Strike Energy (ASX:STX) will acquire all the issued shares in Talon Energy and its Perth Basin assets at a 21% premium if the proposed transaction proceeds. TPD shareholders could also benefit from a spinout of the CSG assets.

The implied offer price is A$0.212 per Talon share based on Strike Energy’s closing price of $0.440 per share on 11 August, representing a 21.4% premium on Talon’s (ASX:TPD) closing share price as at 11 August 2023 and a 29.3% premium to the 30 day VWAP.

 As a result of the transaction, Talon shareholders will own approximately ~11% of Strike Energy.

The Board have unanimously recommended the scheme, which would deliver shareholders ownership in the only pure play Perth Basin energy company, a combined entity with an aggregate 1,022 PJ of independently certified Perth Basin conventional gas 2P Reserves and 2C Resources.

Strike says the acquisition is earnings and cashflow accretive, with the capacity to generate an initial annualised revenue of more than $82 million from the Walyering gas field alone.

Plus, subject to successfully executing a spin-out of the Gurvantes XXXV coal seam gas project in Mongolia, Talon shareholders will have a separate shareholding in an entity with exposure to a 33% interest in the exciting Mongolian project. 

A promising Mongolian project

Just last week, pilot well testing at the Gurvantes XXXV project achieved continuous gas flow ahead of expectations at the Lucky Fox-1, Lucky Fox-2 and Lucky Fox-3 wells.

Importantly for Talon and its operating partner TMK Energy (ASX:TMK), it also proves that the targeted gassy coal seams at the project are capable of producing gas.

The plan now is to demerge the project to allow shareholders to retain an ownership interest along with A$850,000 cash (net of costs incurred in connection with the demerger and certain other costs and funding provided for the Mongolian project during the scheme/demerger process) via a spin-out of those assets into a new separate vehicle (SpinCo).

“Talon is pleased to be entering into this scheme process with Strike Energy,” MD and CEO Colby Hauser said.

“Upon successful implementation of the scheme Talon shareholders will benefit from receiving an attractive premium for their shares, and may also realise additional value from continued exposure to the emerging and very exciting Gurvantes development in Mongolia, should the Mongolia demerger complete.

“Talon shareholders will benefit from becoming shareholders in the combined Strike Energy, which is expected to have a strong cashflow profile with a number of medium-term growth and development projects.”

The scheme is not conditional on completion of the Mongolian demerger, which may or may not occur.

Strike and Talon have also entered into an interim convertible funding facility for up to $6m where Strike has agreed to fund Talon’s capital requirements through the scheme process.

Talon shareholders will be asked to approve the scheme at the scheme meeting which is expected to be held in early December 2023.

This article was developed in collaboration with Talon Energy Limited, 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.