Beach Energy agrees to buy Drillsearch for $277 million

BEN SHARPLES

MELBOURNE (Bloomberg) -- Beach Energy Ltd. agreed to pay A$384 million ($277 million) in stock to acquire Drillsearch Energy Ltd. to increase its exposure to energy assets in Australia’s Cooper basin.

Drillsearch shareholders will receive 1.25 Beach shares for each share held, valued at 83 Australian cents, the companies said in a joint statement. The offer is priced at a premium of 27% to Thursday’s close. Drillsearch surged 26% on Friday, the most since November 2009.

Buying Drillsearch will create a company with combined production of 12.1 MMboed with operations in the Cooper and Eromanga basins -- home to Australia’s largest onshore oil and gas development, according to the Beach website. Ryan Stokes, CEO of Seven Group Holdings Ltd., the biggest shareholder in both companies, welcomed the deal, according to an emailed statement.

“It’s cheaper to buy existing facilities rather that develop your own,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone. “That is a clear indicator that further merger and acquisition activity is on the cards and that many within the industry think that we have seen the low.”

Drillsearch, which dropped more than 40% in the 12 months to Thursday, climbed 17 Australian cents to close at 82.5 cents in Sydney. Beach rose 3%. Brent crude prices have lost 44% the past 12 months.

“The combined group would be a leading operator and producer in the Cooper and Eromanga basins with positions in all of the major oil producing permits,” Neil Gibbins, the acting CEO of Beach, said on a conference call. “It’ll be the largest oil producer by a significant margin.”

Beach, which has an existing 4.55% stake in the target according to data compiled by Bloomberg, acquired the holding in 2013 to increase its options in the Cooper basin.