WHY is everyone fretting about peak oil? The Brazilians reckon they've stumbled on a 33-billion barrel offshore field - the world's biggest discovery in 30 years - while the Japanese claim to have found 100 years' of gas supply under the permafrost.
With the oil price clinging to $US110 a barrel, the market didn't hear the news. Locally, mid-tier players AWE and ARC are also talking big as they eye one another with lusty intent.
It's about time someone followed the lead of Nexus and Anzon and talked takeover turkey. We've previously moaned about the sector's poor returns despite record prices, so the action is welcome.
As with most unions, the proposed deal with ARC makes sense on paper. AWE boasts $336 million of net cash and highly profitable but short-life assets, notably the Tui field in NZ which delivers half of its annual output of 4.79 million barrels.
The merger would consolidate ownership of fields in which both companies have an interest: the BassGas project (AWE 30 per cent, ARC 12.5 per cent) and WA's Cliff Head (AWE 27.5 per cent, ARC 30 per cent).
The deal would create an entity worth $2 billion, which gives rise to cost savings tipped to be at least $10 million annually.
Discussions are still formative and as yet there's no agreement. ARC - which lost out to Nexus in its earlier planned tie-up with Anzon - knows the desperate and dateless feeling too well so won't be counting its chickens.
For all its Tui greatness, AWE shares have done little over the past year. We rated the stock a hold at $3.07 on March 11 and we'll retain that neutral call.
We'll risk a speculative buy on ARC, which presumes AWE will have to pay at least $1.50 a share.
