Two challenges ahead for acquisitive Oil Search

Oil Search

InterOil and Oil Search first struck up informal merger talks late last year even as the Australian-listed company remained in the crosshairs of its larger Perth-based rival, Woodside Petroleum.

While that half-formed takeover tilt was finally abandoned in December, Oil Search, having transformed from the hunted into the hunter, faces two potential challenges before it can claim its quarry.

The first and by far the biggest threat is a counter-offer from US energy giant ExxonMobil.

Yet while this scenario cannot be discounted, sources point out that Oil Search’s boss, Peter Botten, has forged a strong relationship with Exxon, its major partner in the $US19bn PNG LNG project, and may even have extracted a tacit understanding that it could take a clear run at InterOil.

Indeed it is argued the tie-up, flagged this month by The Australian’sDataRoom column, is likely to render the enlarged Oil Search an even more attractive target for a major.

The second challenge to Botten’s charge is the shareholder skirmish at InterOil, fuelled by the company’s founder, Phil Mulacek, who retains a small holding in the New York-listed, Alaskan-incorporated explorer.

A campaign to spill the board has gained some traction among retail investors, who comprise more than 20 per cent of the register, according to sources close to the company. A number of these investors snapped up their shares when oil prices were riding high and InterOil was trumpeting its partnership with the French energy giant Total. Back then the shares soared up to $US92.36 — a far cry from the bid price of $US40.25 a share, although future exploration results could drive this valuation to $US50 a share.

Mulacek, who was replaced by ex-Woodside executive Michael Hession after a bitter boardroom battle, is expected to argue this figure is too low.

He launched his putsch on his former company earlier this year and has argued InterOil’s share price vastly undervalues other tenements aside from its main asset in the Elk and Antelope fields that Hession has described as the single biggest gas discovery in the region in two decades.

Mulacek’s management of the company during his era is unlikely to tempt back institutional investors and unless he drafts in a partner his rebellion is expected to be confined to a small corner of the register. A meeting on Mulacek’s alternative director list will be held on June 14.

After that attention will turn to the vote on the Oil Search tilt.

The Australian company was invited into InterOil’s dataroom earlier this year. So too were at least three other competitors, one of which was Exxon.