According to the company’s website press release on January 10, 2023, in September 2021 your company, Norwest Energy NL (Norwest), announced a significant gas discovery at the Lockyer Deep-1 exploration well in the northern Perth Basin, situated in the Mid-West region of Western Australia.
Since that time, well testing operations at Lockyer Deep-1 have demonstrated exceptional well deliverability, excellent reservoir quality and high quality gas composition across a 25-meter interval of the Kingia Sandstone reservoir, with the highest flow rate achieved in the Perth Basin Permian gas play to date.
The next 12 months promise to be an exciting time with further drilling about to commence on the greater Lockyer structure and a 3D seismic survey in progress to confirm the size of the discovery, which has the potential to cover an area of more than 100 km2.
It is therefore not surprising that Mineral Resources Limited (MinRes), the parent entity of our joint venture partner Energy Resources Limited, has made an unsolicited off-market scrip-for-scrip takeover offer to acquire all of your ordinary fully paid shares in Norwest (Norwest Shares). MinRes is offering one ordinary fully paid share in MinRes for every 1,367 Norwest Shares held (Offer). The Offer is currently scheduled to close prior to commencement of drilling of the first well in the two well back-to-back drilling campaign, and prior to the results of the 3D seismic program becoming available.
Having given it careful consideration, your Directors unanimously recommend that you REJECT the Offer.
Our reasons for recommending that you REJECT the Offer are discussed in more detail in section 1 of this Target’s Statement, but are summarised as follows:
- the unsolicited Offer does not appropriately value Norwest’s Perth Basin assets and has been opportunistically timed prior to the full extent of the Lockyer discovery becoming known;
- MinRes is seeking to secure control of Norwest and its Perth Basin assets without paying an appropriate premium for control;
- by accepting the Offer and becoming a MinRes shareholder, Shareholders reduce their exposure to the Lockyer project and adjacent exploration upside, while increasing their exposure to the risks associated with MinRes’ other businesses and commodities;
- as a stand-alone ASX-listed entity, Norwest provides investors with one of the few available opportunities to acquire meaningful exposure to what are expected to be compelling Perth Basin gas economics;
- if you accept the Offer, you may be unable to accept a superior proposal if one emerges; and
- the tax outcomes of accepting the Offer may be disadvantageous to you, particularly if the requirements to obtain scrip-for-scrip rollover relief are not satisfied.
Each Director intends to REJECT the Offer in relation to any Norwest Shares they own or control.
WHAT SHOULD YOU DO?
To REJECT the Offer, simply DO NOTHING.
However, you should read this Target’s Statement and the Bidder’s Statement carefully, and in their entirety, as they will assist you in making an informed decision in respect to the Offer. If you are in any doubt as to what you should do, I encourage you to seek advice from independent and appropriately licensed financial, legal, taxation and other professional advisers before making your decision in relation to your Norwest Shares.
If you have any further queries in relation to the Offer, you can contact Norwest’s shareholder information helpline on 1300 916 770 (inside Australia) or +61 (3) 9415 4265 (outside Australia) between 8.30 am and 5.00 pm (AEDT) Monday to Friday.
Why you should REJECT the Offer
The Directors have considered the advantages and disadvantages of the Offer and unanimously recommend that you REJECT the Offer.
The reasons for this recommendation are set out below.
As at the date of this Target’s Statement, each Director currently intends to REJECT the Offer in relation to any Norwest Shares they own or control.
The Directors acknowledge that there may be risks associated with not accepting the Offer, as highlighted in section 7.3 of this Target’s Statement, and that each Shareholder’s risk profile, investment strategy, tax position and financial circumstances are different. If in any doubt as to what to do, Shareholders should obtain financial advice from their broker or financial adviser on the Offer and taxation advice on the effect of accepting the Offer.
The unsolicited Offer does not appropriately value Norwest’s Perth Basin assets and has been opportunistically timed prior to the full extent of the Lockyer discovery becoming known
The drilling of the Lockyer Deep-1 well in September 2021, and subsequent well testing operations, confirmed a significant Permian gas/condensate discovery with exceptional well deliverability, reservoir quality and gas composition across a 25-metre interval of the Kingia Sandstone reservoir, with the highest flow rate achieved in the Perth Basin Permian gas play to date and one of the highest rates seen anywhere onshore Australia.
MinRes, being the parent entity of the operator of the project, has a unique and detailed insight into the potential of the Lockyer gas/condensate discovery which has the potential to be one of Australia’s largest onshore gas fields.
Your Directors believe that the Offer by MinRes has been opportunistically timed prior to commencement of a high-impact two well drilling campaign, and while a 3D seismic survey is in progress, for which the results will not become available for some time. The drilling program aims to confirm the presence of gas across the greater Lockyer structure (which has the potential to cover an area of more than 100 km2), and to inform resource definition as well as future development planning.
Success during this program has the potential to be transformative for both the ultimate size of the Lockyer resource, and for Shareholders.
Furthermore, your Directors believe that Norwest’s Perth Basin exploration permits have significant follow-on exploration potential, with only one of eight defined Permian leads within Norwest’s portfolio having been tested so far. Of particular focus for Norwest is Lead E which your Directors believe has the potential to be of a similar scale to Lockyer. Importantly, a number of these leads were upgraded by the 2022 Ringneck 2D seismic survey, with the current Rococo 3D seismic survey expected to provide an improved sub-surface view of the greater Lockyer structure and adjacent leads for future exploration drilling.
If you accept the Offer, you will significantly dilute your exposure to Norwest’s Perth Basin portfolio and the potential future success from Norwest's assets.
MinRes is seeking to secure control of Norwest and its Perth Basin assets without paying an appropriate premium for control
Your Directors believe that the Offer does not provide an appropriate control premium to Shareholders, relative to recent comparable transactions.
As the Offer Consideration comprises MinRes Shares, the implied value of the Offer fluctuates with movements in the price of MinRes Shares. As at the Last Practicable Date, the implied value of the Offer (based on the closing price of MinRes Shares of $83.54 on 6 January 2023) is $0.061 per Norwest Share.
The initial premium implied by the Offer is well below the control premiums paid in respect to the only other two takeover offers of ASX-listed companies with exposure to Perth Basin Permian gas discoveries that have occurred in the last five years.
In particular, your Directors note that:
- as at the date of this Target’s Statement, fellow ASX-listed Perth Basin focussed Warrego Energy Limited (Warrego) (which holds a 50% interest in EP 469 including the West Erregulla gas project) is subject to competing takeover offers from Hancock Energy (PB) Pty Ltd (Hancock) and Strike Energy Limited (Strike), with the conditional cash consideration currently being offered by Hancock representing a 112% premium to the closing price of Warrego shares on 9 November 2022 (being the last trading day prior to Warrego announcing receipt of a non-binding indicative proposal from Strike); and
- in late 2017/early 2018, AWE Limited (AWE), which held a 50% interest in the Waitsia gas project in the northern Perth Basin and was the operator of that project, was the subject of competing proposals from China Energy Reserve & Chemical Group Australia Pty Ltd (CERCG) and MinRes before being successfully acquired by way of a recommended off-market takeover by Mitsui & Co. Ltd. for cash consideration that represented a 74.3% premium to the closing price of AWE shares on 29 November 2017 (being the last trading day prior to the disclosure by AWE that CERCG had approached AWE with an indicative proposal to acquire AWE).
By accepting the Offer and becoming a MinRes shareholder, Shareholders would reduce their exposure to the Lockyer project and adjacent exploration upside, while increasing their exposure to the risks associated with MinRes’ other businesses and commodities
Shareholders should be aware that the implied value of the Offer is dependent on the price of MinRes Shares and will fluctuate over time.
In addition to its Perth Basin energy interests, MinRes is a crushing contractor, pit-to-port mining services provider, hard rock lithium producer, iron ore producer and the largest holder of onshore gas acreage in the Carnarvon Basin. Accordingly, the price of MinRes Shares is impacted by the performance of other parts of MinRes’ business.
As such, whilst MinRes shareholders retain some exposure to the potential of Lockyer and the exploration potential associated with EP 368 and EP 426 generally, the impact of further success at Lockyer and across EP 368 and EP 426 on the price of MinRes Shares may be materially less accretive than it would otherwise be expected to be for a Shareholder. However, your Directors also acknowledge that future success at Lockyer and across EP 368 and EP 426 is not guaranteed, and that the impact of any negative results from the upcoming drilling campaign and the 3D seismic program are likely to be greater for Shareholders than for holders of MinRes Shares.
As a stand-alone ASX-listed entity, Norwest provides investors with one of the few available opportunities to acquire meaningful exposure to what are expected to be compelling Perth Basin gas economics
The Perth Basin Permian gas play is tightly held across a combination of joint ventures formed by only a small number of companies.
The ability of investors to acquire exposure to the significant potential of the Perth Basin has dwindled in recent years with a number of the Perth Basin focused ASX-listed companies being the subject of corporate activity.
In particular:
- as at the date of this Target’s Statement, fellow ASX-listed Perth Basin focused Warrego Energy Ltd (which holds a 50% interest in EP 469 including the West Erregulla gas project) is the subject of competing proposals from Strike Energy Ltd and Hancock Energy (PB) Pty Ltd, with Beach Energy Ltd having recently withdrawn its competing proposal; and
- in 2018, ASX-listed AWE Limited (which held a 50% interest in the Waitsia gas project in the northern Perth Basin and was the operator of that project) was the subject of competing proposals from China Energy Reserve & Chemical Group Australia Pty Ltd and MinRes in 2018, before being successfully acquired by Mitsui & Co. Ltd.
Your Directors believe that this corporate activity highlights the significant economic potential of gas produced from the Perth Basin to service domestic markets (including the Western Australian mining industry) as well as the possibility of export via the North West Shelf LNG facility in Karratha.
Norwest’s Perth Basin portfolio is highly leveraged to, and is expected to benefit from, the strong tailwinds in the energy sector. Pricing in the Western Australian domestic gas market has been increasing against a backdrop of an impending market shortfall. Additionally, netback LNG spot pricing has been strong in recent times, with natural gas being widely regarded as a cleaner fuel to support the transition to renewables.
The results of the well testing operations completed during March 2022 reinforce the commitment of the Directors to appraisal of the Lockyer gas project with the aim of achieving greater value for Shareholders in the longer term.
The joint venture is preparing for an approximate $95 million capital expenditure programme across the EP 368 and EP 426 permits during FY23 and FY24, comprising up to four wells (commencing in February 2023) and a large 3D seismic survey (currently in progress). With no debt and $20.5 million in cash (31 December 2022, unaudited), the Board considers Norwest to be well positioned financially in respect to its net share (20% ꟷ 20.22%) of this FY23/FY24 programme.
If you accept the Offer, you may be unable to accept a superior proposal if one emerges
Accepting the Offer may deny you the benefit of any subsequent superior proposal by another party, should one emerge during the Offer Period, unless you become entitled to withdraw your acceptance or the Offer lapses (see section 4.3(b) of this Target’s Statement).
By accepting the Offer, you will also give up your right to trade your Norwest Shares whilst the Offer remains open unless you become entitled to withdraw your acceptance or the Offer lapses.
Shareholders should however be aware that the Directors have not received a superior proposal since the announcement of MinRes’ intention to make the Offer.
The tax outcomes of accepting the Offer may be disadvantageous to you
If you accept the Offer, there is potential for a tax liability in the event scrip-for-scrip roll-over relief is not available.
As outlined in section 9.3(b) of the Bidder’s Statement: If MinRes does not become the owner of 80% or more of the voting shares in Norwest Shares as a result of the Offer, eligible Shareholders who accepted the Offer will be unable to obtain scrip for scrip rollover relief for the Offer Consideration.
This means that Australian tax resident Shareholders for income tax purposes who hold their Norwest Shares on capital account, and who would make a capital gain on disposal of their Norwest Shares, will be unable to opt to disregard that gain.
In addition, Foreign Shareholders may be subject to the tax consequences in their jurisdiction if they accept the Offer.
Shareholders should not rely upon the taxation considerations in these overviews as being advice on their own affairs. The Directors encourage Shareholders to consult with their own independent taxation advisers regarding the taxation implications of accepting the Offer given their own particular circumstances.
