Strachan's view

From Peter Strachan's StockAnalysis (dated 4th November).  I must say, he really is a glass half full kinda guy.

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Antares Energy (AZZ: ASX) has sorted out its convertible notes, extending the rollover date from 31 October ’15 until 31 March ’16. This move allows the company time to complete the sale of its Permian Basin permits.

The company received notice that holders of 11.89 million notes, representing $23.78 million of face value wished to redeem. Since the company only had $4.4 million of cash at 30 September, redeeming the notes would have involved a potentially messy drawdown of its $200 million debt facility with Macquarie Bank, which StockAnalysis thinks might have been a preferable outcome since the Macquarie facility has an interest charge that is half the cost of its notes!

Antares is clearly going to miss its initially planned 30 November ‘15 closing date for the US$250 million sale of its Northern Star and Big Star projects, since it needs to allow a four week notice period ahead of holding a General Meeting at which shareholders can approve the sale.

In the meantime, a US$376 million sale has been inked on 25,800 acres of permits held by W&T, adjacent to the west of the Northern Star permits. That price represents a metric of US$14,500 per acre. On a comparable basis, this deal values the Northern Star permits at US$198 million, which compares favourably with the agreed sale price of US$148.8 million. The only difference is that the W&T acreage is 80% held by production and has considerably more production.

This sale provides support for the underlying value of Antares’ permit interests and even suggests that if the private equity buyer does not complete, then a more favourable sales deal is possible. Under the current sales deal, StockAnalysis estimates that Antares will have a net asset backing of about A$208 million or 87 cps, post the deal. Antares will then own the most valuable asset possible in the current oil & gas market, being cash! Then, like a kid in a candy shop, the management of Antares will have the ability to pick and choose from a vast array of distressed assets, from which to build a project development portfolio.

If there is a downside, it is that shareholders are unlikely to see any benefit in the form of capital return or dividends and will have to wait on a deal that, like Aurora Oil & Gas before them, sees a buyer take out the whole company.