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Ithaca Energy: Broker inspects North Sea bid potential

Proactive Investors
Friday, 2 March 2012

A potential bid for Ithaca Energy (LON:IAE, CVE:IAE) could be pitched around the 225p mark, according to the firm’s Canadian broker RBC Capital.

Ithaca previously received a confidential approach from an unnamed bidder in January, and yesterday it opened talks with a number of parties regarding a possible sale of the company.

The North Sea oilfield developer said it had received unsolicited approaches from a number of interested parties, following the initial approach.

The stock gained around 20 per cent in London this week and it is now up 40 per cent since it received the initial approach. At 14:00 today, the shares were up 2.5p, or 1.25 per cent, trading at 202.25p.

RBC says Ithaca is an appealing takeover target because of its strong production growth potential, which comes from an operated asset base and is supported by strong cash flows and a clean balance sheet.

“Although discussions remain at a preliminary stage and there continues to be no certainty of a formal offer materialising; we believe the announcement builds anticipation of an offer at or possibly above our $3.50 (or 225p) price target,” said RBC analyst James Hosie.

He adds: “We believe the presence of multiple potential bidders increases the likelihood of an offer around our risked net asset value.

“However, we would note that an acquirer, with a lower cost of capital and/or able to rapidly utilise Ithaca’s pool of UK tax losses ($300 million and growing), could be willing to pay more.”

So far the identities of the Ithaca’s suitors remain undisclosed. 

In today’s note, however, the Canadian brokerage put forward a number of ‘likely bidders’, which included LSElisted EnQuest – which has already acquired new assets this year – as well as the Korean National Oil Company (KNOC) and Emirate oil firm TAQA.

On top of that list Hosie gave a more speculative nod to the recent reports that US investment fund Riverstone has been looking for opportunities to establish and build a North Sea production business.

“In our view, Ithaca is likely to set a deadline for interested parties to make a formal offer to avoid a prolonged period of uncertainty,” Hosie added.

“We note the company does not intend to provide further updates unless an offer is made, but anticipate a further update on the process by March 29th when Ithaca is scheduled to report its FY11 results.”

Ithaca’s principal asset is its operated 22.5 per cent stake in the Athena oilfield. The field has 24.4 million barrels of 2P oil reserves and production was expected to start in the final quarter of 2011. However the delivery of a floating production vessel was delayed.

Fellow AIM oil firm Lochard Energy (LON:LHD, ASX:LHD) has a 10 per cent stake in Athena. 

On Wednesday, it was revealed that production vessel has now departed from Dubai. And Ithaca currently expects production to kick off early in the next quarter.

Ithaca said that all production critical equipment was run and fully tested prior to the departure, minimizing the period between arriving in the field and first production of oil.

Athena is expected to produce 22,000 barrels of oil per day.

Mergers & acquisitions, or M&A, is a hot topic in the junior oil and gas sector at the moment.  In recent months several companies have come into play.

In the North Sea Premier Oil and EnQuest have already agreed deals with each firm buying up new assets. Premier Oil’s £221 million takeover of EnCore was agreed in October. And in January EnQuest struck two separate deals to acquire a 45 per cent stake in the Kraken oilfield development.

ELSEwhere other AIM stocks, notably Cove Energy and Bowleven, have also been in the takeover spotlight.
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