It is AWE's third bid - made public at least - in three years following Senex Energy's scrip/cash bid in late 2013 and Lone Star's 80cps bid last year, which sank quicker than it started.
Unlike Santos which only revealed its rejected approach by US-based Harbour Energy months later, AWE was compelled to disclose the bid by CNPC's private state-controlled oil and gas trading, logistics and distribution company China Energy Reserve and Chemical Group due to the Australian company's $10 million share purchase plan underway to ensure investors are fully informed.
Bidder's view
Energy News has learned CERCG, whose indicative, non-binding bid valued AWE at $429.7 million at the 65cps it was trading at this morning, has been looking for opportunities to use its containerised solution to power West Australian mines for some time now.
The Chinese group's bidder's statement which AWE released this morning said its business plans will help remote communities and mines, delivering LNG via its "virtual pipeline" business that is proven in China.
CERCG, which recently opened up an office in Perth's CBD, wants AWE to canvass its proposal with the Waitsia operator's two largest shareholders, Ellerson Capital and Colonial First Estate, as their upfront support is a key factor in its own indicative proposal.
Though the group hoped a deal could be done without hindering operations, CERCG said it was concerned about the delay in a final investment decision at Waitsia, the inability to secure acceptable gas sale contracts to support FID, the redundancy of key technical staff and the expiry of Production Licences 1 and 2.
It also has concerns over the SPP which impacts CNRCG's thinking and timing, believing it's critical that a deal can be agreed and announced rapidly so AWE's smaller shareholders can factor it into their decision whether to participate in the SPP.
CERCG has built, owns and operates more than 1100km of major high pressure gas pipelines, owns and operators 300 LNG-fuelled trucks fro LNG transportation and distribution - a plan that would be clue to the destination for Waitsia's gas.
The company said it was also "acutely" aware of the east coast gas crisis and could help alleviate that.
This would be done not via the transcontinental pipeline being studied by the Commonwealth but by trucking the LNG via "sausage" containers to a port, shipping it across to the east coast on a basic containership and "plug and play" the gas into whoever needs it.
Having undertaken "significant" due diligence on AWE, that was only on publicly available information, and believes there's nothing much standing in the way of a decision to formally proceed with the takeover, in which case the bid could be raised.
While the bid was a 30% premium to its 54.5c trading price at yesterday's ASX close, AWE's shares surged nearly 20% this morning to 65.2c, just shy of its 52-week high of 66.5c.
Valuation
The bid is also under RBC Capital Markets' risked discounted cash flow valuation on AWE of about 90cps, which rises to $1.13/share unrisked, which could rise given Waitsia's stunning performance of late with a 78% lift in 2P reserves.
RBC also called the latest flow test at the Waitsia field an "absolute eye opener" in an Australian onshore context, with Waitsia-4 flowing at 90 million cubic feet per day in one of the country's highest ever flow rates.
While the bid is contingent on executing an implementation agreement, due diligence and approval by both Australia's Foreign Investment Review Board and CERCG's board, the surge in trading validates AWE's assessment that the bid is not attractive enough for the Perth company to give the Chinese player access to allow bidder due diligence to even start.
In fact, AWE said this morning that there was "no guarantee" that the indicative proposal would result in a transaction, but has appointed UBS as financial advisor anyway and Allens as legal advisor.
The indicative proposal includes the acquisition of any shares AWE issues under the recently announced SPP due to close on December 14.
Analysts believe the FIRB could be the biggest issue - and Western Australia's government may also be concerned - given the fact CNPC's parent PetroChina bought BHP out of its stake in the Browse development for US$1.63 billion in December 2012.
The JV is looking for gas to extend the North West Shelf's life and while Woodside is trying to convince its partners to commercialise Browse through the Karratha gas plant, Waitsia could become linked to the export project if China's unquenchable thirst for gas comes to the fore in negotiations.
RBC believes FIRB approval could be a "major" issue given the source of the bid and the emerging status of Waitsia as an important strategic asset within the WA domestic gas market.
The move also represents the second merger and acquisition activity impacting Waitsia in the past month, with Beach Energy still waiting on its deal to close to acquire 50% Waitsia equity partner Lattice Energy from Origin Energy.
While continued interest in acquiring control of AWE reinforces RBC's positive outlook on the Waitsia asset, analyst Ben Wilson said the latest move could just be an exercise in price discovery from the bidding party and an attempt to compel the board to engage with major shareholders.
This is particularly the case if more hedge funds using convertible arbitrage strategy to take long positions on energy stocks come on AWE's register.
"The recent equity placement was well subscribed from long term existing holders, which suggests AWE shareholders may not be easily budged particularly given the strong progress made on delineating a large Waitsia gas resource," Wilson said.
