From The Australian 2.9.15 Matt Chambers Kerry Stokes’s Seven...

From The Australian 2.9.15
Matt Chambers

Kerry Stokes’s Seven Group Holdings is testing buyer interest in the mothballed Longtom gasfield in Bass Strait as it steps up a push for the merger of Cooper Basin oil and gas players Beach Energy and Drillsearch Energy.
The potential sale of assets acquired in the controversial Nexus Energy takeover has sparked concerns from investors and company sources that Seven is keen to vend the mothballed Longtom assets into a desired merger of Beach and Drillsearch, each of which Seven Group has a 19.9 per cent stake in.
It is understood Seven has opened a data room on Longtom and is in early-stage talks with up to four potential interested parties. The Longtom assets have substantial potential reserves but were shut down in June after an electrical fault — the third in recent years — and do not have a certain path to market after the termination of a gas contract with Santos.
Seven is promoting Longtom as a potential supplier into higher-priced east coast gas markets from 2017-18 after the ramp up of Gladstone’s LNG plants. It says the Santos contract termination has allowed the postponement of $190 million of planned development spending to better match coming demand growth.
The Longtom data room comes amid heightened interest in the potential for a merger between Beach and Drillsearch (which have both recently said they wanted to look outside the Cooper Basin for growth) and a confirmation from Seven last week that it wanted the pair to combine.
Credit Suisse analyst Mark Samter said Beach should make a move.
“We struggle to see what Beach are waiting for on the long-awaited (Drillsearch) M&A,” Mr Samter said in a note after Drillsearch’s full-year profit report last week.
“If they have to go hostile, it is hard to imagine too many investors who wouldn’t lock in 25 to 30 per cent profit at the moment.”
After Seven released its earnings last week, managing director Ryan Stokes finally admitted what most had assumed — that the stake taken in both Beach and Drillsearch is representative of Seven’s desire for the companies to merge.
Such a move would help cut overhead costs in a depressed oil and gas price environment.
While Drillsearch has talked down a merger, Beach managing director Rob Cole said last month there was the potential for Cooper Basin consolidation benefits.
Mr Cole has said he wants to increase Beach’s exposure to east coast basins, with an initial focus on Victoria’s Gippsland Basin, where Longtom is located, and the Otway Basin.
There has been concern from other investors Seven will somehow lever its interest in Beach and Drillsearch to pressure the companies to merge and also to take on the Longtom assets.
There is also some feeling among the companies that Seven wants to tie up Longtom with a Cooper Basin merger.
On that front, Seven has been careful to stay away from asking for board seats or any other appearance of internal influence over the decision on whether the companies should merge.
But the company is hoping the investment banks that Beach (Macquarie and Flagstaff) and Drillsearch (UBS and Goldman Sachs) have appointed amid the downturn come to the conclusion there is value in merging and potentially taking on the Longtom assets.