Ophir Writes Down Fortuna, Seeks Offers, Heads East
UK Ophir Energy has halved the book value of its Fortuna LNG asset offshore Equatorial Guinea, reducing it by $300mn following uncertainty over the project, it said September 13.
It said it is now seeking a buyer or partner for all or parts of its LNG assets (Fortuna, and a 20% stake in Shell-operated gas reserves offshore Tanzania) saying it plans "to unlock their potential value", with its interim CEO saying there are discussions with "credible" players on rescuing the stalled Fortuna project.
Given "a rapidly improving LNG landscape," Ophir argues these are undervalued in its share price and that it intends to "ensure that our shareholders share appropriately in any value subsequently realised."
Ophir will meanwhile move its headquarters to Asia from London following its recently completed $250mn acquisition of assets from Santos, as its portfolio is now biased towards Asian production and cashflow. Its aim is to become a stable, self-financing exploration and production company focused on southeast Asia. The Santos transaction closed in September with a net cash payment of $144mn after adjusting for the value of cash flow from 1 January 2018: production had been higher than expected, shortening the payback time from 36 to 30 months.
Production revenue of $102mn from 11,400 barrels of oil equivalent/day yielded net funds flow of $43mn, but including Fortuna, write-offs totalled $358mn. It ended the half year with net cash of $75mn and closing liquidity of $371mn.
Stalled Fortuna prompts strategy rethink
Its planned $2bn Fortuna LNG project has missed several targets for securing finance, leading to the departure of the CEO Nick Cooper this spring; his interim replacement is Alan Booth.
In a conference call to analysts, Booth was asked how Ophir arrived at the new revised $300mn valuation of its Fortuna interest – $310mn less than its previous $610mn book value.
Booth replied: "We felt $300mn was a reasonable figure to land upon. It's not an indicator of anything. If the licence is withdrawn, it will probably be less than that." When the Barclays analyst shot back with a follow-up question: "So it could be reduced to zero?" Booth replied: "No, a different number – it could be higher or lower [than $300mn]."
Ophir's director for Africa and new ventures Oliver Quinn added that, were the licence withdrawn – something the Equatoguinean government has threatened if Fortuna final investment is not made by end-2018 – there would be "a significant amount of work for anyone coming in cold" as licence holder, and that the intrinsic value of the Fortuna is higher if a successor there can continue to engage with Ophir.
"We've been in discussion with credible players who can make this work. We're against the clock, but I believe there's a lot of value," noted Booth.
One analyst asked if the possible 25% tariff on US LNG imports to China would help Fortuna's valuation on the market. The response from Ophir was that Fortuna already has a cost-advantage versus US LNG into China, and that introduction of such a tariff on US imports "doesn't harm us" but it might not alone be enough to achieve a deal [find a buyer/partner] by year-end.
The search goes on for a permanent CEO who will be based in Asia, which is where the company sees its future growth. The successful candidate will also have to "consider options to unlock the potential value" of its LNG assets, the company said, hinting strongly at a sale of Fortuna.
Analysts also asked if its Mexico deepwater acreage, or Ophir's 40% carried interest in Equatorial Guinea offshore licence EG-24, might be sold or retained – but the response from Ophir's management was it was too soon to say. Booth said that whether Ophir's EG-24 interest should be classed as a 'frontier exploration asset' or included in the LNG assets due to its proximity to existing infrastructure had yet to be decided. But the new corporate strategy includes "reducing exposure to frontier exploration."