Oil Search makes $2.2 billion bid for PNG rival InterOil

MELBOURNE (Reuters) - Oil Search Ltd (OSH.AX) has agreed on a takeover offer worth $2.2 billion (£1.5 billion) for its Papua New Guinea rival InterOil Corp (IOC.N) and said on Friday it would sell part of InterOil's key asset to French giant Total SA (TOTF.PA).

The deal could pave the way for consolidating rival plans by Total and ExxonMobil Corp (XOM.N) for liquefied natural gas developments in Papua New Guinea, considered one of the best locations for LNG projects in a world of weak oil prices.

"The combination will create a major independent PNG oil and gas champion and is expected to facilitate cooperation and/or integration of the Papua LNG Project and the PNG LNG Project, unlocking significant value for all stakeholders," Oil Search said.

Oil Search wants InterOil for its stake in the Elk-Antelope gas fields, which could supply a new liquefied natural gas project in Papua New Guinea, Papua LNG operated by Total, or an expansion of the existing plant, PNG LNG, operated by ExxonMobil Corp and co-owned by Oil Search.

"The InterOil board has thoroughly considered this transaction and we believe it delivers significant value to all InterOil shareholders," InterOil Chairman Chris Finlayson said in a statement.

Interoil CEO Michael Hession told a briefing the company had received a number of other proposals, but Oil Search's offer was the best.

Oil Search is offering 8.05 of its shares plus a contingent value right tied to the size of the eventual reserves in Elk-Antelope for each InterOil share. Oil Search said the offer valued InterOil at $40.25 a share, a 27 percent premium to InterOil's close on Thursday.

"Oil Search believes that the acquisition of InterOil represents an excellent outcome for InterOil and Oil Search shareholders and enables both companies to benefit from the value created through the commercialisation of the gas resources in PRL 15 (Elk-Antelope)," Oil Search Chairman Rick Lee said.

Oil Search will end up with a 29 percent stake in the Papua LNG project, complementing its 29 percent stake in PNG LNG, if the deals with InterOil and Total go ahead. Total will hold a 48 percent stake in Papua LNG.

The deal follows Oil Search's rejection last year of an $8 billion takeover offer from Woodside Petroleum, which wanted Oil Search for its stakes in the PNG LNG project and Elk-Antelope.

Oil Search and InterOil said they expect the deal to close in the third quarter of this year.

(Reporting by Sonali Paul; Editing by Richard Pullin)