ANOTHER day, another takeover. Following Tullow's Hardman tilt last week, the US junior finds itself in the unsolicited embrace of 11 per cent shareholder Eskdale Petroleum, an arm of Hong Kong investment bank Crosby Capital.
Orchard's board may well warm to Crosby's advances in a way which has alluded another Crosby target, uranium hopeful Marathon Resources.
But it looks like Crosby would have to put more than 68c a share (cash) on the table to woo the directors, as the offer seems opportunistic.
At face value, the $150 million offer is a reasonable 25 per cent premium above Friday's closing price of 58c, but over a three-month horizon it's not such a great deal as the shares were well above 60c in early August.
Most of Orchard's revenues derive from its South Belridge project in California's San Joaquin Basin. The company is also a busy explorer in the San Jouquin and Sacramento basins.
While Orchard shares have moved down in synch with the oil price, other factors have contributed to the malaise. Orchard had some issues with rig availability as well as a funding disagreement with its South Belridge partner, Maxim.
The Orchadists claim these problems have been overcome, as they seem to be. The company has also boosted its South Belridge reserves with some audited figures: 6.8 million barrels of oil equivalent of 2P (proven and probable) reserves and 19 mboe of 3P (proven, probable and possible) reserves.
Orchard's board yesterday issued the standard response advice to investors, to stay put pending a formal response.
Orchard last month reported a $2.2 million loss for 2005-06, or a $1.54 million profit including a $4.6 million revenue one-off.
What provides the sizzle is Orchard's active $US27 million ($36 million) drilling program, all but $US5 million of which is to be funded by other parties.
Broker EL&C Baillieu last month valued Orchard stock at anywhere between 53c and $1.04, depending on how much investors should ascribe to the "exciting exploration upside".
Criterion's guess is that Crosby will have to reach higher to pluck Orchard's fruit. We'll punt on a SPECULATIVE BUY, but the upside could be marginal.
The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not hold shares in the above-mentioned companies.
OPL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
