Oil Search Disputes InterOil-Total Deal in Papua New Guinea

Oil Search Ltd. (OSH), Papua New Guinea’s largest oil and gas producer, is contesting Total SA (FP)’s agreement earlier this week to acquire a stake in InterOil Corp. (IOC)’s natural gas discoveries in the Pacific nation.

Oil Search, which agreed last month to buy a stake in the same discoveries for an initial $900 million, lodged a dispute with InterOil, the Port Moresby-based company said today in a statement, without specifying the basis of its complaint.

At stake are fields in Papua New Guinea that may underpin an expansion of the country’s liquefied natural gas industry. Oil Search is already Exxon Mobil Corp.’s partner in the $19 billion Papua New Guinea LNG venture that’s proceeding along with seven others in Australia to tap rising Asian demand. Total and InterOil want to build a second export development based on gas from the Elk and Antelope fields.

If Oil Search stopped Total, it could open the door for Exxon to enter the license and clear the way for the U.S. company to feed an expansion of its LNG project, Benjamin Wilson, a Sydney-based JPMorgan analyst, wrote Feb. 27.

“There are very strong synergies between the PNG LNG project and any development of Elk-Antelope,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said today by phone. “We can only speculate that Oil Search feels that by bringing in Exxon, it’s a more aligned partnership.”

Preemption Right

Oil Search’s deal to buy 22.8 percent of the InterOil fields from minority partners gave the company the right to preempt Total’s initial agreement in December, according to a JPMorgan Chase & Co. report last month. Total and InterOil revised their agreement on March 26, structuring the deal so that Oil Search couldn’t block the accord, according to a Citigroup Inc. report earlier this week.

InterOil will “defend its position strongly,” John Hurst, a spokesman in Sydney, said by phone. An e-mail to Total in Paris outside business hours wasn’t immediately answered.

Oil Search fell 0.7 percent to A$8.36 in Sydney today, while the benchmark index rose 0.3 percent.

Total, Europe’s third-largest oil producer, acquired 40.1 percent of the Elk and Antelope fields, leaving InterOil with 35.5 percent, the companies said this week.

In the revised accord, Total purchased an InterOil subsidiary that held the 40.1 percent stake. That transaction, rather than an acquisition of the stake itself, made Oil Search’s preemption rights unclear, Bernstein’s Beveridge said.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Abhay Singh

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