Investors Upset by Santos's Delhi Buy
18/07/2006
By Nigel Wilson, Energy Writer

SANTOS has agreed to spend $474 million acquiring Delhi Petroleum to grab another 21 per cent of the gas-rich Cooper-Eromanga Basin in the nation's centre.

But the deal has some holders of ASX-listed Floating Interest Energy LinkeD Securities (Fields) crying foul over the $83.25 a unit they are being offered as part of the deal.

Santos has come to an agreement with Westpac Funds Management to make an offer under a creditors' scheme of arrangement for Delhi, which fell on hard times this year because of poor hedging, high royalty payments and difficulty in funding its share of an expanded drilling program by Santos, which operates the onshore field.

Under the scheme, the holders of 3million Fields notes will be offered $83.25 cash for each $100 note, which sold for an average of $60.43 in the 30 days before trading was suspended on June 27.

These holders had paid $100 million to invest in a vehicle that helped fund the purchase of Delhi from ExxonMobil in 2004.

Santos will pay $6 million for the equity in Australian Petroleum Investments, which owns Delhi, and assume $218 million in debt.

Fields noteholders will also be entitled to receive the scheduled August quarterly interest payment of $2.8058 for each unit.

In effect, Santos is offering $250 million for the Fields, which have a face value of $300 million.

Santos chief financial officer Peter Wasow said the assets would be better managed by an operating company than a financial vehicle, and that Santos was the natural owner of east coast natural-gas assets.

The deal would leave Origin with 15 per cent of the Cooper Basin's declining reserves.

Westpac Funds Management executive David Westaway called the Santos offer "superior to other options which have been investigated to realise value, including approaches from other parties". He said the offer would see investors who had subscribed in the Fields IPO realise a total cash return of $103.77 per security, compared with the IPO subscription price of $100.

WFML promised that an explanatory statement on the deal with Santos would also provide details of the move last week by Delhi's previous owners Graeme Foley and David Libling to dispose of their interests.

But Fred Woollard, of Samuel Terry Asset Management, argued that Fields holders should reject the deal. He was opposed to Delhi shareholders being paid $6 million.

"Why should they get $6million when we are not being paid 100 cents in the dollar," Mr Woollard said. If Delhi could not repay the notes the Fields should be converted into ownership of Delhi and the existing shareholders lose their ownership interest.

"I believe a new publicly listed, independent Delhi would be worth considerably more than the $250 million offered to us by Santos," Mr Woollard said.

Santos's shares closed 3c higher at $11.70 on the stock exchange, while Fields sold at $83.20 on resumption of trading.

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