Shareholders of Drillsearch Energy look set to approve the $384 million takeover of the Cooper Basin oil and gas producer by Beach Energy later this month and are keen to see the merged company move rapidly on more deals to take advantage of the depressed oil sector.
Drillsearch chairman Jim McKerlie said feedback from shareholders set to vote at the January 27 meeting on the friendly merger with Beach, was positive, especially given the further slide in crude prices since the deal was struck in October.
"I have spoken to a significant number of shareholders and we've had no negativity," Mr McKerlie said.
"Typically, they are saying 'This is a good deal, you've done the right thing, what are you going to do next?'," he said.
The merger is being strongly supported by Seven Group Holdings, which owns 19.9 per cent of both companies and has openly pointed to the benefits consolidation would bring to cut costs and maximise returns.
If the scheme of arrangement is approved, Drillsearch shareholders will receive 1.25 Beach shares for every share held. The deal originally valued Drillsearch at $384 million and the merged Beach-Drillsearch would have had a $1.17 billion market value. But with the further drop in oil prices the market value of the "new" Beach would be just $860 million based on Friday's close.
More M&A activity
The deal is expected to spur other M&A activity in the Cooper Basin, with Cooper Energy, Strike Energy and Senex Energy all cited by analysts as potential participants.
With Beach looking for a new chief executive, one source suggested a tie-up with Cooper Energy made sense, providing a new source of growth through Cooper's Sole gas project offshore Victoria, and a candidate for CEO in its chief executive David Maxwell, formerly of gas major BG Group.
"Cooper consolidation could continue further once the deal is closed," Citigroup analyst Dale Koenders said of the Beach-Drillsearch merger. But he said the "sobering" outlook for Cooper Basin gas in a low oil-price environment put pressure on Beach to either cut costs or do M&A.
Citi said Beach's gearing is less than 5 per cent, giving $400 million to $500 million in acquisition capacity before any potential divestments of infrastructure assets.
Mr McKerlie, who will be a director of the new Beach, pointed to plenty of opportunities the merged company could consider, including assets put on the market by Origin Energy.
"I think there will be more opportunities as time goes forward. There is generally a flight of investment capital from the energy sector when it's as sick as it is, which means that to get money to do things is also a challenge," he said.
"If you've got some resource and you've got a bit of cash flow, then it's an advantage, and it's a good time to be out looking around."