Oil and gas producers ARC Energy Ltd and Anzon Australia Ltd have announced they are negotiating the final terms of a merger that would create a $1.1 billion energy group.
The merger would bring together the assets of Perth-based ARC in the Perth Basin and Bass Strait and the Bass Strait assets of Sydney-based Anzon.
"The proposed merger remains subject to the agreement of final outstanding terms and execution of a merger implementation deed," the pair said in a statement.
"An agreement to proceed with the merger will conclude Anzon's strategic review process announced on 17 September."
Anzon said it had received a number of proposals and elected to pursue a deal with Arc on an exclusive basis.
Shares in both companies have been placed in trading halts while the talks are finalised.
Anzon's decision is a rebuff for Melbourne-based oil and gas producer Nexus Energy Ltd, which has been pushing for a merger with Anzon after earlier this year being the target of an Anzon takeover proposal.
ARC shares closed on Friday at $1.59, valuing the company at $507 million, while Anzon's shares, which have enjoyed strong gains this year, closed at $1.79, valuing the company at $663 million.
ARC, which is being advised by merchant bank ABN Amro, will be pushing for a 50:50 merger, with payment mainly in scrip with the possibility of some cash.
The merger would add to a string of major deals that ARC has concluded this year.
The company paid US$175.1 million (A$220 million) in June for an interest in two producing assets previously owned by Wandoo Petroleum, including a 12.5 per cent stake in the BassGas project.
That was followed by alumina producer Alcoa agreeing to pay $40 million to ARC to pre-fund a gas exploration programme in the Canning Basin in northern WA.
These moves built on ARC's core assets, which comprise a series of oil and gas fields in the Perth Basin near Dongara.
Anzon's main assets are the Basker, Manta and Gummy oil fields, which commenced production in December 2006. Anzon has also been evaluating development of the BMG gas fields.
The full text of a joint company announcement is pasted below:
Anzon and ARC announce merger discussions
The Boards of Anzon Australia Limited ("Anzon") (ASX:AZA) and ARC Energy Limited ("ARC") (ASX:ARQ) today announced that they are currently negotiating the final terms of a proposed merger of the companies ("Merger") and have requested a trading halt in the shares of both of the Companies for a period of 2 days while negotiations are finalised.
The proposed Merger remains subject to the agreement of final outstanding terms and execution of a merger implementation deed. An agreement to proceed with the Merger will conclude Anzon's strategic review process announced on 17 September, 2007. Anzon received a number of proposals and has elected to pursue the Merger with ARC on an exclusive basis.