PICTURE BY JAMES DAVIES. DUKE ENERGY AUSTRALIA LAUNCH OF THE GAS TRADING HUB. LONGFORD VICTORIA. VICHUB CONNECTS THE EASTERN PIPELINE AND THE TASMANIAN GAS PIPELINE TO THE GASNET SYSTEM. GAS NATURAL GAS PIPE LINE ENERGY TRADING HUB INTERCONNECTION MARKET VICHUB SPECIALX 001Gas producer AWE’s board has backed a takeover offer from fellow n resources company Mineral Resources after it sweetened the deal, trumping a rival Chinese bid.
The improved offer values AWE at about 83?? a share, or $526 million, and includes a mix of cash and scrip. Mineral Resources’ previous all-scrip bid valued AWE at 80?? a share.
On Wednesday, AWE’s share price rose to a two-year high, reaching 89?? before ending the day at 88??, lifting the company’s market cap to $532.62 million. Its shares closed at 85.5?? each on Thursday.
Mineral Resources’ approved offer consists of a scheme of arrangement comprising 41.5?? in cash and between 0.0198 and 0.0277 Mineral Resources shares per AWE share.
AWE shareholders will have the option of receiving either 100 per cent cash or 100 per cent scrip. Allocations may be scaled back to ensure the total consideration paid is split evenly between cash and scrip.
AWE chairman Kenneth Williams said Mineral Resources’ most recent offer was attractive.
“Shareholders who receive Mineral Resources shares can choose to remain invested in the larger and more liquid Mineral Resources, or they can choose to sell their new Mineral Resources shares for cash,” Mr Williams said.
A vote on the scheme and takeover will be held in mid-April, which would allow the deal to be implemented by early May.
The deal continues Mineral Resources’ entry into the oil and gas space, following its acquisition of a major stake in Empire Oil and Gas in 2016.
Mineral Resources’ original all-scrip offer would have seen AWE shareholders collectively become one of the larger shareholders in Mineral Resources, owning about 13.1 per cent of the combined group.
At the time, sources close to AWE indicated the offer undervalued the company.
“We don’t know if an 80?? all-scrip offer is enough to win the day,” a source close to the process told Fairfax Media.
The rival bid on the table from China Energy Reserve and Chemical Group was an all-cash offer of 73?? a share, or $463 million.
Mineral Resources’ revised 83?? offer is a 52.3 per cent premium on AWE’s share price on November 29 – before the first offer lobbed for the group – and a 51.9 per cent premium on its volume weighted average price of 54.6?? a share.
AWE chief executive David Biggs said the company worked with Mineral Resources to improve the offer.
“The price went up and the scrip component now has a variable component to it,” Mr Biggs said.
He said the focus for the company – outside the acquisition process – would now be on the development of its Waitsia gas project in Western and its Casino Henry joint venture.
RBC Capital Markets analyst Ben Wilson said Mineral Resources’s revision of its initial offer removed some shareholder reservations around the all-scrip bid.
“We believe the form of the revised bid somewhat mitigates many of the uncertainties attached to the initial scrip bid,” Mr Wilson said.
“While the revised offer from MinRes is below the implied 86?? a share value based on MinRes’ closing price from yesterday, we expect the form of the revised bid will give shareholders increased certainty.”
CERCG still has the opportunity to put in a counter-offer, although, despite the Chinese state-owned firm’s aggressiveness in its original bidding, sources close to the company believe it is unlikely.
If Mineral Resources scheme of arrangement is implemented, AWE shareholders will own approximately 6.8 per cent of its acquirer.
Considering Mineral Resources last trading price of $19.26 a share, this values AWE’s holding in the company at $210.8 million. Why was AWE a takeover target?
The bidding war between Mineral Resources and China Energy Reserve and Chemical Group arose as both companies sought access to AWE’s share in the Waitsia gas project.
The Waitsia project is considered the jewel in the crown of AWE, and was discovered by accident when the company was drilling for unconventional, tight gas in the Perth Basin and stumbled across this conventional gas source at depth.
In its 2017 third-quarter results, the group had already lifted its proven and probable reserves to 456 petajoules of gas.
An independent review in November lifted this figure to 811 petajoules, of which AWE’s share is 50 per cent, split evenly with joint venture partner Beach Energy.
This review also lifted AWE’s 3P reserves – that is proven, probable and possible – to 1,219.6 petajoules, and it has the potential to expand these reserves well beyond its current levels.
Earlier this week, AWE increased its Waitsia proven and probable reserves, making it one of the five largest onshore gas fields ever discovered in , the largest discovery in nearly half a century.
This increase means the Waitisia project has the capability to supply the domestic market with around 100 terajoules of gas a day – or one petajoule a fortnight – for at least 20 years, from its conventional reservoirs.
It does not include the potential tight gas resource, which is inaccessible due to Western ‘s current moratorium on fracking, which is the method required to extract this form of gas.
The sale of AWE comes as Origin announces a deal to buy up to 14 petajoules of gas, or 100 per cent of the output, from AWE’s Casino Henry joint venture.