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TopWhat is happening?

ARC Energy (ARC) and Australian Worldwide Exploration (AWE) have reached an agreement to merge and create a leading Australian mid-tier oil and gas company.

ARC shareholders are being asked to vote on the Merger at shareholder meetings expected to be held in early August 2008.

Shareholders will also be asked to vote on the creation, via a Demerger from ARC, of a new ASX listed exploration vehicle, Buru Energy Limited (Buru), which will hold ARC's Canning Basin assets.

The Merger and Demerger are linked (so either both will be implemented, or neither). If approved, they will be implemented by a scheme of arrangement under the Corporations Act (Scheme). The Scheme also requires Court approval.

If both the Merger and Demerger are approved by shareholders and the Court, you will receive cash and AWE shares for your ARC shares from the Merger and you will receive Buru shares from the Demerger.

The ARC Board of Directors unanimously recommends that shareholders vote in favour of all resolutions at the shareholder meetings, in the absence of a superior offer.

The Independent Expert, Deloitte, has concluded that the transaction is fair and reasonable and therefore in the best interests of ARC shareholders.

A Scheme Booklet detailing the Merger and Demerger, Notices of Meeting and a Proxy Form is expected to be sent to ARC shareholders shortly. If you are an ARC shareholder, there is no need for you to do anything until you receive the Scheme Booklet which you should then read carefully. It will include details of how to vote and a proxy form.

TopWhy are the Merger and Demerger happening? What are the benefits of the Merger and Demerger?

The Merger of ARC and AWE will create a leading Australian mid-tier oil and gas company with:

  • A market capitalisation expected to be in excess of $2 billion;

  • A high quality portfolio of Australasian offshore and onshore production assets with 2P reserves of over 70 million barrels of oil equivalent (mmboe);

  • Significant upside from near term appraisal and exploration in the Bass, Otway and Taranaki Basins.

The Demerger will lead to the creation of an exciting new ASX listed exploration vehicle, Buru Energy Limited, which will hold ARC's Canning Basin assets.

Further information as to the benefits of the proposal will be provided in the Scheme Booklet which is expected to be sent to ARC shareholders shortly.

If you require advice as to how the Merger and Demerger affects your individual circumstance or advice as to what action you should take you should speak to a licensed financial advisor.

TopWhat will happen to ARC if the Merger is approved?

If the Merger is approved by ARC shareholders and the Court, ARC will demerge its Canning Basin exploration assets into Buru Energy, following which ARC will be acquired by AWE and de-listed from the ASX.

All of ARC's Canning Basin exploration assets will be demerged from ARC into a separate vehicle, Buru Energy Limited which will be listed on ASX and in which ARC shareholders will own 85% of the shares with AWE holding the other 15% of the Buru Energy shares.

TopWhat will happen to my ARC shareholding?

If the Merger with AWE and the Demerger of Buru are both approved by shareholders and the Court you will receive:

  • 0.30 AWE shares;

  • $0.19 in cash; and

  • 0.425 Buru shares.

In addition, Buru has informed ARC that it proposes, approximately one month after the commencement of trading of Buru shares on ASX, to grant (for nil consideration) options over Buru shares to holders of Buru shares at the applicable record date, on the basis of 1 Buru option for every 3 Buru shares held.

Under the Merger there will also be an option for ARC shareholders to elect to receive more cash and fewer AWE shares. This "Maximum Cash" option will allow shareholders to elect to receive a minimum of an additional $0.31 per share. Together with the default $0.19 per share, shareholders who choose to receive Maximum Cash will receive at least $0.50 cash per ARC share.

The total amount of additional cash available to all shareholders is capped at $100 million. The exact amount of cash received by each ARC shareholder electing the Maximum Cash alternative will depend on the proportion of shareholders electing to take up this option.

If you choose the Maximum Cash alternative the number of AWE shares you receive will be reduced by the value of the additional cash allocated to you from the cash pool. Details of the calculation of how many AWE shares you will receive if you choose the Maximum Cash alternative are set out in the Scheme Booklet, which is expected to be sent to ARC shareholders shortly.

If you do not make an election, you will receive the standard consideration of 0.30 AWE shares and $0.19 cash per ARC share.

Details of the tax implications of the proposed Merger and Demerger will be set out in the Scheme Booklet which is expected to be sent to ARC shareholders shortly.

You should seek independent professional advice in relation to the tax consequences in respect of your particular circumstances once you have read the Scheme Booklet.

TopWhat do I have to do?

ARC shareholders are being asked to consider and vote on the Merger and Demerger at two shareholder meetings expected to be held in early August.

It is not compulsory to vote, however the outcome of the meetings will affect all shareholders and your Directors unanimously recommend you vote in favour of the Merger and the Demerger, in the absence of a superior offer.

A Scheme Booklet detailing the Merger and Demerger, Notices of Meeting and a Proxy Form is expected to be sent to ARC shareholders shortly. If you are an ARC shareholder, there is no need for you to do anything until you receive the Scheme Booklet.

In addition, if you are an ARC shareholder and wish to receive the Maximum Cash alternative for your ARC shares if the Merger is implemented, you will need to complete and return an "Election Form" which will be included with the Scheme Booklet. The deadline for receipt of election forms is after the date of the ARC shareholders meetings which will consider the Merger and Demerger.

TopHow should I vote?

We cannot provide you with financial or taxation advice. However, ARC's Directors support the Merger and the Demerger and recommend that you vote in favour of each of the resolutions required to implement the Merger with AWE and Demerger of Buru Energy, in the absence of a superior offer.

You should seek independent financial and taxation advice before making a decision.

TopWhat will happen if the Merger and Demerger are not approved?

If the Merger and Demerger are not approved by shareholders and the Court, ARC will continue to exist as a standalone entity and will continue to be listed on the ASX unless another offer is forthcoming that the ARC Board deemed superior. ARC is in a strong financial position and will continue with its core business if the Merger does not go ahead.

In addition, the Demerger will not occur, so the Canning Basin assets will continue to be held by the ARC group, and you will not receive Buru shares.

TopHow will the Buru Demerger work?

If the Demerger is approved by shareholders and the Court, all of ARC's Canning Basin exploration assets will be demerged from ARC into a separate ASX listed vehicle, Buru Energy Limited.

Buru will have its own Board of Directors, and will provide shareholders with direct exposure to an exciting new company with an exploration portfolio leveraged to success in the Canning Basin exploration program. AWE will retain a 15% shareholding in Buru, giving the company financial strength and providing a cornerstone shareholder.

TopHow will the asset Demerger affect the value of my holding?

Upon the Demerger occurring, the Buru share price will be determined by the market. However, the Independent Expert, Deloitte, has valued Buru shares at a range of $0.40 to $0.65 per Buru share (equivalent to $0.17 to $0.28 per ARC share).

The total implied value of an ARC share from both the Merger and Demerger transactions was $1.63 per ARC share on 30 June 2008. The value of the consideration at the time of the Merger and Demerger will be partly dependent on the value of AWE shares and Buru shares at that time.

TopAre there any conditions to the Merger or Demerger proposals?

The Merger and Demerger will occur if the required approvals of ARC shareholders and the Court are obtained. ARC has also applied to the Australian Taxation Office for a number of tax rulings. Further details will be set out in the Scheme Booklet which is expected to be sent to ARC shareholders shortly.

TopWhen will I receive more Information?

The Scheme Booklet, including the Notices of Meeting, Proxy Form and Election Form are expected to be sent to ARC shareholders shortly.

TopCan I elect to receive all cash for the Scheme consideration?

No. An all cash option is not available, however, you can increase the amount of cash you receive by electing the "Maximum Cash" alternative. If you choose the Maximum Cash alternative the number of AWE shares you receive will be reduced.

The calculation of how much additional cash, and the reduced number of AWE shares, you will receive under the Maximum Cash alternative depends in part upon the number of ARC shares for which the Maximum Cash alternative is elected. Where less than approximately 25% of ARC shares are elected to receive Maximum Cash, such an election could result in a shareholder receiving all cash for the Merger consideration.

Further information on the Maximum Cash alternative will be set out the Scheme Booklet which is expected to be sent to ARC shareholders shortly.

TopWhat will I receive if I choose the Maximum Cash option?

Under the Merger, shareholders who elect the Maximum Cash option will receive more cash and fewer AWE shares. The Maximum Cash option will allow shareholders to elect to receive a minimum of an additional $0.31 per share. Together with the default $0.19 per share, shareholders who choose to receive Maximum Cash will receive at least $0.50 cash per ARC share.

This total amount of additional cash available to all shareholders is capped at $100 million. The exact amount of cash received by each ARC shareholder electing the Maximum Cash alternative will depend on the proportion of shareholders electing to take up this option.

If you choose the Maximum Cash alternative the number of AWE shares you receive will be reduced by the value of the additional cash allocated to you from the cash pool. Details of the calculation of how many AWE shares you will receive if you choose the Maximum Cash alternative are set out in the Scheme Booklet, which is expected to be sent to ARC shareholders shortly.

TopCan I receive all shares or is there a Maximum Share option?

No, there is no option to receive all shares or a Maximum Share alternative. This decision was made and agreed by both ARC and AWE.

TopWhat happens if I don't make an election?

If you do not make an election you will receive the standard consideration of cash, AWE shares and Buru shares.

TopWill I have to pay brokerage or stamp duty?

No. There are no broker fees or stamp duty payable by you on the transfer of your shares under the Merger or the Demerger.

Please note that if you sell your AWE or Buru shares on ASX after the Merger and Demerger, you may have to pay brokerage fees.

TopHow will fractional shares be treated?

If you become entitled to a fraction of an AWE share or a Buru share, your share will be rounded up or down to the nearest whole number. 0.5 shares will be rounded up to 1 share.

Further information regarding fractional shares will be set out the Scheme Booklet which is expected to be sent to ARC shareholders shortly.

TopWhat are the tax implications if the Merger is approved?

ARC has applied to the Australian Taxation Office (ATO) for a number of tax rulings. Details of the tax implications of the proposed Merger and Demerger will be set out in the Scheme Booklet which is expected to be sent to ARC shareholders shortly.

You should seek independent professional advice in relation to the tax consequences in respect of your particular circumstances.

TopWhat do the Directors recommend?

The Board of Directors of ARC unanimously recommends that you vote in favour of each of the resolutions required to implement the Merger with AWE and Demerger of Buru Energy, in the absence of a superior offer.

Each ARC Director intends to vote all ARC Energy Shares held or controlled by them in favour of all resolutions to be considered at the shareholder Meeting.

Further details of the Directors' recommendation will be included in the Scheme Booklet which is expected to be sent to ARC shareholders shortly.

TopWhat are the reasons for the Director's recommendation?

ARC regularly considers opportunities that could be in the best interests of shareholders. This proposal is compelling in terms of the strategic rationale and the consideration to be received by ARC shareholders.

The ARC Directors have carefully considered the benefits and disadvantages and have concluded that the anticipated benefits outweigh the possible disadvantages.

Further details of the Directors' recommendation will be included in the Scheme Booklet which is expected to be sent to ARC shareholders shortly.