New Zealand Oil - Gas is fulfilling industry analysts' predictions that falling oil prices would prompt mergers and acquisitions among smaller local oil and gas players by mounting a full takeover bid for Cue Energy, just two months after buying a 19.99 percent stake previously owned by Todd Energy.
The unconditional cash offer, at 10 Australian cents per share, is pitched at the same price as the December purchase from Todd and values the company at around A$70 million, but NZOG says it would be "comfortable if it can acquire at least a further 10 percent of shares under offer. In practice, the bid appears aimed at buying the remaining 7 percent of Cue still owned by Todd, which can only be acquired by mounting a formal takeover offer.
NZOG's bidder statement says the board regards ending up with less than 50 percent of Cue as "a likely outcome".
Its intention is bidding is to "better influence the direction of Cue and encourage Cue to seek value for all shareholders".
The bid was announced to the Australian and New Zealand stock exchanges this morning and will remain open until March 27, unless withdrawn earlier, with Australian broking firm Bell Potter Securities handling acceptances. The offer price represents a 17.5 percent premium to the volume weighted average market price of 8.5 Australian cents per Cue share over the last 90 days..
Cue has yet to respond, but said after the December purchase that it had met with the NZOG board, it was "unclear as to NZOG's future intentions", and believed Cue shares to be "considerably undervalued" at 10 Australian cents per share.
"NZOG believes Cue's major asset, a 5 per cent interest in the Maari oil field in New Zealand, is a quality asset that fits our portfolio well," the New Zealand explorer and producer said in its NZX statement today. Cue has yet to respond formally to the bid, which comes after a $60 million, or 15 cents per share, capital return to NZOG shareholders, announced last November.
NZOG already owns stakes in two producing offshore Taranaki oil and gas fields: Tui and Kupe. It has recently abandoned exploration plays in Tunisia but continues to explore in Indonesia and the Taranaki Basin. It will fund the bid from existing cash reserves.
Cue, formed in 1981, has an interest in the producing Maari field, offshore Taranaki,
NZOG shares were unchanged from yesterday at 62 cents on the NZX this morning. Cue last traded yesterday on the ASX at 9 Australian cents.
"The certainty provided by receiving a cash price under the offer should be compared with the risks and uncertainties with remaining a shareholder, including oil and gas price risk and exploration and development risks of Cue's exploration assets."
Cue's main sources of cashflow are the Maari field and the Indoinesian Oyong field, although revenues from Maari have been curtailed over recent months because of repairs and maintenance that have stopped normal production.
Woodward Partners oil and gas sector analyst John Kidd predicted in a December quarterly outlook report that there would be pressure for mergers and acquisitions in coming months.
"As the realities of deteriorating free cash flows and constrained capital market access bite we expect companies in positions to do so to focus increasingly on acquisition opportunities to take advantage of the market downturn," Kidd wrote..