M & A

The merger of Beach Energy and Drillsearch Energy has put the spotlight on other potential merger opportunities in the sector as oil and gas explorers respond to the steep decline in commodity prices which has pushed down share prices and in some cases made accessing cash more difficult.

Earlier Friday, Beach and Drillsearch agreed to merge via  a share swap, to create the largest onshore oil and gas producer, worth $1.1 billion.

In response, the deal has put the spotlight on smaller explorers such as Cooper Energy and Strike Energy, which could themselves become merger targets, analysts said.

"A logical extension would be for the Beach/Drillsearch entity to continue consolidation within the sector," Ord Minnett analyst John Young told clients this morning.

"Acquisition of Cooper Energy (in which Beach currently holds just under 20 per cent) would provide a pathway for building a significant presence in eastern Australia gas supply through the Sole (Cooper/Santos) and Manta (Cooper/Beach) gas projects.

"This merger is also likely to spur other M&A activity; we would not be surprised if Senex were to seek additional scale, with Strike Energy a potential target."

With their extensive overlap of exploration and production interests, a tie-up between Drillsearch and Beach has been mooted for some time.

"We're focused on a 'lower-for-longer' scenario for the oil price," Beach's chairman Glenn Davis said, forecasting the oil price would be "flat for the foreseeable future".

"We've got a $US50 a barrell oil price which is obviously here to stay for a period of time," he said.

To achieve growth organically in a depressed oil price environment is difficult, which is why merging is on the agenda.

The Beach-Drillsearch tie-up follows the earlier unwelcome bid by Woodside Petroleum for Oil Search and a rejected bid for Santos which was disclosed earlier this week.


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