Investing in oil and gas companies is as much about the right people as it is about the resources. Preferably, you want a company that has both. And that's what we think we've found in Parkmead, the North Sea- and Europe-focused oil and gas junior run by petroleum engineer Tom Cross of Dana Petroleum fame.
- Highly rated boss
- Solid acquisition and growth plans
- Assets in multiple stages of development
- Under the City's radar
- Needs to raise capital
- Few catalysts to move the share price
Having founded Dana in 1994, Mr Cross built up the company through exploration and acquisitions into a 50,000-barrel-a-day oil producer, mainly from assets in the North Sea. He sold it in 2010 after prolonged negotiations with a hostile bidder, Korea National Oil Corporation, for £18 a share, or £1.87bn. It remains one of the highest prices paid for an independent UK oil company.
Now, he's out to do the same with Parkmead, which he joined as executive chairman in late 2010. Mr Cross is rebuilding Parkmead from the ground up - starting by luring back many of Dana's former bosses. And he has lots of incentive to get it right - he has built up a 29 per cent stake, most recently subscribing for £3.45m-worth of shares at 14p each.
While Parkmead doesn't have a new or flashy business plan, it does have one that's proven. It aims to acquire brownfield or older operating fields and apply modern techniques to enhance production and recover marginal reserves, as well as acquiring new licence areas, which could be farmed out to larger operators willing to pay for development drilling.
This plan typically requires raising substantial amounts of capital and there are few executives with better access to today's tight capital markets than Mr Cross, although there is always the risk that even he won't be able to raise the money to complete a prospective deal on the right terms. Nevertheless, Mr. Cross's reputation for being a shrewd and tough negotiator with an eye for a bargain should help - as previous shareholders in Aim-quoted DEO Petroleum can attest.
Parkmead agreed to acquire DEO this summer for just £12.7m in shares, paying less than $1 a barrel for DEO's majority interest in the 21.5m-barrel (net) Perth field. That compares with recent transactions in the North Sea valued at between $4 and $16 a barrel.
PARKMEAD (PMG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 12.5p | MARKET VALUE: | £95m | |
| TOUCH: | 12.25-12.5p | 12-MONTH HIGH/LOW: | 26p | 10p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 1.2p | NET CASH: | £1.3m | |
| Year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 3.69 | -0.45 | -0.11 | nil |
| 2008 | 1.28 | -0.37 | -0.10 | nil |
| 2009 | 0.16 | -6.33 | -1.72 | nil |
| 2010 | 2.36 | -1.41 | -0.29 | nil |
| 2011 | 3.75 | -3.45 | -0.59 | nil |
| % change | +59 | – | – | – |
Normal market size: 17,500 Matched bargain trading Beta: 1.6 | ||||
Mr Cross has also pushed through other attractive deals for Parkmead this past year, amassing a portfolio of assets spanning nearly every stage of development - from unexplored new licences to brownfield projects and producing fields. Indeed, recently acquired onshore gas production in the Netherlands - roughly equivalent to 300 barrels of oil per day - as well as cash generated by a wholly owned consulting business, Aupec, should provide Parkmead with a baseline amount of cash to cover day-to-day expenses.
Yet Parkmead remains under the radar of most City analysts - not a single brokerage firm follows the company and Mr Cross is doing his best to maintain a low profile. He was reluctant to speak with us and has not so far provided any additional information about the company's activities. According to fund manager Angelos Damaskos, who runs the Junior Oils Trust, which is a substantial shareholder in Parkmead: "I think they want to keep their strategic intentions closed. Because they are looking at very specialised targets, they don't want to show their cards to the competition."
Admittedly, this leaves us without a clear idea of the catalysts that could move the share price quickly. However, the lack of disclosure also means Parkmead's share price has drifted down to what seems an attractive entry level.
