Shares in takeover target Interoil Corp surged 3.9 per cent on Friday as investors reacted positively to the prospect of a bidding war emerging for the company after the earlier decision by directors to back a $US2.2 billion bid by Oil Search.
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Late last week, InterOil said it had received an "unsolicited, conditional, non-binding proposal" from an unidentified third party that is being reviewed.
The share prices of InterOil and Oil Search had moved broadly in tandem since the beginning of 2016, but have diverged since Oil Search launched an agreed bid for InterOil. That bid followed a decision by InterOil to open its books to potential bidders for the company last year with Oil Search the only group to decide to pursue a full merger at this time.
The Oil Search bid coupled with speculation on Friday of a higher offer emerging has resulted in InterOil shares surging 50 per cent this year, compared with a rise of just 2.3 per cent for Oil Search. The moderate rebound in the crude oil price to around $US50 a barrel has prompted buying support for most oil and gas companies since the March quarter.
InterOil's shares finished trading on Friday at $US46.74, up $US1.74 or 3.9 per cent, which values the entire company at $US2.32 billion, which is well ahead of the Oil Search offer.
Oil Search hopes that by merging its assets with InterOil's, this could pave the way for the development of a second export gas project in Papua New Guinea which could use some of the existing infrastructure of the company's first export project, in which Oil Search is a founding partner.https://99.fairfax.com.au/cf#/etc/author-util.html?assetId=gozov4
Oil Search is offering 8.05 of its shares for each share held in InterOil, along with a so-called "contingent value right", which will give InterOil shareholders access to any increase above 6.2 trillion cubic feet equivalent of oil and gas in the Elk-Antelope field in Papua New Guinea, which would form the basis of a proposed new export gas project.
InterOil founder Phil Mulacek has been strongly critical of the Oil Search offer, which he argues undervalues the potential of the Elk-Antelope reserves, its core asset, which could be as high as 15 trillion cubic feet equivalent of oil and gas. He recently tried to unseat the InterOil board but was unsuccessful.https://99.fairfax.com.au/cf#/etc/author-util.html?assetId=gpjf14
The identity of the rival bidder for InterOil has yet to be revealed, although it is believed to not be associated with Mr Mulacek, with most speculation centred on ExxonMobil which is a partner with Oil Search in Papua's existing gas export project.
If the InterOil board withdraws its backing for the Oil Search bid, it has to pay the Australian company a $US60 million break fee. However under the agreement reached between the two boards, Oil Search does have the right to match any higher bid that emerges.
Following their surge on Friday, InterOil shares are trading at their highest level since mid-2015.
InterOil officials would make no comment when approached about the status and identity of the new party
