Against the backdrop of surging domestic gas prices, independent explorer and producer AWE has attracted takeover interest, prompting a trading halt on Friday after it received a "non-binding and conditional" merger proposal.
The company's attractive assets - from the Bass Strait and Otway Basin off Victoria to acreage in the Perth Basin, along with Indonesia and the US - could attract a range of local or overseas investors.
A particular attraction is that half its proven and probable gas reserves have not been contracted for sale, giving it prime exposure to the upswing in domestic gas prices.
AWE already works with Origin Energy in the BassGas venture and Santos recently bought into acreage AWE holds in Indonesia, paying $US188 million ($210.7 million) for a half-interest in Northwest Natuna, which made a profit of $60 million.
The cash raised from the sale will allow AWE to fund its planned capital expenditure and exploration programs from operating cash flow.
AWE's spread of assets, coupled with a fully funded growth profile, has prompted broker support for its shares. Seven of the 10 analysts who follow the stock hold positive recommendations for the shares.
Most also value the shares significantly above its last traded price of $1.18.5¢, which puts a price of $620 million on the company. Analysts value its shares at $2.
Citi has a $2.37 a share price target for AWE shares, which makes its shares "the best value small-cap exploration and production in our sector in our view".
A key attraction is AWE seeks to double production by 2017, with its growth ambitions fully funded.
"While there is some execution risk, we think the stock is heavily discounted for these risks," Citi told clients.
AWE has a wide-open share register. Its top four shareholders are institutional investors, led by IOOF with 7 per per cent, Dimensional Funds 6 per cent, AMP 5.6 per cent and Westpac 5 per cent.