27th Oct 2014 10:33
LONDON (Alliance News) - Salamander Energy PLC shares jumped on Monday after it confirmed that it is holding early talks with two potential suitors regarding a possible bid, though analysts were mixed on the rationale for the deal.
Salamander confirmed press speculation that it has entered talks with both FTSE 250-listed Ophir Energy PLC and a consortium led by Spanish energy group Compañía Española de Petróleos, or CEPSA, and investment group Jynwel Capital.
Salamander shares were up 20% mid-morning at 96.5 pence, making it comfortably the best performer on the FTSE All Share index. Ophir shares were down 3.2% to 196.2 pence.
The Asia-focused oil explorer and producer said it is seeking to clarify the terms of the Ophir bid and said it has not yet received any details on the CEPSA consortium's bid, nor any confirmation that an offer will be forthcoming.
It said it is in talks with both bidders over a possible takeover offer, but said there is no certainty that any offer will be forthcoming and advised its shareholders to take no action right now.
Speculation over the weekend suggested both Ophir and CEPSA were showing an interest in Salamander, which has been hit hard by the fall in oil prices.
Commenting on the Ophir bid, Liberum said there appears to be little geographic fit between Ophir and Salamander, though it noted that Nick Cooper, the Chief Executive Officer of Ophir, was the Chief Financial Officer of Salamander Energy when it listed on the stock market in December 2006, so likely knows the assets held by the company well.
The broker said that Ophir could use half of its USD1.5 billion in net cash to fund the deal, therefore cutting the risk it will have to return to shareholders for more money in 2015-16, but it said it is "difficult to see where this combination would create significant value".
It noted Salamander's overheads are relatively low and it is unclear where Ophir would be able to reinvest its cash flow, estimated at around USD300 million, more effectively than Salamander has, despite a general consensus that it has been poor on this front.
Ophir shareholders may consider a sale of its Tanzania assets for around USD1 billion and a distribution of the proceeds and current cash a better deal, along with a continued push to sell its other African assets.
In addition to confirming the offers, Salamander also reiterated that it expects the sale of a 40% stake in the B8/38 concession in the Bualuang oil field in Thailand to Sona Petroleum Berhad to complete before the end of the year. It had already said it expected to complete the deal by the end of 2014 last week.
The company struck a deal in June with Sona to sell the interest in the field, along with other concessions, for a total of USD280 million.
The Bualuang field had a key impact on Salamander's first-half performance after an unplanned six-week shutdown at the field caused revenue in the six months to June 30 to decline. Despite the fall, pretax profit rose to USD66.4 million, from USD10.3 million, on the back of successful exploration drilling.
By Sam Unsted; [email protected]; @SamUAtAlliance
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