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Takeover fires up coal seam gas sector

COAL gas seam explorers were quick out of the box after Monday's agreed takeover of Eastern Star Gas by Santos. Both Bow Energy and Metgasco reported new moves to entice investors yesterday.
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By InvestSMART · 20 Jul 2011
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By InvestSMART ·
20 Jul 2011
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COAL gas seam explorers were quick out of the box after Monday's agreed takeover of Eastern Star Gas by Santos. Both Bow Energy and Metgasco reported new moves to entice investors yesterday.

Bow Energy upgraded its reserves, and Metgasco's recently installed managing director picked up a swag of shares in his company, and the board extended the deadline for a capital raising which is now under way.

A number of stockbrokers have "buy" recommendations on explorers in the coal seam gas sector. The $900 million takeover bid by Santos for Eastern Star Gas has focused attention on a sector that has been out of favour for a time. "About 18 months ago, sentiment shifted from finding reserves and being re-rated, to investors wanting to know how the resource would be commercialised," said a Wilson HTM analyst, John Young.

Wilson HTM has "buy" recommendations on a number of companies in the sector, such as Bow Energy, Comet Ridge and Dart Energy, although better prospects may be had elsewhere in the oil and gas sector, with stocks such as Beach Energy, Drillsearch or Sundance Energy.

"The Santos bid is more of an early indication that coal seam methane stocks have come down far enough. Metgasco stands out as the cheapest," said Warwick Grigor, director of BGF Equities. His firm also points to Bow Energy as another stock in the sector which is trading cheaply.

"All of these stocks will have a revival, if for no other reason than the impact of the carbon tax," Mr Grigor said.

Bow Energy said yesterday its proven and probable gas reserves had been boosted by 89 petajoules to 238PJ. Including the estimate of its possible gas reserves, its total now stands at 2752PJ.

Metgasco said its recently installed managing director, Peter Henderson, bought 300,000 Metgasco shares through the sharemarket yesterday, paying 30.5? a share.

The shares closed up 2? at 31?, adding to its strong rise recorded on Monday.

Bow Energy eased 1? to close at $1.04, after gaining 10 per cent on Monday.

Comet Ridge shares rose another 2.5? to close at 17? yesterday. It said the Santos bid would help in the commercialisation of its acreage in the Gunnedah Basin, which is where Eastern Star Gas is based.

Santos gained 37? to $13.11, recovering part of Monday's decline, and pulling Eastern Star Gas shares 4? higher in its wake, to close at 88?.

Santos is to offer 0.06803 of its shares for every one share held in Eastern Star Gas.

Sharemarket analysts reacted warmly to the planned takeover, pointing out that it will help boost potential supplies for the liquefied natural gas export facility Santos is planning for central Queensland.

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Frequently Asked Questions about this Article…

Santos agreed to a takeover of Eastern Star Gas valued at about $900 million. The offer gives Eastern Star shareholders 0.06803 Santos shares for every Eastern Star share. Brokers reacted positively, and the bid has drawn renewed attention to the coal seam gas sector.

The Santos bid refocused investor attention on coal seam gas stocks, prompting a number of brokers to issue "buy" recommendations on explorers. Analysts said the takeover is an early sign that coal seam methane stocks may have fallen far enough to attract interest again, and some expect a sector revival partly driven by the impact of the carbon tax.

Bow Energy upgraded its proven and probable gas reserves by 89 petajoules to 238 PJ. Including possible reserves, Bow's total estimate now stands at 2,752 PJ. Reserve upgrades can improve a company's production potential and help explain recent positive investor interest in the stock.

Metgasco extended the deadline for a capital raising that is currently under way, and its newly installed managing director, Peter Henderson, bought 300,000 Metgasco shares on the market—paying around 30.5 cents a share. The share purchase and the capital raising extension were highlighted as investor-enticing moves.

Wilson HTM publicly has "buy" recommendations on a number of coal seam gas explorers mentioned in the article, including Bow Energy, Comet Ridge and Dart Energy. The article also notes other oil and gas names brokers suggested for potentially better prospects, such as Beach Energy, Drillsearch and Sundance Energy.

Comet Ridge shares rose following the Santos bid, with the company saying the takeover would help commercialise acreage in the Gunnedah Basin where Eastern Star operates. Santos's own shares also rose significantly on the news, and Eastern Star Gas shares moved higher in response.

Sharemarket analysts said the takeover will help boost potential supplies for the liquefied natural gas export facility Santos is planning for central Queensland, by aggregating gas resources and improving supply prospects for the project.

The article quotes analysts who say the Santos bid is an early indication that coal seam methane stocks have come down far enough, and one broker highlighted Metgasco and Bow Energy as relatively cheap. However, the article reports analysts' views rather than providing investment advice, so it presents renewed interest and perceived value rather than a firm recommendation.