QUEENSLAND GAS CORPORATION has certainly put itself on the map: its coal seam operation is now one of the most sought after assets on the Australian Stock Exchange.
Santos desperately needs it, AGL wants it badly and Origin Energy can see plenty of strategic advantages in having it in its portfolio.
Wind the clock back five years and QGC was just one of those little companies that didn't register on anyone's radar and that only a mother could love.
Yesterday Santos presented a takeover/demerger proposal for QGC that appeared over the top in its generosity, blowing an earlier AGL deal out of the water.
Last year's deal by AGL, which involved a stock placement and supply contracts, was a white knight proposal to rescue QGC from a less generous opening offer from Santos. This deal now appears a little skinny.
Of course, there is always the possibility that AGL could place another deal on the table. But money talks and right now Santos is the party with the biggest chequebook.
Caught in the middle of this is QGC, a teen queen busy choosing between rival suitors. It was happy enough with AGL's deal but has a duty to weigh up the Santos offer.
The trouble for the QGC board is that Santos is offering more money but doesn't have the certainty of execution. The Australian Competition and Consumer Commission has given AGL's deal the green light but has only just got its hands on the latest Santos offer and could find it wanting.
The clever part of the Santos deal is that it is making an offer for the proven reserves owned by QGC, but is proposing to share with existing QGC shareholders the highly prospective reserves - that is, the bit that smells like gas and sits next to those that have been drilled but that has in no way been tested … the blue sky stuff.
Santos wants to demerge this highly prospective bit, take a 30 per cent stake in it and then leave the rest to the true believers who are QGC shareholders.
The idea is that the Santos placement (that will inject $40 million into this new vehicle) will finance exploration costs until the new company becomes self-funding. If there is gas in them thar hills then everyone wins a prize.
Presumably if it takes a little longer and costs a little more then Santos will be happy to kick some more into the tin.
The trouble the QGC board needs to grapple with is that it doesn't know whether or when the Santos deal will get a regulatory go-ahead.
It already has a pretty good deal in front of it from AGL which it has already recommended to shareholders. This is due to be voted on in early March but this could take place before the ACCC has adjudicated on the rival Santos offer.
How the QGC board leaps from this position depends primarily on whether the ACCC can get up to speed sooner rather than later.
So far, what we do know is that on the face of it Santos has delivered a superior proposal. And it did so because it had no choice.
The Santos production numbers released last week make it clear enough that the record profits it has delivered will be in jeopardy unless it buys some additional reserves.
It's got all number of production problems in Indonesia, thanks to a catastrophic mud explosion resulting from drilling by one of its investments, one which is operated by an Indonesian partner. Rectification will be costly but no one can put a precise figure on how costly.
This has also affected production from a nearby facility. A litany of trouble, none of which is the company's making but all of which exacerbates the situation that Santos's main reserves are dwindling.
Suffice to say that Santos is a company that needs to buy a saviour. Right now QGC is it and the board of QGC must know it.
Santos's initial bid for this company was a try-on. Yesterday's revised offer demonstrated it was serious. It is prepared to pay up for reserves it knows are in the ground.
Equally it was happy to play to QGC rhetoric and put a number on the table which would compensate the Queenslanders for the potential reserves. In doing so it is issuing a challenge to QGC to live up to the potential that it claims exists.
For Santos the total outlay is fairly small, in the overall scheme, but highly strategic.
It already has a pretty good deal in front of it from AGL which it has already recommended to shareholders. This is due to be voted on in early March but this could take place before the ACCC has adjudicated on the rival Santos offer.
How the QGC board leaps from this position depends primarily on whether the ACCC can get up to speed sooner rather than later.
So far, what we do know is that on the face of it Santos has delivered a superior proposal. And it did so because it had no choice.
The Santos production numbers released last week make it clear enough that the record profits it has delivered will be in jeopardy unless it buys some additional reserves.
It's got all number of production problems in Indonesia, thanks to a catastrophic mud explosion resulting from drilling by one of its investments, one which is operated by an Indonesian partner. Rectification will be costly but no one can put a precise figure on how costly.
This has also affected production from a nearby facility. A litany of trouble, none of which is the company's making but all of which exacerbates the situation that Santos's main reserves are dwindling.
Suffice to say that Santos is a company that needs to buy a saviour. Right now QGC is it and the board of QGC must know it.
Santos's initial bid for this company was a try-on. Yesterday's revised offer demonstrated it was serious. It is prepared to pay up for reserves it knows are in the ground.
Equally it was happy to play to QGC rhetoric and put a number on the table which would compensate the Queenslanders for the potential reserves. In doing so it is issuing a challenge to QGC to live up to the potential that it claims exists.
For Santos the total outlay is fairly small, in the overall scheme, but highly strategic.
QGC Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
