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Asia Connect / Treasury & Capital Markets
Attempted China takeover of Australian oil & gas company AWE provokes bidding war
China Energy Reserve and Chemicals Group has come back with an increased takeover offer for Sydney based oil & gas company AWE
Michael Marray 13 Dec 2017

CHINA Energy Reserve and Chemicals Group (CERCG) has come back with an increased takeover offer for Sydney-based oil & gas company AWE Limited, though is now facing a rival bid from Perth-based Mineral Resources.

On November 30, CERCG submitted an unsolicited, non-binding indicative proposal to acquire 100% of AWE. The 71 cents a share offer valued the company at A$430 million (US$324 million), and was pitched at a 31% premium to the November 29 closing price of 54 cents.

AWE's board did not reject the offer, but said “its initial reaction is that the indicative proposal is not sufficiently attractive to provide access to due diligence.”

Following the lukewarm reaction from AWE management, CERCG withdrew its offer on December 5, before AWE’s board was able to finish its assessment of the proposal.

However, CERCG subsequently came back with an increased all cash offer of 73 cents a share. Shortly after, Mineral Resources announced an all share offer valuing the company at 80 cents per share.

Although the offers are at a hefty premium to the share price before the bids were announced, some analysts have recently been upping their valuation of the company because of an increase in proven and probable reserves at the Waitsia project.

Located in the northern Perth basin in Western Australia, the Waitsia gas field was discovered in 2014, and is one of the largest onshore gas discoveries ever made in Australia. The first stage began production in 2016, and more appraisal wells have been drilled this year.

Natural gas is an increasingly important energy source for Australia, notably as a cleaner baseload power alternative to coal and as a supplement to the emerging renewable energy sector.

The reshaped AWE is a long-term producer of natural gas from the Bass, Otway and Perth Basins, supplying strengthening Australian domestic markets. However, the company says that its growth options on its existing properties, particularly in domestic gas, are now the key priority for the company.

Against this backdrop, development of the Waitsia gas project is now the key priority in AWE’s growth strategy and will be a vital component of AWE’s operations for the decades ahead.

The latest bidding war comes after two previous unsuccessful attempts to acquire AWE. In May 2016, AWE rejected an unsolicited A$421 million cash takeover proposal from US private equity fund Lone Star Funds. Australian oil & gas company Senex also made a cash and share offer for AWE in 2013.

Beijing-based CERCG is a state-controlled company whose major shareholders include China National Petroleum Corp (the parent company of PetroChina).

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