Australia's Aurora Oil and Gas Ltd. has made an A$107 (US$111.7 million) unsolicited offer for Eagle Ford Shale-focused Eureka Energy Ltd., which said Monday it is considering the proposal.
Aurora said the unconditional, all-cash offer represents "an attractive premium" (36.4% to Eureka's previous closing price) and gives Eureka shareholders the opportunity to "crystallize immediate and certain value for their shares." The acquisition would build Aurora's "already strong presence in the Sugarkane Field, growing its portfolio of Eagle Ford interests" in line with its strategy, said Aurora CEO Jon Stewart.
Eureka has three core assets with a combined net acreage position of 6,742 acres, all focused on the Eagle Ford, according to the Australian company's website. "The assets are at different levels of maturity throughout the value chain, from ongoing production and development, appraisal and development to initial technical development," the company said.
The assets include the Sugarloaf in Karnes County, TX, in which it has a 6.25% working interest (WI); the Pan de Azucar in Fayette County, TX (100% WI), which includes the Black Jack Springs Drilling Unit (9.4% WI); and the Brioche in Burleson and Washington counties (100% WI).
"2011 saw a high level of drilling activities in the Sugarloaf area of mutual interest (AMI) and this is expected to further increase in 2012," Eureka said. "A key milestone for the company during 2011 was the commencement of production from its second asset, Pan de Azucar, adding further production to the company's portfolio." The company said it is working to develop the Pan de Azucar and Brioche.
Eureka began producing from the Sugarloaf AMI in 2010 with 24 wells producing to sales by the end of 2011. Net production to Eureka for 2011 (before royalties) was 83,290 bbl of oil and 292 MMcf of gas. Stripping of natural gas liquids (NGL) began in mid 2011. NGL stripping yields 80-90 bbl of NGLs per MMcf of gas and results in gas volume shrinkage of about 20%, according to Eureka.
"Based on Eureka's current understanding of the Sugarloaf operator's drilling program, development drilling is expected to increase in 2012 and and continue through to at least 2016. Full field development will see up to 276 wells drilled on the AMI with peak production net to Eureka of 1,600 b/d of liquids and 4 MMcf/d of gas, or 2,300 boe/d."
Eureka said its shareholders would meet to consider the offer and that shareholders should take no action in the meantime. Suitor Aurora said the deal would insulate Eureka shareholders from their company's "uncertain earnings profile...oil and gas price risk [and] geological, exploration and development risks of Eureka's exploration interests, particularly Eureka's Brioche and Pan de Azucar acreage, which represents around 77% of Eureka's total net acreage..."
Currently, Aurora participates in four separate joint ventures, or AMIs, that form a contiguous land position totaling 76,989 acres that sit at the heart of the Eagle Ford Shale, according to the company. The AMIs are in the Sugarloaf, Longhorn, Ipanema and Excelsior plays in Karnes and Atascosa counties in South Texas.