Interview: Australia's Nexus Remains M&A Target

MELBOURNE Feb.16, 2007 (Dow Jones Newswires)

The pressure has eased on Nexus Energy Ltd. (NXS.AU) with positive results from its Crux field offshore Western Australia, but analysts say the oil and gas developer will remain a takeover target until it gets into production.

Nexus was sold off last week, sinking more than 32% in one day when initial results from the second well at Crux, raised fears the gas/condensate project could fail.

But the shares bounced back 12.8% to A$1.19 Friday after Nexus announced its Crux-2 well had intersected 26 meters of good quality gas sands in a reservoir connected to the discovery made at its first exploration well. At current prices, the company is valued at A$465.3 million, with the stock more than doubling in the last six months.

Managing director Ian Tchacos has been on a rollercoaster ride in the last fortnight, telling Dow Jones Newswires the episode has been in part due to the company's continuous disclosure requirements.

"We couldn't provide the total picture until we had drilled through the entire section," he said.

"So it has come up significantly better than we were initially expecting, once we got through the whole column and analyzed it."

Nexus last year saw off a hostile takeover bid from Anzon Energy Ltd. (AZA.AU), which coveted Nexus' three development projects - Crux, Longtom off the coast of Victoria and the Echuca Shoals offshore Western Australia.

Tchacos said there have been no recent approaches from predators but a takeover remains a concern.

"It is always a constant issue but all you can do is try to maintain your progress and make sure people understand the potential of your asset base," he said.

EL&C Baillieu analyst Ivor Ries said Nexus remains a target and its three projects are of interest to other mid-tier oil and gas companies.

"Any company with three fairly significant projects in development that aren't in production is vulnerable because the market discounts assets that aren't in production," he said.

Nexus has a US$40 million deal with Royal Dutch Shell PLC. (RDSA) that will see the oil major take all the gas produced at Crux while Nexus retains the condensate.

The Crux-1 well, drilled in 2000, encountered a promising 240 meter gross gas column but when Crux-2 failed to intersect gas in the upper sands last week some investors worried the field could be too small to sustain the gas/condensate project.

Tchacos said the latest results from Crux-2 proves the gas from the two wells is from the same reservoir.

"Unfortunately it is not the upside case but what it does demonstrate to us is that gas sands extend that far," he said.

Tchacos said more analysis is needed before Nexus can say if the northern section of Crux holds the 71 million barrels of condensate the company had been expecting.

Nexus will now also bring forward plans to drill a well in the south of the field, which Tchacos said has the potential to boost the resource significantly.

A final investment decision is expected on the Longtom gas field by the end of March and Nexus also has a farm-in deal worth US$55 million with Shell at its Echuca Shoals gas discovery.

Ries said Nexus is likely to be re-rated by the market when it starts producing and developing cashflow.

"The next 18 months is really the big test for them - they have to bring that first project in and get it producing," he said.

Copyright (c) 2007 Dow Jones & Company, Inc.

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