Galilee and Vintage to gain from strategic merger

Vintage Energy and Galilee Energy in strategic merger
Larger, more diversified entity will be able to better supply Australia’s east coast gas market
Galilee shareholders will benefit from more near-term assets and a stronger balance sheet

Special Report: Australia’s petajoule hungry east coast gas market is set to have a new, stronger and more diversified player for the near and long term thanks to the merger between Vintage Energy and Galilee Energy.

The strategic deal will create a company combining Vintage Energy’s (ASX: VEN) growing conventional South Australian and Queensland gas projects with Galilee Energy’s (ASX: GLL) Queensland coal seam gas project.

The combined group will boast existing appraisal gas production, proven-plus-probable reserves of approximately 50 petajoules of gas, long-term sales contracts, plus the ~2,500 petajoule contingent Glenaras resource.

While both companies stand to gain from greater exposure to a market with looming supply shortages, Galilee shareholders will benefit from existing, producing assets and a stronger balance sheet. They will also enjoy reduced reliance on the Glenaras gas project, notwithstanding it is one of the largest uncontracted gas resources on the east coast.

Two for one deal

Under the binding heads of agreement signed by the companies, Galilee shareholders will receive two fully paid ordinary shares in Vintage for every fully paid ordinary GLL share held on the scheme record date.

Implied in the consideration is a Galilee share price of $0.02 which is based on the closing price of Vintage shares of $0.01 on 12 August – the last day both companies traded prior to Galilee entering a trading halt.

Vintage and Galilee shareholders are set to hold about 60% and 40% of the merged company respectively.

The merger is conditional upon Galilee raising $2.66 million via a placement and entitlement offer announced yesterday and scheduled for completion on 20 September.

Galilee’s board has unanimously recommended the company’s shareholders vote in favour of the scheme, with executive chair Ray Shorrocks saying the proposed merger comes at a time of huge opportunity in Australia’s east coast gas market.

“This merger is aimed at enabling the combined companies and their shareholders to take full advantage of this looming gas shortfall and the impact that will have on gas prices, margins and free cash flow generation,” Mr Shorrocks said.

“It will also provide long-term growth potential and access to funding.”

Better exposure

Vintage chair Reg Nelson said the company would be better equipped to grow production and revenue from the appraisal of the Odin and Vali gas fields.

“The merger will create a company with much greater exposure to east coast gas supply in the near and long term and a stronger balance sheet,” Mr Nelson said.

“In addition, our long-term prospects will be enhanced through the addition of Galilee’s substantial gas resources.

“Their combination will result in a portfolio encompassing nearly all of the onshore sedimentary basins currently supplying, or expected to supply, gas to eastern Australia such as the Cooper, Bowen, Surat, Otway and Bonaparte Basins.”

This article was developed in collaboration with Galilee Energy, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.