Ophir Energy has lost nearly a fifth of its value after the oil and gas exploration group announced a planned partnership with America’s Schlumberger was not going ahead.
The two agreed terms of a deal in January to bring in Sclumberger, the world’s largest oilfield services business, as a partner on its Fortuna project in Equatorial Guinea. The US group was expected to receive a 40% stake in the liquefied natural gas project, and would have reimbursed Ophir for half of its past costs. That funding was supposed to cover Ophir’s capital expenditure up until the first gas sales. Now the company says:
Since the 26 January announcement.... Schlumberger has satisfactorily completed its technical due diligence.
However Ophir and Schlumberger have been unable to complete the transaction on the terms agreed...As such discussions between the parties have terminated.
The project still represents a technically and financially attractive project for Ophir and its shareholders...
Ophir has remained in active discussions with a number of other parties.. these discussions include upstream equity participation, vendor financing and pre-sales of gas.
Ophir said it would now take extra time to reach deals with other potential partners, and it would delay any investment decision from the middle of this year to the fourth quarter. It now expects to see the first gas produced by early 2020.
The company’s shares are currently down 18% at 75.1p having fallen as low as 68.81p. Stifel analyst Dragan Trajkov issued a sell note and said:
We see the termination of the Schlumberger agreement as negative for the shares. As background, according to the non-binding agreement signed in January, Ophir was supposed to sell 40% (half of its interest in the project) for a capex carry equating roughly to Ophir’s past costs, likely around $300m.
In our view, today’s announcement takes away the ‘stamp of approval’ from a major industry player (especially that it was after due diligence being done) and once again puts a question mark on the read-through value of the project. In our view, the news also gives ammunition to the ‘doubters club’. While the company has significantly lowered estimated capex to first gas, we would not be surprised if the market treats this with some scepticism, given that such progress would make project economics better and thus the Schlumberger pull out more questionable.
Liberum also recommended investors to sell:
This raises questions about how Ophir will finance the project...Ophir was pleased to bring Schlumberger into the Fortuna FLNG project.
Ophir’s cost to first gas looked fully funded by the transaction and it will now evaluate the other funding and offtake proposals that it has received. We ascribe limited value to Fortuna in our 80p valuation.
