Mark Reynolds
Between the lines
Sir Michael Fay and David Richwhite know how to value an asset.
They also have a fairly good idea about how to extract that value, and therefore must have been indignant when Austrian company OMV mounted a daring bid earlier this month for Cultus Petroleum, in which Messrs Fay and Richwhite own a 21 per cent stake.
OMV latched on to the fact that Cultus had good oil and gas exploration and development prospects that had been overlooked by investors.
OMV mounted its cheeky bid at 66Ac (80c) a share. An independent valuation by investment bank Grant Samuel and Associates showed last week that Cultus shares were worth $A1.04 to $A1.39 each.
The valuation said there were several reasons why Cultus was worth much more than the 50Ac a share it was changing hands at before OMV's bid. These positives included a recent "significant" oil discovery at the Maari prospect off the coast of Taranaki, a revision to the likely recoverable volumes of oil from a prospect Cultus had a share of in the Timor Sea, and a rise in the global price of oil.
What the Grant Samuel report did not say was why Cultus' share price was not reflecting these positive features. The answer lies in the fact that many investors, particularly institutional shareholders, had been burnt by previous enthusiasm about Cultus' prospects.
Three years ago, Cultus and Shell Petroleum became wildly enthusiastic about their Cornea oil discovery off the west coast of Australia. The Cultus share price surged above $A3 after speculation that Cornea contained up to 500 million barrels of oil.
Fay and Richwhite capitalised on this, with an institutional share placement raising more than $A100 million, ostensibly to finance development of Cornea.
Subsequent exploration found Cornea was waterlogged and worthless.
Since that placement and subsequent disappointment at Cornea, Cultus has been avoided by institutional investors, although 3500 small New Zealand shareholders have stuck by the company.
Now Cultus has another exciting discovery in its Taranaki prospect. It will be interesting to see if the company's investment bankers try to again tap shareholders to help fund the $US175.6 million ($320 million) the Grant Samuel report estimates it might cost to develop Maari.
It would also be interesting if those investment bankers offered to underwrite any funding proposal, especially as they would pick up a holding in Cultus if institutional investors decided against funding another cash issue by the company. Such a possibility is pure speculation, because Cultus has not yet talked about how it might fund its share of the Maari development costs.
Hopefully that is because the company is playing it sensible this time, and waiting for full appraisal and feasibility studies of the Maari oil field to be completed next year before going to shareholders.
