Member Info for pickedpeck

So as it has been suspiciously quiet I am going to try and call it...
I think some inflated values have been bandied about, but I think we’ve been at this a lot longer than the company has let on. The twitter account dried up mid June rather than mid July, having previously had something to say every few days it went quiet a month before the offer became public.

Amerisur themselves reckon the NPV10 2P value of CPO5 based on Mariposa and Indico is $174m, but that’s pre Indico 2.
Platanillo I think would have a value of $125m or so based on $8 a barrel in the ground, I know it could go higher but the oil price would keep it low with Brent back below $60.
The balance of the Putumayo blocks $200m based on Oxy’s level of interest, could be lower.
Cash in the bank probably somewhere near $60m
Value of OBA? Real terms stands about $20m capex but more importantly 3 years of time. $40m conservatively?
Whichever, that comes out to $600m, or give or take a few quid £500m at the current exchange rate, 40p a share. Discount a bit off for unfounded optimism and you get to Stifel’s 37p.

In other words I think the house broker told us the sale price right back at the beginning. Come up with that and it’s a goer or don’t bother as we won’t be accepting. I would imagine they got Michinoko to back the price and level of return (50% on their 25p block) before publishing the price.

So my call is a board approved offer of 35-37p from most likely OXY or possibly GTE either this week or next week ahead of the interims and also ahead of Indico 2 spudding. The logic of the timing is they will need it approved before Indico 2 potentially puts another $100m on the price, and the offer needs to preempt the interims too to avoid too many questions about where the OXY cash actually is.

All getting a bit tense here isn’t it.

The view of the BoD depends entirely on your perspective of their objectives. If they were setting out to grow a production company they have been a bit pathetic. If on the other hand they were setting their stall out to build a company to be sold for the value of its assets they have played a blinder, building a strong land bank and adding strategic value to it without incurring debt.

Either way - I suspect the lack of news is because the game is all but over for Amerisur. The data room will be getting real time updates on every aspect of the company at a level not material to the market as a whole, but will include everything from seismics to E&P cost models for each of the assets.

I’ll be amazed if this process doesn’t end in a serious recommended bid, there is just too big a disparity between the potential strategic value and the AIM share price. The best only outstanding question is when, I personally think news will likely emerge in the next two weeks ahead of the due date for the interim results.

There are three upcoming events:

1. Indico 2 spud
2. Interim results
3. Indicative offers / recommended offer / end of sale process

I wonder which order they will be published in ? Interims due in about three weeks, I would have thought Indico 2 ahead of that. Question is where will point 3 land in the timeline ?

In my view this is the quiet before the storm, I reckon it will all go a bit more active from the first week of September.

Willec,

The management team run the company, the market values the shares. The problem with that situation is the two are disconnected. As you say the company is in a far better position than last year, the management team are the ones that did that, not you or I or any other shareholder.

The share price has been crappy for several reasons
1. The oil sector as a whole is unloved and out of fashion.
2. Progress has been slower than expected
3. AIM has become a place where morons expect a quick buck.
4. Despite OBA commissioning, Indico discovery, several acquisition deals, a moderate oil price recovery, a big farm in from a global partner, and election of a stable business friendly government in Colombia the combined effect of the first three factors means the share price is half where it was before any of those positive things happened.

Point 4 is why the company will leave the public market, there is a value imbalance between what AIM 'investors' think the company is worth and what industry peers, the management, and PE believe it to be worth.

A lot of people on this board have tried to do bottom up valuations, but before M&P showed interest it was worth 12p a share because that's what the market would pay for it. M&P believed it to be a steal at 50% more than that, so here we are hovering around 17.5p, their offer, as the market isn't investing in the probability of a higher offer coming in. That's despite management strongly advising shareholders not to sell, telling us there are multiple interested parties, and repeatedly presenting information on the prospectivity and increasing value of the asset base. They clearly believe the company to be worth a lot more than the share price, and for the most part have backed that stance with their own money.

So the bottom line is the market is stupid as the market is made up of people just like you, wishful thinkers, gamblers, people wanting instant returns and impatient when they don't materialise. The stupid market is now being impatient about a deal rather than impatient about exploration. There is nothing the management of the company could or should do just to please a set of impatient morons. They should just focus on getting the best deal for the sale of the company, and running the business as effectively as possible in the meantime. You can either wait in the belief that a better deal will come, or sell and move on to the next dream. Personally I am gambling a quite large amount of money on what I believe to be the very high probability of a deal being done at a better price than today, but I don't actually know any more than you (assuming you've read all the material available too) , and accept the risk that it is possible that it may not happen.

That long explanation was better than saying 'FFS Willec grow some balls and shut up whingeing, you sound like a kid that's dropped its dummy and wants some sweets' which is the sentiment I am sure crossed a few minds.

Even the BBC have noticed...

https://www.bbc.co.uk/news/business-49265455

Big Smoke - Santander are one of the biggest retail brokers in South America, i suspect it may be a little like the HL / iii nominee account roll up rather than anything else.

In my book the potential buyers (in order of probability) are:
1. OXY. It makes a ton of sense for them and tbh they are 20% pregnant with Amerisur already. Negative point that their M&A team will obviously be a bit busy at the moment.
2. GTE - contiguous acreage, access to OBA, Vetra deal sour grapes and Colombia centred strategy. They will want this really badly, but won't be sure they can afford it so may end up partnering or offering a share swap. The LSE listing must have been prep for this.
3. Parex - Local rivals to GTE and again Colombia centric. I'm not as convinced about them but same story as GTE
4. Sinopec - Colombian assets, threat to China of being cut off from both middle East and US exports making cross Pacific export a priority. Track record buying Emerald from JW
5. M&P - don't underestimate them or their Pertamina state oil company backers, they have already showed their first offer but very doubtful they ever expected to get it for that. They will have made the strategic decision to acquire though, and due diligence may help them justify a much higher price.
6. Any one from Hess, BP, Shell, Ecopetrol, Chevron, ConocoPhillips, Total or others. A major boost to kick starting/accelerating operations in Colombia which is becoming very very attractive in E&P terms.
7. Private Equity - The assets will be seen as severely undervalued which will always have PE sniffing. Lots of PE cash around at the moment as a contrarian play, UK GBP valued asset with USD income, large divestible asset base. Its almost a perfect PE target.

With so many candidate buyers its hard to imagine either this not going through or going for a decent price. There are enough buyers to take the whole thing and make break up unlikely, but CPO5 may be seen as a problem child. It must have a high valuation due to its prospectivity, but lack of control and an incompetent partner may be a major sticking point to any buyer seeing a quick return. It makes sense to divest CPO5 first, Ecopetrol could be a natural buyer given the government interest.

I don’t think they are buddies at all, I think it’s an inherited position from an acquisition. From the beginning ONGC have been going at their own slow pace, pre Mariposa. The mistake JW made and some of us bought into is that AMER could influence them in any meaningful way. They have just carried on their own sweet path of random incompetence.

By the way, if anyone is lazy on their research you should have a look in the mirror. Do your background on ONGC globally rather than AMER centric and it paints a different picture. The AMER RNS feed is a side show to them, try the 64 PSCs they can’t pay a partner to work with them on or manage themselves, or their tail between legs withdrawal from Sudan. They have an appalling track record and must, PDVSA aside, be the most useless state oil company and that’s saying something.

We are being robbed, you’re right, but it’s of something we own a minority stake in and ultimately don’t influence.

Baysil - bottom line is you think it’s a scheme by ONGC, my hypothesis is that the same net effect is caused by bureaucratic incompetence. I believe they react at the speed of a striking slug. They have to advertise for partners in their global production contracts, do a bit of googling them away from Colombia. The sum total of their M&A activity in recent years is merging (very slowly) with another Indian government owned oil company.
Sometimes if it walks like a duck, swims like a duck, lays eggs and quacks then it’s a chuffing duck, not a robotic duck secret weapon with built in AI and egg shaped bombs.
You’re a clever bloke, and like a lot of clever blokes it’s hard to understand how some people and organisations can be utterly incompetent

ONGC vs the Vogons:
‘In other words, the Vogons are stuck in bureaucratic redundancy. They aren't so much concerned with right or wrong, good or bad. They aren't trying to be mean or nice. They are simply following the letter of the law and making sure that all proper and correct procedures are followed for everything. What should be an easy quick decision about anything takes the Vogons an eternity because they have to check it, double check it, submit the proper forms, check for authenticity, and then get proper authorization for the forms, etc. It is a bureaucratic nightmare.’

Should sound familiar

Baysil- sorry but that’s a load of nonsense. The Indians are a committee, they can’t act under a sneaky plan at all. You’re crediting they with as much imagination and guile as you have , having seen them close up I just don’t believe it.

It’s much more likely they can’t agree amongst themselves, and internal ONGC politics based on position, caste, job title, and month of the year are causing the usual confusion in dealing with them. You have never seen a political and bureaucratic machine like a state owned Indian company, except possibly the Vogons from Hitchhikers Guide.

JTD - the points you raise are all reasonable, but not for dealing with ONGC. It’s a faceless bureaucracy which is awful to work for as a supplier or partner with. The tenders around CPO5 are an indicator of the level of incompetence they bring to the table. I would be utterly stunned if they are one of the suitors for Amerisur based on the glacial speed they react to anything at.

As a result I expect JW and others that have had to deal with them just go at their pace. I don’t blame GC for trying to use cricket to influence, or JW for travelling there. But in the face of implacable bureaucrats what would you have them say when unable to make any progress? Our partners are crap and can’t make a decision or go fast to save their lives? I have a lot of sympathy for anyone having to deal with them, they are in no way a normal decision making and acting business.

As for the Put blocks, I think the BoD played a blinder with the OXY deal, did just as well getting OBA approved, built, and commissioned, and have optimised Platanillo production reasonably well to pay for it all. On top of that the M&A activity is why there are multiple interested buyers now, they have built an exploration asset base off the back of zero debt, that in itself is pretty impressive.

Bottom line is it’s easy to criticise from the sidelines, but I think they have done pretty well where they could for the most part. I agree exploration could have been a lot faster, but if their plan was to take on zero debt given the uncertain times for oil prices then they have done well in keeping a flat cash buffer. Hopefully most of us are going to benefit from the playing out of their strategy. Most of us would have had them in PMO or ENQ style debt meltdown based on wanting fast gratification off the back of expensive exploration.

JTD - ONGC are ruling the roost on CPO5 and are 100% the bureaucratic and incompetent Indian state machine they are rumoured to be. In all probability the people on the ground will have one (excited) conversation with JW et al, whilst the HQ busily gets the bulk order of red tape ready. You can’t blame our BoD, it’s likely they can’t believe how useless and disconnected ONGC are either. Remember JW’s trip to India that resulted to n nothing being announced?

Having said that there are blocks that could have been tackled and have not. Could they make a material difference to Platanillo and the PUT blocks? I believe they have played Plat well so far this year, but the process and risks for new block drilling with consultia previa and the risks of dusters may be counter productive to exit value. OXY won’t drill anything this year, and I doubt the well on PUT8 / 9 will happen because of pad politics and risk.

What exactly would you have our team do? Offer to buy ONGC out of CPO5?

Bluer ill - I agree the entire first 90% of the statement is absolutely standard. The last sentence and using the word 'strongly' is exceptional, i dont recall seeing that anywhere else. That last sentence as worded strongly implies all sorts of information.

It's a weird RNS, I don't recall anyone giving advice like this is a sale process. It's almost like the company is outright saying 'you better old your shares because we have a great offer on the table we can't tell you about yet'.

That statement is absolutely the basis of litigation should a sale now not occur at a significantly increased price compared to today.

Never seen anything like it. Great news mind, they must be very confident of a sale to say it

No.

The M&P offer forms a baseline the price won't go below during the offer period, until it becomes clear all offers have been reviewed and rejected by the BoD and all the bidders announce they are withdrawing as a result. Not going to happen.

The other option is the BoD announce the outright sale of one or more assets as a result of the inbound interest. Baysil reckons CPO5, I think the OXY blocks are just as likely, maybe both. That would leave a big cash pile to be distributed and some residual exploration blocks, Platanillo and the OBA. Would you take a 20p dividend and a set of residual shares worth maybe 10p a go?

Not sure I would vote for that, thats a long way from an ideal outcome for me.

I think the most likely by far way out from here is a full sale, either for cash or a partial share swap. JW has been super quiet for months, I suspect this has been on the back burner for a while. The only question is who, and did they put M&P up to a bid in the nuts to entice share holders to take a better but still low ball deal.

We might not. There is no guarantee that the board will receive an offer they will recommend, and anyone going hostile would have to build quite an expensive stake to succeed. Anyone making a rejected offer at this point has to back off for six months too, it may be possible OXY might play that game, not offer now but come back post Putumayo seismics with an offer more likely to be accepted.

Having said all that I don't think the BoD are here for the long run now. Ironveld 'Strategic Review' at more or less the same time shows GC is heading to the long grass. I suspect the chance to grab Amerisur pre-exploitation for a bargain price will be too tempting for one or more of the potential buyers, and there are enough buyers in the market to see this as a rare and valuable opportunity to grab a huge land bank at a bargain basement pre-exploration price.

Unfashionable at the moment, but fundamental demand is there and the dispute between China and the US may add to the value of a source in the Americas. I doubt the Co price rebound is priced in, but even now a ton of Co is worth near 2x a ton of Ni, and a couple of years ago was up near $100k per ton.

https://oilprice.com/Energy/Energy-General/Whats-Behind-The-Cobalt-Price-Crash.html

Nickel is I think well understood here, but the Vermelho source of Cobalt is perhaps just as significant. The current main source of Co is I believe in DRC, not the easiest place in the world to do business. Cobalt demand is also rising rapidly with the EV market, check out the link below. Almost all Co production is controlled by China at the moment, again something which could potentially create a significant deficit.

https://www.globalenergymetals.com/cobalt/cobalt-demand/

0.2% @ 14.5 , not notifiable :)

Forms have to be completed during a takeover under the The City Code on Takeovers and Mergers offer period, the put up or shut up (PUSU!) period. Formal sale process kicked off on the 19th July, should we be assuming that the offer period is 28 days from then? That would be the 16th wouldn't it, next Friday. Or are we running on a different timetable?

Bays - decoding that I think I agree with you. By far the most likely winner here is a PE shop, it’s ripe for them to take it off the market and sell the parts for more than anyone bidder would pay for the whole. They will value the assets and pay 20-30% less than what they think they could realise from selling them in pieces. If Stifel put a price on of 37p then PE may think 30 tops, that is unless of course they think through running it hard for a year or two they can grow the asset value significantly. I would bet on Carlyle thinking exactly that right now.