Hancock, Strike head towards end game on Warrego
“MIN can continue to sit on the register as kingmaker and leverage its swing vote to secure favored access to infrastructure and other synergies within its operations,” said Credit Suisse analyst Saul Kavonic.
Hancock Energy director Stuart Johnston said the situation had just over a third of Warrego’s register left to play for as the offer entered its final hours.
He said the 8.8 per cent drop in Warrego shares on Friday, which was extended by a further 2.7 per cent drop on Monday, underlined the volatility in the script behind the Perth Basin players, in contrast to Hancock’s steady bid.
He strongly urged Warrego shareholders to sell their shares in Hancock’s offer or face the risk of continued volatility. Warrego shares closed at 35.5¢ on Monday.
“As we pointed out in our bid statements, we believe that the value of that paper has been unrealistically inflated because of the bidding behavior and the rise of the competition for that bid,” Mr Johnston said. “But it now comes down to a choice between a firm offer of 36 cents and Strike paper.”
Still, Strike pointed to the price investors are willing to pay for Warrego’s shares on the market, calculating it represents a peak price on a resource basis of $2.14 per gigajoule, equivalent to a multibillion-dollar look-through value for Strike own gas in the ground.
It said the implied offer price of its offer based on Strike’s closing price on Friday was 37¢ per share, still a 32 percent premium to Hancock’s base offer of 28¢ and 3 percent higher than the conditional 36¢ offer price.
Speaking after the release of Strike’s December quarterly report on Monday, Mr Nicholls said MinRes’ decision to take a strategic stake in Warrego highlighted concerns about gas supply in WA.
“MinRes clearly has an ambition to build a fairly significant energy business within their vertically integrated mining and mining services, mineral processing outfit,” he said.
“They put themselves in the Warrego situation to sit at the table and to possibly obtain gas from the West Eregulla project through their shareholding in Warrego.
“And I don’t think that MinRes picking up 19 per cent at almost 40¢ was necessarily in Hancock’s interest.”
Strike expects its Walyering development in the Perth Basin to be up and running by the end of this quarter and has a binding agreement to supply Santos, a major player in the WA domestic gas market, for the next five years.
Mr Nicholls said he was not surprised that the DomGas Alliance in WA, which represents Alcoa, Wesfarmers and Coogee Chemicals, had started lobbying the State Government over domestic gas supply.
“WA has one of the lowest gas prices in the world, especially for any OECD country,” he said.
“These businesses, such as Wesfarmers and Alcoa, operate in a highly attractive energy market under WA’s domestic gas reservation policy and have therefore enjoyed a competitive advantage over their global peers.
“Gas in WA is becoming a more scarce commodity but is still artificially lower in price than gas in the rest of Australia and even around the world.”
For Hancock, the takeover battle comes as it faces hurdles in its east coast gas investment by Senex Energy due to federal government intervention in the gas market that caused Senex to halt its $1 billion Atlas project.
Mr Johnston described the government intervention as “very, very worrying” for the prospects of meeting gas demand on the east coast.
“I’m looking at the eastern states and I’m wondering how it’s going to play out because I just don’t see the offer coming,” he said.
“The story in the west is somewhat different … there’s more of a vertical integration story there, where the reason we’re looking for gas in the west is really to support our own operations for the next few decades,” he said. he said.