It looks a lot like Perth Basin M&A activity is heating up again
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The Perth Basin has been a hotbed of activity in recent years ranging from incredible deep gas finds that have transformed the area into one of Australia’s richest gas provinces to a three-way tussle for the hand of Warrego Energy.
And there is likely still more excitement to come as Strike Energy’s (ASX:STX) takeover offer for Talon Energy (ASX:TPD) – after two previous attempts that were aborted before they were even presented to the market – demonstrates.
The offer, which has been endorsed by Talon’s board in the absence of a superior offer, sees Strike acquiring Talon in an all-scrip transaction that values the latter at a 29.3% premium to the 30-day volume weighted average price.
Importantly for Strike, it will deliver complete control over the Walyering gas field, which is just months away from entering production and is expected to generate initial annualised cashflow of more than $82m, whilst removing significant costs via corporate and operational synergies.
So what makes the Perth Basin so attractive and can we expect to see more activity – both on the upstream and corporate fronts?
The Perth Basin was once better known for largely small-scale oil and gas finds with the Dongara oil and gas field and offshore Cliff Head oil field being two standouts.
The former especially has been blamed for stifling exploration following its discovery as it effectively met the state’s needs at that time.
It wasn’t until the 1990s that explorers started to get inklings something far more significant was lurking in the depths.
This cumulated in the 2014 discovery of the Waitsia gas field by AWE and Origin Energy, which found and produced large quantities of gas in the target Kingia and High Cliff sandstones.
Needless to say, the find reinvigorated the exploration scene and led to the Strike and Warrego discovery of the West Erregulla gas field that de-risked the Kingia and High Cliff sandstones by proving that Waitsia wasn’t a one-off discovery.
Further discoveries followed closely on its heels with Mineral Resources (ASX:MIN) and Norwest Energy finding Lockyer Deep while Strike and Talon found the Walyering gas field.
Of course, all the discoveries in the world would go nowhere without demand and there is certainly no lack of demand in Western Australia.
The Australian Energy Market Operator has forecast that the state’s domestic gas demand is forecast to increase from 1,099 terajoules per day in 2023 to 1,278TJ/d.
This is contrasted by committed new resource projects only adding 43TJ/d by 2026, meaning that the market faces a tight supply balance between 2023 and 2029 before moving to a larger deficit between 2030 and 2032 due to planned retirements of coal-fired power plants.
It shouldn’t come as any surprise then that large miners have moved to pick up stakes in promising gas projects or outright acquire companies in a bid to secure their energy supplies.
The first to move was Australia’s richest person Gina Rinehart, whose Hancock Prospecting launched an all-cash offer for Warrego that was subsequently pipped first by Strike followed closely by Beach Energy (ASX:BPT).
Subsequent counter bids followed before Hancock emerged as the winner – though Strike still walked away better than off that it had entered the battle.
Not content to be left out, Chris Ellison’s MinRes turned its attention to Lockyer Deep partner Norwest Energy, which became part of the diversified miner’s sprawling empire in June this year.
Strike has now returned to the table to whet its appetite for more gas with its bid for Talon, though anyone thinking that this marks the end of M&A activity in the Perth Basin ought to get their heads checked.
Speaking to Stockhead, Talon managing director Colby Hauser expressed his belief that Strike’s offer for Talon actually strengthened the case for more M&A activity in the Perth Basin.
“Yes, personally, I see further consolidation activity likely to occur across the Perth Basin,” he said.
“Western Australia is a terrific and stable jurisdiction, with a good regulatory system and abundant resources.”
He noted that the Perth Basin continued to be the most attractive place to deploy capital due to the existing infrastructure and larger field sizes as well as better production rates offered by its conventional reservoirs compared to unconventional sources of gas such as coal seam gas or tight gas sands – like the Beetaloo Basin.
“Obviously conventional is a little bit more expensive to explore, but when you have exploration success, the economics of commercialising it are far better.”
Hauser also pointed out that gas demand in the state was another factor that would drive activity, noting that wholesale gas prices were now between $10 and $11 per gigajoule.
He added that while the Perth Basin had seen one intensive round of M&A activity, he was confident it would attract international attention and big international oil companies.
No examination of the Perth Basin and its potential for further M&A activity will be complete without a quick look at the companies operating in the region, that could well be potential takeover targets.
Excluding the miners that have just acquired companies or multinationals with stakes in projects like Mitsui E&P Australia, the largest ASX play in the Perth Basin is Beach Energy.
While originally focused on oil in South Australia’s prolific Cooper-Eromanga Basin, Beach has steadily diversified over the years and has a 50% stake in Waitsia.
It recently drilled the Trigg-1 exploration well which was plugged and abandoned after finding that the target Kingia reservoir was found to be tight with insufficient porosity and permeability to flow gas. The rig is currently drilling the Trigg Northwest 1 well.
Meanwhile Strike Energy is best known for its drilling of the exciting West Erregulla-2 well, but has since been involved in the 55%-owned Walyering discovery and development.
It has currently preparing to carry out the South Erregulla appraisal drilling campaign, near-field exploration drilling at West Erregulla and processing seismic over the wholly-owned Eneabba Deep prospect.
Talon – the target of Strike’s affections – holds the remaining 45% stake in Walyering, though this is not the only asset it owns in the Perth Basin.
It also has a 25% stake in the Triangle Energy-operated L7 and EP 437 permits in the North Perth Basin and the wholly-owned Condor project in the Central Perth Basin.
Triangle Energy (ASX:TEG) itself recently sold its stake in the Cliff Head oil field to Pilot Energy to pursue growth opportunities in the conventional oil and gas space.
Technical work is continuing on the L7 and EP437 permits.
Meanwhile, Pilot Energy (ASX:PGY) has acquired the Cliff Head oil field to strengthen its ability to complete the transformation of the Cliff Head facility to a carbon capture & storage (CCS) project.