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Analysis in The Australian

IN pitching a $73 million offer for its junior Cooper Basin partner this morning, Beach Energy is trumpeting its faith in the potential of the shale gas tenements in which Adelaide Energy has a 10-20 per cent interest.
Adelaide has been free-carried so far, but Beach chief Reg Nelson warned his more substantive outfit would turn off the funding tap, leaving Adelaide, which has $11m of cash, to pay its share of the expected $200m exploration bill with more capital raisings.
Beach, which owns 19.95 per cent of Adelaide, is making a 20c a share cash offer, which it hopes to complete before Christmas.
While the offer, which values Adelaide at $93m, isn't exactly a drop-dead surprise, the timing of these gambits can never be certain. For its part, the Adelaide board urged holders to take no action on what looks like a less-than-friendly entreaty.

The interest centres on the Nappamerri Trough, or PEL218 and ATP855P. After a two-well program, the structure PEL218 holds recoverable reserves of 200 petajoules (on a 2C unaudited basis), with a "large resource addition inevitable" (Adelaide's words).
Adelaide also has a useful revenue-producing venture, the Katnook project, south of the Coonawarra wine strip, acquired from Origin Energy for some trinkets and beads.
Still, Beach's line is that Adelaide will never have the spendoolies to fund its share of the Cooper venture, the next stage of which is a four-well program.
Nelson said today: "The capital demands on Adelaide Energy to fulfil its share of this program are very significant, given its present cash position, and there is a real risk of continued dilution for Adelaide Energy shareholders.
"Beach has been supportive of Adelaide Energy over the years and has provided a very large amount of its capital funding. However, we don't intend for this to continue."
Beach kindly notes that Adelaide Energy was listed in June 2007 at 20c a pop and has never gone back to that level since. The offer is pitched at more than a 50 per cent premium.

Still, Adelaide shares this morning surged 6c to the offer level, which suggests Beach will need to do better.
We had Adelaide Energy as a spec buy at 12c in May 2009. Our rating is under REVIEW.