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Exxon Bids $2.5 billion For LNG Assets in Papua New Guinea

InterOil Papua New Guinea

ExxonMobil has bid $2.5 billion for InterOil Corp. as it tries to outmaneuver French oil giant Total for natural gas assets in Papua New Guinea.

Exxon’s bid surpasses that of Oil Search Ltd., which is backed by Total. Total is pursuing an LNG export project in Papua New Guinea, where Exxon already operates the Papua New Guinea LNG (PNG LNG) facility, the country’s only gas export project. Exxon could increase its stakes in key natural gas fields in the country through its takeover of InterOil, gas fields that would be used to feed its export terminal. The gas fields have reserves equivalent to three years’ worth of gas consumption in the UK.

“This was widely expected by the market and looks at first glance to be in line with our estimates that Exxon’s bid would be 10 percent higher than the original Oil Search bid,” Neil Beveridge, an analyst at Sanford C. Bernstein, told Bloomberg. “The key question now is whether we see a counter-bid from Total and Oil Search."

Exxon’s bid beats out the offer from Australian-based Oil Search, which has a stake in Exxon’s PNG LNG as well as the planned second terminal with InterOil, a project dubbed Papua LNG. If Oil Search were to acquire InterOil, Total said that it would buy a stake in a natural gas field.

The Papua LNG project has more favorable geography than Exxon’s PNG LNG, as the gas fields are located closer to the coast where the export terminal would be constructed.

Oil Search has until July 21 to submit a new offer.

The end result could be an acceleration of LNG exports from Papua New Guinea if and when the second terminal comes online. Papua New Guinea is well-positioned to export gas to Asian markets where demand growth is the highest.

Nevertheless, global LNG markets are in a severe downturn, with excess supply running up against slowing demand. That has companies like Exxon, Total, Oil Search and others focusing their efforts on some of the few places where LNG can be competitive. Papua New Guinea apparently tops that list.

By Charles Kennedy of Oilprice.com

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