December has seen a frenzy of activity for AWE, as it became the takeover target for China Energy Reserves and Chemical Group (CERCG) and Minerals Resources, which are looking to gain access to Australia's domestic gas supply markets through acquisition of AWE's Waitisia gas project.

CERCG has made two successive bids, with its current, all cash proposal standing at a revised 73?? a share, or $463 million, after it withdrew its initial offer of 71?? a share.

Mineral Resources has made a $484 million, all scrip offer for the gas company valuing it at 80?? a share.

Regal Funds Management, an AWE shareholder, believes another bid is on the horizon.

"There is potential for another bidder to enter the fray," Regal Funds Management Portfolio Manager Julian Barbarczy said.

Ellerston Capital, AWE's largest shareholder, was unavailable for comment.

A source close to AWE also said a third bidder could be on the horizon.

"We think there's a couple of parties looking at the situation closely, [another bidder] is not outside the realms of possibility," he said.

While Beach Energy, the 50/50 joint venture partner with AWE in the Waitsia gas project, has remained quiet, some in the market believes it may soon make its own bid to wrest control of Waitsia.

"I wouldn't be surprised if [Beach] got into the action, the bidding isn't done yet," Mr Barbarczy said.

A source familiar with Beach Energy told Fairfax Media the possibility of its carrying out another major acquisition, just months after its $1.585 billion acquisition of Lattice Energy, is an unlikely prospect.

"Beach has just acquired Lattice and is going through the integration of it, so its focus would be on this at the moment," the source said.

Regal Funds Management believes at their current price, neither Mineral Resources nor CERCG's bid is likely to pass the board as both have undervalued the company.

"Their pencils need to be sharpened," Mr Barbarczy said.

"We think something closer to $1 is more acceptable to shareholders," Mr Barbarczy said.

This price point is closer RBC Capital Markets analyst Ben Wilson's forecasts.

Mr Wilson sees a risked valuation of AWE at 91?? a share - or $550 million - and an unrisked valuation of as high as $1.13, creating an acquisition value of $683 million.

"AWE is currently trading at around a 10per cent premium to the implied Mineral Resources bid which suggests to us that the market is positioning for either a higher bid from CERCG, an upwardly revised bid from Mineral Resources or a possible third bidder," Mr Wilson said.

"Despite likely capital gains tax rollover relief for eligible investors, we think a cash bid at a similar price to an implied scrip bid should be preferred by shareholders and the AWE board."

A source close to AWE said an offer above 80?? would make a potential bidder much better placed to gain AWE's board endorsement.

Mr Barbarczy said shareholders currently have no preferred bid, but did state CERCG's cash offer, compared to Mineral Resources scrip proposal, provides more certainty.

"The scrip offer would have to be at a premium to be accepted," he stated.

AWE's price fell more than three per cent this morning, sending shares slipping to 81??.

Why AWE?

What makes AWE such an attractive takeover target?

One word: Waitsia.

The Waitsia gas project is one of the largest onshore gas discoveries in Australia in the last thirty years, and it has the potential to expand its current proven and probable reserves well beyond its current levels.

In its third-quarter results, the group had already lifted its proven and probable reserves by a quarter, to 228 petajoules of gas.

An independent review in November lifted this figure by 78 per cent to 811 petajoules.

This review also lifted AWE's 3P reserves - that is proven, probable and possible - to 1,219.6 petajoules.

"TheWaitsiaStage 2 development project is planned to deliver 100 terajoules a day for at least 10 years," AWE chief executive David Biggs said.

This is equivalent to production rates of more than a petajoule a fortnight.

CERCGbelieve this figure could be even higher.

"CERCG Australia acknowledges that the Waitsiagas field, and its increasing proved and probable reserves and future development, has the potential to return value to AWE shareholders in the longer term," it said.

"It is for this reason that CERCG Australia is prepared to pay such a substantial premium for AWE."

AWE also recorded a 156 per cent increase in production year on year at itsWaitsiaStage 1 project.

"Suffice to say, Western Australia need gas, and there's lots of it in this project," Mr Barbarczy said.

Access to this project was the main driver for similar, and eventually rejected, takeover bids from private equity firm Lone Star Funds and Senex Energy.

In May last year, it rejected an unsolicited $421 million cash takeover proposal from Lone Star Funds, and in 2013 knocked back Senex's cash and share offer.

Full control of the asset has been hotly contested since Origin announced its intention to divest a 50 per cent holding of the project through its spin-off Lattice Energy, which was eventually acquired by Beach Energy.

While the project is now split 50/50 between Beach and AWE, both Senex and Lone Star are believed to have attempted to gain a foothold in the project through Lattice Energy, while AWE partnered with global equity giant KKR to grab 100 per cent control of the project.

In addition to Waitsia, AWE has domestic gas exposure through its BassGas and Casino projects in Victoria, and an international offshore project in the Natuna Sea, off Indonesia.