US SHALE company Magnum Hunter Resources Corporation has made an unsolicited rival takeover bid for Cooper-basin focused Ambassador Oil & Gas, giving Drillsearch Energy some competition in its attempt at consolidation with the explorer.
On 10 June, Ambassador informed its shareholders of Magnum’s intention to make a takeover offer for the company which would involve one Magnum share for every 27.8 Ambassador shares.
The offer implies a value of 34c per Ambassador share based on the closing sales price of Magnum Hunter common stock on the NYSE of US$8.84 on 9 June.
Importantly, the Magnum offer represents a 20 per cent premium to the current implied value of Drillsearch’s offer and a 74% premium to the closing price of Ambassador shares of 19.5c on 23 May.
While Ambassador said it planned to assess the merits of Magnum’s unsolicited proposal, Magnum said negotiations with Ambassador were its top priority.
“Magnum Hunter will seek to engage with the board of Ambassador to obtain its support for and recommendation of the Magnum Hunter Offer given the compelling value offered to Ambassador shareholders,” Magnum said.
Magnum’s beeline for Ambassador comes as the company, which is involved in three unconventional shale resource plays in the US, looks to gain a strong foothold in Australia’s emerging shale opportunities.
The company is already a major shareholder of New Standard Energy, the joint venture partner of Ambassador in PEL 570 in the Cooper Basin.
The company acquired its equity position in New Standard in connection with a sale of certain oil and gas properties in the Eagle Ford Shale in South Texas to a wholly-owned subsidiary of New Standard earlier this year.
Magnum Hunter chairman and chief executive Gary Evans said its decision to increase its exposure to a specific region in Australia was based on geological interpretation, substantial land position, existing infrastructure, gas price and immediate exposure to international takeaway markets, as well as potential for shareholders.
“We are not budgeting any cash expenditures on behalf of Magnum Hunter surrounding this investment in Australia for calendar year 2014,” he said.
“We believe that the knowledge we have gained over the past five years in successfully exploring the Eagle Ford, Bakken, Marcellus and Utica Shale Plays is transferrable to the Cooper basin of Australia.
“As we have learned from our exposure to shale plays in the United States, early movers have the greatest opportunity for eventual success.”
Magnum also point forward a strong case for Ambassador if an eventual deal was struck with it instead of Drillsearch, saying the company would gain exposure to a US natural gas company focused on growing reserves, production volumes and cash flow.
Ambassador would also gain upside exposure to Magnum’s shale plays in the US and would be exposed to sizeable production base with the company forecasting a 2014 production rate of 32,000 barrels of oil equivalent.