This is Australia's new billion dollar oil producer

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Beach Energy and Drillsearch have agreed to merge, creating Australia’s largest onshore oil producer and a leading mid-cap oil and gas company.

The combined business will have a market capitalisation of $1.169 billion, revenue of $978 million, an expanded portfolio of oil, gas and infrastructure assets, and annual production of 12.1 million barrels of oil equivalents.

Energy producers, hit hard by falling prices for oil, are all looking for ways to further reduce costs. This merger will open the way for annual savings of about $20 million a year.

Drillsearch shareholders will get 1.25 Beach shares for every Drillsearch share, about a 27% premium on yesterday’s close.

The deal values Drillsearch at $0.83 per share, giving it a market capitalisation of $384 million. Drillsearch shareholders will end up owning about 30% of the combined company.

Kerry Stokes’ Seven Group has substantial holdings in both Beach and Drillsearch.

“This is a common sense combination of two Cooper Basin businesses sharing significant core assets,” says Glenn Davis, chairman of beach.

“The proposed merger will provide both Beach and Drillsearch shareholders exposure to a more efficient, cost effective and diverse Cooper Basin business with larger production and reserves, delivering real benefits to all shareholders.”

The Beach Board is conducting a search for a new CEO to head the combined group.

Beach acting chief executive Neil Gibbins and Drillsearch CEO Walter Simpson have started planning for the combined group, looking at who will be retained in the management groups of both companies.

The deal, which needs to be approved by shareholders, is expected to close in February.

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