Oil Search may be required to lift its $US2.2 billion ($2.9 billion) offer for Papua New Guinea gas explorer InterOil by up to 10 per cent to match what is understood to be a rival proposal under consideration by heavyweight ExxonMobil.
InterOil revealed on June 30 that it had been approached by a third party with a conditional and non-binding takeover proposal that threatened to derail the friendly takeover deal already agreed with Oil Search.
Since then US-listed InterOil has been holding negotiations with its new suitor, which sources say is the US energy giant, operator of the $US19 billion PNG LNG venture, in which Oil Search has a stake.
Exxon is thought to be working on an offer worth up to 10 per cent more than Oil Search, using its own scrip, which would be more welcome to InterOil's predominantly North American-based shareholder register than Australian-listed stock. The offer was subject to due diligence, thought to be ongoing. A spokeswoman for Exxon in Port Moresby declined to comment.
A superior bid by Exxon, if firmed up, may stir French oil major Total out from the shadows of Oil Search's bid and act in its own right to try to snare InterOil. The two energy supermajors are vying for control of InterOil's key asset, the prized Elk-Antelope gas field in PNG. Oil Search owns a stake in both PNG LNG and Elk-Antelope, seen as one of the world's most competitive sources of gas for a new LNG project.
Waiting game
The situation is forcing Oil Search to play a waiting game as Exxon may not firm up its offer until right before the July 28 date that InterOil shareholders are due to vote on Oil Search's offer.
In the meantime, Oil Search has pulled back on the intense rounds of talks chief executive Peter Botten had planned with investors in InterOil in a bid to win them over to the merits of his takeover offer ahead of the vote.
Under the terms of the deal between Oil Search and InterOil, Oil Search has three days to match any rival offer that the InterOil board deems as superior. InterOil may only make an announcement after that three-day period.
Sources close to the companies point to three potential scenarios: first, that InterOil deems the rival offer is not superior or it does not firm up, and continues to recommend Oil Search's offer; second, that the board deems the rival offer as superior, cancels the July 28 vote on the Oil Search offer and sets a new timetable for shareholder approval of a new deal; or third, that the board deems Exxon's offer could be superior but it is matched by Oil Search and an amended offer goes to shareholders at the July 28 meeting in New York. The deal needs to be supported by two-thirds of voting InterOil shareholders to proceed.
Shares in InterOil gained 2.6 per cent last week as some shareholders anticipated a higher offer would indeed emerge. The stock ended Friday at $US47.97 in New York, its highest close for almost 12 months. Oil Search shares dipped 0.7 per cent on Monday to $6.90.
Worthy suitors
Citigroup analyst Dale Koenders said he didn't believe the InterOil board would have engaged with the new suitor unless its proposal was worth more than Oil Search's offer. In a note to clients he suggested Oil Search could walk away if Exxon was indeed the party making the rival offer. He also said that Exxon acquiring InterOil would make it easier to realise the potential $US2 billion-$US3 billion of synergies that could be made by integrating Exxon's PNG LNG venture with the Papua LNG venture fed by Elk-Antelope.
Oil Search has offered 8.05 of its shares for each InterOil share, plus a "contingent value right" that pays out cash to InterOil shareholders if Elk-Antelope is determined to hold more than 6.2 trillion cubic feet (Tcf) of gas. The offer has been criticised as inadequate by former InterOil chief executive and substantial shareholder Phil Mulacek, as well as by some small shareholders who believe Elk-Antelope could hold as much as 15 Tcf of gas.
In a detailed information memorandum sent to shareholders on the Oil Search deal in late June, InterOil revealed it had negotiated on two takeover proposals from other parties before settling on the offer from Oil Search. One of those is thought to have been from Exxon, which has now returned with an improved offer.
InterOil must pay a break fee of $US60 million to Oil Search if its board accepts a superior offer.
could all be contrived by Hession and OSH. Is it possible that Hession's contacts with the funds led him to conclude that he wouldn't have enough "yes votes" unless there was a sweetener added. OSH can only pay so much...and Hession wants the deal at whatever price he can get it...so, there is an attempt to psychologically throw the complaining shareholders a bone (with the small sweetener) and yet still control the amount of the increase? This may be far-fetched, but I put nothing past Hession at this point.