InterOil: Third party bidder would not be able to strike agreement with Total - source
Total SA [EPA: FP] does not have the right to negotiate with rival bidders in respect of a transaction involving InterOil [NYSE: IOC; POMSoX: IOC], as per its arrangement with Oil Search [ASX: OSH], said a source familiar with the situation.
As part of Australia-based Oil Search’s agreed bid to acquire 100% of Papua New Guinea-focused InterOil, it also signed an MOU with Total. Under the MOU, Oil Search will sell to Total 60% of InterOil’s interests in the PRL 15 LNG project and 62% of its exploration assets.
The MOU effectively rules out Total as a rival bidder for InterOil and precludes it from striking a similar deal with another party.
The latter could be key, since Total already owns 40.1% of the PRL 15 project and would be in a position to make a rival bid of its own for InterOil’s assets.
The MoU is conditional on Oil Search and InterOil closing their deal, which is now subject to a possible bid from an unnamed third-party.
Last week, InterOil told the market that it had received an unsolicited, conditional, non-binding proposal that was subject to conditions including due diligence. InterOil continues to unanimously recommend the Oil Search transaction, but said it is negotiating with the third party, which this news service, among others, has reported likely points to Exxon Mobil [NYSE: XOM].
A person briefed on the situation said these discussions are being vigorously pursued, and described the bid and bidder as serious. Due diligence has yet to be completed.
This news service has reported that the third party is said to have been among the three parties that provided indicative proposals to InterOil before it agreed to Oil Search’s bid. As part of that process, the third party did enter into confidentiality agreements.
According to an information circular issued by InterOil, the company’s virtual data rooms were continuously updated as new information became available.
On 20 May, Oil Search and InterOil announced an agreed deal where InterOil shareholders will receive 8.05 Oil Search shares for every InterOil share, or a cash alternative of up to USD 770m, subject to a pro-rata scale-back. The consideration includes a Contingent Value Right (CVR), which entitles holders to a contingent cash payment that is linked to the volume of 2C hydrocarbon gas resource certified to be contained in the Elk-Antelope fields. Both InterOil and Oil Search are already partners in these fields.
The source said the CVR has been positively received by shareholders as it allows InterOil shareholders an opportunity to benefit from any upside in the size of InterOil’s gas resource. He believed the CVR component does not disadvantage Oil Search against an all-cash bid.
A Special Meeting of InterOil shareholders to consider the Oil Search transaction is scheduled for 28 July. There are no remaining conditions, the source confirmed.
Oil Search is understood to accept that the Papua New Guinea (PNG) government would be commercial in any decision it makes with the objective of maximising wealth from the InterOil assets.
This news service has reported that InterOil does not consider the third party to be at a disadvantage with regard to the PNG government’s potential response, despite Oil Search’s long-standing and close PNG connections. All of InterOil’s operations are in Papua New Guinea.
InterOil, Oil Search and Total declined comment.