Great Artesian Oil and Gas Limited, in the matter of Great Artesian Oil and Gas Limited
[2008] FCA 997
•19 June 2008
FEDERAL COURT OF AUSTRALIA
Great Artesian Oil and Gas Limited, in the matter of Great Artesian Oil and Gas Limited [2008] FCA 997
IN THE MATTER OF GREAT ARTESIAN OIL AND GAS LIMITED, GREAT ARTESIAN OIL AND GAS LIMITED
NSD 869 OF 2008
EMMETT J
19 JUNE 2008
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 869 OF 2008
IN THE MATTER OF GREAT ARTESIAN OIL AND GAS LIMITED,
GREAT ARTESIAN OIL AND GAS LIMITED
Plaintiff
JUDGE:
EMMETT J
DATE OF ORDER:
19 JUNE 2008
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1 Pursuant to subsection 411(1) of the Corporations Act 2001 (Cth) (Corporations Act):
(a)Great Artesian Oil and Gas Limited ABN 44 078 607 682 (Great Artesian) convene a meeting (Scheme Meeting) of the holders of ordinary shares in Great Artesian, other than the holders of Excluded Shares in respect of those Excluded Shares (Great Artesian Shareholders), for the purpose of considering and, if thought fit, agreeing (with or without modification) to a scheme of arrangement proposed to be made between Great Artesian and Great Artesian Shareholders (Scheme), being the scheme substantially in the form of the draft contained at appendix D to the scheme booklet containing the explanatory statement in relation to the Scheme, being Exhibit “1” in these proceedings (Scheme Booklet).
(b)The Scheme Meeting be held at 10.30 am (Sydney time) on 28 July 2008 at The Henry Lawson Room, Sydney Harbour Marriott, 30 Pitt Street, Sydney.
(c)The Chairperson of the Scheme Meeting be Peter Hopkins and in his absence Jim McKerlie.
(d)The Chairperson appointed to the Scheme Meeting has the power to adjourn the Scheme Meeting in his absolute discretion.
(e)All voting at the Scheme Meeting be by poll as declared by the Chairperson.
(f)At the Scheme Meeting, a person will be entitled to one vote for each Great Artesian share that the person is registered as holding at 7pm (Sydney time) on 26 July 2008.
(g)The explanatory statement in the Scheme Booklet for the Scheme be approved for distribution to Great Artesian Shareholders.
(h)There be dispatched to each Great Artesian Shareholder:
(i)a document substantially in the form of the Scheme Booklet;
(ii)a proxy form for the Scheme Meeting; and
(iii)a reply paid (for use in Australia only) envelope addressed to Computershare Investor Services Pty Limited for the return of the proxy form,
in the case of each Great Artesian Shareholder who has a registered address in Australia, by prepaid post and, in the case of each Great Artesian Shareholder who has a registered address outside Australia, by prepaid airmail or air courier, in each case addressed to the relevant address set out in the Great Artesian register of members.
(i)The time by which the Great Artesian Shareholders must return their proxy forms for the Scheme Meeting be 10.30am (Sydney time) on 26 July 2008.
(j)Great Artesian place an advertisement in The Australian newspaper, substantially in the form of “Annexure A” to these Orders, on or before 25 July 2008 and Great Artesian shall otherwise be exempted from compliance with the requirement to publish such notice at least 5 days before the date fixed for hearing of the application pursuant to Rule 3.4(3)(b) of the Federal Court (Corporations) Rules 2000 (Cth).
2Pursuant to section 1319 of the Corporations Act, Great Artesian be exempted from compliance with the requirements of rule 2.15 of the Federal Court (Corporations) Rules 2000 save that regulation 5.6.13 of the Corporations Regulations 2001 shall apply to the Great Artesian Scheme Meeting.
3The proceedings be stood over to 31 July 2008 at 9.30am (Australian Eastern Standard Time) before Justice Emmett for the hearing of any application to approve the Scheme.
4These orders to be entered forthwith.
In these orders, an Excluded Share is a fully paid ordinary share in Great Artesian held by Drillsearch Energy Limited ABN 73 006 474 844 (Drillsearch) or by any person on behalf of, or for the benefit of Drillsearch as at the record date for the Scheme.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
Annexure A
Great Artesian Oil and Gas Limited ABN 44 078 607 682
Notice of hearing to approve compromise or arrangement
TO all the creditors and members of Great Artesian Oil and Gas Limited ABN 44 078 607 682 (Great Artesian).
TAKE NOTICE that at 9.30am (Australian Eastern Standard Time) on 31 July 2008 the Federal Court of Australia at Law Courts Building, Queens Square, Sydney, NSW, 2000 will hear an application by Great Artesian seeking the approval of an arrangement between Great Artesian and its members, if agreed to by resolution to be considered by the members of Great Artesian at a meeting of such members to be held at 10.30am (Australian Eastern Standard Time) on 28 July 2008 at The Henry Lawson Room, Sydney Harbour Marriott, 30 Pitt Street, Sydney.
If you wish to oppose the approval of the arrangement, you must file and serve on Great Artesian a notice of appearance, in the prescribed form, together with any affidavit on which you wish to rely at the hearing. The notice of appearance and affidavit must be served on Great Artesian at its address for service at least 1 day before the date fixed for the hearing of the application.
The address for service on Great Artesian is, c/o Corrs Chambers Westgarth, Level 32, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000 (Reference: Stan Lewis).
Ian Bucknell
Company Secretary
Great Artesian Oil and Gas Limited
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 869 OF 2008
IN THE MATTER OF GREAT ARTESIAN OIL AND GAS LIMITED,
GREAT ARTESIAN OIL AND GAS LIMITED
Plaintiff
JUDGE:
EMMETT J
DATE:
19 JUNE 2008
PLACE:
SYDNEY
REASONS FOR JUDGMENT
The plaintiff, Great Artesian Oil and Gas Limited (Great Artesian), has applied to the Court for an order under s 411 of the Corporations Act 2001 (Cth) (the Act) for the convening of a meeting of the shareholders of Great Artesian, for the purpose of considering a scheme of arrangement between those members and Great Artesian. The object of the scheme is to effect a merger between Great Artesian and Drillsearch Energy Limited (Drillsearch). The merger is to be effected by Drillsearch’s acquiring all of the issued shares in Great Artesian that it does not already own or control, in consideration for the issue to shareholders of Great Artesian of three new shares in Drillsearch for each share held in Great Artesian.
Great Artesian was formed to explore for and develop the conventional petroleum potential of a number of highly prospective areas, specifically selected, inter alia, because of their potential to yield significant discoveries and early cash flow. The initial focus of Great Artesian was on both oil and gas. The strategic vision of Great Artesian was to become a successful and sustainable mid-tier oil and gas explorer and producer. Great Artesian currently holds exploration and production permits in the Cooper-Eromanga Basin in South Australia and Queensland, the Surat Basin in Queensland, the Otway Basin in South Australia and the Gippsland Basin in Victoria and Tasmania.
Drillsearch has 21 years of petroleum production and exploration experience. For the year ended 30 June 2007 it had consolidated revenue of some $15.5 million. It has a balanced portfolio of low risk production, near field onshore exploration and high risk and potentially high return greenfields offshore and onshore exploration in Australia, Canada and Papua New Guinea. It also currently holds interests in exploration and production permits in Queensland, the Northern Territory, Western Australia, Papua New Guinea and Canada.
On 17 April 2008, Great Artesian and Drillsearch entered in to a Merger Implementation Agreement in relation to the proposed scheme of arrangement. The Merger Implementation Agreement was amended on 18 June 2008. By the amended Merger Implementation Agreement, Drillsearch and Great Artesian acknowledge that they have agreed to combine, by means of the scheme of arrangement, and agreed to commit themselves to implement the scheme, on the terms contained in the Merger Implementation Agreement.
The obligations of the parties are subject to certain conditions precedent, some of which may be waived by one or other of the parties. One of the conditions, of course, is the approval of any scheme by the Court. The Merger Implementation Agreement contains several other provisions to which the Court’s attention has been drawn.
First are clauses 11 and 12, dealing with exclusivity which are effectively mutual obligations of Great Artesian and Drillsearch. The clauses provide that during an exclusivity period, as defined, each of Great Artesian and Drillsearch must ensure that neither they, nor their representatives, as defined, solicit or invite negotiations in relation to a third party proposal, as defined, negotiate or enter into negotiations regarding a third party proposal; or solicit any person to undertake due diligence investigations which might lead to a third party proposal. Each must notify the other of any approach that might give rise to a third party proposal.
In addition, clause 13 of the Merger Implementation Agreement provides for what is described as a “break fee”, which may be paid by either Drillsearch to Great Artesian or Great Artesian to Drillsearch. If the Merger Implementation Agreement is terminated in one of a number of specified ways, Great Artesian is liable to pay a fee of $190,000. In the event it is terminated through one of a number of other specified ways, Drillsearch is liable to pay Great Artesian a fee of the same amount.
Each of clauses 11, 12 and 13 contains what is described as a “fiduciary carve-out”, to the effect that the provisions do not apply if they are found to be unlawful, or involve a breach of directors’ duties, or would constitute unacceptable circumstances. Both the break fee provisions and the exclusivity provisions were agreed between Great Artesian and Drillsearch following arm’s length commercial negotiations. During the course of those negotiations the parties were separately advised and represented by external legal advisors and external financial advisors. The Board of Great Artesian has concluded that both the exclusivity provisions and the break fee provisions are reasonable and appropriate. In particular the break fee represents less than one per cent of the total equity value of Great Artesian, having regard to the putative value of the scheme consideration.
The proposed scheme is in a relatively common form for a merger such as is proposed. The terms of the scheme provide that the shares that are to be the subject of the scheme will be vested in Drillsearch by the operation of the scheme itself, without any further steps to be taken by the shareholders. However, the transfer of shares to Drillsearch is interdependent with the allotment of the consideration by Drillsearch to the Great Artesian shareholders, such that there is no performance risk involved in giving effect to the scheme.
In order to comply with the provisions of the Act and the Regulations, Great Artesian has produced an explanatory memorandum, which it proposes to send to shareholders who will be affected by the scheme, together with the notice convening the proposed meeting. The explanatory memorandum has been considered by the Australian Securities and Investment Commission (the Commission), which has made some comments that have led to changes in the terms of the explanatory memorandum and accompanying reports. The Commission has informed the solicitors for Great Artesian that it does not propose to appear at this hearing to make submissions or to oppose the orders presently being sought.
The explanatory memorandum also follows a common format for schemes of the type presently under consideration. It contains a fair disclosure of disadvantages and risks that might befall shareholders by reason of their approving the scheme. The explanatory memorandum contains a report by PKF Chartered Accountants & Business Advisers (PKF) to the directors of Great Artesian on the taxation implications of the proposed scheme. That report is dated 3 June 2008 sets out the views of PKF on the main income tax and capital gains tax implications for shareholders of Great Artesian in the event that the scheme becomes effective. The report, however, provides advice only of a general nature and of necessity, cannot take into account the specific circumstances of any particular shareholder. The report contains the admonition that shareholders should seek their own independent taxation advice regarding income tax and capital gains tax implications arising from their participation in the scheme.
The directors of Great Artesian have also retained Deloitte Corporate Finance Pty Limited (Deloitte) to prepare an independent report on the proposal contemplated by the scheme. A copy of that report will be included in the explanatory memorandum. In the report, dated 17 June 2008, Deloitte have set out their opinion as to whether the proposed scheme is in the best interest of shareholders, details of projected future cash flows from the production and development assets of Great Artesian and Drillsearch, a valuation of Great Artesian and a valuation of the proposed merged entity comprising both the Drillsearch group and the Great Artesian group. Deloitte have set out a comparison between their assessment of the fair market value of Great Artesian shares and their assessment of the consideration to be provided by Drillsearch under the scheme. Deloitte estimate that the fair market value of Great Artesian shares is between 13 and 17 cents. Deloitte’s estimate of the market value of the consideration offered by Drillsearch is between 13 and 16 cents.
Thus, the highest value of Great Artesian shares is in excess of the highest value of the consideration. On the other hand, the estimate of the lowest values are the same. In making that estimate of value, the report by Deloitte takes into account the valuations obtained by them from MBA Petroleum Consultants (MBA), independent technical experts specialising in the oil and gas production and exploration industry. Deloitte received from MBA a valuation of the assets of Great Artesian and a valuation of the Australian petroleum assets of Drillsearch. Both reports are dated 4 June 2008. In their report, Deloitte refer to the basis upon which the valuations were carried out by MBA. Deloitte’s report also indicates the financial modelling approach that they adopted for the purposes of their estimates of values.
In considering their report, Deloitte had regard to the likely advantages to shareholders if the scheme is approved, including the following:
· the proposed merged entity will have increased scale and will be more diversified than Great Artesian;
· shareholders will receive a significant premium over Great Artesian’s share price prior to the announcement of the proposed scheme;
· in the absence of the scheme, Great Artesian shares are likely to trade below their current levels; and
· there are possible disadvantages of the proposed scheme in so far as there would be diluted participation in the future growth of Great Artesian’s asset portfolio.
Based on their assessment of those matters, Deloitte expressed the opinion that the proposed scheme is fair and reasonable and that it is therefore in the best interests of shareholders. Deloitte qualify that opinion by the observation that an individual shareholder’s decision in relation to the proposed scheme may be influenced by his or her particular circumstances.
Arrangements were put in place for detailed examination of the affairs of both Drillsearch and Great Artesian by way of due diligence. As a result of the investigations that have been carried out, the Chairman of Great Artesian, Mr Peter Hopkins, has sworn that, to the best of his knowledge, information and belief, all of the material statements in the proposed explanatory memorandum, so far as they relate to Great Artesian and to Drillsearch, are true and correct. In expressing that view, Mr Hopkins has also relied on material provided by Mr Peter Wicks, a director of Drillsearch.
There are some overseas shareholders of Great Artesian who may not be eligible to receive allotments of shares in Drillsearch. The scheme contemplates a mechanism whereby consideration shares that would be allotted to ineligible overseas shareholders will be allotted to a trustee for sale who will sell the consideration shares and distribute the proceeds equitably among ineligible overseas shareholders.
I have had regard to affidavits of Peter William Hopkins sworn 18 June 2008, James David McKerlie sworn 18 June 2008, Paul Jurek Lyon sworn 17 June 2008, Stephen James Reid sworn 18 June 2008, Walter Fitzgerald Muir sworn 18 June 2008, Iain Douglas Wilson Laughland sworn 18 June 2008 and Peter Allan Wicks sworn 18 June 2008. I am satisfied from the material that has been provided to me that the proposed explanatory memorandum complies with the requirements of s 411 and 412 of the Act and with the Corporations Regulations 2001 (Cth). I am also satisfied that the proposed scheme is one to which reasonable shareholders of Great Artesian, properly informed, might reasonably agree and which is likely to be approved by the Court, if the shareholders agree to it and there is no opposition to the making of an order approving the scheme.
Accordingly, I propose to accede to Great Artesian’s application for orders under s 411.
I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate:
Dated: 15 August 2008
Counsel for the Plaintiff: Mr R Dick Solicitor for the Plaintiff: Corrs Chambers Westgarth Counsel for Drillsearch Energy Limited: Mr M J Darke Solicitor for Drillsearch Energy Limited: DMAW Lawyers
Date of Hearing: 19 June 2008 Date of Judgment: 19 June 2008
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