THE collapse in oil prices has renewed pressure for mergers and consolidation among the junior oil stocks. But not the type of deal that Drillsearch (DLS) is proposing to 3D Oil (TDO).
As 3D managing director and 18 per cent shareholder Noel Newell put it: "My shareholders are better off in 3D than they are in Drillsearch."
The Drillsearch offer of four of its shares (trading at 2.1¢ each) for each 3D share (trading at 9¢ each) has an imputed value of 8.4¢ a 3D share.
It has already been rejected by 3D and there is good reason to believe that is also the attitude of more than 50 per cent of the company's register.
So when Drillsearch finally releases its Bidder's Statement, it would seem to have two chances of achieving its minimum acceptance condition of 50.1 per cent, Buckley's and none.
It is the scrip-only nature of the bid and the respective upside of the two companies that is the problem. While Drillsearch has some production interests, its cash balance was run down to a little more than $8.1 million in the December quarter. Spread that across 1.6 billion shares on issue and you end up with a minuscule amount.
3D, on the other hand, has about $14 million in the till (6.7¢ a share). So even if the Drillsearch offer was a cash bid of 8.4¢ a share, which it is not, it would barely cover 3D's cash backing. That might be fair enough if 3D had nothing on the go, but it has been coming up with a development plan for its wholly owned West Seahorse oilfield in Bass Strait (7.86 million barrels of oil).
