"We don't talk about speculation in the market or anything to do with what's happening in our organisation. That's something we don't comment on," Drillsearch CEO Walter Simpson told Energy News yesterday when asked point blank whether his company had fielded any takeover offers.

Less than 24 hours later Drillsearch and Beach announced they would implement a merger via a scheme of arrangement where Drillsearch shareholders would receive 1.25 Beach shares for every Drillsearch share held.

The deal looks like it will resist any outside competing bid, with Beach saying this morning it did not have any other competing proposals. It said it should be remembered that both companies had a common substantial shareholder - Seven Group Holdings - with some 19%, so the realistic chances of a competing bid was "unlikely".

Drillsearch chairman Jim McKerlie said that if a competing bid arose it would be assessed "in the cold light of day", but "the current desire is to progress with the Beach merger to build a mid-cap and, eventually, an ASX 50 company".

Beach already has a 4.5% stake in Drillsearch, with McKerlie and director Phil Bainbridge to join the board of the combined group.

Two Beach directors will step down, with Glenn Davis to continue as chairman of the company, which is still looking for a CEO after Rob Cole quit for personal reasons. That CEO will become CEO of the combined companies.

A Merger Integration Group has been appointed to manage the process, with a management team to be selected on a "best for job" basis. Simpson and Beach acting CEO Neil Gibbins will manage the MIG.

Argonaut said this morning that the merger "makes sense considering the interests, acreage and production areas are effectively identical which should translate to lower operating costs.

"With this merger the new company will become Australia's largest onshore oil producer."

The deal represents a premium of 30% for Drillsearch shareholders, based on the three-month volume weighted average price for each of Beach and Drillsearch, with combined pre-tax synergies and cost savings of about $20 million a year - a critical factor in today's low oil price environment.

The deal represents a 27% premium to Drillsearch's last closing price yesterday of 65.5c per share, and a 21% premium to the company's one-month volume weighted price of 58cps up to and including yesterday.

The key assets of the combined entity will be the producing Western Flank oil fairway formerly known as PEL 91, including the prolific Bauer oil field, and the producing Western Wet Gas Joint Venture formerly known as PEL 106.

McKerlie said this morning that the merger would create a $1.2 billion company even at $50/barrel oil.

"This is not about squeezing a lemon, this is about pursuing new growth opportunities," he told a conference call this morning.

"Both shareholders retain exposure to existing portfolios and get new exposure to new portfolio.

"We're primed for growth. Clearly there are emerging opportunities in this sector.

"We can take advantage of distressed asset sales, opportunities that come up in changing energy markets, a whole range of things that we see in the market place that would be beyond the capacity of Drillsearch to take on its own, and there would be some opportunities that the combined entity can go for that neither entity could do.

"It's a great time to be a strong position, and that's the driving force behind the Drillsearch board recommending this merger to shareholders."

Speaking of "the unique synergy pool that can be unlocked, with so much in common", McKerlie said that "with oil at $50, getting substantial growth organically is far more challenging. Getting $1 of synergy a year ago is far less valuable than getting $1 of synergies today.

"Between us we have a much greater footprint in the Cooper Basin.

"The jewel in our crown is the Western Flank asset. We will continue to share 100% of revenues, but remove duplication of extracting and delivering those revenues. That will be a direct saving.

"The valuations are quite low when we do this with paper. We're not burning cash, which is critical right now.

"For investors, the combined stock will be a much more attractive stock to hold. So it's a pretty compelling stock for both sets of shareholders."

McKerlie said the potential for improved liquidity, possibly a market re-rating and the possibility for dividends, particularly for Drillsearch shareholders, were all on the table following the merger, along with the ability to be more profitable in everything they did.

"When you decide who you get married to, you have a good look at them," he said.

"It's our direct experience that Beach is a low-cost operator, and we can help that as we drilled 42 wells last year. Add that to the Beach activity and there is the volume and optimisation that gives you that low cost.

"If you can knock a hole in the ground for 30% cheaper it's a huge advantage. If you can get that capital to work better by optimising, that's a big, big attraction for us."