’s gas resources.
“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 project close to Asian markets. Total is very pleased to establish such a strong cooperation with Oil Search.”
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