IN a deal that should facilitate its long-term plans to export gas to the lucrative Indian market, Cairn Energy has launched an agreed takeover bid for Australia's Command Petroleum.
The offer includes share and cash options. If all Command shareholders elect to take shares in Cairn, the deal values the Australian oil and gas company at $A365m (#185m).
Two new Cairn shares will be issued for every 13 Command shares. There is also a cash alternative of $A1.10 per share, or stakeholders may opt for a combination of the two forms of payment.
Command's shares have been valued at $A0.97 since September 24, when they were were suspended from trading. The company requested this pending the conclusion of merger talks.
With roughly 58 million barrels of oil equivalent (mmboe) in proved and probable reserves, Command has a market capitalisation of approximately $A312.6m (#158.2m). During its last financial year it made a loss of $A5m, primarily as a result of writing off past exploration costs.
The merged company will have combined reserves of approximately 200 mmboe. The new entity will also be less reliant on gas - which now accounts for about 90% of Cairn's portfolio - by shifting that weighting to a 70:30 split between gas and oil.
Perhaps more importantly, Command will provide Cairn with the cash to develop its promising Sangu gas field off the coast of Bangladesh.
``Command is a company with cash flow and no developments, whereas Cairn is a company with developments but no cash flow,'' one analyst said.
The Australian company's major producing asset is its 22.5% operating interest in the Ravva oilfield off the coast of India. The field has estimated gross proved and probable reserves of almost 200 mmboe, 44 million of which are attributable to Command.
Cairn chief executive Bill Gammell said the acquisition of Command would boost his company's cash flow ``considerably''. He also admitted that Command's Indian connections made the deal particularly attractive.
Cairn, which may be sitting on as much as 1.5 trillion cubic feet of gas reserves at Sangu, is looking at the long-term possibility of piping gas to India. It is estimated there will be a shortage of 8361 million cubic feet of gas per day in India by 2010.
``I think that is certainly one of the attractions for us,'' Mr Gammell said. ``It will be a good base for any future Bangladesh-to-India gas pipeline plan.''
Mr Gammell added that the India possibility was ``looking warmer than it had in several years''.
Following recent elections in Bangladesh, the two governments are involved in discussions which could lead to agreements about the cross-border transfer of resources.
Cairn will fund the acquisition with a two-part, one-for-three rights issue. The first instalment, which is the equivalent of a one-for-12 issue, will raise approximately #33.2m before expenses. The maximum amount of the second installment will be #99.6m, but will be called only to the extent of unmet cash requirements.
Mr Gammell said the deal, subject to conditions, would take at least 45 days to complete. However, he was enthusiastic about the enlarged group's prospects.
He said the two businesses would hold a strong strategic position in the Indian subcontinent, a region where he believes oil production is set to increase dramatically.
In addition, Mr Gammell said, the two have very similar philosophies. ``We think two plus two could equal four-and-a-half,'' he said. ``We and Command think very alike. We both operate to get the edge in the markets we're involved in.''
News of the deal sent Cairn's shares surging ahead by 25p early in the day. They eventually fell slightly from that high to close ahead 23p at 395!sp.
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