Yesterday’s announcement from Ithaca adds fuel to the potential for further takeover activity in the North Sea just weeks after Premier Oil completed its acquisition of EnCore Oil.
Due diligence will need to be done before any formal bid is forthcoming, with Ithaca keen to highlight that discussions are at a preliminary stage and that there is no certainty that a formal offer will come through.
Any potential buyer is likely to have to pay a significant premium to Friday’s closing price of £1.43 to convince those institutional and private investors to part with their shares, especially so given the bullishness of the most recent production and operational update from Ithaca on January 12. On a 12-month basis, the shares have been as low as 90p in October 2011 and peaked at £1.91 in March last year – proof that the sector had a particularly turbulent time of it in 2011.
The influence this could have on others in the sector should also be borne in mind. Cash-rich businesses are coming under more pressure from shareholders to either spend cash on their balance sheets on acquisitions or, alternatively, return the money to investors via capital distributions or special dividends.
We would not be surprised to see further activity in the sector throughout 2012.
Alan MacPhee is an investment manager at financial-planning specialist Brewin Dolphin in Aberdeen.