InterOil Turning Into Target as CEO Retires: Real M&A

InterOil Corp., the natural gas explorer in the South Pacific that’s seeking a partner for its biggest project, may attract an acquirer instead after its founder retired this week.

Royal Dutch Shell Plc and Exxon Mobil Corp. are among the world’s largest energy companies that have been bidding for gas assets so they can ship the fuel to Asia, where it fetches more than triple the North American price. InterOil, which needs a partner to help finance its Papua New Guinea liquefied natural gas project, is without a chief executive officer. With one of the region’s largest gas fields, the U.S.-listed company may be a tempting target, said Raymond James Financial Inc.

While InterOil, which is incorporated in Yukon, Canada, already commands a higher multiple of profit than 98 percent of energy stocks, striking a deal now would allow a buyer to get a hold of the company before its shares gain another 39 percent in the next 12 months, according to data and analysts’ estimates compiled by Bloomberg. The departure of founder and CEO Phil Mulacek boosts the likelihood that suitors will bid for either a larger piece of its resource base or the entire $3.8 billion company, Westlake Securities LLC said.

“I see his resignation as really clearing the deck,” Tony Regan, Singapore-based principal consultant at Tri-Zen International Pte, an oil and gas advisory business, said in a telephone interview. “With him gone, a deal can be done. They could be a takeover target, but equally, there’s an opportunity now for a credible LNG partner to come in and join them.”

Stock Surge

Representatives for InterOil weren’t available to comment on whether it’s for sale or has received offers, Meg LaSalle, the company’s investor relations coordinator, said in an e-mail.

Shares of InterOil have advanced 39 percent this year as the company inches closer to finding a partner to help finance its proposed LNG plant in Papua New Guinea, an island nation that lies about 160 kilometers (99 miles) to the northeast of Australia.

InterOil indicated April 15 that there are multiple bidders that want an interest in the Elk and Antelope fields, which will eventually produce gas to export to Asian cities. InterOil expects production of least 3.8 million metric tons per year.

Last week, the company surprised shareholders by announcing that Mulacek would retire from the CEO post April 30 and that a search is under way for his replacement. That’s opened the door for a possible acquisition of the company, said Chris McDougall, an Austin, Texas-based analyst at Westlake Securities.

Sale Catalyst

“Mid-size oil and gas companies that are developing large resources, such as InterOil, know that a possible outcome at some point in the company’s existence is for it to be acquired by a major player,” McDougall said in a phone interview. “Mr. Mulacek’s departure makes it more likely that the company will sell off a large portion of the resource or perhaps the whole company.”

While the Elk and Antelope fields aren’t producing yet, InterOil does provide petroleum products to gas stations in Papua New Guinea and has a refining business, according to its year-end report.

InterOil’s enterprise value -- market capitalization plus net debt -- is equal to 58 times this year’s estimated earnings before interest, taxes, depreciation and amortization. That’s a higher Ebitda multiple than that of 98 percent of energy companies valued at more than $1 billion, data compiled by Bloomberg show.

Analysts project the stock will continue climbing in the next 12 months. Their average share-price estimate is $107.50, versus its closing price yesterday of $77.18, the data show.

Today, InterOil shares rose 4 cents to $77.22.

Tempting Target

“The management team is not seeking a corporate takeover, but it could be a target -- and a tempting one -- for some major international oil companies,” Pavel Molchanov, a Houston-based analyst at Raymond James, said in a phone interview. An acquirer would have to pay “a substantial premium” to account for future production.

InterOil currently trades for about 70 cents per thousand cubic feet of gas in the ground, according to Molchanov. He said that similar transactions in the South Pacific over the last five years were struck at $1.20 per mcf.

Cove Energy Plc, another gas explorer whose biggest asset is in Mozambique, was the target of a bidding war last year between Shell and Thailand’s PTT Exploration & Production Pcl. Shell, Europe’s biggest oil company by market value, dropped out of the race in July. That month, Shell told analysts that it had discussions with InterOil and that it was interested in its Papua New Guinea LNG plant.

Chevron Corp., the world’s third-biggest energy company, has a project on Australia’s Barrow Island nature reserve that is expected to deliver its first LNG cargoes in early 2015.

Export Focus

Both Shell and Chevron “seem to be prepared to put a lot of money into gas and LNG in this part of the world,” Tri-Zen’s Regan said. “Certainly, the government would like to see Shell, Chevron, one of the majors, come in.”

Korea Gas Corp., the world’s biggest LNG importer, also showed interest in InterOil last year. The company said in August that it agreed to form a consortium with Mitsui & Co. and Japan Petroleum Exploration Co. that would seek to partner with InterOil on the Papua New Guinea project.

Exxon, the world’s largest energy company, operates a $19 billion LNG project in Papua New Guinea with partners Oil Search Ltd. and Santos Ltd. Exxon said in December it expects the country will supply more than 10 million metric tons of LNG annually by 2025 and that the Asia-Pacific region will account for 29 percent of worldwide gas demand in 2040.

‘Impressive’ Assets

Japan’s average import price for natural gas, the Asian benchmark, was $16.81 a million British thermal units in February, the last month for which data is available. North American natural gas traded at $4.33 yesterday.

Representatives for The Hague-based Shell, San Ramon, California-based Chevron, and Exxon in Irving, Texas, declined to comment on whether their companies are interested in buying InterOil. Lee Sang Wook, a Korea Gas spokesman, had no immediate comment.

InterOil said last week, after announcing the CEO’s exit, that it adopted a new poison pill, which would make a hostile takeover of the company more expensive. Still, a full takeover is possible, said Raymond James’s Molchanov.

“InterOil has a very impressive and unique asset base,” he said. “We know that LNG gas is a very popular theme and, for someone that perhaps wants to boost their LNG presence in the Asia Pacific, buying InterOil could be one way of doing that.”

Before it's here, it's on the Bloomberg Terminal.