Carnarvon buys stake in Strike Energy ahead of possible merger

Carnarvon Energy and Strike Energy are both in trading halts, fuelling speculation they could have held merger talks. Picture: iStock

Strike Energy and Carnarvon Energy will resume trading on Tuesday when the pair announce a tie up between the two groups.

DataRoom understands that Carnarvon will use its cash pile to buy a stake that may be close to 20 per cent of its Western Australia peer ahead of what most believe will be a precursor to a merger.

It comes after speculation emerged ahead of the weekend that both may have held talks about some sort of tie-up opportunity, as earlier reported.

Carnarvon, which jointly owns with Santos the Dorado oil and gas project off the coast of Western Australia, said its shares were halted in connection to a proposed strategic investment, and were expected to resume trading by Tuesday.

Meanwhile, Strike Energy said its shares were halted because it needed to raise equity.

Strike Energy, led by Peter Stokes, is in need of cash to progress development plans for its gas projects in the Perth Basin, while Carnarvon has been carrying out a capital return to shareholders.

Carnarvon has no debt and as of December it had about $187m of cash on its balance sheet and has been under pressure to spend the money before investors demand it back.

Strike has a $460m market value and needs additional funds to embark on exploration drilling.

Strike shares were trading at almost 50c at the start of last year but collapsed after disappointing well testing at one of its key projects.

More than $300m was wiped from the company’s valuation in early 2024 on the back of failed appraisal testing at its South Erregulla gas field, and the stock has not recovered.

Shares closed on Friday at 16c.

The company last month released to the market the findings of its strategic review and said it would exit non-core assets, with its focus on delivering the South Erregulla Peaking Gas Power Station, currently under construction, progress the upstream development of its West Erregulla project in conjunction with Hancock Energy, and progress its Ocean Hill gas asset.

To fulfill its plans it would strengthen the group’s balance sheet by way of disciplined capital allocation and pursuit of strategic corporate opportunities, the group said at the time.

The Dorado oil and gas project is the main asset of the $200m listed Carnarvon Energy, which had earlier been up for sale through investment bank JPMorgan.

Previously, Taiwan’s state-owned petroleum company, CPC Corporation, has been seen as the most likely buyer of an additional stake in Dorado.

Other possible suitors were believed to be Kufpec, Mitsui, Mitsubishi, Tokyo Gas, Osaka Gas and Jadestone Energy.

However, they were later understood to have walked away.

CPC has already bought 10 per cent of Dorado from Carnarvon, as well as Carnarvon’s Pavo project, for an all-up payment of $US146m.

Santos, which itself is subject to a takeover play, has an 80 per cent interest in Dorado.

Dorado, once owned by Woodside and later Quadrant Energy before it was purchased by Santos, is an integrated oil and gas project that will be developed in two phases in the Bedout sub-basin, about 140km off the coast of Port Hedland.

The Dorado and Pavo fields are estimated to contain recoverable contingent resources of 189 million barrels of liquids and 401 petajoules of gas.

Strike jointly owns the West Erregulla project with Warrego Energy, which is owned by Gina Rinehart’s Hancock.

It includes the processing of gas from upstream wells and transport of the gas to the Dampier-to-Bunbury Natural Gas Pipeline.

Up for proposal is the development of a gas processing facility and pipeline, but West Erregulla is awaiting a final investment decision, which requires Hancock’s approval to proceed on current time frames.

Various parties, including The Carlyle Group, have considered an acquisition of Strike Energy in the past.

For the six months to December, Strike made a $15.5m loss after generating $35.8m of revenue.