Special Report: Warrego Energy has delivered a clear message to Perth Basin joint venture partner Strike Energy in response to its unsolicited takeover proposal: “You’ll have to do better than that”.
Warrego (ASX: WGO) informed the market on Monday that Strike had made a conditional, non-binding and indicative proposal to acquire the company for an all-scrip consideration of 1.2 Strike shares for every Warrego share.
The primary rationale for Strike’s proposal was to consolidate ownership of the West Erregulla project in the Perth Basin, which last year was the scene of one of Australia’s most exciting onshore gas discoveries in decades.
But moving ahead with it would have seen Warrego shareholders’ exposure to the under appraised West Erregulla field diluted significantly, making for an easy decision to resist engaging with Strike.
“The board has reviewed the proposal and concluded that it fundamentally undervalues the company and its assets,” Warrego said in a statement.
“For example, the proposal, if it were implemented, would result in Warrego shareholders owning approximately 31% of the merged entity, whereas Strike and Warrego each hold a 50% interest in the EP469 Joint Venture, which includes the West Erregulla tenements.
“The proposal also undervalues Warrego’s other valuable assets including its Tesorillo project in Spain.”
Under the proposal, Warrego’s exposure to West Erregulla would actually reduce to around 20%, as Strike holds a suite of other assets including acreage at South Erregulla in the Perth Basin and its Southern Cooper Basin Gas Project.
Plenty of “skin in the game”
At the time the Warrego board was reviewing the Strike proposal, directors spoke for 51% of the company’s issued capital.
This has reduced to 31.1% following the announcement today that founding shareholder Duncan McNiven, who owns a 19.9% stake, would step down as a director but remain with the company as a senior executive.
McNiven’s move means that the Warrego board now comprises of a majority of non-executive directors including chairman Greg Columbus.
It is part of a broader plan aimed at cutting costs that was foreshadowed by the company at its annual meeting last year and includes a 50% reduction in executive salaries and director fees in response to the current state of the oil and gas market and the corona virus.
Warrego, which listed on the ASX through the reverse takeover of Petrel Energy in March last year, is also closing its Sydney office and establishing a smaller presence in Perth, where newly appointed general manager commercial, ex-AWE and Mitsui executive Cathy McKeagney, will be based.
The company expects these initiatives will pave the way for the West Erregulla resource, estimated by the operator at 1,136bcf of gas on a P50 basis, to be developed in the most cost-efficient and effective manner.
While Warrego declined to engage with Strike, the company said it remained open to considering future proposals, be they from the joint venture partner or another third party, provided they represented compelling value.