With OSH outstanding shorts at 9.3% as of 4 days ago and the SP sitting at overhead resistance, if it cracks above then a short squeeze could be enjoyed!!
Helpful article just posted in The Australian:
Oil Search’s win-win manoeuvre
THE AUSTRALIAN4:32PM JULY 18, 2016
Stephen Bartholomeusz
Business Spectator columnist
Melbourne
Peter Botten and Oil Search shareholders are in an interesting and enviable position. They might well be better off losing the takeover contest for InterOil than winning it.
In May Oil Search bid for InterOil in partnership with France’s Total, in a structure that would have seen them pay about $US2.2 billion in cash and shares, of which Oil Search would have contributed about $US1bn after selling some of InterOil’s gas resources and exploration interests to its bid partner.
Today ExxonMobil put a counter-bid on the table, offering $US45 per share in fixed-price scrip (which, given the nature of Exxon Mobil and its shares, is akin to cash) plus a “contingent resource payment” if InterOil’s Elk-Antelope resource lives up to InterOil’s optimistic expectations. The certification process for establishing the size of the resource is expected before the end of this year.
InterOil is recommending the ExxonMobil offer, which gives Oil Search and Total three days to decide whether to match or better the rival proposal.
Oil Search is in a “no lose” position. It has a 22.8 per cent interest of its own in the Elk-Antelope fields in Papua New Guinea that underpin the planned Papua LNG project. Total, with 40 per cent, is the operator, while InterOil has 36.5 per cent.
Separately, Oil Search has a 29 per cent interest in the ExxonMobil-operated PNG LNG project, which has been operating since 2014 and is regarded as one of the world’s best LNG projects.
Papua LNG’s proposed $US16bn plant is to be located next to the PNG LNG facility. With the estimated reductions in capital costs and the operating synergies from either co-operation or from integrating the two projects running into the billions of dollars, Oil Search, with interests in both projects, would be a major beneficiary regardless of the outcome of the bidding for InterOil.
Indeed, if ExxonMobil prevails, the outcome for shareholders might be better than if Oil Search and Total were to launch a successful response, given that Oil Search wouldn’t be issuing and shares or outlaying cash but would still have its exposures to the benefits accruing to both projects.
Total, of course, would only be exposed to one of the projects, albeit one in which it is the operator, unless it could negotiate a restructuring and merging of the ownership of the two LNG projects in PNG.
If Total and Oil Search are to compete with Exxon Mobil, one suspects it is Total that will have to make the major additional contribution. If they walk away, Oil Search ($US48 million) and Total ($US12m) will share a $US60m break fee.
It isn’t surprising that Exxon Mobil countered the bid by Oil Search and Total; the real surprise is that it didn’t make the first move to grab InterOil and a stronger position in negotiating with Total to try to realise the benefits of bringing Papua LNG next to its existing interests.
While the PNG Government might have some qualms about the prospect of ExxonMobil gaining a substantial interest in its other big LNG project, the likely acceleration in the timetable for developing the project and generating cash flows and the massive prospective improvement in its economics would be compelling.
The government, which has a 16.57 per cent interest in PNG LNG, also has rights to participate in Papua LNG and therefore is in a similar position to Oil Search to capture a slice of the benefits from any co-ordination between the two projects.
Regardless of the outcome, the wisdom of Botten’s 2014 decision to buy into the Papua LNG project has been underscored by the win-win position Oil Search now finds itself in.
OSH Price at posting:
$7.25 Sentiment: Hold Disclosure: Held
