Beach given days to beat Hancock in Warrego bidding war

Beach and Warrego shares are surging as shareholders anticipate an escalation of the bidding war for the Perth basin gas explorer.

Beach Energy, led by Kerry Stokes, has until Monday to match a takeover proposal for Warrego before it recommends shareholders support a rival bid from Gina Rinehart-owned Hancock Prospecting. PHOTO: MARIE NIRME

Kerry Stokes-backed Beach Energy has until Monday to match a takeover proposal for Warrego Energy before the company’s board instead recommends shareholders support a rival bid from Gina Rinehart-owned Hancock Prospecting.

Warrego shares surged more than 10 per cent in Monday morning trade to sit at around 32c as shareholders anticipate an escalation of the bidding war for the Perth basin gas explorer.

“The Warrego board has assessed the revised Hancock takeover offer and has determined that it is a superior proposal compared to the revised scheme proposal from Beach,” the company told shareholders on Monday.

Late on Friday, Hancock lobbed a 28c per share offer, trumping an earlier bid from Beach which would have meant 25c per share for investors along with the possibility of additional payments if assets in Spain were sold within 12 months.

Hancock had earlier offered 23c per share. A bidding war for the company broke out after ASX-listed Strike Energy, its joint venture partner in Western Australia, made a scrip-based bid that would now value Warrego at above 20c a share.

On Friday, Hancock said in a statement that its bid had “no risk of any future sale of non-core assets in Spain, which is uncertain and out of shareholders’ control”.

“Hancock … notes that its increased offer represents a 104 per cent premium to Warrego’s six-month volume-weighted average price on the last full trading day prior to the recent announcements of control proposals,” the company said.

Gina Rinehart’s Hancock Group is in the box seat for Warrego.

Warrego’s most sought after asset is its West Erregulla venture with Strike, where it announced a 41 per cent reserves upgrade in July. Strike told the ASX in November that it believed there was further “high impact and low-risk upside resource potential’’.

“Despite numerous bids, we believe this still undervalues Warrego and references the Mitsui/AWE deal in 2019 which transacted at $1.20/GJ of 2P Reserve of $1.92/GJ adjusted for gas price differential,” wrote Petra Capital’s energy analyst Kieran Barratt.

Mitsui acquired ASX-listed gas junior AWE in a $602m in 2018 after a bidding war which included Mineral Resources and China Energy Reserve and Chemical Group.

Mr Barratt, in a note to clients, said the current Hancock bid valued Warrego at $316m, while the economics of the AWE deal implied it should have a 35c per share price. Petra Capital has a 41c price target on Warrego.

If Beach were to succeed, shareholders could be in line for an additional payday once the Spanish assets are sold. Those assets include the El Romeral project, which generated revenues of just $1.2m in the three months to September 30, although it has capacity to increase production. Warrego also owns an undeveloped gas prospect in Spain’s Cadiz province through its shareholding in Tarba Energia.

The bidding war for Warrego has also kicked off speculation that a consolidation of all players in the Perth Basin could be a possibility, with analysts suggesting Strike would be a target, and potentially Beach as well. Petra Capital’s Mr Barratt told clients MinRes “could become involved in consolidation”. It owns the Lockyer Deep field to the north.

Analysts at Canaccord Genuity told their clients they also saw “further bids to provide valuation uplift”. “We note Beach has material balance sheet capacity to increase its bid with (September quarter) net cash of $38m and undrawn facilities of $490m,” Canaccord’s James Bullen wrote in a note on Thursday, after Hancock’s initial 23c per share bid.

Warrego shares closed on Monday up 3.2c, or 11.5 per cent, at 31.5c.