the speculator

Cooper Energy stands out

Our heavily discounted oil and gas play Cooper Energy has all the above qualities, yet it has been sold down from a 12-month high of $1.45 to a year’s low last week of 25.5c.

At that price its market capitalisation of $67 million just matches its cash holdings plus it has continuing cashflow from its production in central Australia.

That strength underscores its initial success in its takeover bid for rival Incremental Petroleum, with Cooper receiving sufficient acceptances by Monday to take its holding in the target to 19.9%.

Cooper is offering 3.1 of its own shares for one Incremental shares, or 50c cash plus 1.9 Cooper shares for one Incremental. If the all paper offer succeeds, Cooper will have to issue 260 million shares, taking total issued paper to 512.33 million shares. On the other hand, it has the cash to fund the alternative offer.

The rapid initial acceptance rate demonstrates that those shareholders have not been impressed by the apparently fanciful valuation Incremental’s independent “expert’s report” has placed on the target’s shares.

The independent expert (KPMG) has assessed Incremental as having a value of somewhere between $3.39 and $4.18 a share, yet the shares last week traded down from 96c to 80c and closed after the bullish report was released.

Much of Incremental’s value is in yet-to-be developed gasfields in Turkey and, more ominously in this market, it has just $1.5 million in the bank and to raise more funds it would probably need to face a harsh discount through a share placement.

As Cooper chairman Laurie Shervington commented last week: “If you believe in this valuation, you’ll believe there are fairies at the bottom of the garden.”