Opportunity missed, page-30

Carnarvon taps market for $84m to develop Dorado project AUST 25July

Carnarvon Petroleum is expected to extend its equity raising efforts in the days ahead to fund the Dorado oil project that it owns with Santos, as market observers continue to suggest that the company could be a takeover target — potentially by Beach Energy. The oil and gas producer tapped the market for $84 million yesterday to fund its share of the costs for the highly lucrative Dorado off the northwest coast of Australia, of which it owns 20 per cent, with Santos holding the remainder.

Working on the raise have been JPMorgan and Euroz Securities, which involved Carnarvon raising $79m through an institutional placement and $5m through a share purchase plan. The shares were sold at 39c, an 8.2 per cent discount to its closing price on Tuesday. However, the view around the market is that estimating the cost of Dorado is not easy.

Some say that it may blow out beyond what Carnarvon can afford and would then be taken out by a party with more funding firepower. There have been analysts pointing to Beach Energy as the logical suitor. It may be well placed to buy another business after digesting Lattice Energy, which it purchased from Origin Energy in 2017 for $1.6bn. RBC yesterday said in a research note that the company needed an additional $150m of equity to fund its share of phase one of the development of Dorado. This was based on assumptions that about $250m of capital spending would be needed on the project. They expect some debt will be used, but the remainder would be funded through a further equity raising.

Particularly valuable to any suitor would be the pre-emptive rights that the company has to buy the Santos stake should an offer arise. Earlier, analysts predicted an additional equity raising by Carnarvon would be timed to happen after the development of its third appraisal well, but with an uncertain and volatile oil outlook the thinking is that the company would now take a more opportunistic approach. RBC has its net asset value at 80c per share, but the raising is expected to modestly dilute that value estimate.

The group is a conventional offshore oil developer with two significant and economically robust projects in Dorado and Buffalo, off the coast of East Timor. Dorado is the third-largest oil discovery made in the North West Shelf area. Last year, as Macquarie Group was moving to sell Quadrant Energy to Santos, shares in Carnarvon Petroleum were soaring on the back of news that it had struck oil at the Dorado-1 well in the Roebuck Basin. They have since come off the boil due to a weaker oil price and its market value is now $574m.

Carnarvon shares were in a trading halt at 42.5c.