By Lynn Cook and David Winning 

Exxon Mobil Corp. won a bidding war to but U.S.-listed InterOil Corp. for an estimated $2.5 billion after Oil Search Ltd. dropped out of the process Thursday.

The boards of Exxon and InterOil unanimously approved terms of the $45-a-share agreement, the companies announced. The deal is expected to close in September, subject to shareholder and regulatory review.

In May, Oil Search offered $2.2 billion for InterOil, which holds six licenses to develop energy projects in Papua New Guinea that cover four million acres. InterOil has announced plans to build a massive liquefied natural gas export terminal in Papua New Guinea, using the large Elk-Antelope field as an anchor for the project.

Exxon Mobil developed the first gas exporting plant in the country. The PNG LNG plant is a nearly $20 billion megaproject on the island north of Australia that first began shipping gas cargoes two years ago. InterOil's proposed LNG project in Papua New Guinea was seen as stiff competition for Exxon's existing customers.

However, there may be a wrinkle in the InterOil deal: Exxon's partner in the PNG LNG project is Oil Search, which holds a 39% stake.

Analysts had expected Oil Search to abandon its pursuit of InterOil rather than enter a bidding war with Exxon, which has a much stronger balance sheet. Experts have also said that Oil Search should benefit regardless of the outcome -- either through a stand-alone deal for InterOil or as a partner of Exxon.

It is highly likely that Exxon will build additional gas liquefaction trains at its existing plant in Papua New Guinea and tap InterOil's gas fields to feed that project rather than building a separate LNG export facility.

On Thursday, Peter Botten, managing director of Oil Search, said the company wouldn't make a higher offer, but pointed to Exxon's bid as reason to believe there is much to be gained through cooperating or combining on future gas projects.

Oil Search previously estimated that buying InterOil could generate up to $3 billion in capital savings, plus $100 million a year in cost savings.

Rex Tillerson, chairman and chief executive of Exxon, called the deal a value creator for shareholders and the people of Papua New Guinea.

"InterOil's resources will enhance Exxon Mobil's already successful business in Papua New Guinea and bolster the company's strong position in liquefied natural gas," he said.

Many big energy companies, including Exxon and Royal Dutch Shell PLC, have raced to capitalize on rising Asian demand for cleaner-burning fuels. Liquefied natural gas, which can be shipped around the world on tankers in the same fashion as crude oil, is burned to generate electricity. Demand for natural gas is rising is many new markets, too, including the Middle East and Latin America.

In addition to Exxon's all-stock offer, the company intends to make a cash payment to InterOil shareholders if its Elk-Antelope discoveries contain more than 6.2 trillion cubic feet of natural gas. Another exploration well is set to be drilled later this year. The value of the additional component is $7.07 a share for each trillion cubic feet of gas up to 10 trillion cupic feet, payable when Elk-Antelope's reserve numbers are formally certified.

Write to Lynn Cook at lynn.cook@wsj.com and David Winning at david.winning@wsj.com

 

(END) Dow Jones Newswires

July 21, 2016 14:41 ET (18:41 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
Interoil Corp. (delisted) (NYSE:IOC)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Interoil Corp. (delisted) Charts.
Interoil Corp. (delisted) (NYSE:IOC)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Interoil Corp. (delisted) Charts.