By James Paton

    April 1 (Bloomberg) -- Total SA, Europe’s third-largest oil

producer, paid an initial $401 million to InterOil Corp. for a

stake in its natural gas discoveries in Papua New Guinea,

sidestepping opposition from Oil Search Ltd.

    InterOil received the money even as Oil Search, Papua New

Guinea’s largest oil and gas producer, contests the accord

reached last month with Total, John Hurst, a Sydney-based

spokesman for InterOil, said today in an e-mailed response to

questions. InterOil expects the dispute to go to arbitration in

London, Chief Executive Officer Michael Hession said yesterday

on an analyst call, according to a transcript.

    Oil Search, which agreed in February to buy part of the

same discoveries for an initial $900 million, lodged a dispute

last week with InterOil. The fight is over fields in Papua New

Guinea that may underpin an expansion of the country’s liquefied

natural gas industry.

    Oil Search is already Exxon Mobil Corp.’s partner in the

$19 billion Papua New Guinea LNG venture, while Total and

InterOil want to build a second export development based on gas

from the Elk and Antelope fields. InterOil on the same analyst

call yesterday estimated the cost of drilling three wells in the

Pacific nation will be $140 million to $150 million.

    Ann Diamant, a spokeswoman for Oil Search in Sydney, said

she couldn’t immediately comment.

                        Preempt Accord

    Oil Search’s deal to buy part of InterOil’s fields from

minority partners gave the company the right to preempt Total’s

initial agreement in December, according to a JPMorgan Chase &

Co. report in February. Total and InterOil revised their

agreement on March 26, structuring the deal so that Oil Search

couldn’t block the accord, Citigroup Inc. said last week.

    Total acquired 40.1 percent of the Elk and Antelope fields,

leaving InterOil with 35.5 percent. In the revised accord, Total

purchased an InterOil unit that held the 40.1 percent stake,

rather than buying the stake itself.

    Should Oil Search block Total, it could open the door for

Exxon to enter the license and clear the way for the U.S.

company to feed an expansion of its LNG project, Benjamin

Wilson, a Sydney-based JPMorgan analyst, wrote Feb. 27.