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Australia’s Nexus shares soar on Shell takeover talk

Reuters Africa

Tue Aug 3, 2010 7:06am GMT

* Biggest shareholders approached on possible takeover -report

* Nexus said no takeover approach received

* Shares trim gains after jumping 30 pct to 9-mth high

* Stock’s volume on Tuesday exceeds 90-day avg by 12 times

By Fayen Wong

PERTH, Aug 3 (Reuters) – Shares of Australian oil and gas company Nexus Energy (NXS.AX: Quote) surged as much as 30 percent on Tuesday on speculation Royal Dutch Shell (RDSa.L: Quote) was lining up an A$480 million ($438 million) takeover offer to secure gas supplies for its flagship floating LNG project.

Nexus shares later cut their gains after the firm denied that it had received any approaches. Shell declined to comment on market speculation, but said gas from the Crux field owned by Nexus was an “integral part” of its Prelude floating Liquefied Natual Gas (LNG) project in western Australia.

The Australian newspaper reported that some of Nexus’ top shareholders had been sounded out about a possible 50 cents per share bid, stoking speculation that Shell may be interested in making an offer for Nexus.

The largest shareholder of Nexus is Viking Shipping Ltd which owns 7.2 percent of the stock. U.K. fund manager M&G Investment Management holds 6.25 percent of Nexus, while Nexus’ non-executive director Symon Drake-Brockman owns 4.9 percent.

“Nexus advises that it has not been approached by any party, nor is in discussions with any parties in respect of a takeover of the company,” it said in a statement to the stock exchange.

Shares of Nexus, led by former Queensland Gas Co. boss Richard Cottee, jumped to a nine-month high of A$0.395 before falling back to close up 23 percent at A$0.375. The broader market ended up 0.7 percent.

Nexus’s traded volume on Tuesday was 78.6 millon shares, more than 12 times the 90-day average. Nexus shares have surged 43 percent in July, with most of the gains chalked up over the past two weeks.

NATURAL SUITOR

Analysts said Shell was a natural suitor for Nexus, since a full ownership of the Crux field would add strategic value and synergies to its own Prelude project, which Shell is eager to develop as the world’s first floating LNG processing facility.

“It is certainly a possibility. Shell may decide it’s better to takeover Nexus and own all of Crux resources than risk Nexus bringing on another party to the project which could complicate matters,” said John Young, an energy analyst at Wilson HTM.

Nexus owns an 85 percent stake in the Crux field off Western Australia which contains 75.2 million barrels of condensate and 2 trillion cubic feet (tcf) of gas — a mid-sized gas resource that is considered uneconomical to support a stand alone LNG project.

It plans to extract only the condensate for sale and inked a $40 million deal with Shell in 2007 which allows the energy major to take over ownership of the permit from 2021 and extract the gas and any remaining condensate from the field.

“At the moment, Nexus is also one of the cheapest companies in the mid-cap space in Australia’s oil and gas sector. So Shell could potentially gain access to high-value resources at a very reasonable price,” Wilson HTM’s Young said.

Nexus also owns the Eucucha Shoals gas field in western Australia that contains between 2-4 tcf of gas and is located in close proximity to Shell’s planned Prelude project.

The firm has been trying to sell up to 30 percent of Crux for the past year, after Japanese group Mitsui Corp (8031.T: Quote) walked away from a planned purchase of a 25 percent stake in Crux for $255 million in Oct. 2009 — raising doubts on Nexus’ ability to fund the estimated A$1 billion project, in which Japan’s Osaka Gas (9532.T: Quote) holds a 15 percent stake.

Nexus, once a rising star among the juniors in Australian oil and gas sector, has seen its share price languish because of its mounting debt, production trouble at its Longtom gas project and the failure to find a partner for Crux despite a sale process headed by Deutsche Bank. ($1=1.096 Australian Dollar) (Additional reporting by Sonali Paul in MELBOURNE; Editing by Ed Davies and Muralikumar Anantharaman)

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