Ophir Energy (LSE:OPHR) shot up by nearly a third on Wednesday to 46.9p after revealing that it could be purchased by a leading Southeast Asian energy and natural resources company. In response to market speculation, Ophir confirmed that it is in discussions with Medco around a cash offer for its entire issued and to-be-issued share capital.
Ophir added that there is currently no certainty around the terms of the deal or, indeed, whether an agreement will be made at all. However, it said it would make a further announcement ‘as an when appropriate’. Regardless, Medco now has until 5pm on 28 January to announce its ‘firm intention’ to make an offer for Ophir.
Medco is listed on Jakarta’s stock exchange and has a market cap of around $900m. It has significant operations in oil & gas, power, and mining and also operates gas, geothermal, and hydropower plants in Indonesia. Finally, it has an effective 39pc non-consolidated interest in a sizeable Indonesian copper and gold mine.
Today’s news comes just three months after ValueTheMarkets.com argued that Ophir represented a great buying opportunity after months of weakness.
The firm’s shares suffered considerably last year thanks to delays and write-downs related to its Fortuna developments. However, against this backdrop, the business has been pursuing a new strategy that has seen it swap risky frontier exploration for a significant production and cash flow base. Key to this was its purchase of a $205m package of producing, exploration, and appraisal assets across South East Asia. Despite the deal looking set to double the company’s 2018 funds flow from production to £161.9m, until today its shares had not enjoyed any considerable positive movement.
There is no question that a write-down of up to $600m in 2018 related to Fortuna will be a big blow for Ophir. However, as we wrote in a special report in October, the market’s focus on the firm’s problems have led it to overlook the potential offered by its new approach.
Ophir already enjoyed a vast amount of institutional backing. Today’s deal provides even more support for our view that the business was looking undervalued. It will be interesting to see what price Medco offers Ophir, should it decide to go ahead a make a deal. It will be even more interesting to see how Ophir reacts to any offer. This will give investors a better picture of how much the firm itself believes it is worth.
In the meantime, please click here to read our detailed analysis of Ophir’s bright prospects.