Strike Energy Limited offers an update on its Perth Basin strategy and merger proposal with Warrego Energy Limited.
The update comes as Warrego inks a Scheme Implementation Deed with Beach Energy.
Strike Energy has expressed disappointment with Warrego’s decision to sign a deal with Beach Energy, noting it believes its proposal provides a better outcome for Warrego shareholders.
In a statement, Strike said its proposed merger would result in a uniquely positioned ASX-listed investment opportunity with a commanding position in the Perth Basin armed with its sustainable energy and fertiliser growth strategy, allowing Warrego shareholders to partake in the portfolio’s combined potential.
“The proposed merger of Strike and Warrego provides an attractive opportunity to deliver compelling value accretion to both Strike and Warrego shareholders as historically demonstrated by similar ASX-listed transactions. The merged entity would become, what Strike considers to be, the premier Perth Basin investment opportunity and a national leader in sustainable energy development with its unique integrated gas, fertiliser, and renewables strategy,” Strike Managing Director and Chief Executive Officer Stuart Nicholls said.
Strike also points out that, as of 14 November 2022, based on the latest traded price, Strike’s proposal suggests an offer price of A$0.217 per share, a 3.3 per cent premium to Warrego’s closing price of A$0.21 per share, while Beach’s proposal represents a 4.8 per cent discount to Warrego’s closing price. Strike’s offer is currently 8.5 per cent more than Beach Energy’s. Strike’s Board of Directors is reviewing its strategic options.
“The merger offers a path to maximise value for both Strike and Warrego shareholders, opportunity for roll over tax relief and continuation to participate in a focussed business with impending cashflows. As a result of the merger, Strike expects that it can accelerate, maximise and optimise the gas production, cashflows and capital, whilst reducing the carbon footprint of the Erregulla domestic gas project. This is a unique opportunity for both sets of shareholders, and we implore Warrego’s Board to reconsider their recommendation to support the Beach proposal, reassess Strike’s proposed merger and declare it as a superior proposal,” Nicholls stated.
Erregulla Domestic Gas Project Strategy Update
The Erregulla domestic gas project can be hastened, maximised, and optimised under a merged corporation. Strike argues that by relocating the proposed gas plant onto its 3,500-hectare freehold farm and implementing discrete value engineering, the following outcomes can be achieved:
- Upfront debottlenecking to increase the gas plant’s starting throughput to >90 TJ/d while planning costs out.
- Environmental approvals will be expedited because they will no longer need the removal of over 100 hectares of natural vegetation or habitat clearing, as well as the acquisition of leases and offset areas.
- Access to at least six well locations (and direct flow lines) on the Precinct does not require vegetation (habitat) clearing or onerous approvals to connect to the gas plant.
- Integration of Precinct renewables capacity to eliminate approximately 30 per cent of total CO2e emissions can be avoided by reducing fuel gas usage by 3 TJ/d (1 PJ pa), which can then be sold on the market.
If the proposed merger by Strike does not go through, Strike, as the operator in the Erregulla region, may attempt to carry out the aforesaid optimisation and re-sequence the development order of its Erregulla assets. Strike has a great degree of flexibility to prioritise value-driven results for Strike shareholders. As a result, if and while West Erregulla’s joint venture structure is changed, Strike may try to increase domestic gas production from its 100 per cent owned South Erregulla gas well while maintaining residual feed gas and West Erregulla gas resources for the Project Haber fertiliser development.
Strength of Strike’s Proposal and Transaction Rationale
Strike’s merger proposal ensures continuous and focused ownership and exposure to the attractive and developing Perth Basin. Beach Energy’s proposal, on the other hand, assigns a final and terminal value to Warrego, depriving its shareholders of the opportunity to unlock the inherent latent value and synergies created by the merger of joint venture partners while also crystallising taxation events for Warrego shareholders.
Joint venture combinations have historically freed imprisoned value, and the amalgamated firms have outperformed their original parts. Mergers such as Santos-Oil Search and Beach-Drill search are recent and high-profile examples of this (refer presentation attached at the rear of this announcement). Strike’s proposal allows Warrego’s stockholders to participate in value generation, whereas the rival proposal does not.
Strike’s plan also includes the option for a Warrego director to join the Strike Board, allowing for continued stewardship of the value produced by the merger, as well as oversight of the sale of the Spanish assets and the distribution of the proceeds to Warrego shareholders.
Strike said its proposal would form the top ASX-listed Net Zero 2030 Perth Basin integrated energy, fertiliser, and renewables firm, with a combined pro-forma ownership of 1,206 PJ of conventional 2P Reserves plus 2C Resources. This is a one-of-a-kind investment opportunity, and Strike anticipates that the amalgamated business will be appealing to sustainability, energy, and generalist investors alike.
