Beach investors need convincing over tie-up with smaller Cooper Energy

Cooper Energy’s Sole-4 subsea deployment.

Cooper Energy investors are believed to be expressing enthusiasm for a merger between Cooper Energy and Beach Energy.

But the problem is, Beach Energy’s investors are not thought to share the same level of excitement about the prospect.

Cooper’s market value is only $696m whereas Beach is worth $3.9bn, so the deal would need to be instigated by Beach rather than Cooper.

The belief is that the Ryan Stokes-headed Seven Group Holdings, a 30 per cent shareholder, would be open to a move as it would dilute its holding in Beach Energy.

There were rumblings in the market about two years ago that Seven would be keen to sell out of Beach if it could find a buyer.

Industry consolidation continues to make sense as fossil fuels are increasingly out of favour with investors and lenders, despite the recently high oil price.

Beach Energy owns assets in the Cooper Basin where Cooper Energy operates as well as being a passive shareholder of the Waitsia gas project operated by Mitsui.

It also has the BassGas joint venture in the Bass Strait.

Cooper Energy would have synergies with Beach Energy’s Otway Gas Plant in Victoria, but Cooper Energy does not have major overheads so the merger benefits would have limits.

But while a scrip merger could make sense, Beach may not be given the green light to embark on move from its shareholders, who have been frustrated in the past by the company’s failure to hit targets and deliver on promises.

Should talks unfold, no doubt Beach would be angling for highly favourable terms, given that the Stokes family, which control Seven Group, are known as tough and uncompromising negotiators.

Many believe that a tie-up makes sense and that consolidation could be inevitable, as it is in other sectors of the market.

As well as a stake in Beach Energy, Seven also has the Longtom gas field in Bass Strait that it could vend into a merged entity, given it would be suitable to go into Cooper Energy’s plants and nowhere else.

Already, the pair are understood to have held co-operation talks about sharing services. But that is where they are understood to have ended. For now, anyway.