The little known CVN was feature in Oil Search's offer for InterOil, and was offered to pay a success fee for further drilling of the Elk-Antelope field. It was later co-opted by ExxonMobil for its successful bid.
Now, Australia's Macquarie has attached a contingent value note based on the successful drilling of key projects in the Amadeus Basin to an improved 20 cent per share offer for central Australian oil and gas producer Central Petroleum.
It values Central at $75 million.
The board of the Richard Cottee-led oiler says Macquarie's offer, revised from 17.5 cents per share offer in November, is high enough to garner a board recommendation.
If successful, Macquarie could become a significant new supplier of gas into the east coast gas market within years.
The CVN will be determined by the success of exploration on Ooraminna retention licences, the Palm Valley Deep prospect drilling, appraisal of the Mt Kitty-1 gas-helium discovery and certain exploration licences in the Santos Southern Amadeus Basin joint venture in the four years following completion of the scheme.
Central said the structure of the offer reflected the value added to the producing assets acquired since February 2014, when Central made its pivot to gas production while retaining exposure to potential exploration success.
"The CVN allows shareholders to participate in the exploration assets of the Central portfolio with the potential for near term success, without incurring any of the associated appraisal and/or exploration costs," the board said in a statement this morning.
The cash consideration is up 14% on offer made last November, and is at a premium to recent trading.
Central said the value of the CVNs could be as much as 19.62 cents, or they could ultimately be worthless as Macquarie is under no obligation to conduct any exploration or remain involved in any leases in Central's sprawling exploration portfolio, the largest in the Top End.
Central's chairman Robert Hubbard said the proposal represents attractive value to shareholders at a time when Central requires a major injection of development capital if it is to respond to the opportunity created by the Australia's domestic gas shortage.
It purchased its interest in the Mereenie, Palm Valley and Dingo fields for $15 million in equity and $100 million in debt, and requires funds to further develop the assets which it believes Macquarie, one of its major backers and shareholders, is well placed to deliver.
"Central's ability to fully realise the opportunity presented by the east coast gas market shortage will substantially depend on future appraisal and exploration discoveries, since a majority of Central's existing certified proven (1P) gas reserves are dedicated to current gas sale agreements," he said.
"Given Central's debt levels, the substantial at risk capital that needs to be invested before certified reserves can be increased would have required shareholders to either contribute most of these funds or suffer a very material dilution."
Hubbard said the directors had explored other options, but found the Macquarie proposal was the most attractive.
Ernst & Young will prepare an independent expert's report with the aid of RISC.
The offer includes no shop/no talk provisions.
The scheme meeting to put the proposal to shareholders is expected in May.
