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Where next for Ophir Energy after it rejects 48.5p Medco offer? (OPHR)

Ophir Energy (LSE:OPHR) sat flat at 44.9p on Monday morning after rejecting a take over offer from PT Medco Energi Global PTE Ltd.

Ophir first confirmed it was in discussions with Medco on 1 January. This resulted in the resource player’s share price jumping from 36p to a high of more than 50p when markets opened the next day. Following this, shares retraced to 41p in the face of skepticism around the deal. On 11 January, Ophir then announced that Medco had proposed a possible 48.5p per share offer.

Interestingly, today’s announcement revealed that Medco had made an unsolicited approach to Ophir back in October at an offer price of 58p. It was on the basis of this initial offer that the firm decided to enter discussions with Medco. This involved giving it access to due diligence and carrying out discussions around how Ophir’s shareholders could receive appropriate value. In today’s update, Ophir said that Medco later reduced its offer to 53.8p per share in December. It cut the offer because Ophir had not received confirmation of a licence extension for its EG Asset. Medco also cited falling oil prices as a consideration.

Today, Ophir’s board said it has unanimously rejected Medco’s proposal because it believes it undervalues the company. This is a conclusion that ValueTheMarkets came to in October last year when we analysed publicly available information in a special report on the organisation. We concluded that, while the potential full write-down of Fortuna would be a significant blow for Ophir, it may already be priced in.

On 5 January, Ophir confirmed that its Block R Licence, which contains the Fortuna gas discovery, would not be extended following expiry. This will lead to an additional non-cash impairment of around $300m in Ophir’s full-year results.

Ophir, rather cleverly it seems, did not complete its Santos deal until the second half of 2018. The deal, however, was structured to be effective from 1 January 2018. This means that the company will receive the full financial benefit and production uplift of the transaction throughout the whole of 2018. This should, at least partially, take the sting out of the Fortuna impairment in its final results for 2018.

Ophir announced plans to acquire a package of South-East Asian assets from Santos back in May 2018, and the acquisition was concluded in early September at a purchase price of $205m. The assets increased Ophir’s 2P reserves by more than 40% to 70.6MMboe and 2018 production has been subsequently boosted by around 18,500 boepd. At $60 Brent, Ophir has calculated a Net Present Valuation (NPV10) of $246 for the Santos assets.

All eyes will now be on Ophir’s pre-close trading statement, which is due on Tuesday. With the share price currently holding at around 45p, the Fortuna impairment released into the wild, and the board rejecting an offer of 48.5p, Ophir is beginning to look like it may be poised for a sustained recovery. That being said, the markets never cease to surprise.

Author: Stuart Langelaan

Disclosure: The author of this piece owns shares in Ophir Energy

 

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