Ophir Energy Share Discussion Threads

[queenbreguet] 03/5/2018 13:29

The Tullow Oil share price may keep rising, but I’d buy this stock first

Roland Head | Thursday, 3rd May, 2018 | More on: OPHR TLW
Image source: Getty Images.

Former FTSE 100 member Tullow Oil (LSE: TLW) is getting closer to regaining its spot in the blue-chip index. The group’s £3.25bn market cap is still a little short of the £4.5bn+ level I estimate might be necessary, but if net debt of $3.4bn continues to fall in 2018, I believe shareholders could see steady gains.

However, Tullow’s focus on debt reduction means that shareholders have had to take a back seat over the last few years. The group hasn’t paid a dividend since 2013, and the shares have lost more than 75% of their value over the last five years.

The Africa-focused firm is expected to return to profit this year, with analysts forecasting earnings of $0.20 per share. That puts the stock on a forecast P/E of 15.6. This seems about right to me, so I’d rate Tullow as a hold rather than a buy.

I believe there’s better value elsewhere in the oil market, including my next stock.
This stock could rise by 226%

Shares of FTSE 250 oil and gas group Ophir Energy (LSE: OPHR) rose by 6% this morning, after the company announced a $205m deal to acquire producing oil and gas assets in South-East Asia.

The planned acquisition will see Ophir buy a portfolio of producing assets in Vietnam and Indonesia from Australian firm Santos Limited. A number of exploration and appraisal assets in the region will also be included.

These new fields should fit together well with the production assets the firm acquired when it bought Salamander Energy in 2015. Chief executive Nick Cooper expects the new assets to add about 13,500 barrels of oil equivalent per day (boepd) to the group’s pro forma production in 2018, taking total production to 25,000 boepd.

The deal will increase Ophir’s proven and probably (‘2P’) reserves by 43% to 70.6 million barrels of oil equivalent. And it’s also expected to bring the group closer to its objective of generating free cash flow from production.

This is significant, because it should protect the long-term value that’s hidden on the firm’s balance sheet. Ophir’s accounts showed a net asset value of 206p per share at the end of 2017, 226% above the last-seen share price of 63p.
Why I’m excited

Ophir is a business of two halves. The group’s production assets provide useful cash to keep the company going.

But before it started buying these mid-sized production fields, Ophir discovered a number of large gas deposits off the coast of Africa. Finding commercial partners to develop these is taking time. But I’m confident it will happen eventually.

Based on its track record to date, Mr Cooper’s plan is to find larger partners to fund these projects in return for a slice of the asset. Ophir itself has steered clear of borrowing to fund development and this has paid off. The group came through the oil market crash with a strong balance sheet and ended last year with net cash of $117m.

I believe that Ophir’s growing production means that the worst-case scenario for shareholders is that the shares remain flat for the next few years. The best-case scenario is that the stock could double or more.

Although this has been a disappointing investment so far, I believe the shares now deserve a buy rating. Buying Ophir stock today and tucking it away for a few years could be very profitable, in my view.

[queenbreguet] 03/5/2018 13:16

Santos announces sale of non-core Asian assets

Santos today announced the sale of its non-core Asian portfolio to Ophir Energy plc (Ophir) for US$221 million.

The sale is consistent with Santos’ strategy to realise value from its late-life non-core assets and will result in Santos making country exits from Vietnam, Indonesia1, Malaysia and Bangladesh.

The assets sold to Ophir include the following interests:

31.875% in the Block 12W PSC2 (Chim Sáo and Dua oil fields), Vietnam;
67.5% in the Madura Offshore PSC (Maleo and Peluang gas fields), Indonesia;
45% in the Sampang PSC (Oyong and Wortel gas fields), Indonesia;
20% in the Deepwater Block R PSC (Bestari oil discovery), Malaysia;
45% in the SS-11 PSC, Bangladesh;
50% in Block 123 PSC and 40% in Block 124 PSC, Vietnam.

All Santos employees associated with these assets will transfer to Ophir as part of the sale.

The producing assets sold are relatively late-life and are not prioritised for capital in the Santos portfolio. Santos’ share of production from the assets in the first quarter of 2018 was 1.4 million barrels of oil equivalent.

Under the terms of the sale, the transaction will have an effective date of 1 January 2018. Completion is expected in the second half of 2018 and is subject to customary consents and approvals for a transaction of this nature. Completion is also subject to approval by Ophir shareholders as required under London Stock Exchange regulations, expected to take place in June 2018.

Santos Managing Director and Chief Executive Officer Kevin Gallagher said: “The sale of the Asian assets further delivers on our undertaking to simplify our business and focus on our five core long-life natural gas assets in Australia and Papua New Guinea.”

“We have always believed the Asian assets are a quality portfolio and are pleased to achieve an attractive outcome for our shareholders. Santos will work with Ophir to ensure a smooth transition, including the transfer of all the Santos employees to Ophir.”

Proceeds from the sale will be applied to further reduce Santos’ net debt, which stood at

US$2.5 billion at the end of March 2018.

1 Santos’ 50% interest in the North West Natuna PSC (Ande Ande Lumut) oil development in Indonesia is not included in the transaction package, with the intention that Santos exit this asset separately.

2 Production Sharing Contract

RBC is acting as financial adviser and Herbert Smith Freehills is acting as legal adviser to Santos.

[arteespresso] 03/5/2018 11:30

The salamander deal was in essence to get some producing assets, with a relatively low cost base. Wasn't really that great a deal in my view, but a direction Ophr needed to go. I remember SQZ, in the days if the kambuna gas fields, slowly ticking along; they were and have always been shrewd, but playing the slowly slowly game, building up with controlled spending. Ophr have had to take a step or two back to move forward. It will take time, but we'll see!!

[sporazene2] 03/5/2018 11:29

I agree on the SMDR acquisition, not a good return for both set of shareholders.

I dont believe the free cashflow generated since it completed justifies the equity dilution or the debt they paid off since the acquisition.

[nigelpm] 03/5/2018 11:28

Two other things make sense now to me as well.

1) The spike - clearly insiders on the deal - should know better but that's life.

2) Sailingstone selling - I wish I'd had time this morning otherwise I'd have asked the question on the call - presume none of the analysts did? However, my suspicion is that they disagreed with the board on this acquisition.

[jotoha2] 03/5/2018 11:03

Here are some figures for Nige , who says Salamander has been good for ophr , but what about it's shareholders .

Salamander share price prior to deal 145p deal done at at 100p pro rata

ophr share price prior to deal 149p now 63p

How can that be good Nige , are you being paid to write this stuff.

[romeike] 03/5/2018 10:39

About time we had some proper good news here. Looks like a great deal.

[arteespresso] 03/5/2018 10:20

Santos have huge debts, looking to be bought out, may explain part of the rationale.

[nigelpm] 03/5/2018 10:16

Yes, very true but Santos are huge in comparison to OPHR and like BP selling Rhum to SQZ - sometimes the seller has good reason as well even if they take a haircut.

[arteespresso] 03/5/2018 10:16

Joto, this type of deal is precisely one which/should add stability in the near term. Rather than looking at running down the cash pile, it's the opposite. P2 reserves increasing, production doubling. The reality, and an area where I agree with you, this company has wasted hundreds of millions on exploration after exploration, without having a solid foundation as a producer. I remember shortly after the dominion purchase, share price circa £6, was their opportunity to by producing assets and have this underpin their exploration; they already had numerous discoveries at that point, and their success with the drill bit was v good. We can't change the past, but this is a step in the right direction.

[nigelpm] 03/5/2018 09:57

Analyst also asked this on the call - no read-across - still plan to spend $150m on Fortuna this year assuming financing happens.

I don't disagree with your second para but you are wrong about buying poorly - SMDR has returned handsomely.

[loglorry1] 03/5/2018 09:49

What's interesting is if there is any read-across for Fortuna. The fact they are using up cash here probably means either Fortuna won't need any of their cash for funding or else Fortuna is dead in the water and isn't going to happen.

I know I'll get shot down here but it smells a bit like Management justifying their own salaries. They can't do that if they just sit on cash. That might not be such a bad thing but the danger is that they've bought poorly. I remember when TRAP bought Athena which eventually ruined them. At the time we were told that the deal would pay back in 2-3 years too!

[nigelpm] 03/5/2018 09:41

In summary it's a decent deal at a reasonable price - nothing transformational - Fortuna is that but it keeps things interesting and doubles cash flow.

[sporazene2] 03/5/2018 09:12

happy with today's news and some genuine progress after slow progress in EG and poor results in the little exploration activity of the last few years. I found it interesting that they re-stated the strategy shift towards production and re-focused exploration. You have to believe that they are looking to offload the LNG project in Tanzania. a few hundred million for this would be good, perhaps $500m would be massive.

[shakudo1] 03/5/2018 09:09

Please. Not another share buyback.

[dunderheed] 03/5/2018 08:51

Seems a good deal but Fortuna is the real potential value enhancing deal that the market is waiting for?

[valuehunter1] 03/5/2018 08:26

Brilliant deal, 25k boepd should mean strong cash generation and the business case will support securing funding for Fortuna too. J2 - you are a cynic, just cheer up man and be patient! This will come good and this should be the catalyst for a re-rate.

[jotoha2] 03/5/2018 08:18

Now if I was a cynic , this could well signal that Fortuna is dead in the water and they are going to become another SIA and start to run down the cash pile , will do wonders for the share price not.

[nigelpm] 03/5/2018 08:12

conf call - mid life assets, further upside potential, IRR 20%+, $13m cost synergies, effective date 01 Jan 18, total prod to 25k boepd, not transformative, no distraction from existing business

[jotoha2] 03/5/2018 08:11

Looks like market is so impressed ! Now look at bpc 100% up on news of discussions, says it all.

[yellowdog] 03/5/2018 07:51

Great deal. At last something to get the share price going. An Asian SQZ?

[arteespresso] 03/5/2018 07:20

Santos Selling Asian Assets for $221 MillionSource: Dow Jones News By Robb M. Stewart MELBOURNE, Australia--Santos Ltd. (STO.AU) has struck a deal to sell a portfolio of Asian energy assets, marking its exit from Vietnam, Indonesia, Malaysia and Bangladesh as it continues to reduce its debt burden.The Australian oil-and-gas producer, a target of a takeover offer worth about US$10.5 billion, said it was selling the assets to Ophir Energy PLC (OPHR.LN) for US$221 million, with all its employees associated with the operations transferring as part of the agreement.The assets, which Santos said were relatively "late-life" and not prioritized for investment, include stakes in oil and gas fields around Asia. Santos's shares of production from the assets in the first quarter of the year was 1.4 million barrels of oil equivalent.The sale is expected to conclude by the end of the year, subject to approval by Ophir's shareholders.Santos, which had debt of US$2.5 billion at the end of March, in early in April received a fresh takeover proposal from private-equity-backed Harbour Energy Ltd. Harbour has begun confirmatory due diligence to determine if it will proceed with a formal bid. (END) Dow Jones NewswiresMay 02, 2018 20:51 ET (00:51 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.