The difference could not have been more dramatic – and the opportunity lost as well for rival oil and gas groups, Woodside (WPL) and Oil Search (OSH).
There was Woodside management on Friday telling investors that from now on the company was thinking small and looking to do small deals and work its existing assets.
And there was also the one that got away – Oil Search – which had spurned Woodside’s badly argued $11 billion plus offer last year and now doing a deal that will cement its place in the emerging oil and gas sector of Papua New Guinea.
In a complicated deal announced on Friday, Oil Search said it would acquire US-listed InterOil in a $US2.2 billion in a deal approved by both boards.
Both companies have oil and gas assets in Papua New Guinea, including the Elk-Antelope fields where both are partners and provides the impetus for the bid and subsequent deal with French giant, Total.
Oil Search is offering 8.05 of its shares plus a contingent value right (CVR) for each InterOil share, which gives an implied transaction value of $US40.25 for each InterOil share.
The contingent value right entitles holders to a cash payment linked to the volume of certified resource to be contained in the Elk-Antelope fields. More reserves above a certain limit will mean more for InterOil shareholders in coming years.
Oil Search is also providing a cash alternative for the share component of the deal of up to a total of $US770 million. Any cash not taken up by InterOil shareholders will be used to fund an Oil Search share buyback.
Following the acquisition of InterOil, as well as the sale to Total of a partial stake of InterOil’s other petroleum licences and assets, Oil Search will end up with a 29% stake in the LNG project, and Total will hold 48.1%. Oil Search will receive $US1.2 billion from Total.
The deal assumes the PNG government buys its 22.5% stake in the deal – but seeing it is cash strapped, and under growing pressure over corruption charges, that is not a given.
Oil Search has a 29% stake in the LNG project operated by US giant, Exxon Mobil. Oil Search sees the deal doubling its output by 2023.
The tie-up will “create a major independent PNG oil and gas champion”, Oil Search said in a statement, and is expected to “facilitate cooperation and/or integration” of Papua LNG project, which is operated by France’s Total, and the project, operated by ExxonMobil.
That integration is the big imponderable and other shareholders in the ExxonMobil project will have to agree (as well as Exxon). These include Santos, Nippon Oil and local landowners, who could be a major sticking point. But to get the benefits seen by Oil Search, integration between the Exxon led project and the Total prospect will have to happen.
Oil Search shares fell by just over 1% to $6.83 on Friday on the ASX. InterOil shares surged more than 37% to $US43.57.
OSH vs WPL 1Y – Oil Search to create ‘PNG champion’
In December last year, ASX-listed rival Woodside Petroleum abandoned the $US8.4 billion bid for Oil Search after the latter comprehensively rejected the offer saying it “grossly undervalued the company”. Since that rejection, Woodside has been struggling to articulate a strategy for future growth, a situation exacerbated by the decision not to move to full development of the Browse field (a $US40 billion plus project) off the northern WA coast.
Woodside CEO Peter Coleman said at Friday’s investor briefing that the company Woodside would now focus on acquisitions of assets worth less than $US1 billion.
He said the company had “moved on” from the aborted $11.6 billion Oil Search offer.
"For us, big M&A is not front of mind at all, it has not been for some period of time," Coleman told an investor briefing in Sydney.
The acquisitions would combine with results from an upgraded exploration program to drive a major increase in Woodside’s oil and gas resource base next decade.
They would be in any of Woodside’s five geographic focus areas: Canada, the Atlantic Rim, sub-Saharan Africa, Myanmar and north-west Australia. Woodside revealed it has made two gas strikes near Myanmar.
But the Oil search play for InterOil would have been right up Woodside’s alley because if it had won Oil Search, it would have had a major gas involvement very close to Australia. Now it has to look further afield.
Woodside said on Friday plans to drill 11 to 17 wells in 2017-18 off Myanmar, Australia, Africa, Ireland and Canada. Woodside shares rose 0.3% to $27.09 on Friday.
