UK firm raises $832m to search for oil and gas in TZ, Africa

Speaker Anne Makinda

By The Citizen Reporter

Dar es Salaam. The UK-based Ophir Energy, the oil and gas exploration company with operations in several African countries including Ghana, Equitorial Guinea, Gabon, Kenya and Tanzania, early last month managed to raise £553 million ($832 million) in a placing and rights issue.

This is a major breakthrough for this Africa focused company as it intends to use the capital in further exploration work mainly on gas-rich blocks off the coast of Tanzania and elsewhere in their operations.

Various UK-based newspapers including Financial Times, The Daily Telegraph and Times reported recently that the company, long viewed as a takeover target after success alongside partner BG Group in discovering large gas reserves off Tanzania to start with raised £91m by placing just under 20m shares at 460p each. 

However, according to information made available to the media in Dar es Salaam yesterday, the bulk of the fundraising came from a rights issue of two new shares for five existing shares in a move that effectively tapped existing shareholders for the remaining £462m targeted by the fundraising which also helped overcome a perceived funding gap. 

Shares in Ophir, which hit a high of 655p last June, 2012 closed at 461.7p March 5th ahead of the fund-raising announcement, valuing the company’s equity at just under £1.9bn.

This means new shares created through the placing and rights issue currently now represents 32 per cent of the enlarged share capital. JPMorgan Cazenove was the sole sponsor and joint bookrunner of the fundraising.

Ophir was quoted in the papers as saying the rights issue would remove the overhang of an anticipated need to raise funds to progress its projects that had weighed on the stock.

The company floated in London in 2011 when it raised $375m at 250p a share. Before flotation, Mittal Investments held 21 per cent and Och-Ziff 16 per cent in Ophir.

Jan Kulczyk, another early stage backer and one of Poland’s wealthiest men, continues to hold a 10 per cent stake in Ophir.

But the scale of the placing and rights issue, which announced early March, surprised analysts. Some experts lifted their rating to “buy”. Financial Analyst at the United Kingdom based company Investec, Brian Gallagher, was quoted by Financial Times as saying the Ophir’s rights issue removed the balance sheet constraint on its ability to profit by proving the extent of gas resources in the region.

“Although it may appear like overkill, what Ophir has effectively done is dramatically simplify its investment case,” said Mr Gallagher.

“By this we mean Ophir can now be valued on the merits of geology and not on how fast its cash will deplete.” FTSE 250 investors and analysts alike welcomed the news that oil and gas exploration group Ophir Energy has succeeded in raising significant capital via a share placing and rights issue.

Analyst Laura Loppacher at Jefferies was similarly enthusiastic, noting that the cash–call eliminated a considerable overhang on the shares.

In its editorial column, The Times recently had word for SMEs that are struggling to beef up their financial capital base

.

“If SMEs are struggling to raise capital, their larger brethren experience little difficulty. Ophir Energy, the oil and gas explorer, has unveiled plans to raise £553.4 million from a placing and rights issue to fund drilling projects in eastern Africa,” the paper’s editorial column read in part.

It went on “The placing, which is not conditional on completion of the cash-call, is arguably the most encouraging part of the story, as it points to a willingness among new investors to join the likes of Capital Group, Fidelity, Lakshmi Mittal and Jan Kulczyk, the Polish billionaire, on the register. The cash-call is fully underwritten.”

“The moral is that, if a sizeable business has good management, a good track record and a good story, they will find no shortage of investors.” The paper concluded.

On his account, Ophir’s CEO, Nick Cooper, said ”The proceeds from this (fund raising) provide Ophir with the balance sheet both to execute a drilling programme of 10-15 high impact exploration wells and to complete asset farm-outs from a position of financial strength”

According to the financial Times -LEX COLUMN the fundraising answers the questions about Ophir’s ability to finance its capital expenditure concluding that it should ultimately provide clues to the big question – is Tanzania the next Mozambique?