Exxon Mobil Corp. (XOM) is set to acquire InterOil Corporation (IOC), a natural gas explorer, for over $2.5 billion in an all-stock deal. The move will give the oil giant access to InterOil’s Papua New Guinea gas fields and will cater to Exxon’s export plant.

InterOil holds 36.5% stake in the potential liquefied natural gas source at Elk-Antelope in Papua New Guinea, where the proposed LNG project will be set up. Including Elk-Antelope, the deal involves interests in six licenses, covering over four million acres in Papua New Guinea. (See also: ExxonMobil's $2.2B Bidding War.)

Rex W. Tillerson, chairman and chief executive officer of Exxon Mobil Corporation, said in the announcement Thursday that this deal "will enable ExxonMobil to create value for the shareholders of both companies and the people of Papua New Guinea.” He added, “InterOil’s resources will enhance ExxonMobil’s already successful business in Papua New Guinea and bolster the company’s strong position in liquefied natural gas.”

ExxonMobil won the deal over Oil Search Ltd., an oil and gas drilling and development company in Papua New Guinea, which had bid about $2.2 billion.

According to the deal, ExxonMobil will pay $45 per share in stock to the InterOil shareholders, which is about 8% less than InterOil’s closing price on Wednesday, the day before the deal was announced. ExxonMobil is also liable to make a ‘Contingent Resource Payment’(CRP), which includes a cash amount of $7.07 for every share for each trillion cubic feet equivalent (tcfe) gross resource certification of the field above 6.2 tcfe, up to a maximum of 10 tcfe.

Chris Finlayson, chairman of InterOil, said, “Our board of directors thoroughly reviewed the Exxon Mobil transaction and concluded that it delivers superior value to InterOil shareholders. They will also benefit from their interest in Exxon Mobil’s diverse asset base and dividend stream.”

Irving, Texas-based Exxon said in a statement on Thursday that the company will utilize its own stock and cash to pay per share to InterOil shareholders.

The Deal

The agreement between the two companies may prove to be the biggest acquisition by Exxon since the 2010 purchase of the U.S. shale explorer XTO Energy for $35 billion. Exxon revealed plans to export gas from the Elk-Antelope field to its PNG LNG complex on the coast of the South Pacific nation.

The company said in the statement, “Exxon Mobil will work with co-venturers and the government to evaluate processing of gas from the Elk-Antelope field by expanding the PNG LNG project. This would take advantage of synergies offered by expansion of an existing project to realize time and cost reductions that would benefit the PNG Treasury, the government’s holding in Oil Search, other shareholders and landowners.” (See also: S&P Downgrades Exxon Mobil, 1st Time since 1949.)

The Bottom Line

Shares of both ExxonMobil and InterOil Corp. declined following the announcement on Thursday as investors were not impressed with the deal. However, the stock prices recovered on Friday. While Exxon Mobil was up 0.17%, shares of InterOil Corp. increased by 1.23%.