Strike Energy might be the next target in WA’s billionaire gas game

The battle of the billionaires for control of Warrego Energy (ASX: WGO) in Western Australia’s gas-rich North Perth Basin is heading towards a showdown but the war is likely to continue because Warrego might not be the main game.

A second and bigger battle could follow with Strike Energy (ASX: STX), one of the current bidders for Warrego, looking like a bigger and better target.

In what has become a tangle of bids involving some of the best-known names in Australian business, including iron ore billionaires Gina Rinehart and Chris Ellison, along with media billionaire Kerry Stokes, the prize they’re seeking has become blurred, as have their bids.

The value in Warrego, Strike and other companies exposed to the North Perth Basin is the deeply buried gas which eluded earlier explorers or was ignored because the WA gas market was flooded with supply from the North West Shelf, a giant but fading project.

Rather than WA’s industrialised south-west corner having a gas surplus, a shortage is developing, igniting a rush back to the place where gas was first discovered in WA – a geological region centred on the coastal fishing centre of Dongara.

The battle for Warrego Energy

The billionaire bidding dual has seen Warrego’s share price rise by 185% from $0.14 to $0.40 since Strike made its first move in early November with a proposal to merge with Warrego.

That offer was designed to resolve a long-running dispute between the two companies which jointly own the West Erregulla gas discovery but have been unable to decide on the best development route.

The day after Strike proposed its share-swap merger, Stokes-led Beach Energy (ASX: BPT) lobbed a bid for Warrego at $0.20 a share, followed a few days later by Ms Rinehart’s first offer of $0.23 a share via Hancock Energy.

Mr Stokes is already a major player in the region’s revival through Beach’s half share in the nearby Waitsia project while Ms Rinehart owns half of Senex Energy with Korea’s Posco.

Bid and counter bid for Warrego has followed the initial salvo with Mr Stokes dropping out last month just as Mr Ellison entered the picture by acquiring a 19.2% stake in Warrego but later declaring that he would not make a full bid.

Mr Ellison, through Mineral Resources (ASX: MIN) is focusing on the takeover of Norwest Energy (ASX: NWE), a 20% shareholder in the Lockyer Deeps gas discovery made by Mineral Resources to the north of West Erregulla.

Deadlines are approaching for what could turn out to be the first stage of a long-running corporate hunt for an energy source which is supposed to be out of favour, if not politically incorrect, in an era when renewables are supposed to be ruling.

Ms Rinehart, who has her foot on a 26.1% stake in Warrego, is heading towards a bid deadline of Tuesday (31 January) but could easily extend what is currently an offer of $0.28 per Warrego share with plans to lift to $0.36 once she gets 40% acceptance.

Strike, with acceptances of just 1%, will keep its offer open until at least 13 February.

At this stage, only Ms Rinehart and Strike have bids for Warrego on the table, but there is no doubt that Mr Ellison and Mr Stokes are watching from the sidelines.

There is also no doubt that the market expects more action because at Warrego shares are trading at $0.40, well above Ms Rinehart’s proposed $0.36 if she gets sufficient acceptances for her $0.28 offer.

Eyes are now on Strike Energy

For investors late to the North Perth Basin gas party, Strike could be the stock to watch, not because of any corporate activity but more because it is already half owner of the West Erregulla discovery and has other assets in the region.

Earlier this month, Strike received a production licence to start pumping gas from its 55% owned Walyering field located south of West Erregulla.

Strike also has the biggest tenement position in the North Perth Basin which is undergoing a born-again revival that could see multiple gas field developments as exploration drilling probes deeper and wider.

Shortly after getting its Walyering licence, Strike said it had secured the services of a drilling rig to further test the promising South Erregulla field.

Perhaps significantly, the rig will be shared with Mineral Resources, which has plans to expand its discovery called Lockyer Deeps.

Consolidation in the North Perth Basin very likely

More drilling, more corporate action, and more involvement by some of Australia’s richest people will make the North Perth Basin a region to follow this year with consolidation of assets a near certainty, if only to save development costs.

Mr Stokes, while on the sidelines in the current flurry of activity, is well positioned to play the role of consolidator having already tasted success with the Waitsia project he owns jointly with Japan’s Mitsui.

Because Mr Stokes and Mitsui moved early in the region, before a gas shortage became obvious, they received special approval from the WA Government to export half the gas from Waitsia as high-priced liquefied natural gas (LNG), a cash bonus Strike also wants.

Ms Rinehart could also unleash some of her billions by outbidding everyone to acquire the lion’s share of the region, if she wants to.

Strike’s wide open share register

There are hints of something brewing at Strike including a report of a new shareholder appearing on the company’s top 20 list, and an updated research report from Bell Potter which retained a buy tip but lifted the target price from $0.45 to $0.51 – up $0.11 (27.5%) from last sales at $0.40.

Neweconomy.com.au Nominees Pty Ltd appeared on the Strike top 20 list with a seemingly tiny stake of 0.734%.

The ultimate owner of Neweconomy has not been reported but the fact that such a small holding qualifies for inclusion in the top 20 speaks loudly about the wide open Strike share register where the biggest holder (as at 1 September) was a bank nominee company (Citicorp) with a modest 4.877% stake.

Even BNP Paribas, the big French bank, made the top 20 (at 20^th) with a stake of 0.595%.

The point about those small shareholdings in Strike is another sign that it might be the starting point for a North Perth Basin consolidator to swoop in once control of Warrego is settled.