Mergers and Acquisitions (mainly oil sector)

Thursday, May 14 2009 by
35

I've set up this thread as a "home" for any live topics relating to M&A in the Oil sector.

With virtually every stock in the sector continuing to trade well below estimated NAVs, there will be frequent bid situations emerging. Some of these will be agreed bids but, in the present climate, unsolicited bids are also highly likely.

I'm starting the ball rolling with a link to an Australian bid situation, in which the target company (called Target Energy, funnily enough) is rebutting a hostile bidder in typically strong Aussie terms: http://newsstore.theage.com.au/apps/previewDocument.ac?docID=GCA00953206TEX&f=pdf 

The link may take some time to download - it is to a 162 page document giving chapter and verse on why Target recommend rejection of a bid that they (and their professional advisers) consider values Target at around HALF its true value. The relevance of the link is that the Grant Thornton section of the document demonstrates a range of different ways of trying to value an E&P company and is therefore of some generic interest to people who own shares in future bid targets.

Target's shares recently hit a low of 2.5 cents before the bid was tabled in mid-April. They are now 5 cents. Grant Thornton (acting for Target) reckon the bid is worth around 6.35c, whereas they think Target is actually worth around 11.9c per share......in other words they reckon that Target was, at its recent lows, trading at only 21% of its true value. So........it will be interesting to see how the defence gets on. [Edit 20/7/09: Successful defence - see http://www.stockopedia.com/forum/view/28067/ma?comment=121#121 ]

What is also interesting from the perspective of a UK holder is that the non-exec Chairman of Target, Didier Mercia, is also a director of Aminex. Holder of Aminex will know that they are another company that has US assets (like Target) that are being substantially undervalued by the market at present.....so it is nice to see Aminex getting a bit of first-hand experience before the predators arrive, in turn, at their door!  ;-0

Feel free to add any other bid situations of interest to this thread. [Edit: Do not, however, use it to speculate endlessly about the bid prospects for specific companies, especially where there is little likelihood of M&A news in the near future. Contributions which digress from matters of general sector interest are liable to be removed].

ee


Filed Under: Energy, Oil & Gas Producers,

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720 Posts on this Thread show/hide all

emptyend 22nd Jan '12 621 of 720
1

Anadarko are being slated as a possible bidder/partner for Rockhopper Exploration (LON:RKH).

More interestingly there are now apparently:

six companies are now interested in becoming partners.

....which suggests a credible auction scenario is in prospect.

Meanwhile, I'm wondering what is going on elsewhere.....I suspect we are moving into the season for strategic M&A as results get finalised etc.

ee

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Leekgo 23rd Jan '12 622 of 720
2

DId i miss this over the week end?

http://www.investegate.co.uk/Article.aspx?id=20120123070012M4213

Looks like an offer for Ithaca might be about to emerge. This might add to the growing excitement at the smaller end of the E&P UK market among PIs.....

Wonder who the bidder might be?

My selling timing is appalling. I have sold small stakes in both Rockhopper AND Ithaca in the last few weeks....

Leek

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emptyend 23rd Jan '12 623 of 720
1

DId i miss this over the week end?

Not unless you are an avid watcher of the TSX. The shares were up 27 cents on Friday to CAD 2.48.....and I guess that must've all happened after the London close as there was no indication here.

As to who, I have noted over here that KNOC's Dana now have a "$900mn warchest"....and then there is possibly Premier Oil (LON:PMO), though I guess one of their partners or someone with adjacent acreage might make more sense?

ee

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flyinghorse 23rd Jan '12 624 of 720
1

It could be Dyas for Ithaca

http://www.dyas.nl/ukassets.html

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Fangorn 23rd Jan '12 625 of 720
2

Things certainly are picking up on the takeover front Oil sector side, assuming of course there's elements of truth to all the rumours.

Currently in play,it seems:

COV, GKP, IAE, RKH

I'm sure I've missed a couple...Interesting times.

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emptyend 23rd Jan '12 626 of 720
1

In reply to Fangorn, post #625

Currently in play,it seems:

COV, GKP, IAE, RKH

I'm sure I've missed a couple...Interesting times.

I'm sure you'll have missed at least a couple too - partly because there are at least 20 E&P stocks that are up by over 20% in the last month, according to Digital Look.

I do get the impression that the long-awaited M&A wave may soon arrive, now that an apparently more stable macro environment (ie no major catastrophes in the last few weeks) may be emerging. The results season is likely to focus quite a few minds, I suspect, especially with share prices having been beaten down well below fundamantal value in many cases - and especially with the Iran concerns bubbling along.

Comments such as those in the FT today:

Saudi Arabia sent a crystal clear message last week to the oil market: $100 a barrel is the new normal.

...may also be focussing minds, given that the sector has long been priced by analysts on the assumption that $90 is the fair price longer-term.

ee

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Fangorn 23rd Jan '12 627 of 720
2

It certainly is looking as if the sector as a whole could get some M&A induced rerating, albeit many from undervalued levels as you note. Aren't most E&P's currently valued using the assumption of Oil at $75/bbl? I seem to recall reading that in several places over the last twelve months.

My only fear is that, similar to EO, several get taken out on the cheap. Am hoping NPE sees some action as well. But interesting times ahead that's for sure. The big one that everyone is talking about is GKP - should that come to pass then one will see alot of the proceeds reinvested across the sector.

Indeed, one has to hope the Greek situation doesn't put a spanner in the works - things aren't looking too promising there at the moment. Plenty to go wrong on the Europe front that's for sure.

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emptyend 23rd Jan '12 628 of 720
2

In reply to Fangorn, post #627

My only fear is that, similar to EO, several get taken out on the cheap.

I'm not sure that this is a major concern. Look at Ithaca for example - now 170p on the news of an approach, versus a low in August of 90p. And it has never been over the 207p ish in 2007 - and has visited c 12p since then. Even Dominion got a decent price near their highs for the last few years.

Of course it depends on how much control the targets have over their share register - but most deals are going to be consensual - or they won't happen.

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emptyend 24th Jan '12 629 of 720
3

Interesting to see PTTEP mentioned in dispatches re Cove:

Reuters on Monday quoted PTTEP chief executive Anon Sirisaengtaksin as saying: "We are studying a plan but no real decision has been made whether we will make a bid or not.

"Eventually, it will depend on the price...We are keen on some projects with most of the assets located in Africa.

I wonder whether the Sunday Times guessed the target correctly.....

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emptyend 9th Feb '12 630 of 720
6

In view of the fact that the E&P sector really hasn't even kept pace with the market in recent weeks, the fact that oil prices remain strong must surely be tempting company buyers looking for production growth, especially as the majors continue to report flat or falling production numbers?

The FT comment today about oil prices, suggests that estimates of demand and supply are both wrong and not believed by the markets:

Demand is low on paper but physical traders feel it is higher, particularly in emerging countries in Asia, east Africa, Latin America and the former Soviet Union.

The energy market, however, focuses on developed countries, with most of the data coming out of the US, where consumption continues to fall on a year-on-year basis.

Supply, on the other hand, is running lower. The market has lost 350,000 barrels per day of crude from South Sudan; Iran is also exporting less, the Buzzard oilfield in the North Sea has problems again and the recovery of Libya’s crude oil output has stalled since December. Moreover, the promised large increase in Iraq exports of crude oil has yet to materialise.

In a clear sign of the supply-demand tightness, the price of Brent crude has jumped. The global benchmark hit $118.17 a barrel on Thursday, the highest level in six months.......

On paper, the supply and demand balances suggest that the first quarter should see a counter-seasonal build-up of crude oil inventories, the first in eight quarters. But in reality, the physical market is suggesting that the world continues to draw down stocks.

It'll be interesting to see how the FTSE250 E&P sector shapes up in the earnings season....and to see what happens next.
ee
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emptyend 17th Feb '12 631 of 720
7

Interesting piece in tomorrow's FT, prompted by the unusual leaking of a potential bid in the E&P sector (Bowleven/Dragon). The article concludes:

London is less leaky.

Should we applaud this, pausing only to scold the FSA for arriving so late with the clampdown? Maybe. Clean markets should equate to fairer markets.

Unfortunately, there are also unintended consequences here. Silencing (or at least muffling) the chattering market classes that test speculative stories and press reluctant companies into sharing more information risks sucking the life out of this particular investment arena. Worse, it risks increased volatility as fresh “formal” information comes as a shock to market participants; market gossips do a good job of smoothing information flows. Worse still, it hands overwhelming control of the corporate news flow to listed companies themselves – something which is downright unhealthy from the perspective of investors.

It is not widely appreciated, but “managed” news can be far worse than leaked news, and that’s one area the FSA has barely examined.

I've highlighted two points that I believe to be complete and utter rubbish!  The author seems to favour informed gossipers making profits at the expense of ignorant outsiders - and he appears to think that news that comes as a "shock"* must necessarily be bad. Complete cobblers! .......if (institutional?) investors don't do their research properly, then they will miss holding stocks that become the subject of takeovers at large premia. That will be their loss - and their fault, for not doing what they are supposed to be doing - namely picking stocks that are undervalued!

As for giving companies control over what gets into the public arena, surely that is just right and proper - because then everyone is on a level playing field, unless they are clearly insiders who are prohibited from profiting from such inside knowledge.

As to the point about "managed news", share price volatility (as a result of deals leaking) rarely benefits anyone except well plugged-in hedgefunds and merger arbs.......and keeping abortive discussions firmly under wraps is actually a very good thing!

ee

* regular readers will know that I'm expecting to see some of that at some point.....and for longstanding shareholders (who have done their own research) to benefit, rather than the Johnny-come-latelies.

 

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Fangorn 22nd Feb '12 632 of 720
1

And so it starts....proposed cash offer for COV @ 195p/sh from Shell.

http://www.investegate.co.uk/article.aspx?id=201202220704198768X&fe=1


The firs, of many, I suspect.

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jseth123 22nd Feb '12 633 of 720
3

Centrica, the parent company of British Gas, has reached an agreement with Total E&P UK (and its affiliates) to acquire their non-operated portfolio of producing oil and gas assets and associated infrastructure in the Central North Sea (CNS) for a total cash consideration of $388 million (£246 million). Around 20% of the consideration is allocated to UK tax allowances.

The portfolio includes seven producing fields in three major areas: Greater Armada, the Alba field and the Mungo and Monan cluster. Centrica’s share in these fields has an estimated 22 million barrels of oil equivalent (mmboe) of 2P reserves (36% gas, 64% oil), increasing its reserves by approximately 5%, and is expected to produce 9,300 boe per day in 2012. The oil and gas is mostly un-contracted and linked directly to the UK market.

http://www.energy-pedia.com/news/united-kingdom/new-149241?editionid=100858

More activity in the North Sea. Looks to be a decent $/boe (between $12-17, depending on how much you attribute to tax losses), and there is plenty gas in there too.

Still eagerly awaiting the outcome of the situation at Ithaca, which will likely be coming to a head shortly, one way or another...

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oilretire 22nd Feb '12 634 of 720
1

thanks to ohisay on Fool.......


DJ MARKET TALK: Oil Majors Seen Buying Cheap Producers -Westhouse

1049 GMT [Dow Jones] On the back of recent oil company acquisition news, Westhouse Securities expects more cash-rich oil majors to take advantage of current low valuations to buy, as "it is clearly cheaper to buy reserves through the stock market than to explore." It notes the recent Royal Dutch Shell (RDSA.LN) bid for Cove Energy (COV.LN) and a possible offer from Dragon Oil (DRS.DB) for BowLeven (BLVN.LN). Westhouse notes that in the current industry environment, large companies will primarily be looking for bid targets trading at a substantial discount to NPV. The brokerage sees companies such as Coastal Energy Co. (CEO.LN) Soco International (SIA.LN) as possible targets for their operations in Southeast Asia; Antrim Energy Inc. (AEN.T), Ithaca Energy Inc. (IAE.T) and Nautical Petroleum (NPE.LN) as possible targets for operations in the U.K. North Sea; Petroceltic International (EG5.DB) and Gulf Keystone Petroleum (GKP.LN) as possible targets for operations in Africa and the Middle East; Global Energy Development (GED.LN) as a target for its LatAm operations; Indus Gas (INDI.LN) as a possible target for its India operations and Northern Petroleum (NOP.LN) as a target for its European operations. Westhouse has buy recommendations on Ithaca Energy, Nautical Petroleum and Northern Petroleum. No recommendations on the others.

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fuiseog 22nd Feb '12 635 of 720
1

In reply to oilretire, post #634

It's interesting to see Global Energy Development (GED.L) listed as a takeover prospect.

They have US listed Harken Oil Corporation (HKN) and associates as a 60% shareholder (from memory - it may be more now) so they ain't goin' nowhere without HKN's consent.

HKN have a 'colourful' history, including connections to one GW Bush.

http://en.wikipedia.org/wiki/HKN,_Inc.

GED is sitting on comparatively huge reserves, mainly heavy oil in Colombia and Peru, which are not reflected in its valuation. It has been very succesful in its conservative approch to managing cash but painfully slow to realise the potential of its reserves.

There is a danger that when/if they address the production prospect HKN may gobble the rest of us holders up.

A bit of a boring medium/long buy on the dips and hold for me.

fuiseog

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MadDutch 22nd Feb '12 636 of 720
3

I posted this on FT.com today;

I prefer Soco International. 

Daily production of oil from its new oilfield TGT, looks like 50,000 BOPD, expected to reach 95,000 in August.

Soco has a non standard profile and the market undervalues it because it is not understood; but its objective is to be taken over when the assets are fully developed. The Stockopedia website had several useful discussion forums, I post as MadDutch.

The biggest attraction is the directors control over 40% of the shares, so their interests are fully aligned with the shareholders; there will be no hostile takeover that undervalues the company, as happened to Dana.

MadDutch

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oilretire 24th Feb '12 637 of 720
2

El Paso in the sights of private equity firm........

http://online.wsj.com/article/SB10001424052970203960804577241782869753396.html

A group led by private-equity firm Apollo Global Management LLC is nearing a deal to acquire El Paso Corp.'s oil-and-gas exploration unit for about $7 billion, people familiar with the matter said.

An agreement with the Apollo-led group, which also includes energy-focused private-equity firm Riverstone Holdings, could be signed as soon as Friday, the people said. Negotiations are continuing, and the talks could still fall apart or the deal could be delayed, the people cautioned.

If completed, the deal would represent one of the largest buyouts in the past year in an industry that has seen a flurry of deal activity.

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Fangorn 24th Feb '12 638 of 720
2

For those that missed it yesterday...the Genel presentation..Tony Hayward comments on genel's Kurdistan movements, and likely areas of "acquisition" activity.

http://www1.axisto.co.uk/webcasting/investis/genel-energy/capital-markets-day-2012/

Further acquisitions in Kurdistan by Genel are apparently off the table. What they are looking at is Middle East and Africa although he did mention he thought prices were, in some instances, a bit rich currently post COV takeover bid.

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emptyend 24th Feb '12 640 of 720
2

In reply to Fangorn, post #639

This could be a three or four way contest by the middle of next week, I guess......

....and the shares being up to 240p currently tell you what the next bidder will need to pay as a minimum.

Interesting times anyway, for those sat on strategic assets, whether Cove Energy (LON:COV) or others.....  such as SOCO International (LON:SIA)

ee

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