drillsearch's acer bid could spark takeover bo

Drillsearch's Acer bid could spark takeover boom

Date October 5, 2012 - 10:46AM 12 reading now Read later Richard Hemming

Drillsearch Energy's $118 million bid for Acer Energy, which saw its price spike 36 per cent yesterday, could be the start of a raft of takeovers for other small cap oil and gas companies in the Cooper Basin.

Acer would expand Drillsearch's presence in the region, which straddles the border of Queensland and South Australia, increasing Drillsearch's oil and gas reserves and resources by 69 per cent.

The Cooper Basin could well be the sleeping giant of the oil and gas world, and there are some small caps in the sweet spot. The word to look out for is “fracking”, or hydraulic fracturing - the new technology key to unlocking the potential for “unconventional oil and gas production”.

Many energy juniors have invested heavily in their fracking capability, which has led at least one veteran analyst in the sector to conclude that their day will come sooner, rather than later.

Advertisement “If it works, many trillions of cubic feet of gas will be released," one analyst wrote. "You've got to think that there will be a breakthrough in shale potential over the next year, on a significant scale that turns these little companies into mega companies — or that they'll be taken over along the way.”

On the intended takeover by Drillsearch of Acer, the analyst, who works for a major stockbroker and declined to be named, says that the offer price was mainly based on Acer's conventional reserves. If successful, “Drillsearch gets the shale upside for nothing,” he says.

Under the Radar understands that multinational giants in the sector — Total, Shell, Statoil and Hess — are all watching the activity in the Cooper Basin closely.

They would like access to any new substantial oil and gas resources opened up by unconventional means, which can be commercialised with relative ease, because the Cooper has underutilised infrastructure to process it (the Moomba gas plant) and transport it away (pipelines) from Australia's centre.

The reserves of oil and gas from the wells that are conventionally mined have diminished in recent years. But where you have these conventional reserves, you also have source rocks. These are typically shale, which is where fracking comes in.

Fracking involves horizontal and vertical drilling, and then fracturing the rock and pumping water and chemicals into it before sucking the oil and gas out. The technology, which comes from the US, has apparently developed markedly in sophistication and effectiveness in the past few years.

Many of the share prices of the oil and gas juniors in the Cooper have been weaker in the past year, some having halved, after frustration about the slow pace of drilling results and lack of merger and activity in the region. Some big equity raisings by companies such as Beach Energy (BPT) and Senex Enegy (which is lucky enough to have the ASX code “SXY”) also haven't helped, diluting shareholders' interests at lower prices.

The share price declines reflect more realistic expectations of the time frames, the risks and the rewards of the shale potential.

The energy sector is one of the areas where there is good merger and acquisition potential, principally because the oil price is relatively strong, while other commodity prices have been falling. Although it has come off in the past two months, at $US88 a barrel, it is still more than three times where it stood in 2003.

The recent oil price decline, if anything, probably encouraged Drillsearch to make its bid for Acer. It certainly gives it more chance of succeeding.



Read more: http://www.smh.com.au/business/drillsearchs-acer-bid-could-spark-takeover-boom-20121005-273b4.html#ixzz28Nwq9Mdl