the australian commentary

SOME takeover proposals are destined to become the stuff of epic saga - contested and protracted a la Warrnambool Cheese & Butter - while others are snuffed out before they even become official proposals.
Senex's (SXY, 73c) non-binding proposal for scrip merger with fellow oil and gas producer AWE (AWE, $1.27) falls squarely in the latter, first mooted last Wednesday and pronounced plugged and abandoned by the suitor this morning after AWE declared the offer as "not in the best interests of AWE shareholders and accordingly not appropriate to pursue".

Even as an opening gambit, Senex's entreaty of 1.9 Senex shares for every AWE share hardly reeked of yuletide generosity, valuing AWA shares at $1.44 compared with the $1.18 close last Thursday (the shares were placed on trading halt on Friday).

AWE shares are trading at six-month lows, despite management's deal to sell half of its Indonesian project Ande Ande Lumut to Santos for $US188m.

On a dollar value per reserves, AWE claims to be the cheapest of its local peers and also the second cheapest based on its (2P) reserves of 114 million barrels of oil equivalent.

It's now a moot point whether a better deal could have been winkled out of Senex over a convivial cuppa.

The merged entity would have expanded Senex's emphasis on the Cooper basin to AWA's diverse interests that include Casino in the Otway Basin (25 per cent share), Cliff Head offshore WA (57.5 per cent), Tui in NZ (42.5 per cent) and a 46.5 per cent share in the Bass Gas venture.

The question now is whether the approach spurs other suitors into action and whether it signals a wider shake-out of the junior oil and gas sector that has been quiet M&A wise. With valuations subdued and with domestic gas prices tipped to soar, now's the time.

Foster Stockbroking helpful nominates Cooper Basin stalwart Beach Petroleum (BPT, $1.34), which may avail of the chance to take out Cooper Energy (COE, 43c), in which it already has an 18 per cent stake.

Then again, Beach itself could prove a bite-sized morsel for US giant Chevron, its partner in some of Beach's Cooper Basin ground.

In the meantime Senex notes that since July it's drilled eleven successful wells out of 13 and won't hang around moping.

Criterion rated AWE as a spec buy at $1.29 on March 6, after a small geothermal exploration deal with Greenrock Energy. We happily maintain the call.

Our calls on Beach and Senex are lost in the (oil-bearing) sands of time and are thus subject to review.