Member Info for foresight

My sense is that Delek want to feel they got this at the lowest possible price. I would expect them to have to increase the offer when the management and advisors relay back to them that a significant number of holders will not sell. I am sure they are doing this tactically well. And I know they will be happy to close out with a majority but not the whole lot. They are averaging in - a company that is worth more than £2 they will get when all said and done for average c.£1. Good on them. I would be happy to take some off the table at £1.5 and leave some for the future upside. Derek is not a normal E&P company - its more an investor. They want the management expertise and would be happy with the listing to go and do more deals.

The problem we face is that it is difficult to believe management now. They may have made a big mistake in announcing this deal a week or so before the first oil news and allowing Stella to ramp up and achieve stable production later this year. So they need now to justify the deal and will be overly negative on the asset and risks. There is no independence any more, the board, the management and the main shareholder are all in bed with each other with a conflict of interest to the other shareholders that they are trying to get out. For sure, Delek will not want to leave a cent on the table and so if they are offering £1.20 then this is clearly worth more! A lot more as production comes on and we pay down the debt and then get some new tie backs to replace the reserves. There is a good chance that Delek need to up the price just to get to a majority position and not have the whole thing fail. Then they can nibble away to build a bigger position over the coming years. So maybe a £1.5 bid to get the threshold and then over £2 next year. Not much downside and still plenty of upside IMO

I guess that Delek can accept any tendered shares in the process but do not have to buy them if the take up is less than the 50% threshold. If they get to the 50% then they have to buy even if they don't then want to. Accept the $1.95 is the formal offer as this is a Canadian company -despite all the management and assets being in the UK. We are exposed to FX but think the is limited risk as it seems pretty stable and if anything, £ could devalue after Article 50 and we could be at an equivalent £1.3. Maybe the arb funds that are buying the shares see that as a real possibility and get a great return. One thing is clear - this is a very badly managed process by the board. I really can not see why they did not tell Delek to wait to after the results in March, see how the market has adjusted to Stella and the news of new tie backs, then launch their bid at whatever premium they want. The timing is completely stupid and that is what wrangles with me most.

I think generally these comments are correct and the three scenarios are the only ones: 1) Delek fail to acquire more than 50% of the remaining 80% - bid fails. Derek would stay at 20%. 2) They get more than 50% of the 80% and are committed to buying the shares tendered. We have a majority shareholder controlling the company 3) They get to a total of 90% (another 70%) and they squeeze out remaining shareholders and de-list. My view is that (1) or (2) are likely and I also believe Delek want option (2) to be the outcome. They have several majority positions in listed companies - its their model. They may increase the bid to get to option 2 if it looks like they are failing to get enough shareholders across the line at £1.2. Maybe £1.35 would get them enough to be at 60% overall and deal closed. If they went to more than £1.5 they would probably get the whole lot - not what they need or want in my view.

thanks very interesting. There is a lot more detail in a valuation but the basic calculations point to a higher price than £1.2. My guess is that there will be a significant increase in 2P reserves when the results come out - and yes a big chunk is gas. Either way, its difficult to get such a low value on the "back of the envelope calculation" that we are doing. I also think we own a large share in the FPF1? As such, that has real value. There is also future opportunities as yet unknown and having come through the worst of times, we should be allowed to enjoy some good times. I also do not believe Delek want the whole company so would be happy to get complete control but retain the listing. Therefore, take the cash now or hang around for a further recovery in oil price and those new tie-backs painting production. Any sort of optimistic view will see this heading towards £2. I am staying put. The issue will be that if the whole things fails then we have a damaged management team and there will need to be changes which would be a shame as I think they are technically good.

Agree and assuming everything remains constant then we will pay down debt considerably over next two years and the share price would be £2.5 by doing nothing. That's just the math and how it works. The enterprise value is dominated by the debt so removing will leave more for equity holders.

We need to wait for the formal offer and reaction of main players to that. Should be next week. If the main holders say they are rejecting then either Delek will up the offer or continue in the hope of getting a working majority. If they don't get the whole thing then we can stay in as minorities. I am happy with that as they could come back at some point with a higher offer to get complete control. I don't see another bidder as it would be somewhat hostile and they are not strategic enough to bother with. So either a higher offer to get it all or close at a majority position. Or they don't get to the required threshold and deal fails and we trade at a normal market level building over next 12 months to £1.5+

Share price falling back may indicate that the market thinks this deal may fail - at least as to a complete take out.

here are some basic maths 1) Audited reserves - 57 million barrels 2) oil price $55 3) Operating cost $18 4) net margin $37 5) net revenue 37 x 55m = $2bn 6) less debt of $600m = $1.4bn 7) FX of 1.25 = £1.1bn 8) shares outstanding 420m 9) value per share = £2.6 These are conservative - oil prices could go higher and reserves will increase with the new tie backs. Also, there is the time value of money - so £2.6 should be more like £1.6 today. Its difficult to find a way to go to £1.2 unless oil is $30. Its a judgement call on where oil prices are going and what might happen to production. The SP would be £1.2 anyway so you have the choice of selling in the market at £1.2 now or hanging on if you feel positive about oil price and the company to continue delivering projects. The deleveraging effect would increase the SP anyway over the next year - so SP would inevitably go up absent anything else.... Need I say more

It will take a while to ramp up production - we know the tanker is there. Nothing new now till end March. Then we get a sense as to how initial rates are performing. But would not expect anything different if all wells are opening up and no valve problems. We should get a reserve report as well i think. Also the formal offer will be out soon so we can see how they have come up with £1.2.

The share price has moved up a lot - granted. Based on expected production and weaker sterling. Would have got to £1.2 at least. So why accept a nil premium just because the board has capitulated (and they have an incentive to stay on). It is irrelevant what the past price has been - its about what is the right price for a full take over. Any way you look at it, £1.2 is not the right price. The main holders are not giving in - if we always just accepted anything that is offered - there would never be a premium... We should stand up for whats right. Good luck with your future investments and hope they do as well as this could do in the coming weeks

yes indeed - but the new issue of shares was offset by the injection of capital so should be somewhat neutral? Issuing shares is not dilutive unless its at a discount. The issue to Delek was at a premium. I guess my point was more to do with the margin we make rather than fixing on the oil price as a reference.

Also - we keep referring to the last time Ithaca was at £1.50 and oil was $100. However, the oil price is irrelevant. It is the margin that counts. And costs were massive then compared with now. Kraken was sanctioned with operating costs of $75/bbl. A margin in 2013 of $40 was good - roughly what we get today on Stella. So it is directly comparable in terms of oil price today as when it was $100. Ithaca were doing 10kbopd at $100/bbl. Now we are going to be doing 25k bbld with a similar margin. How can we be anywhere near £1.2. Makes no sense even without playing with the numbers!!!

From GMP before takeover announcement  First oil at Stella is delayed by about a month, reducing the contribution of Stella to FY17 production by the same period.  While this has an impact on FY17e free cash flow, this is negligible to our valuation. More importantly, FY17 opex are estimated at only US$18/boe, below our estimates of US$20/boe. There are opportunities to reduce opex further.  Harrier is expected to reach first oil in 2018, one year earlier than we expected and at a cost of US$40 mm lower than we anticipated. The overall development cost is less than US$6.0/boe.  Ithaca holds numerous discoveries around Stella that would be developed with a similar cost structure to Harrier.  We continue to like the name. Harrier: a very low cost development illustrating Ithaca’s business model. Ithaca is embarking on the development of Harrier. The field will be developed as a tie-back of a multilateral well (two horizontal laterals) to the Stella floating production facility. The field holds circa 13 mmboe 2P reserves net to Ithaca and will be developed at a net cost of only US$75 mm. Ithaca will then develop the Vorlich field (7.4 mmboe net 2P - probable start-up in 2020) and Hurricane (3 mmboe - probable start-up in 2022). Sustainable free cash flow. We have reduced our production profile for 2017 from 25 mboe/d to 21.1 mboe/d. We forecast operating cash flow of about US$240 mm – US$250 mm per year from 2017 to 2019, with free cash flow of about US$160-185 mm per year over the same period. Maintain BUY recommendation with a target price increased from £1.30 to £1.40 per share

We are told that £1.2 represents fair value and that RBC will come out with some justification for that. Interestingly, GMP is the company broker and have given the independent committee they agreement to this being "fair". However, their latest research had a price target of £1.40. My issue is that £1.20 may well be fair value for the assets as they currently stand - but in a take over situation, we should be getting a "premium" to fair value. It is normal to get 30% minimum. The share price would probably be £1.20 now because of production. So £1.50 is a proper offer. When a share price is so high that to offer the 30% premium would make it too expensive - then the company does not get an offer. This was the case with Tullow - always too high a SP to get a takeover offer. You don't accept a low ball offer just because the SP is too high in the first place. The BoD should have a defence advisor who makes the case that the offer is too low and fight for a premium. Here the BoD seems to be happy to accept "fair value" day one. Also, the company in a year from now would have paid down debt, replaced reserves and all else being equal, we would be sitting on a higher equity value anyway. Delek are doing the right thing for their shareholders, as does it appear our Board....

Any white knight would need to pay $13m break fee to Delek - so the management have introduced a poison pill to try and ward off competing offers. Maybe they fear a buyer that will kick them out as they don't need a management team. Also allowed Delek to match an offer and be preferred. So would have to offer more than acceptable to Delek to make it worth the effort - i.e. over pay. If Delek were offering the most they are prepared to go to - then they would not need these protections. Seems to me they know this a low ball offer and protecting themselves against a proper bid - but in doing so are scuppering the chance. Good tactics by them - but what is our Board doing in rolling in with them when they have a fiduciary duty to all shareholders. I know several of the main shareholders will reject £1.2 so they will not get to 90% or anywhere near. So it is not a done deal - far from it.

Because Delek has 20% and the board has recommended it so seems a done deal at the moment. Only when the bid starts to fail will the price move

I suspect that is out of date somewhat - Bloomberg has a different register but is also wrong. It's always a bit difficult to know who has what but it's probably directionally correct

Is this from Bloomberg? I know 15% are definitely saying offer too low so Delek will not get to the 90% needed for squeeze out. I am confident that the 25% listed will also want a higher offer. Plus a lot of PIs want more it seems. Delek need 50% of the 80% so 40% so it looks likely that they won't get there in my view. If they fail they can bid again for 6months I think. Would make the board look distinctly poor

Only 17m shares have changed hands so less than 5% of the company. Therefore all the main players are holding tight and expecting a better outcome.