With NSE's excellent cash reserves relative to market cap, I don't see why NSE just didn't do a modest deal to farm into PEL 570 to get some seismic and a few holes drilled.
The Smorgon Family were keen on AQO recently (offer to take a controlling stake), so they could inject some cash too.
That way NSE would diversify it risks, and still drill in WA. The cash had to be spent on something. I think shareholders would prefer to drill high risk/ high reward targets in OZ and for the company (and existing shareholders) to remain masters of their own destiny for a while longer in the about-to-boom OZ shale sector (not mature, overpriced sector in the EFS). If the cash is spent in OZ and the wells are dry, you are disappointed but think it was worth a try. This is an explorer after all. This US shale deal seems like limited upside and significant downside. Earning interest on the $38 million would almost be a better strategy.
Cash is king at the moment (as is a diverse share registry), and NSE are throwing that away for minimum upside and significant downside (in terms of opening itself up to downside risk in EFS and the possibility of low ball takeover).
As someone said, shareholders can always vote it down.
Another question to ask: if they want exposure to cheap Oz shale, why does Magnum Hunter not simply take over NSE and AQO now (when both are at very low prices)? What possible upside for them is their in stringing things along in the OZ shale space? The only answer I see is a cheaper overall acquisition price down the track. Put differently, they get on the share registry first with a blocking stake, get the debt hooks in, and then wait to see how the sector evolves (i.e. let other spend some money first). It's a very cheap call option on Oz shale for Magnum when you think about it...all for the price of transferring some expensive assets to NSE (which they will have a lien over later as part of debt facility).
NSE Price at posting:
13.5¢ Sentiment: Buy Disclosure: Held