Sunday 19 November 2017

PetroNeft's shares soar as Natlata warms to deal with Oil India

New ground: PetroNeft's exploration works in Russia
New ground: PetroNeft's exploration works in Russia
Sarah McCabe

Sarah McCabe

PETRONEFT'S share price has soared after activist shareholder Natlata indicated it may row in behind the company's deal with new partner Oil India.

PetroNeft announced on Friday that it had agreed an $85m (€61.5m) binding 'farm-out' deal for its much-hyped License 61 in the Tomsk Oblast area of Russia.

The deal with Oil India includes $35m in cash upfront, which would enable the company to repay debts to creditors Macquarie and Arawak as well as finance the development of the licence, which it owns and operates. The oil and gas explorer will execute a binding legal agreement for the farm-out deal within the week, in exchange for a 50pc stake in the asset.

Natlata, PetroNeft's biggest shareholder, had expressed opposition to such a deal.

But now the private investment firm has said that "if the deal is as attractive as suggested, Natlata would consider supporting it", while adding: "With such complex deals, the devil is in the details, of which the board has characteristically provided very few."

In a statement yesterday, Natlata set out a series of questions about the deal that it wants answered before it will consider giving its support, stating: "The announcement only provided clarity with respect to $35m, while the rest of the money is or may be subject to the current management actually delivering on its promises – which, Natlata notes, should sound alarm bells for shareholders if past performance is anything to go by".

Natlata, backed by Russian businessman Maxim Korbov – a Tomsk-based oil investor and political ally of Russian President Vladimir Putin – has clashed heavily with the board of Petroneft in recent months.

It has already proposed the removal of five directors from the company as well as alternative financing arrangements that would see Natlata take on a much larger stake in the explorer. These internal struggles have taken place against a serious deadline; creditor Macquarie had the right to ask for License 61 to be sold if a financing arrangement was not reached by mid-April, though this was not acted upon.

Closer to home, Davy Stockbrokers called the Oil India deal positive in a note to clients. Analyst Job Langbroek said the deal "re-starts the investment case for PetroNeft."

"It will now be completely debt-free and will participate in a properly capitalised work programme to develop Licence 61 in the Tomsk Oblast of western Siberia" said Mr Langbroek. "Following the deal, we estimate an 11.3p per share core valuation, especially as the group now has the wherewithal to achieve it."

Shares in the Dublin and London-listed firm rose up to 14pc in early trading yesterday before closing in Dublin up 7pc at 8c and at 6.45p in London.

Irish Independent

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