Beach Energy Ltd. (BPT ? A$0.67), Impress Energy offer - consolidation ambitions in the Cooper western flank Beach Energy has announced a A$73.1m takeover offer for Impress Energy (ITC AU), a small E&P company with assets in the Cooper Basin western flank. With Victoria Petroleum (60% and Operator), ITC holds a 40% interest in four exploration permits, one petroleum retention license and two production licenses, and holds net 2P reserves estimated at 1.1mmbbls and net 2C resources of 17.3mmbls. The offer price represents approximately A$25.80/bbl (2P) or A$2.83/bbl (2C) which is broadly within the range of recent comparable Australian oil transactions. As a strategic move, we think the acquisition seems sound. BPT's western flank assets are in proximity or adjacent to ITC?s licences. There is potential for economies of scale/synergies, e.g. through pipeline infrastructure sharing with BPT-operated fields (via the Callawonga oil facility), or STO-operated fields (via the Tirrawarra production hub). However, both the likelihood and the form of any potential commercial arrangement is opaque, and we hesitate to attribute a value to it currently. The bid price will be funded from BPT?s cash reserves, which are ample currently. However, if BPT follows through on its plans for a relatively heavy exploration and capex program in the next 6-12 months, we think it may need to raise a relatively small amount of cash externally by mid/late 2011 ? probably by drawing debt (it had zero drawn as at 30 Sep 10). We think the offer is likely to succeed, as the premium offered is significant (36% above 1 month VWAP) and the risk of a rival bid emerging is low, given that BPT has acquired options over 19.9% of ITC shares. This arrangement is likely to block a rival Scheme, because the minimum voter turnout that would allow a Scheme to overcome a 19.9% ?no? vote and reach the 75% voting threshold is 79.6%. Historically, the typical Scheme voter turnout is just ~65%. We retain a Hold on Beach at the current share price. In our view, it offers reasonable value for the core Cooper conventional oil and gas business ? with speculative upside from shale and BPT?s other prospects, although the value realization from these would be relatively long-dated. We see Beach as our preferred small/mid cap energy exposure.
I hope Ord Minnett are wrong because it means that ITC IMO will go at a ridicuously low price. I will be very disappointed that Eddie let this happen as he hasnt realised the companys true potential and just wants to make a quick buck and get out.
ITC Price at posting:
7.9¢ Sentiment: Hold Disclosure: Held
