| Venture Endgame?

14th May '09 by emptyend

13 comments 2124 reads

Interesting to see that Venture have been scrabbling down the back of their reserves "sofa" this morning and announced that D&M reckon their 2P reserves are 243.2mn bbls, which is up 13.6% on their year-end numbers reported less than two months ago (214mn):

http://www.investegate.co.uk/Article.aspx?id=200905140700122098S

http://www.investegate.co.uk/Article.aspx?id=200903170700089245O

I imagine the fact that Centrica took a 23.6% stake only two days after publication of VPC's prelims would have had something to do with it.. ;-)

......which makes one wonder whether other E&Ps are ALSO complacently under-reporting their 2P reserves.

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Emptyend

Premium Member

13 comments

fraserrg

14th May '09

Hi ee

As well as revising the 2P number, I suspect one of the other main reasons for VPC commissioning this report was to highlight and get a 3P number on the table to help fend off the CNA approach.

Using the 2P number and current market cap, it works out at around $7.6/bbl whilst clearly if we include 'possible' reserves then this number almost halves which must look quite attractive to a buyer even with a much lower probability on the additional reserves.

emptyend

14th May '09

Yes - very good point re the 3P number. Some companies have always put a 3P number out (in fact Cairn and Tullow, IIUIC, have always put out 3P numbers - so much so that people sometimes mistake them for 2P!), whereas others haven't bothered.

One of the others that hasn't bothered up to now is SOCO, partly (I suspect) because of genuine difficulty in coming up with a reasonably accurate estimate but also because they haven't seen any advantage in doing so. I suspect that this will change during the next year, as the quantification difficulties reduce and the M&A pressures to "get it out on the table" increase........ though I'd also guarantee that their 3P and contingent resource numbers will be a helluvalot more impressive than Venture's ;-)

cheers

loglorry

14th May '09

Hi ee, fraserrg

To pick up on the Soco reserve thing I notice that some broker notes like the tristone one on Soco have a 15% probability in thier expected NAV calculations for parts e.g. 16-1 HTPT Fan which is a massive 800mmboe. This seems to me to be closer to the classic definition of 3P than 2P anyway or at least they are treating it that way.

If you treat it as 2P then this makes a huge difference to the Risked assets per share (a point they make in the report) infact if you use a probabily of 50% you add another £6/shr of value in!

So as ever the NAV valuations are really very sensitive to a lot of unknowns!

MrT

12th Jul '09

The price talk from CEO, Mike Wagstaff, in the Sunday Times is that the required takeout price will be north of 900p (vs. the 845p offer).

“We have spoken to our large shareholders and they all want more than 900p, and in some cases they are talking about more than 950p and more than 1,000p,” he said.

He questioned Centrica’s tactics in making a final offer — which means it cannot increase its price in the next year unless a rival bidder emerges. “If they are making this offer without having engaged with us and without having done proper due diligence, that must tell shareholders that they are confident its real value is much greater. What they are really trying to do is scare shareholders into accepting,” he said.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article6690480.ece

emptyend

12th Jul '09

One other construction that might be put on Centrica's decision to make a low "final" bid might be that they wouldn't be too disappointed if they ended up with under 50% as, presumably, they could demand a couple of board seats and might well end up with enough control to effect the sort of upstream economic hedges that seem to be the rationale for the deal. Whatever the case, they would certainly have a strong blocking position, preventing a third party from making a hostile bid (unless such a third party is already ready to pounce tomorrow morning?)......and perhaps that wouldn't be such a bad outcome for them?

emptyend

13th Jul '09

Venture's rejection of Centrica's bid:

http://www.investegate.co.uk/Article.aspx?id=200907130700145310V

....which confirms they are being advised by UBS and Oriel......and by NM Rothschild and Lambert Energy Advisory (I've never heard of the latter).

In addition, the two major shareholders referred to last night have ALSO put out their own independent announcements rejecting the bid:

http://www.investegate.co.uk/Article.aspx?id=200907130700455312V

http://www.investegate.co.uk/Article.aspx?id=200907130700555313V

....so it is certainly surprising to see the market settling in the 825-830p range in early trading (volume 750,000 so far). Perhaps the market thinks there are "better bets" elsewhere than trying to extract the last 10-15% from VPC? Certainly the bid approach to EEN has prompted a further rise of 6.5%....which is more than VPC's rise today.

Bugger all going on elsewhere in the sector, AFAICS, in terms of volumes or price moves.....perhaps it is summertime? ;-)

MrT

21st Jul '09

Disappointing results from the Andrea gas exploration well

The tight nature of the reservoir is likely to constrain recoverable reserves to the lower end of pre-drill expectations of 3 to 44 million barrels of oil equivalent ('MMboe'). Consequently, any development of Andrea would most likely be in conjunction with the nearby Ensign field.

http://www.stockopedia.com/news/announcement/VPC/090721vpc000286.htm

djpreston

21st Jul '09

Id guess that the Andrea failure probably just about swings the odds in favour of CNA's offer now. If they win then fair play.

emptyend

26th Jul '09

Longish interview with Wagstaff:

http://business.scotsman.com/energyutilities/Mike-Wagstaff-interview-Well-up.5494065.jp

....making the right noises re the defence - clearly peeved with Centrica and hopeful that he can get his institutional investors to value the company properly.

emptyend

28th Jul '09

Interesting announcement from Centrica here....

http://www.investegate.co.uk/Article.aspx?id=200907281430014028W

....in which they CLAIM to have 35% of Venture!

Call me a cynical old pedant but, if I'm reading this correctly, it looks as if they have included the shares underlying their stake in the convertible (and ONLY this stake, AFAICS) despite not having converted the bonds into shares - and despite the fact that they seem to have no intention of converting at this point!

I notice that the conversion price for the convertible is in fact 911p. If I were on the defence team and saw Centrica claiming an extra 5% stake that they can ACTUALLY only get by converting the bonds into shares at 911p, I'd be absolutely insisting on other shareholders getting an offer of AT LEAST 911p!

It isn't my field of expertise, but I would have thought that we'd be seeing a Takeover Panel ruling in relation to this claim of Centrica's in the near future......

djpreston

28th Jul '09

I wouldn't see it as a precedent. Though I can see your point if they bought at par. Buying at a discount would lower their real "cost". Buyying say Soco bonds earlier at a huge discount would have the same effect. I know the friendly stake there would prevent the same happening there but its an interesting point

marben100

28th Jul '09

For info, I received Venture's defence document in the post today. It can be obtained from Venture's website, here: http://www.vpc.co.uk/html/news/disclaimer2.html

I've given it a quick skim and didn't find any mention of the issue concerning Centrica's claims wrt the converts. Unless I've missed it, looks like that hasn't been addressed yet.

emptyend

28th Jul '09

Though I can see your point if they bought at par. Buying at a discount would lower their real "cost". Buyying say Soco bonds earlier at a huge discount would have the same effect. I know the friendly stake there would prevent the same happening there but its an interesting point

DID they buy at a discount, though?

All the RNS says is that

No mandatory offer is required under Rule 9 of the City Code on Takeovers and Mergers as the current conversion price of the 3.25% Convertible Unsecured Bonds due 2010 is above the current market price of the ordinary shares of the issuer.

....but it seems to me (without knowing the exact terms or recent trading levels) that it is perfectly possibly for the bonds to be at or above par, thanks to the time value of the equity option (and any "above market" element in the coupon....3.25% for a year seems a decent spread over one-year LIBOR, which is currently sub 2% I think?)

I mentioned it to a journo, whose sources seem to think that today's RNS is a technicality. It might be, of course - but I'd still be interested to know what the defence has to say about it.

rgds

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Emptyend

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