Australia / Analyst Insights
Third offer made for AWE Limited takeover

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by Matthew Reeves
Jan 31 2018

Japan-based Mitsui & Co has become the latest company to make an offer for AWE Limited. The offer of $594.0 million (95 cents per share) is the third takeover bid received by AWE since December 2017, and tops offers from China Energy Reserve and Chemical Group ($463.0 million or 73 cents a share) and Australian publicly listed company, Mineral Resources ($526 million or 83 cents a share).

Much of the interest in AWE is due to its 50% stake in the Waitsia field. Discovered in September 2014 in the Perth Basin, through a 50:50 joint venture between Origin Energy Limited and AWE Limited, the Waitsia field is the largest onshore gas reserve discovery in Australia in over four decades. The reserve is estimated to have capacity of 100 terajoules of gas a day for 10 years.

Since the discovery, Origin has taken the strategic decision to cease its exploration and production activities to focus on its traditional utilities business, a newer LNG joint venture, and reduce company debt. The company’s exploration and production assets, including the 50% share of Waitsia, were bundled into a new entity, Lattice Energy, which was sold to ASX listed Beach Energy Limited in September 2017 for $1.59 billion.

Soon after Origin’s exit, China Energy Reserve Chemical Group made its offer for AWE.

The publicly listed AWE earned $72.5 million from continuing operations in 2016-17. This was less than the $120.8 million earned in the previous year. However, this was largely due to the selling off of its interest in the Tui Area Oil Fields in New Zealand.

Origin’s Lattice reported revenue of $824.0 million in 2016-17.  The new owner of Lattice, Beach Energy reported $868.8 million in revenue in 2016-17.

The competition for AWE comes at a time of policy turmoil in the local gas market. The east coast of Australia is facing gas shortages, which is affecting domestic gas prices in the eastern states. An estimated 54.0% of Australia gas supply is expected to come from imports. As a result, in July 2017, the Federal Government announced the Australian Domestic Gas Security Mechanism, which aims to ensure there is a ‘sufficient’ domestic gas supply.

After their takeover bids, both Mineral Resources and CERCG said they would sell the gas from the Waitsia reserve within Australia and not overseas. Although the Foreign Investment Review Board approved CERCG’s bid for AWE in December 2017, the latest bid from Mitsui & Co has pushed CERG’s offer off the table. Although the AWE board had previously endorsed the bid from Mineral Resources, they are yet to review the latest proposal from Mitsui & Co.

Related Companies:

Mitsui & Co (Australia) Ltd (Aust. subsidiary)

AWE Limited