By Andrew Hobbs

SHAREHOLDERS of InterOil will vote on a takeover offer from Oil Search on 28 July that could see the company’s assets divided between Oil Search and Total.

Oil Search has offered 8.05 of its shares for each InterOil share held, valuing the company at US$2.2 billion, while shareholders will also be able to take a cash alternative.

Speaking with reporters on the sidelines of the Australian Petroleum Production and Exploration Association (APPEA) in June, Oil Search managing director Peter Botten said he was busy meeting shareholders of both InterOil and Oil Search ahead of the meeting.

“I am quietly confident we have got the support to do it, but… I am absolutely not complacent,” he said.

“We have got a lot of hard work to do to go out and explain the merits of this transaction – why we are doing it, how it is structured and why it is structured that way.”

The deal has attracted the support of the InterOil board, with company chairman Chris Finlayson saying the proposal offered “a significant implied premium to the current InterOil share price.”

“In addition, the transaction will enable InterOil shareholders to continue to benefit from the value created through the commercialisation of gas resources along with exposure to Oil Search’s portfolio of high quality assets,” he said.

InterOil currently holds a 36.5 per cent stake in the PRL 15 project, the site of the planned Papua LNG project, while Oil Search holds 22.8% and operator Total holds 40.1%.

But under a memorandum of understanding (MOU) signed between Oil Search and Total, the companies will split the PRL 15 assets between them following completion of the deal.

Under the MOU, Oil Search will sell 60% of InterOil’s PRL 15 assets and 62% of its other exploration assets to Total once the transaction is concluded.

Should the Papua New Guinea Government and local landowners exercise their back-in rights of 20.5% and 2% respectively, this will leave Oil Search with a 29% stake in PRL 15 and Total with 48.1%.

After paying for the additional equity in PRL 15 and equity in InterOil’s exploration assets, Total will also pay Oil Search a further cash amount of US$141.6 million on 1 July 2017 and US$230 million at the time of a final investment decision for the Papua LNG project.

Oil Search and Total said they would pursue cooperation and integration opportunities between Papua LNG and the ExxonMobil operated PNG LNG project.

Total chairman and chief executive Patrick Pouyanné said the agreement demonstrated his company’s commitment to the development of PNG’s gas resources.

“In line with our strategy to hold significant interest when we are operator, we will increase our operated interest to a more material level to drive the future development of the Papua LNG project, a low cost onshore LNG project close to Asian markets,” he said.

Mr Botten said the MOU was a tangible step forward for Papua LNG and PNG LNG projects working together, saying the two had significant complementary interests.

“This has the potential to deliver capital efficient, high returning investments which is especially important in periods of low oil and gas prices,” he said.

“This agreement between Oil Search and Total, supported by the PNG government, is a major advance in maximising value in these world-class assets for all stakeholders, while also facilitating the entry of potential new parties, including LNG buyers, into Papua LNG.”

“It is positive for everybody concerned to have them there, and obviously we are looking for further cooperation and discussions with PNG LNG. Certainly that is part of the agenda in a post [InterOil] completion world.”

Speaking with reporters on the sidelines at APPEA, Mr Botten said what form the collaboration would take would be the subject of discussions over the next 12 to 18 months – but could entail gas sales, sharing equity in trains or sharing infrastructure.

“If you are looking at cooperation you have got to do that at the right time, you have got to do that while people are formulating engineering solutions and commercial solutions for operation,” he said.

It was important for decisions to be made as the parties were deciding on the expansion of the PNG LNG project, with the possibility of a third train, and making decisions on the development of PRL 15, he added.

“Once you get past a certain period of time where people are locking in the design of what they want to build it is extremely difficult for them to turn around and start the integration, cooperation discussion,” he said.

“Once you get through that period of time with licence commitments and other things it will become much, much more difficult.”

Mr Botten added that liquefied natural gas was becoming an increasingly large part of the portfolios of both ExxonMobil and Tota l .

“It seems relatively simple to extrapolate that the development and expansion of PNG LNG and the development of Papua LNG actually represents high priorities for these two majors,” he said.

“It certainly is a high priority for us and for the government of PNG. So I think there is a combination of intent and economics that makes what we are going to do over the next three years a compelling strategy.”