Two of the biggest investors in Venture Production yesterday backed its rejection of Centrica’s hostile £1.3billion bid.
Centrica is offering 845p a share for the Aberdeen oil and gas company.
Larry Kinch, one of Venture’s co-founders in 1997 and a non-executive director with about 7.4% of the shares, urged other shareholders to hold out for at least £10 a share from the British and Scottish Gas owner.
Mr Kinch said the strength of Venture’s portfolio meant investors should take a longer-term view or demand a price that compensated them properly.
Fellow investor ArcLight Capital Partners, the US energy investment firm which controls 5.4% of Venture shares, said it believed the Centrica offer was wholly inadequate and substantially undervalued Venture.
It said the offer was an attempt to exploit short-term weakness in financial and commodity markets, and the timing, form and price of the offer was solely to Centrica’s advantage and detrimental to Venture’s other stakeholders.
ArcLight added: “We do not believe that anything less than £10 a share in a near-term transaction would fairly value the company and we believe the medium-term value potential is significantly above this level.”
Centrica, which first took a stake in Venture in March at 725p a share, lifted this to 29% after acquiring private-equity firm 3i’s 5.4% share on Friday and said yesterday it had upped its holding to 29.9% after buying more shares in the market at 845p.
It will now seek to win over other major Venture shareholders, including Legal and General, with 4.3%, Axa, which holds 3.4%, and investment bank JP Morgan, owner of a 3.3% stake.
If its bid does not succeed it will be prevented by stock market rules from making another offer for 12 months, unless another bidder emerges.
Centrica, which has said its offer is final, wants to buy the company to boost its gas production and reduce its dependence on volatile wholesale markets.
Venture produced almost 53,000 barrels of oil equivalent per day during the first six months of this year, reporting an “excellent first half across all areas of its business”. In 2008, it virtually doubled operating profits to £231million on revenue up 38% to £494.9million after higher production levels and commodity prices.
Centrica can produce about 35% of its energy needs out of its own resources, although this should increase to 45% when it completes the acquisition of a 20% stake in nuclear-power firm British Energy from French energy giant EDF.
Buying Venture would mean Centrica could supply 60% of its energy from its own assets and resources.
Centrica said the deal, which comes at an 87% premium to Venture’s share price in January, offered compelling value for the firm’s shareholders and would protect them from the possible impact of falling gas prices. About 70% of Venture’s reserves are gas.
Venture’s chief executive Mike Wagstaff said the offer was “opportunistic”, adding: “In no way does this offer recognise the strategic position and high quality of our UK gas reserves and resources.”
He added that Centrica was trying to scare shareholders by saying the offer was final and warning that gas prices might fall.
This did not scare him, he said, and Venture’s directors could not possibly recommend an offer that did not reflect current value and prospects.
Venture reported further drilling success in the southern North Sea and in Morecambe Bay. It said wells on the Andrea and Marram prospects had encountered gas and Andrea in the southern North Sea had the potential to be its biggest discovery to date, with pre-drill expectations of up to 44million barrels of oil equivalent.