North Sea firm Independent Oil & Gas PLC (LON:IOG) is asking its shareholders to be patient and play the long game, with the promise that project delivery will create greater rewards in the future.
The execution of a new £16.6mln fund raise suggests that City backers are prepared to play along, albeit a cursory reading of certain key facts may make dim reading for others.
READ: IOG raises £16.6mln to fund drilling at Harvey project
For example, IOG is selling new equity at 10p per share on 1 April, a month after telling investors that a 20p per share cash takeover offer “materially undervalued the company”.
On 5 March, IOG’s management said that the opportunistic move by RockRose Energy PLC (LON:RRE) did not provide fair value for the company’s assets - a group of undeveloped gas discoveries and appraisal projects – nor did it value the company’s “significant future upside”.
Pitched at 20p per share the RockRose offer valued the whole of IOG at £26.6mln at that time.
Acrimonious battle
The takeover battle became somewhat more acrimonious when RockRose, on 21 March, made an offer to the administrators of IOG’s financing partner London Oil and Gas Limited (LOG).
Essentially, RockRose sought to acquire the convertible debt held by LOG for £40mln.
It would have given RockRose a strong foothold in its wrangling for IOG, as the convertible debt would have potentially accounted for about half of IOG’s stock once it was swapped for shares – but, that was before the new equity dilution created by today’s placing.
There was also additional complexity around certain extra equity rights attached to the debt agreement with LOG (which was given a number of share warrants).
And, as with the direct takeover offer, there was disagreement over the valuation of the deal.
IOG basically believed the price was too low.
According to IOG, the debt had a total underlying value of £57mln (not including share warrants) while it also did make reference to the £28mln ‘face value’ and the £42mln ‘see through’ value based on the debt being converted into equity.
Head scratcher
RockRose, meanwhile, described itself as “at a loss to explain the lack of engagement” from the administrators and said that it would consider possible legal action.
In a statement, RockRose boss Andrew Austin, on 21 March, said: "The continued lack of clarity and failure of IOG (and its direct and indirect lenders, both now in administration) to disclose the key terms of its indebtedness and the very material extent of the dilutive instruments is unusual in the current circumstances.
“We sincerely hope and expect that both the LCF administrator will provide feedback on our offer and that IOG will take steps to make full disclosure of the position of the dilutive instruments."
Separately, LOG and its associate London Capital and Finance are under investigation by the Serious Fraud Office and Financial Conduct Authority.
IOG issuing new equity and rearranging LOG terms
On 1 April morning, IOG announced that it was to issue 165.79mln new shares via a placing to City institutions to raise £16.6mln.
It is separately selling 2.75mln shares to directors and key executives, and, launched an open offer to sell £2mln worth of new shares to qualifying existing shareholders.
IOG also proposes to restructure its debt arrangement with LOG, which is still in administration.
The company proposes to reschedule some £7.1mln of payments due to LOG over 2019, and, to convert £1.64mln of due interest into new IOG shares.
It also seeks to extend the maturity of share warrants which give LOG the right to acquire 7.5mln IOG shares at 8p each and a further 5.7mln shares at a price of 11.9p each.
By raising funds via new equity now, IOG is able to secure its planned appraisal drilling at the Harvey discovery – a £9.6mln programme due to start in ‘mid-2019’ – and, also, it will be able to advance field development planning for the Goddard gas project.
No deal and no new offer
Significantly, this means that it can avoid ‘slippage’ on its operational timeline while simultaneously continuing negotiations to secure more substantial project finance by selling stakes at asset level with farm-out/partnership deals with other operators.
A quick cash sale would’ve given investors a clean exit at a premium to the market price, even if some of the ‘upside’ was left on the table.
Evidently, the alternative looks somewhat contingent on many moving parts – and, of course, the not-so-small matter of offshore project delivery – nevertheless, by raising £16mln IOG has shown there’s support in the City for its management team and its plan to deliver its projects.
Everyone else speculating from the side-lines will, meanwhile, wait to see.
RockRose, later on Monday, announced that it would not at this time make a firm 'Rule 27' offer to acquire the outstanding shares in IOG because of a lack of support from the board of IOG and the administrators.
It added that the firm offer to buy the debt had also been withdrawn.
The company said: "The board of RockRose continues to believe that RockRose's offer to both equity and debt holders in IOG was compelling and in the interests of both RockRose shareholders and the LCF mini bondholders.
"The board of RockRose fails to understand how the proposed fundraise, alteration of debt terms and the rejection of the possible IOG share offer and firm IOG debt offer are in the best interests of the IOG shareholders and LCF mini bond holders, respectively."
-- Updated to include details from RockRose's response statement --