Desire came to the Alternative Investment Market in May last year as a punt on Falklands oil. Investors' cash will now be used to develop Portuguese gas assets.
Desire was part of a five-strong consortium, including oil giant Royal Dutch/Shell, which pioneered drilling off the Falkland Islands. None of the six wells drilled held economically-recoverable oil and the rig has since left the region.
Dr Colin Phipps, chairman of Desire and a non-executive of Gaelic, said Desire aimed to continue searching for oil in areas surrounding the Falklands basin if the recent recovery in the oil price held firm. However, he added: "I wouldn't expect to be drilling there in the next 12 months."
Dr David Quick, Gaelic's technical director, said the cash raised in Desire's flotation was the primary attraction of the tie-up. He said Gaelic is to embark on a costly appraisal of a gas discovery in Portugal.
Dr Phipps, who owns 25 per cent of Desire and 10 per cent of Gaelic, is to remain as chairman of the enlarged Desire, which is worth pounds 23.6m.
Gaelic shareholders will receive one Desire share for every 18 Gaelic shares, valuing the company at pounds 12.8m, equivalent to a 7 per cent premium to its share price of 1.25p on Thursday.Reuse content