Strike shares its West Erregulla onshore gas development with Warrego in a 50-50 split.
On Thursday, Strike announced it had submitted a confidential non-binding all-scrip merger proposal to Warrego's board.
It made a takeover offer in 2020 and was rebuffed by Warrego; last year it bought stock in the company, eventually holding over 8%. It later seemingly used its clout to vote against the remuneration package offered to Warrego CEO Denis Donald.
The companies have a fraught history, offering vastly different initial resource estimates for their West Erregulla-2 well in 2020. Warrego's third party estimate by RISC was 512 billion cubic feet while Strike's inhouse work suggested more than double.
There were later disagreements over appraisal well West Erregulla-4 and a maiden reserves certification in October last year was well below both companies' estimates. Re-entry of West Erregulla-3 this year has increased reserves and resources, however.
Interestingly in June this year at the Credit Suisse Energy Conference in Sydney Strike MD Stuart Nicholls said he viewed further consolidation in the sector as bad, and boring.
He said it would thin out the sector even more and lower healthy competition and it will be "just two people, one onshore and one offshore".
"Last year we saw three Australian oil and gas companies disappear.
"There's a pretty thin sector now and really the voice of three or four people speaking for our industry," he said.
Strike said today it has appointed Macquarie Capital as financial advisor and DLA Piper as legal counsel.
Under the deal, Warrego shareholders would receive 0.775 new shares in Strike for each Warrego share held.
The price value represents a transaction price of 18.6 cents per share, a 40.6% premium to Warrego's undisturbed share price.
It is also a 33.7% premium to Warrego's 90-day volume weighted average price.
Warrego shareholders would also receive the full value of Warrego's Spanish assets once sold.
Strike had made two earlier merger proposals which would have seen Warrego shareholders receive 0.714 new shares in Strike; however this was deemed to undervalue the company according to Warrego's board.
With a higher offer in place, Strike and Warrego have entered into due diligence and negotiations under a mutual confidentiality agreement.
If the deal closes, Strike shareholders would own just under 72% of the combined company.
Warrego shareholders would own around 28%.
"A merger between Strike and Warrego would create the leading ASX-listed Net Zero 2030 Perth Basin integrated energy, fertiliser and renewables company that would consolidate 100% ownership across the Erregulla region," Strike said.
It would see the combined company holding 1208 petajoules of conventional 2P reserves plus 2C resources.
"The consolidated ownership of these Greater Erregulla permits provides the opportunity to optimise, accelerate and maximise the development strategy of the high-quality conventional gas resources, focussing on the physical integration of Strike's 100% owned 3500 hectares of land at the Midwest Low Carbon Manufacturing Precinct for hosting critical infrastructure," Strike said.
Strike recently awarded Technic Energies for front-end engineering and design at its Project Haber asset, where it plans to make 1.4 million tonnes of urea using its nearby gas resources.
The FEED will take up to 10 months.
Strike shares were worth 24.5 cents. Warrego shares had jumped around 6% to 18 cents.
