ExxonMobil Buys PNG's InterOil

The Elk-Antelope development, PNG.

By MarEx 2016-07-22 20:12:47

ExxonMobil announced on Thursday it would buy InterOil for more than $2.5 billion in stock, adding a gas field to expand exports from Papua New Guinea and better positioning it to meet Asian demand for LNG.

With the successful LNG deliveries from the ExxonMobil-operated PNG LNG starting in 2014, Papua New Guinea (PNG) has become a reliable and cost competitive LNG producer.

Oil majors are targeting PNG for growth as the quality of its gas, low costs and proximity to Asia's big LNG consumers make it one of the most attractive places to develop projects following a collapse in oil and gas prices.

InterOil, based in Singapore but focused on PNG, owns a 36.5 percent stake in the Elk-Antelope gas field, which is operated by Total. The associated Papua LNG project is Papua New Guinea’s second LNG project with expected first gas in the early 2020s. Independent analysts believe Elk-Antelope could support a two-train LNG development.

The acquisition will give Exxon interests in six licenses in Papua New Guinea covering about four million acres.

Oil Search said it and Total agreed that letting Exxon take over would help speed up development of the Elk-Antelope field.

“This agreement will enable ExxonMobil to create value for the shareholders of both companies and the people of Papua New Guinea,” said Rex W. Tillerson, chairman and chief executive of Exxon Mobil.

ExxonMobil’s more than 40 years of experience in the global LNG business enables it to efficiently link complex elements such as resource development, pipelines, liquefaction plants, shipping and regasification terminals, which it says it has demonstrated through the PNG LNG project.

The PNG LNG project, the first of its kind in the country, was developed by ExxonMobil in challenging conditions on budget and ahead of schedule and is now exceeding production design capacity.

Exxon said it would evaluate processing of gas from the Elk-Antelope field by expanding its LNG export plant in Papua New Guinea. Oil Search also owns a stake in the LNG plant.

The plant is a 6.9 million ton per annum integrated project operated by Exxon. The gas is sourced from seven fields and Elk-Antelope gas could be used to feed an expansion.

"It will be interesting to watch how Exxon pursues the development of InterOil's gas resources. Will it be by expanding the existing LNG plant already operating in the country, or building a brand-new project?" said Pavel Molchanov, an energy analyst with Raymond James.

"I think (the deal) shows that Exxon views LNG as a very strong growth business. I believe that LNG demand over time will grow faster than oil," said Brian Youngberg, oil analyst with Edward Jones in Saint Louis.

Exxon sealed the deal for InterOil after Australia's Oil Search said earlier on Thursday that it would not pay more than the $2.2 billion it offered in May, a proposal that was backed by French giant Total.

Exxon said it would pay InterOil shareholders $45 per share in stock and that it would also make an additional cash payment based on the size of the Elk-Antelope field.

That payment is worth $7.07 per share for each trillion cubic feet equivalent (tcfe) of certified gross resource from the field above 6.2 tcfe and up to a maximum of 10 tcfe.