bullish on lmp

By Simon Hartley on Thu, 10 Sep 2009
News: Business
Shares in dual-listed L&M Petroleum have risen almost 40% since it announced a possible acquisition of its private sister company L&M Coal Seam Gas, and group restructuring plans.

If the acquisition, being considered by a committee of three independent LMP directors, goes ahead by the end of the year as signalled, it would dovetail with a $A30 million ($NZ37.5 million) capital raising plan announced almost a fortnight ago by parent LMP.

LMP shares were up 37% during the past two days at 16.5c, with trading volumes well up at respectively at 161,000 and yesterday at 523,000 near the close of the market.

While any acquisition has to be put to shareholders, chief executive of parent LMP John Bay appears bullish on the proposal and yesterday said various capital raising options were available and the "timetable to conclude all matters" was December.

"Capital raising is necessary to allow an aggressive continuation of the exploration, development and commercialisation opportunities that would arise out of the conclusion of a transaction with L&M Coal Seam Gas," Mr Bay said in a market statement yesterday.

The two companies, under the wider L&M Group umbrella, have both been drilling and assessing coal seam deposits in Southland and Otago for the past more than 18 months.

Craigs Investment Partners broker Peter McIntyre said the potential acquisition was a "natural fit" and the talks would lead to a "probable takeover outcome which would be logical for a new company structure".

Sources close to the L&M Group have said the two companies goals, and work of its other subsidiaries, were confusing for investors and a change of structure was necessary.

L&M Petroleum, which has spent $13 million to date in exploration for coal seam gas and oil and has a further $8.3 million cash in hand for two years' work, is assessing a resource estimated at 1500 petajoules (PJ) of energy.

At the Good Oil Conference in the Perth last week, Mr Bay said the best commercialisation options for coal seam gas delivering 10 PJ was for on site power generation; at 100PJ CNG or LNG gas production was viable and at 500PJ, gas pipeline for reticulation or petrochemical production was an option.

While the L&M Group and its subsidiaries are considered relatively small, or junior players in the exploration sector, the group has the ear of majors on the oil and gas arena and potential access to capital.