ExxonMobil's $2.2B Bidding War (XOM, IOC)
The world biggest oil company, ExxonMobil Corp. (XOM), has raised its offer for InterOil Corp. (IOC), exceeding Australia's Oil Search Ltd.'s bid. Here's a look at how ExxonMobil's existing PNG LNG project will benefit if it succeeds in acquiring InterOil, and why France’s Total SA is backing Oil Search in its pursuit for InterOil, as both oil majors compete head-on for the PNG gas push.
The special meeting for InterOil shareholders is scheduled for July 28, to seek their approval for the offers. However, Oil Search has time till July 21 to submit a counterbid. (See also: S&P Downgrades Exxon Mobil, 1st Time since 1949.)
The continued decline in oil prices and lack of options of organic growth have forced the oil majors to look for alternatives. A few large oil companies are seeking to acquire smaller, niche oil exploration and production companies to augment their growth.
Oil Search’s Bid For InterOil
France's Total SA is backing Australia’s Oil Search in acquiring InterOil Corp., which includes the latter’s stake in the gas fields in Papua New Guinea. As the transaction proceeds, Oil Search will sell around 60% of InterOil’s assets to Total as a part of the Memorandum of Understanding (MoU) it has signed with Total. Total is pursuing the Papua LNG project to compete against ExxonMobil's LNG PNG project.
Though the transaction is approved by boards of both companies, shareholder’s still must give approval.
The Exxon Counterbid
Sensing the business threat, ExxonMobil made a counter bid of around $2.5 billion for InterOil, which topped the offer from Oil Search. It is offering $45 per share against Total’s earlier offer of $40.25. Offers from both suitors include an extra payment for each trillion cubic feet equivalent (tcfe) of gas resources available at the Elk-Antelope gas field in Papua New Guinea.
All parties in the battle have operational overlaps in the region. InterOil and Oil Search have been working jointly on the Papua LNG Project as partners. The sole liquefied natural gas terminal of Papua New Guinea, called as PNG LNG venture, is already operated by Exxon, and has Oil Search as a shareholder. (See also: Exxon Mobil's Long Game With $12bn Bond Sale.)
Papua New Guinea has cost advantage compared to other markets, and makes a strategic fit for both suitors. If Oil Search wins the bid, it expects to bring both the LNG projects together which will assist in cost cutting, reducing operational overheads, and aid in rapid development of new fields. Even with ExxonMobil coming in, analysts are hopeful that it will be possible for Total and ExxonMobil to work together.