WSJ: Aurora Considers Dropping Bid For Eureka Energy-Source

Aurora Oil & Gas Ltd. (AUT.AU) may drop its A$107 million (US$105.5 million) cash offer for Eureka Energy Ltd. (EKA.AU) on concerns about the terms and conditions of its target's new debt facility, a person familiar with the matter told The Wall Street Journal.

Aurora is exploring the withdrawal of the bid because it is worried the up to US$50 million debt facility that Eureka has lined up through Macquarie Bank is too costly and can be drawn down without shareholder approval, the person said.

Eureka announced it had executed the debt facility, comprising two tranches starting with an initial US$15 million, which it aims to use for a major drilling and well development program underway at its Sugarloaf shale oil project in Texas.

Terms of the loan involve Eureka paying a fee to Macquarie of up to A$4.05 million to draw down the entire US$15 million in the first tranche, representing a cost of capital of 27%.

Drawing down the first loan is permitted before Eureka issues options, which will dilute the interests of existing shareholders by 8%.

In a statement earlier Monday, Eureka's acting managing director Bill Bloking said the company is pleased to have secured funding from Macquarie.

"It is unfortunate that the requirements for shareholder approval have necessitated the pre-payment of a fee, but this can be returned if shareholders approve the issue of options," Mr Bloking said.

Eureka has rejected Aurora's cash offer of A$0.45 a share, which was launched at the end of April.

A spokesman for Eureka Energy declined to immediately comment.

-By Gillian Tan, of The Wall Street Journal; [phone]; [e-mail]