Junior Australian gas companies Vintage Energy (ASX: VEN) and Galilee Energy (ASX: GLL) have moved to the next stage of a planned merger.

Cooper Basin conventional gas developer Vintage and Queensland coal seam gas specialist Galilee Energy have entered into a Scheme of Implementation deed aimed at bringing their significant assets under one roof.

Upon finalisation of the merger, existing Vintage and Galilee shareholders will hold approximately 60% and 40% of the merged group, respectively.

Revised structure

The new deed features a similar structure to a binding Heads of Agreement the two companies entered into in August, under which Vintage proposed to acquire all of the fully paid ordinary shares in Galilee by way of a scheme of arrangement.

Galilee and Vintage directors have unanimously supported the scheme.

Vintage chair Reg Nelson said the merger set out in the deed would improve the outlook for shareholders of both companies.

“Events since the proposal’s announcement in August have reinforced the merits of the merger,” he said.

“Forecasts of gas markets tightening as production from existing sources declines have been renewed [and] the favourable market conditions we anticipated when listing Vintage six years ago are evident.”

Galilee executive chair Ray Shorrocks agreed, saying the proposed merger would enable the combined companies and their shareholders to take full advantage of the impact that a looming gas shortfall is set to have on prices, margins and free cash flow generation.

Odin-2 online

The announcement comes on the same day Vintage confirmed it has successfully brought its Odin-2 gas well online.

Discovered in June, Odin-2 is now producing gas to support a long-term contract with Pelican Point Power.

The well is currently flowing at an average rate of 3.0 million standard cubic feet per day.

Odin-1 was recently taken offline due to commissioning requirements, but is expected to be brought back into production this week.

Flow rate increase

“Results from Odin-2 are very pleasing, and current rates represent a substantial step-up in our gas production,” Vintage managing director Neil Gibbins said.

“The combination of the two wells, incorporating the uplift from our production optimisation activities in September, is expected to result in initial raw gas production from the field being four or more times the rates recorded in August just prior to these projects,” he said.

Vintage’s producing Odin and Vali gas fields will provide key cash flow that can help progress Galilee’s large and highly prospective gas acreage holdings.