Stock analysis report latest 4/4/16, page-16

INDEPENDENT Perth-based analyst Peter Strachan is concerned ordinary shareholders could lose their shirts over their investment in struggling oiler Antares Energy, which was forced into administration last week by a minority of bondholders led by Aurora Funds Management.

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2	Peter Strachan

Strachan says the situation in which Antares found itself – being unable to conclude a sale on its Permian Basin assets in time to meet a payment demand from its noteholders – was not the fault of the management team under former CEO James Cruickshank.


“Through no fault of their own they had a buyer on the line who was prepared to pay $US250 million for those assets when the oil price was $50 per barrel, but when oil when to $27-28/bbl the buyers went to water,” he told Energy News.


“Even if they were to sell those assets for $150 million they would be able to pay off the $47 million of debt and still leave 37cps in the company for the shareholders, so there would still be value there.”


Antares last traded at 50cps last year, before it was suspended over a difference of opinion with the Australian Securities Exchange.


More than half of the bondholders were open to allowing Cruickshank to continue to keep the reins, with an interest rate holiday and additional time to sell the assets, but Aurora scrapped together a blocking stake above 25% to force the company into administration.


“That would have been the logical thing to do, because an administrator put in place for the noteholders is not going to be more interested in the welfare of the shareholders, nor in getting a value which is anything much more than $50 million,” Strachan said.


“They will be interested in just getting their own fees and tying it up neatly and tidily. They have no interest or understanding of the long-term value of those assets.”


Strachan believes shareholders will ultimately see no return.


He believes Aurora was concerned that Antares would chew through its remaining $1.8 million in cash before a sale could be negotiated, and it would still end up in the hands of an administrator that would be forced into high interest loans untangle the mess.


Aurora, Strachan said, wants to recover its funds, and avoid a situation where its share of the $47 million in convertible notes was recovered for cents in the dollar.


“If you backed James, the noteholders would get $2.30 for every $2 of notes, there would be money for the shareholders, and the noteholders could convert at four shares per $2 note instead of three shares per $2 note, although the shares would need to be above 50cps,” the analyst said.

“It really is just the pigheadedness of Aurora, in my view, to say ‘we just want our money back’, although you can understand their position because they have their investors who want their money.”


Aurora had demanded, and gained, a 30% premium on the bonds, four directorships and other concessions, including the scalp of Cruickshank, but it was not enough.


“[Cruickshank] was doing everything possible to protect the assets of shareholders, but Aurora’s judgement seems to have been that it was better to put the company into administration now while there is still money in the kitty to pay for it,” Strachan said.


The analyst believes Cruickshank is still the best placed person to use his contracts after living and working a decade in the US to pursue a sale, even considering the weaker demand for Permian Basin assets, especially when compared to a hard-nosed accountant simply looking to dispose of the leases.


The status of Pitcher Partners as administrators is still being decided, but many believe Aurora will seek to install its own team, arguing that by allowing Cruickshank to remain as a director there is a conflict of interest.


Meanwhile, shareholders are talking of a class action against the Antares board, accusing it of failing to meet its continuous disclosure obligations, of misleading the market over the sale of the assets to Wade Energy by saying there were no conditions, and by failing to resume trading to allow them to sell out as soon as concerns were raised over the viability of Wade to even raise the cash.


Antares’ business model was the same as that undertaken by Red Fork Energy, Samson Oil & Gas, Aurora Oil & Gas and Sundance Energy Australia: by taking underdeveloped assets, spending money and selling at a profit.


It takes skill, geology and timing, but last week bondholders’ patience and Antares’ luck ran out.