The deal took the market by surprise, reflected by the sideways movement in Cooper's share price went when the company came out of a trading halt at noon yesterday (WA time).

But the takeover is an elegant solution to the very different problems faced by each company.

For Cooper, the issue has been the lack of a convincing growth opportunity that's worthy of its cash reserves and enviable oil production base on the western flank of the Cooper Basin.

The company is one of the new generation of Cooper Basin explorers that established itself through modest but reliable oil discoveries. The company struggled for a strategy to take it to the next level, culminating in an attempted coup last year by dissident shareholders.

The raid failed, but the incumbent directors took it as a cue to refresh the board and appoint a new managing director, David Maxwell, with a clear focus on growth.

Somerton Energy's problems were the other way around — a massive opportunity in unconventional gas (and possibly liquids) in the onshore Otway Basin and the onshore Gippsland Basin, but with no production and a reliance on shareholders to finance its growth.

A capital raising would be inevitable at some stage, but the company's major shareholder, Beach Energy with 56%, is already in the market with a major rights issue/notes offer to raise $345 million.

Beach had already sunk around $20 million in Somerton, mostly in the form of a debt-for-equity swap that saved Essential Petroleum (now renamed Somerton) from bankruptcy after it could not repay Beach its share of an unsuccessful exploration well in the offshore Otway Basin.

Beach gained control of Somerton in 2010 and appointed Hector Gordon as managing director. He immediately began securing near-blanket coverage of an unannounced shale gas play identified by Beach in the onshore Otway's Casterton Formation.

As EnergyNewsPremium reported exclusively in February, Beach's unsuccessful Glenaire-1 well in the onshore Otway in late 2006 was pivotal in the company becoming the most advanced shale gas player in Australia.

Gas was seen bleeding from fractures in shale adjacent to Glenaire-1. This led managing director, Reg Nelson, to make a nation-wide review of US-type shale gas opportunities in Australia. The Nappamerri trough of the Cooper Basin topped the list, with the Otway Basin ranked second, but still mightily prospective.

The success of Somerton's efforts over the past two years is highlighted by the approximate $50 million turnaround in value.

Two years ago, Essential was a $20 million black hole, today it is subject to a bid valuing the company at $31.5 million, without a single well being drilled. Somerton has also largely missed out on the re-rating given to Australian explorers with big shale gas plays in other basins.

Cooper's agreed takeover of Somerton does not mean Beach is walking away from the Otway Basin. The takeover consists of either an all-share offer of one Cooper share for every 2.8 Somerton shares, or a shares and cash offer of one Cooper share for every 4.73 Somerton shares plus 9 cents for each Somerton share.

If it accepts the all-share offer, Beach's 56% stake will convert into slightly less than 10% of Cooper. (Beach has yet make a decision about yesterday's bid, but acceptance is assured because Somerton's board is controlled by Beach representatives.

Furthermore, other shareholders representing 19% of Somerton's issued capital, including Peter Woodford, have already entered into pre-bid acceptance agreements).

Beach may already have a small shareholding in Cooper. This would be no surprise, as Cooper is Beach's junior partner in the PEL 92 on the western flank of the Cooper Basin, and Beach has a long track record of being a consolidator of companies and acreage in the region.

But even without an existing position on Cooper's share register, Beach will have a sizeable continued interest in the Otway. Of course, it will also have a stake in all of Cooper's assets and the strong cash reserves and cashflow that will be able to fund the enlarged Cooper Energy's growth ambitions.

At the end of December, Cooper had cash reserves of $68 million, and production in the Cooper Basin and Indonesia generating cash of about $3.5 million every month before discretionary spending and exploration.

Cooper managing director David Maxwell said the company announced plans in October to focus on building its footprint in the Cooper-Eromanga Basin and Otway Basin, and building a position with a view to supplying the Australian domestic gas market.

"This transaction materially increases our position in the Otway. It's a good combination … complementary in that we have cash and cashflow plus some opportunities, and Somerton has the Otway position," he said.

"Our cash and cashflow will go a long way to enabling the Otway to be fully exploited for the benefit of both sets of shareholders."

He agreed the idea of bringing Cooper and Somerton together was not obvious, but added: "I have a view you do business on the basis of fundamentals. These must be right, and then the right transactions appear. In this case, the fundamentals seem to be in place for a very logical transaction between the two companies".

The companies also announced Hector Gordon would be appointed an executive director of Cooper, provided the bid satisfies a 90% minimum acceptance condition and Cooper can proceed to compulsory acquisition.

Gordon said the takeover was a great marriage of complementary businesses and it would allow exploration of Somerton's assets to be accelerated.

"This allows us to get on with it much more quickly than otherwise."

He said he saw an ongoing future with Cooper. "I'm very excited about the opportunities for the combined business and believe there will be a good role for me."

Maxwell said he and Gordon had worked together many years ago and that he had "a lot of respect" for Gordon's technical capabilities.

"He and I have yet to sit down and work through what is the most appropriate organisational structure, but that's something I would want to do with him and make sure he's right across, and that he and I will work closely together."

Maxwell said he and Gordon were also complementary in their skills and experience.

"I come from more of a commercial, business development background with particular experience in gas and gas marketing. Hector is more subsurface technical exploration experience."

The takeover is expected to be completed by June, clearing the way for the enlarged company to fly out the gates in the second half of the year with drilling activity at PEL 495 in the onshore Otway, and an offshore oil well in Tunisia, free-carried by Dragon Oil.

"There are a range of growth opportunities in front of us and the second six months of this year are going to be very exciting. They're not using a lot of capital, either," Maxwell said.