Beach Energy Agrees to Buy Drillsearch for $277 Million

(Bloomberg) -- Beach Energy Ltd. agreed to pay A$384 million ($277 million) in stock to acquire Drillsearch Energy Ltd. to increase its exposure to energy assets in Australia’s Cooper Basin.

Drillsearch shareholders will receive 1.25 Beach shares for each share held, valued at 83 Australian cents, the companies said in a joint statement. The offer is priced at a premium of 27 percent to Thursday’s close. Drillsearch surged as much as 22 percent on Friday, the most since March 2010.

Buying Drillsearch will create a company with combined production of 12.1 million barrels of oil equivalent a day with operations in the Cooper and Eromanga Basins -- home to Australia’s largest onshore oil and gas development, according to the Beach website. Beach, which has an existing 4.55 percent stake in the target according to data compiled by Bloomberg, acquired the holding in 2013 to increase its options in the region.

“It’s cheaper to buy existing facilities rather that develop your own,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone. “That is a clear indicator that further merger and acquisition activity is on the cards and that many within the industry think that we have seen the low.”

Drillsearch, which dropped more than 40 percent in the year to Thursday, climbed as much as 14.5 Australian cents to 80 cents in Sydney. Beach slid 0.8 percent. Brent crude prices have lost 44 percent the past 12 months.

“The combined group would be a leading operator and producer in the Cooper and Eromanga Basins with positions in all of the major oil producing permits,” Neil Gibbins, the acting chief executive officer of Beach, said on a conference call. “It’ll be the largest oil producer by a significant margin.”

--With assistance from Aaron Clark in Tokyo.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net. To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net Andrew Hobbs, Iain Wilson.