InterOil Corp. (IOC:US) lost more than a third of its market value after agreeing to sell Total SA (TOT:US) a majority stake in its Papua New Guinea natural gas discoveries for a price that won’t be known for at least a year.
The shares tumbled 37 percent to $55.50 at the close in New York yesterday, the biggest decline since 2002.
InterOil will divest to Total a 61.3 percent stake in an exploration license in the South Pacific nation that includes the Elk and Antelope gas fields. The French oil producer also will acquire rights to invest in additional exploration blocks and to develop a liquefied gas export terminal, InterOil said in a statement.
InterOil priced the deal at $1.5 billion to $3.6 billion, though it won’t receive a definitive price until at least 2015, Pavel Molchanov, an analyst at Raymond James & Associates Inc., said in a note to clients yesterday. “There are some elements of uncertainty/ambiguity,” still to be resolved, he said.
InterOil, which has no reserves after more than 10 years of prospecting, has been searching for a major international partner to help fund a gas-export complex since Bank of America Corp.’s Merril Lynch quit the project in 2009. InterOil said in May that it was in discussions with Exxon Mobil Corp. (XOM:US), which is already building its own $19 billion gas terminal in the country.
Total will operate the proposed LNG project, which will depend on the gas resources being certified and engineering and design work, the Paris-based company said in a statement yesterday. InterOil said it will keep 30 percent of an LNG development.
A final investment decision to develop the fields and build an onshore liquefaction plant on the Gulf of Papua may come in 2016, it said. Total also has an option to take an interest in three other exploration licenses in the area. This comes in addition to the stakes in other offshore and onshore permits it already holds.
The planned LNG development would follow Exxon’s venture in Papua New Guinea, which is proceeding along with seven others in Australia that are estimated to cost about $180 billion. Exxon said earlier this year that it was interested in InterOil’s assets to help expand its LNG project.
Total reached a deal last year with Port Moresby-based Oil Search, which owns a 29 percent stake in the Exxon project, to explore for gas in PNG, while Royal Dutch Shell Plc (RDSA) said in 2011 it would look at opportunities in the country.
Elk-Antelope is one of the largest discoveries in Asia in the past two decades, InterOil Chief Executive Officer Michael Hession said in the statement. Phil Mulacek, who founded the Papua New Guinea exploration company, retired as CEO in April.
“PNG has very substantial gas resources, and this brings in a world-class LNG operator,” Tony Regan, a Singapore-based energy consultant at Tri-Zen International Inc., said today in a phone interview. “This deal will give people confidence that these reserves can now be monetized as LNG.”
Mulacek founded InterOil in the 1990s when he disassembled an Alaskan oil refinery, refurbished it in Texas and shipped it to Papua New Guinea. The refinery gave Mulacek a foothold to acquire exploration rights in the Eastern Papuan Basin.
Payments to InterOil include $613 million on the completion of the transaction, expected in the first quarter of 2014, and $112 million after a final investment decision for a new LNG plant, InterOil said. Total will pay a further $100 million after the first LNG cargo, InterOil said. Variable payments will depend on the size of the resources, estimated at 5.4 trillion to 9 trillion cubic feet of gas it said.
InterOil was advised by Credit Suisse Group AG. In its separate statement, Total said it will pay $470 million for a 42 percent interest in the PNG gas fields. The French company noted that the size of its stake may drop from 61.3 percent should a “strategic partner” acquire up to 19.3 percent interest and even further to 32.5 percent should the government join the project.
Total would pay an additional contingent payment of “approximately” $590 million, it said.
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