Convertible Note Deal Boosts State Gas but Hinges on Shareholder Approval

Funding Milestone for Rolleston West

State Gas Limited (ASX – GAS) has successfully secured $3.2 million through the issue of unsecured convertible notes priced at a 33% premium to the company’s recent closing share price. This capital injection comes at a pivotal moment as the company advances its Rolleston West Project, underpinned by a maiden 2P reserve certification of 30.2 petajoules (PJ), confirming the commercial viability of a ~10 terajoule per day coal seam gas development.

In a strong show of confidence, the company’s directors have converted $0.5 million of their existing loans into the same convertible note structure, signaling alignment with shareholders and reinforcing commitment to the project’s next phase.

Convertible Notes Structure and Terms

The convertible notes carry a face value of $25,000 each and convert into fully paid ordinary shares at a conversion price initially set at 4 cents per share, which is above the current trading price, reflecting investor optimism. After 16 weeks, the conversion price adjusts to the lower of 4 cents or a 20% discount to the 15-day volume weighted average price (VWAP). In lieu of interest, noteholders receive unlisted options exercisable at 5 cents, expiring 30 months from issue, subject to shareholder approval.

The notes are unsecured and unlisted, with provisions allowing State Gas to redeem or forcibly convert the notes under certain share price conditions, offering flexibility to manage capital structure as the project progresses.

Strategic Use of Funds

Proceeds from the note transaction will fund critical pre-development activities including internal engineering and commercial planning, third-party studies for gas processing and pipeline connections, environmental baseline studies, and corporate overheads. These efforts aim to fast-track the Rolleston West Project towards production tenure and commercialisation, capitalising on growing natural gas demand on Australia’s east coast.

State Gas is also actively seeking project partners to support development through joint ventures, farm-outs, or off-take agreements, while exploring infrastructure financing options from both private and public sectors.

Innovative Funding and Market Confidence

Ignite Equity Pty Ltd acted as sole lead manager and cornerstone investor for the transaction, introducing this convertible note structure to balance funding needs with dilution concerns amid a depressed share price. Ignite Equity’s founders highlighted the structure’s track record in supporting companies with strong management and positive news flow, anticipating a pathway to a stronger balance sheet and potential debt-free status for State Gas.

The directors’ conversion of loans into notes further underscores internal confidence in the company’s strategy and asset value, particularly following the maiden 2P reserve announcement.

Looking Ahead

While the convertible notes issuance awaits shareholder approval, the successful raising of $3.7 million in combined new and director-converted funds materially strengthens State Gas’s capacity to meet upcoming technical, regulatory, and commercial milestones. The Rolleston West Project’s certified reserves and strategic location near pipeline infrastructure position it well to capitalize on the evolving energy market dynamics.

Investors and industry watchers will be keen to monitor the shareholder meeting outcomes, progress on securing project partners, and the company’s ability to navigate the next stages of development and financing.