Dominion Petroleum, the oil explorer focused on east Africa, has agreed a £118m ($186m) takeover by its larger rival in the region, Ophir Energy.
The deal is aimed at entrenching Ophir’s position as the biggest independent deepwater oil explorer offshore Tanzania and Kenya. Ophir, backed by Lakshmi Mittal, one of Britain’s richest men, raised $375m when it floated in July at the bottom of its price range at 250p, establishing a market capitalisation of $1.28bn.
Andrew Cochran, chief executive of Dominion, argued the deal was a good outcome for investors in a company that faced bankruptcy two years ago but has managed to maintain a foothold in a region that has attracted the interest of big oil companies such as Total of France, Royal Dutch Shell and Petrobras of Brazil.
Shares in Dominion rose by 1.8p – or 50 per cent – to 5.4p, close to the offer price of 5.9p following the announcement. Ophir gained 5.2p to trade at 237p.
The recommended takeover, subject to shareholder approval, follows the failure of Dominion to raise $40m in July, which was aimed at continuing development work on its offshore assets. The company also holds rights for onshore fields in Uganda and the troubled eastern part of the Democratic Republic of Congo.
Mr Cochran said: “The market has turned against the not-so-well capitalised explorers like Dominion.” His task over the past 24 months had been to “rescue the company or monetise it”.
A farm-out deal with an Abu Dhabi-controlled company earlier this month had helped establish a benchmark for Dominion’s most attractive Tanzanian offshore assets and established it as “an attractive morsel for M&A”, Mr Cochran added
Dominion floated on Aim in 2006 in a placing which raised £4.1m at 27p a share and valued the company at £107m. But legal disputes between executive shareholders drained funds and confidence in Dominion, which saw Mr Cochran drafted in amid further fundraising to restore its fortunes under the stewardship of chairman Roger Cagle, chief executive of fellow African oil operator and FTSE 250 constituent Soco International.
Mr Cochran predicted that more small-scale explorers faced takeovers as financing conditions militated against more common asset-swap deals in oil exploration. In current market conditions “the attraction of oil is poor”, he said. “A corporate sale is in the greater interest of shareholders.”
Jonathan Taylor, a founding director of Ophir, said the price paid for Dominion was fair, even though Dominion said on Thursday that without a deal it risked “a financing default occurring, leaving Dominion shareholders with little or no value”.
“We don’t think that we are paying that much,” he said.
Bank of America Merrill Lynch and RBC advised Dominion; JPMorgan advised Ophir.
● FT Comment
To farm in or to sell out? This is the question facing many smaller oil explorers as fears of a slide in toppy oil prices along with tightening finance conditions make it harder for them to spend money to prove up reserves while the clock ticks on eventual revenue flows. Early stage investors in Dominion have at least emerged with their shirts ragged but partly intact. And they can expect stock in a bigger operator that is better positioned to ride out the finance squeeze and see exploration off east Africa through to fruition. Investors may ponder whether to twist again with Ophir or cash out. Meanwhile, expect more take-outs and a fewer farm-out deals further down the E&P food chain.
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