XOM Exxon Mobil Corp

   By David Winning 
 

SYDNEY--Oil Search Ltd. (OSH.AU) dropped out of bidding for U.S.-listed InterOil Corp. (IOC) after its earlier offer was trumped by Exxon Mobil Corp. (XOM).

On Thursday, Oil Search said it won't make a higher offer for InterOil, which owns the Elk-Antelope natural gas discoveries in Papua New Guinea and had proposed building a second gas-project to compete with the existing Exxon-led PNG LNG facility.

"Given the decision by Exxon Mobil to make an offer for InterOil on the terms it has announced, we do not believe it is in the best interests of our shareholders for Oil Search to submit a revised offer to acquire InterOil," Oil Search Managing Director Peter Botten said.

Still, Exxon's all-stock offer for InterOil--estimated to be worth US$2.5 billion--highlighted the potential value that would be created by cooperation between two LNG projects, he said.

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.

Oil Search owns a minority stake in the US$19 billion PNG LNG project, and has been seeking an opportunity to expand in the South Pacific country so that it can capitalize on rising Asian demand for cleaner-burning fuels.

In May, Oil Search struck a deal to acquire InterOil that was at the time worth at least US$2.2 billion. It offered 8.05 of its own shares for each InterOil share, or a cash alternative of up to US$770 million in all, plus a contingent right of A$6.044 a share in cash for each trillion cubic feet equivalent of gas above the same 6.2 trillion cubic feet threshold.

A separate agreement would have seen Oil Search sell on some of InterOil's interests to Total SA (TOT), and increase its stake in InterOil's proposed Papua LNG project that would compete with the PNG LNG facility for customers.

Oil Search had hoped to leverage that position in the Papua LNG project as well as a nearly 39% holding in the PNG LNG project to find ways for both operations to collaborate and generate savings that would allow both to expand. It has estimated the potential for up to US$3 billion in capital savings plus US$100 million a year in cost savings.

Exxon's all-scrip offer is worth US$45 per InterOil share, and the U.S. major also intends to make a cash payment to InterOil shareholders if InterOil's Elk-Antelope discoveries are found to contain more than 6.2 trillion cubic feet of natural gas. The value of the additional component is US$7.07 per share for each trillion cubic feet of gas, and would be payable when Elk-Antelope's contingent resources are formally certified.

Oil Search is set to receive a US$60 million break fee from InterOil, of which Total is entitled to 20%, after abandoning its bid.

-Write to David Winning at david.winning@wsj.com

(END) Dow Jones Newswires

July 20, 2016 20:36 ET (00:36 GMT)

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