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Exxon has increased the additional cash payment offered to InterOil shareholders as part of a US$2.5-billion all-stock takeover proposal that was first announced in July. As a result, the deal should close by March 31, 2017, which has been set as an outside date for the acquisition, according to InterOil.
Initially, Exxon had offered InterOil a total of US$71.87 per share in stock and cash. This has now been raised to US$78.94 per share, after a ruling by the Canadian Federal Court of Appeals.
InterOil holds the rights to the Elk-Antelope gas field in Papua New Guinea, one of the largest undeveloped gas fields in Asia. The company’s best estimates for the field’s reserves are 7.8 trillion cu ft.
Exxon was not the only suitor for InterOil: it competed with Papua-based Oil Search, which offered less for the business. Although InterOil’s shareholders were in favor of the Exxon takeover, ex-CEO Phil Mulacek opposed it and took Exxon to court in Canada over it, claiming the offer undervalued the business.
The Federal Court of Appeal ruled in favor of the chief executive and his argument that the Elk-Antelope formation could hold as much as 2 billion barrels of oil equivalent, an amount equal to 10 percent of Exxon’s current reserves.
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As a result, Exxon was forced to raise the upper limit of its offer, which is based on resource estimates. The original amount was a flat US$45 in cash per InterOil share, plus an additional US$7.07 for every trillion cubic ft of natural gas discovered at Elk-Antelope above a minimum level of 6.2 tcf. The upper limit was 10 tcf, which has now been raised to 11 tcf, hence the updated total of US$7.94 in cash and stock.
In exchange, the termination fee for InterOil has been increased to US$100 million, from US$67 million.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.