Beach to Buy Delhi for A$574 Million, Trumps Santos
06/09/2006
By Tan Hwee Ann

Sept. 6 (Bloomberg) -- Beach Petroleum Ltd., an Australian oil and gas producer, will pay A$574 million ($442 million) for Delhi Petroleum Pty, trumping a rival offer from Santos Ltd.

Beach will pay A$44 million for all of Delhi's shares and A$530 million to redeem debt securities and settle other debt, Westpac Funds Management Ltd., which is selling its interests in Delhi, said in a statement today.

The deal triples Beach's reserves, catapulting it to fourth among Australia's biggest oil and gas producers, and giving it a stake in the Santos-led Cooper Basin venture in the country's center. Santos had bid A$474 million for Delhi, a figure rejected by some investors as too low.

``Santos could have got some cost savings and synergies from it, but it's not a setback since it's small in size for Santos,'' said Peter Chilton, who helps manage $800 million at Constellation Capital Management in Sydney. ``The key question
is whether it would be profitable for Beach.''

Beach shares rose 2.5 cents, or 1.6 percent, to A$1.555 at the 4:10 p.m. close in Sydney. Shares of Santos rose 8 cents, or 0.7 percent, to A$11.42.

Beach will borrow A$650 million to fund the acquisition and then sell shares worth A$360 million to partially pay off the loan, the Adelaide-based company said in a statement to the Australian Stock Exchange today.
    
Santos won't be making a counter offer, spokeswoman Kathryn Mitchell said.

Oil Upside
Beach will get an average 21 percent interest in more than 200 oil and gas fields, it said in a statement to the Australian Stock Exchange. The company's oil and gas reserves will rise to the equivalent of 95 million barrels of oil. Beach gets almost 70 percent of its production from the Cooper and adjacent Eromanga basins.

``The bulk of what we offer is supported by the robust gas reserves and the long-term contracts,'' Beach Managing Director Reginald Nelson said by telephone. ``We see the real upside in the oil program that Santos has initiated.''

Santos has said it and partners may spend as much as A$1.3 billion through 2010 looking for more reserves at its Cooper Basin venture, and is increasing drilling for oil and gas. It has committed A$160 million to the project so far, said Santos' Mitchell.

The acquisition will add to Beach's earnings per share and net present value, Nelson said. The additional earnings in the first few years won't be significant as the company will also be benefiting from output at its Basker-Manta oil project, he said.

`Reasonable Bid'
Beach will buy all the shares in Delhi from Australian Petroleum Investments Ltd., an unlisted holding company, and redeem debt securities held by Australian Onshore Energy Fund, a listed investment fund managed by Westpac Funds Management.

Beach is offering A$100 for each Floating Interest Energy Linked Security issued by Australian Onshore Energy Fund. Westpac owns some of the securities.

``It's a reasonable bid,'' said Fred Woollard, who manages A$7 million at Samuel Terry Asset Management in Sydney, where the largest shareholdings are in the Floating Interest Energy Linked Securities of Australian Onshore Energy Fund. Woollard, who earlier rejected Santos's bid as too low, said he's likely to accept Beach's offer.

Westpac said in a statement today that it is canceling an earlier agreement to accept Santos's offer of A$83 for eachFloating Interest Energy Linked Security.

``We have always said the acquisition of Delhi was a value play for an asset that we already operate and hold the majority stake in, it's not an asset that we must have,'' said Santos' spokeswoman Mitchell.

Adelaide Equity Partners Ltd. advised Beach Petroleum. Euroz Securities Ltd. and Commonwealth Securities Ltd. will underwrite the share sale by Beach.

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