Nostrum’s offer to buy Tethys was agreed in principle back during September. But the deal has now fallen apart, as it turns out that Tethys’ largest shareholder, Pope Asset Management LLC, did not support the proposed transaction. Nostrum has stressed that the deal was conditional on Tethys’ three largest shareholders agreeing to the offer. 

As part of the buyout, Nostrum was also going to supply Tethys with $20m in interim funding for its subsidiary, Tethys Kazakhstan SA. This offer has now been withdrawn, which leaves the company with somewhat of a funding gap. 

Tethys has warned that it does not currently have sufficient funding to meet its obligations over the coming 12 months. Without the $20m lifeline, management has warned that there would be significant doubt about Tethys’ ability to continue as a going concern.

However, Tethys has announced today that it has received a non-binding letter of intent from AGR Energy Holdings Limited in connection with a potential $20m equity fundraising. According to the press release on the matter, the letter of intent also suggests that AGR could provide a $5m loan to support short-term liquidity. While there’s no certainty that any short-term loan or equity raising will occur, it’s good to know that Tethys isn’t out of options just yet. 

What’s more, even though Nostrum has dropped its offer to acquire Tethys for the time being, the company has hinted that it may return with another offer. Nostrum stated today that: “Nostrum reserves the right to propose alternative transactions to Tethys and/or to make an offer for the share capital of Tethys on different terms to those previously announced.”

So, Nostrum has stepped back, and AGR Energy has stepped forward, but there’s also another suitor in the mix. 

Earlier this month, Olisol Investment Group came forward to offer Tethys $8m by way of share subscriptions. Moreover, Olisol has offered to make an additional $24m of new equity available to Tethys as part of the deal. 

Olisol has already partnered with Tethys in its Aral Oil Terminal and, therefore, knows the company better than most. 

Tethys acknowledged but politely declined Olisol’s offer when it was originally made at the beginning of this month, as the company was in a period of exclusivity with Nostrum. But now Olisol’s offer could be back on the table.

Indeed, when Olisol’s offer was initially put forward, the company’s management said it was “excited” by the prospect of investing in the company, and it looked “forward to entering into discussions with Tethys at the earliest possible moment”.

So it looks as if Tethys has an interesting future ahead of it. Even though Nostrum’s bid is now off the table, the company has a number of suitors willing to lend it the cash to push forward with its development plans.

The post What’s Going On At Tethys Petroleum Ltd? appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The possible offer of C$0.2185 (approx. 10.7p) per share represents a 56% premium to the closing value of Tethys shares on Friday and would value the company at about £36m.

Tethys also said this morning that a previously agreed $47.7m refinancing deal with AGR Energy and Pope Asset Management would no longer be going ahead. As a result, while today’s offer may be a far cry from two years ago, when Tethys shares traded at more than 40p, it could prove to be a lifeline for Tethys shareholders.

As part of this deal, AGR had provided a $5m short-term loan to Tethys, which will no longer be available. To replace this, Nostrum has agreed to provide a similar $5m facility while it carries out due diligence on Tethys.

It’s probably fair to say that if the Nostrum offer is not successful, Tethys could be forced into administration, or face a heavily-dilutive fundraising that would leave very little value for existing shareholders.

Nostrum has until 9am on 24 August to complete its due diligence checks on Tethys, after which it will have two business days to decide whether to make a formal offer.

Nostrum may be a good buyer

The board of Tethys has already agreed to recommend Nostrum’s offer unanimously to shareholders if it is confirmed.

Interestingly, Tethys says that shareholders would be able to choose whether to receive payment in cash or Nostrum shares. While cash might seem to be the obvious choice, I’ve been wondering whether Nostrum shares could be a more profitable choice.

Nostrum is a £1bn business with substantial operations in Kazakhstan, where Tethys’ main production assets are also located. In 2014, Nostrum reported turnover of £781m and a profit of £146m.

The firm’s share price has proved more resilient than many other oil and gas firms over the last year, falling by just 33%, compared to 68% for Tullow Oil and 62% for Premier Oil, two similar-sized firms.

One reason for this may be that Nostrum appears to have been able to finance the majority of its capital expenditure from its own operating cash flow in recent years. The firm has even been able to pay a reasonable dividend, which is expected to offer a yield of around 2.6% this year.

Nostrum’s current valuation indicates that its proven and probable (2P) reserves are currently valued at around $4 per barrel. That doesn’t seem expensive.

Most Tethys shareholders are likely to be sitting on a big loss. Accepting Nostrum shares instead of cash could be one way of clawing back some losses on Tethys.

This isn’t the first time that Nostrum has looked at Tethys with a view to buying the smaller firm. In my view, this latest offer is very likely to succeed. If I was a Tethys shareholder, I would choose Nostrum shares instead of cash, and hold on for the chance of a longer-term profit.

The post Tethys Petroleum Ltd Surges Higher On £36m Offer From Nostrum Oil & Gas PLC appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Tethys shares hit a 52-week low of 2.8p in April, when the company was forced to announce that it was out of cash and unable to meet its obligations. The shares have since risen by more than 150%, thanks to a refinancing deal with AGR Energy.

Details of a comprehensive refinancing package were confirmed at the start of July, with AGR agreeing to subscribe for new shares worth US$47.7m at a price of C$0.19 per share.  However, this placing will increase the number of Tethys shares in circulation by 94% if it goes ahead. According to Tethys, AGR would be expected to hold up to 51% of the enlarged share capital of the firm following the placing, effectively giving AGR control of Tethys.

The Nostrum offer could prove to be more attractive for private shareholders. The offer price of C$0.2185 (about 11p) per share is 15% higher than the C$0.19 AGR was willing to pay for its new shares, and is 45% higher than last Friday’s closing price of about 8p.

Is there a downside?

Nostrum has a market capitalisation of £1.1bn and reported sales of $781m in 2014. The firm’s operations are centred around its oil and gas fields in Kazakhstan and it’s a credible buyer for Tethys, in my view. However, as I write, Tethys shares are trading at about 9.5p. That’s still 14% below the 11p per share value of Nostrum’s proposed offer, and reflects the potential downside of a Nostrum deal.

Firstly, Tethys shareholders will be denied the potential upside that could come from a rise in production and a recovery in the price of oil. Only a year ago, Tethys shares were trading at 20p.

At the end of 2014, Tethys had estimated unrisked mean recoverable oil resources of more than 400m barrels and proven and probable reserves of 27m barrels of oil equivalent. The Nostrum offer values Tethys’ share capital at £37m, or just $2.10 per barrel of reserves. That’s pretty cheap, compared to industry norms.

Secondly, while it is credible, Nostrum’s offer looks like an opportunistic attempt to grab some decent assets at a distressed price. The board of Tethys, which now has a refinancing deal with AGR in the bag, might reject the Nostrum offer.

Buy or sell?

In my opinion, the pros and cons of holding Tethys shares are quite evenly balanced. Although Tethys should, in theory, be able to generate superior returns for shareholders by remaining an independent business, the firm has a history of under-performance.

What’s more, if AGR becomes a majority shareholder as expected, future fundraising could be on less generous terms. Private investors could find themselves repeatedly diluted.  The board of Tethys has not yet commented on the Nostrum approach. When they do, the share price could rise — or fall — sharply.

Tethys shares remain a speculative hold, in my view, but are very risky.

The post Tethys Petroleum Ltd Surges Higher Following Bid From Nostrum Oil & Gas PLC appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Although both firms have clearly disappointed investors today, the similarities end there: I believe one of these firms is a potential buy, while the other is a definite sell.

Huntsworth

Huntsworth issued its annual results this morning, revealing a 0.9% decline in revenue and a 23% decline in operating profit, which fell from £23.6m to £18.2m in 2014.

Even worse was a £71.5m goodwill impairment on the company’s Citigate and Grayling businesses, as a result of poor trading conditions, which are now expected to persist for longer than expected.

Earnings per share fell by 25% to 3.7p, and management disappointed shareholders with a surprising but sensible decision to cut the dividend by 50%, from 3.5p to 1.75p.

Is Huntsworth a buy?

Despite the firm’s decision to cut the dividend, today’s adjusted earnings per share of 3.7p were in line with the latest consensus forecasts of 3.6p per share, putting Huntsworth on a trailing P/E of 10.8, with a yield of 4.4%.

The company has had a boardroom clear-out in recent months, and a new chief executive, Paul Taaffe, started work on Tuesday.

Huntsworth doesn’t look expensive, and has low debt levels and strong cash flow — this firm could well be a good turnaround buy, in my view.

Tethys Petroleum

Even before today’s collapse, Tethys’ share price had fallen by 78% over the last year, as the firm’s apparent inability to generate any spare cash combined with the oil price crash to prevent Tethys delivering on its original promise.

Today’s update confirms that things are now likely to get much worse: the firm’s $75m investment deal with Chinese firm SinoHan, which was agreed in November 2013, has still not been approved by the Kazakh Ministry of Energy.

Approval is needed by 1 May or the deal will collapse, forcing Tethys to seek new funding and to repay a $3.9m advance it received from SinoHan — money which Tethys says it does not have.

There’s a real prospect that Tethys could soon go into administration, or be refinanced in such a way as to destroy the value of existing shares.

I think that the only prudent approach here is to sell — staying in or buying after today’s news is a pure gamble, in my view.

The post Why Huntsworth plc & Tethys Petroleum Ltd Are Sliding Today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.