Aiming to pave the way for two rival liquefied natural gas projects led by global majors to work together in Papua New Guinea, Australia’s Oil Search Ltd agreed a $2.2 billion deal to acquire InterOil Corp.

Thanks to its high quality gas and low costs PNG is considered one of the best locations for LNG projects in the face of weak oil prices. The country has a ExxonMobil Corp sun existing PNG LNG project and a proposed Total SA Papua LNG project.

Total CEO Patrick Pouyanné said that Oil Search’s move will open opportunities for collaboration and possible integration with ExxonMobil’s project for Total which will boost its stake in Papua LNG as part of the deal.

“It was a deal waiting to happen, a consolidation of the joint venture. Conceptually, it makes a lot of sense and should allow them to go forward to the development phase a lot faster than otherwise would be the case,” said RBC analyst Ben Wilson.

Oil Search has been pushing Papua LNG and PNG LNG, both of which are co-owned by it, to cooperate in order to avoid wasting money on duplicating infrastructure. This happened to the company in Australia where it spent $64 billion in the setting up of three LNG plants next to each other. The takeover of InterOil will give it a bigger stake in Total’s project.

“The days of industry profligacy are past with these sorts of oil and gas prices that we’re experiencing and are likely to experience for some years to come,” Oil Search Chief Executive Peter Botten told Reuters.

It was “open to discussing infrastructure sharing opportunities with other operators where it is technically feasible and commercially attractive for both parties,” ExxonMobil said in an email reply to Reuters.

6.2 trillion cubic feet of gas, more than enough to fill one LNG processing train, is present in the Elk-Antelope fields and InterOil has stakes in it which makes the company a coveted target. Drilling of one more well this year could prove it holds much more.

The company had received a number of other proposals, InterOil CEO Michael Hesson said, but declined to give details

“I can also tell you this was the best proposal,” he told a conference call.

In addition to a contingent value right tied to the size of the eventual reserves in Elk-Antelope, Oil Search is offering 8.05 of its shares for each InterOil share. The offer marked a 27 percent premium to its close on Thursday and the offer value for InterOil was at $40.25 a share up front, Oil Search said.

Oil Search said the deal could see it double its output by 2023.

“We think it’s a very smart deal. It should be well supported,” said Ric Ronge, a portfolio manager at Pengana Capital, which owns shares in Oil Search and Total.

Following the announcement, there was rise of 5 percent in the Shares of Oil Search.

(Adapted from Reuters)