By Amy McLellan
Shares in Mosman Oil & Gas surged more than 25 per cent on Monday after the AIM small cap announced it was doubling its proposed bid for ASX-quoted MEO Australia. The company, which has assets in New Zealand and Australia, proposes to pay MEO shareholders one Mosman share for every ten MEO shares, up from one for every 20 when the bid was first mooted in December.
It comes after a rival suitor for MEO, fellow ASX-company Neon Energy, withdrew its plans for a merger. Neon, which, after a bruising boardroom battle, is being bought out by its largest shareholder Evoworld Corp in a proportional off-market takeover, has paid A$400,000 as a termination fee to MEO. This has paved the way for Mosman, which late last year was quick to spot the opportunity when Evoworld opposed the Neon merger with MEO, to advance its own all-paper reverse takeover. The AIM company plans to lodge its bidder’s proposal on January 28 and then submit its revised proposal to MEO shareholders by February 10.
For opportunist Mosman, even at this higher price, this looks a good deal. MEO, which listed on the ASX in 1988, has A$10 million in cash and a portfolio of exploration and development permits in Australia and a dribble of production in New Zealand.
This includes a 30 per cent stake in Kea Petroleum’s Puka oil discovery onshore New Zealand, currently shut-in until oil prices recover, a 50 per cent stake in the ENI-operated Blackwood gas discovery, where there’s an estimated 2C Resource of 542 BCF and 2 million barrels of liquids, and a number of other exploration and appraisal projects that may not be keepers for the enlarged company.
There is also MEO’s long standing plan to build a methanol and possible LNG plant on the shallow water Tassie Shoal, just south of the Evans Shoal gas discovery, although MEO was already seeking buyers for that ambitious project.
Mosman’s executive chairman John W Barr, said the combined entity would be able to “fund exploration, preserve longer term assets and progress to production and cash flow.”
Analysts at SP Angel Corporate Finance said this was an “opportune” offer from Mosman. “If successful at the level it is offering, [this] would represent one of the most significant coups by any company on any exchange,” said the SP Angel team.
Indeed, having raised £3 million in June when oil prices were more than double current levels and its stock was buoyed by drillbit success, the AIM small cap sees the recent oil price rout as an opportunity, allowing it to acquire distressed assets and companies. In the 10 months since its IPO on AIM in March 2014, Perth-based Mosman has already acquired significant acreage in Australia via its acquisition of Trident Energy and it is now lining up the MEO deal to add further critical mass.
The company believes the drop in the oil price is unsustainable for an extended period of time and in the meantime it should translate into lower exploration costs, which will be good news for its efforts across its exploration permits in New Zealand.
This work programme should guarantee some interesting newsflow for shareholders in the months ahead, including flow testing of the Cobden Limestone formation at its Cross Roads-1 discovery well, due to start next month, new seismic work on its Petroleum Creek and Taramakau permits to define future drilling locations and an exploration well on the new Murchison permit once the permit commences in April 2015. The company has already received an unsolicited approach from a potential farm-in partner to one of its NZ permits, which it believes will be a good way to sustain momentum across the acreage while preserving cash in the current market.
Shares in the company closed up 30 per cent at 8.12 pence.