PERTH (miningweekly.com) – ASX-listed Beach Energy and fellow-listed Drillsearch Energy on Friday announced merger plans that would result in the creation of a mid-cap oil and gas company.

Under the terms of the agreement, Beach has agreed to acquire all Drillsearch shares through a scheme of arrangements, with Drillsearch shareholders offered 1.25 Beach shares for every Drillsearch share held.

The offer priced Drillsearch shares at 83c each, and valued the company at A$384-million.

The offer price represented a 27% premium to Drillsearch’s closing price on October 22, and a 21% premium to the company’s one-month volume weighted average price.

On the completion of the transaction, Drillsearch shareholders would hold a combined 30% of the total issued shares of the combined group.

In a joint statement on Friday, the companies said the combination of Drillsearch and Beach was based on a clear strategic rationale of unlocking value from an existing partnership, under which Beach already operates two key shared producing assets – the Western Flank Oil Fairway joint venture (JV) and the Western Wet Gas JV.

The combined group would have a 2015 production of 12.1-million barrels of oil equivalent and an expanded portfolio of oil, gas and infrastructure assets and would have a market capitalisation of some A$1.1-billion.

In addition, the combined group would be in a stronger position to take advantage of future growth opportunities as a result of increased scale and balance sheet strength.

It was expected that the combination of the two companies would realise synergies and cost savings of some A$20-million a year, with the savings principally sourced from increased operational efficiencies and the elimination of duplicated corporate and administrative functions, with Drillsearch’s corporate functions likely to be relocated to the Beach head office in Adelaide.

The synergies and cost savings have been targeted within two years after the implementation of the transaction.

“This is a common sense combination of two Cooper basin businesses sharing significant core assets,” said Beach chairperson Glenn Davis.

“The proposed merger will provide both Beach and Drillsearch shareholders exposure to a more efficient, cost effective and diverse Cooper basin business, with larger production and reserves, delivering real benefits to all shareholders.”

The transaction would be subject to a number of conditions, including shareholder and regulatory approval, and an independent expert determining that the offer was in the best interest of Drillsearch shareholders.