Oil Search’s InterOil bid wipes out $US1bn of value, Mulacek says

InterOil founder and still significant shareholder Phil Mulacek says Oil Search’s bid wipes out $US1bn of value.

InterOil founder and still significant shareholder Phil Mulacek says Oil Search’s $US2.2 billion scrip bid for the Papua New Guinea oil and gas explorer wipes out $US1bn of shareholder value and should be changed.

Instead, Mr Mulacek, who is trying to take control of the board of the Singapore-based, New York-listed InterOil at the annual general meeting next month, wants to delay the payment of contingent value rights (CVRs) for two years after first LNG production so the full extent of the giant Elk/Antelope fields can be assessed.

“The InterOil board of directors have once again demonstrated their lack of alignment with the interests of InterOil shareholders by unanimously approving a proposed bid by Oil Search supported by a back-in from Total,” he said in a statement overnight from Houston.

“After discussions with institutions and other shareholders, we believe the Oil Search/Total bid significantly undervalues InterOil, and incredibly, wipes out about $US1bn in future shareholder value from what InterOil was already entitled to receive (under a deal with Total).”

Mr Mulacek’s opposition to the deal, in which Oil Search will buy InterOil with scrip then sell down the resultant stake in the Elk/Antelope discovery to French oil major Total, was flagged in The Australian today.

But analysts still expect the deal to pass muster with the required two-thirds of InterOil shareholders.

Mr Mulacek owns about 5 per cent of InterOil and speaks for more than 7 per cent of the shares.

The deal is worth $US40.25 a share, plus CVRs valued at $US6.05 for each trillion cubic feet of gas over the current 6.2tcf certified at the discovery by the first half of next year.

Mr Mulacek said: “We propose to maintain the original structure of the Total resource payment by delaying the ‘CVR’ payment until after two years of stable LNG production instead of prior to production, so that the resource is fully defined and Oil Search and Total have the benefit of receiving project cash flows for some time before payment is made.”

Mr Mulacek believes the Elk/Antelope field could ultimately hold up to 12.5tcf of gas, which is what he is basing his calculation of $US1bn of value being given away on.

Mr Mulacek’s flagged changes would essentially bring back a wildcard certification option that was in the original deal InterOil did with Total but that was lost in the Oil Search deal.

That option allowed InterOil to call for a second certification any time before 25 per cent of the field has been produced.

Mr Mulacek says the CVR should not be paid until two years after the 2022 or 2023 first start that is being targeted, delaying payments to InterOil holders compared to the Oil Search deal on the table.

Still, shareholders would be able to trade the CVRs on the ASX if they wanted earlier payment.

This morning, Oil Search shares were off 5.5c, or 1.8 per cent, at $6.50, down more than the broader ASX energy index, whcih was off 0.7 per cent.