Australia's Beach Energy Limited (Beach) provided Wednesday the following update in relation to its merger with Drillsearch Energy Limited (Drillsearch) (the Merger), including financial year (FY16) production and capital expenditure guidance.
The scheme of arrangement to merge Beach and Drillsearch was implemented March 1, resulting in Drillsearch becoming a wholly‐owned subsidiary of Beach. As announced March 24, the initial stages of integration identified recurring annual cost savings of approximately $21.7 million or AUD 28 million (pre‐tax). Due to a further reduction in headcount resulting from the Merger, accelerated closure of the Sydney office, and associated savings in corporate administration costs, additional synergies have been confirmed.
The current assessment of recurring annual cost savings from the Merger is $31 million or AUD 40 million (pre‐tax), which will be fully realized in FY17. These synergies include redundancy of the majority of Sydney-based employment positions, cessation of Drillsearch Board fees, termination of contractors and consultants, elimination of Sydney office administration costs, and redemption of convertible notes. Not included are field and travel related savings expected from cessation of ex PEL 91, 106 and 107 joint venture management, and rent savings from closure of the Sydney office. The Sydney office will close by April 30 and negotiations are underway to surrender or sub‐lease existing arrangements.
Summarized below is the current assessment of Merger synergies, which will be fully realized in FY17.
Estimated Merger Synergies1 in AUD million
1 Pre‐allocation of expenses to joint ventures; excludes one‐off integration costs
Headcount and Organization Review
The Merger resulted in duplication of operational and corporate employment positions. Integration has focused on eliminating such duplication, with Sydney‐based headcount to be reduced by 60 by April 30, and a further 4 positions expected to be made redundant by May 31.
In conjunction with Merger integration, a review of Beach’s organization structure was completed by a global consulting firm. The review concluded that Beach has been operating with a lean structure and top‐quartile staffing metrics. However, changes were recommended to assist with the current environment of lower oil prices and the integration of Drillsearch. These recommendations have subsequently been implemented and resulted in a further reduction in headcount.
It is now expected that headcount will reduce to 213 by June 30. On a combined basis, this represents a 29 percent reduction since June 30, 2015, and a 21 percent reduction directly attributable to the Merger. Expected headcount by June 30 is summarized below.
1 Includes executives; excludes Board members, contractors and international employees
In relation to Merger integration, Acting Chief Executive Officer, Neil Gibbins, said “Integration of Beach and Drillsearch continues to track ahead of schedule, with Merger synergies exceeding original expectations. The results achieved to date make the combined business a leaner, more robust operation. The Merger has strengthened our ability to weather current market volatility and better positions us to take advantage of a future improvement in conditions.
In addition to pleasing integration outcomes, our operations team continues to achieve outstanding results. As will be outlined in our upcoming quarterly report, we continue to maintain oil production levels from our ex PEL 91 permit, and have implemented cost initiatives which are expected to deliver further savings of up to $5.4 million (AUD 7 million) pre‐tax annually.”
View Full Article
WHAT DO YOU THINK?
Click on the button below to add a comment.
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Most Popular Articles
From the Career Center
Jobs that may interest you