Shares in Ithaca Energy (IAE) slipped 9 per cent following downbeat revelations about one of its producing assets by a minority partner, Lochard Energy (LHD). Lochard's management made the disclosure when responding to a letter from an angry shareholder group.
Some minority shareholders of Lochard are up in arms after the company's board of directors agreed to be taken over by Tom Cross' Parkmead Group (PMG) at a rock-bottom price. The £14.5m acquisition price, at 4.9p a share, represented an 11 per cent discount to Lochard’s closing price the day before the deal was announced and a 60 per cent discount from when Lochard's current management team removed the former group of executives 12 months ago.
For its part, Lochard’s board of directors insist a tie-up with Parkmead is in shareholders' best interests. Management says the company is heavily in debt (possibly by as much as $19.7m), is entirely reliant on a single underperforming asset, and had just £196,000 in cash as of 30 May.
"It's not you, it’s me"
Indeed, Lochard’s board is seemingly doing all it can to dissuade investors from thinking their company is any good. In response to anti-merger sentiment being brewed by the Cornhill consortium, Lochard released a seven-page, highly detailed press release explaining all the operational problems facing the Athena oil field, operated by Ithaca, which is Lochard's only current source of income.
According to Lochard's management, gross oil production from Athena has recently declined to between 9,300 and 9,600 barrels of oil per day (bopd), from 10,000 to 11,000 bopd last quarter; several electrical submersible pumps have failed earlier than expected and more could fail at any moment, which would dramatically lower production and revenues; the water cut at Athena has risen from only trace levels to as much as 3 per cent recently, raising fears of a water breakthrough; while expensive investment in new wells would be required in order to extract all the previously stated level of recoverable reserves.
All of which makes a merger with a well-funded, experienced operator like Parkmead sound logical enough. But what about poor Ithaca Energy, the operator of the Athena field? Ithaca seems to have been caught in the crossfire of the merger, with the presumably unauthorized revelations about one of its principal assets hurting sentiment. The company’s share price has tumbled since Lochard's disclosure, halting the previously impressive rally in the company's shares.
