Strike Energy Limited has entered into a binding scheme implementation deed with Talon Energy Limited (Scheme Implementation Deed), under which Strike will acquire all the issued shares in the capital of Talon by way of a scheme of arrangement under Part 5.1 of the Corporations Act 2001 (Cth) (Corporations Act) (Scheme).
Talon shareholders will receive 0.4828 new Strike shares for each Talon share held. In addition, Talon will look to demerge it’s Mongolian asset, with the potential for its shareholders to retain an interest in the assets along with A$850,000 cash (less any costs incurred in connection with the demerger and certain other costs and funding provided for the Mongolian assets by Talon during the Scheme/demerger process) via a potential spin-out of those assets into a separate vehicle to be completed prior to implementation of the Scheme (Mongolian Spin-Out).
The acquisition is earnings and cashflow accretive for Strike and will provide a platform in which Strike can escalate the pace of development of its highly attractive Perth basin gas assets.
The acquisition of Talon is compelling for Strike’s shareholders given the potential for strategic and financial benefits, which include the combined company will have the capacity to generate an initial annualized cashflow from the Walyering gas field alone in excess of A$82 million.
Strike will be able to remove significant costs via corporate and operational synergies through collapsing the joint venture with Talon. Strike’s balance sheet will be further improved, with an increased ability to access debt markets and self-fund development projects along with the combined exploration portfolio.
Strike will also be able to apply its Perth basin operating and development expertise to exploit the combined group’s assets. The combined entity will have an aggregate 1,022 PJ of independently certified Perth basin conventional gas 2P Reserves and 2C Resources.
Talon will explore opportunities for Talon shareholders to retain an interest in Talon’s Mongolian assets. It is proposed that on completion of the Mongolian Spin-out, the Mongolian assets and A$850,000 cash will be demerged to Talon shareholders. The Mongolian Spin-out is expected to be implemented by way of an in-specie distribution of shares in SpinCo to Talon shareholders.
The Scheme is not conditional on completion of the Mongolian spin-out, which will occur independently of the Scheme becoming effective, and the status of the Mongolian spin-out will not influence the timing of the Scheme transaction. Accordingly, there is no guarantee that the Mongolian spin-out will be implemented or that Talon shareholders will ultimately receive any value in respect of the Mongolian assets.
“This is an earnings accretive transaction for Strike that will simplify Strike’s operations and provide a platform to remove the costs in operating and managing its existing joint venture with Talon. The combined group will have the capacity to generate initial annualized cashflows in excess of A$82 million from the Walyering gas field alone. The additional free cashflow generation will support an acceleration of Strike’s Government endorsed Perth basin development strategy,” said Strike MD & CEO, Stuart Nicholls.