This boss invested £45m of his own money in oil firm. Is it worth yours?
IN August 2008, just weeks before the collapse of Lehman Brothers sent the world into a tailspin, Oil and Natural Gas Corp of India agreed to buy UK-listed Imperial Energy for around £1.4 billion.
The transaction earned chairman and founder Peter Levine a reputation for smart dealmaking. It also made shareholders substantial sums of money, including Levine himself, who walked away with some £90 million.
Levine’s current oil and gas venture, President Energy, has been less successful to date. Having initially invested in the company in late 2009, 63-year-old Levine seen the shares fall from a high of 93p in 2010 to just 6.95p today.
The current price undervalues the business and the stock should recover as the company expands and profits increase. Oil prices are rising too, as President Trump extends sanctions on Iran, a key oil producer.
Over the past ten years, Levine has invested around £45 million of his own money in the company, he remains a 29.9 per cent shareholder and has become progressively more involved – moving from an investor to chairman and chief executive. If anyone is motivated to make this business work, it’s Levine.
President was originally focused on oil wells in Louisiana and South Australia. Then it moved into exploration in Paraguay and Argentina, spending considerable amounts of money in the process. Levine candidly admits this was a mistake.
Over the past 18 months however, the group has been transformed from a loss-making enterprise with negligible turnover into a profitable, cash-generative business.
The company still owns a couple of productive oil wells in Louisiana but its main assets are in Argentina, where it has recently acquired two oil fields, two gas fields and a pipeline to transport its gas and those of other operators to the main gas network.
These Argentinian purchases have made a serious difference to President’s production volumes, profitability and prospects. Back in 2017, the company was producing 500 barrels of oil a day. By January of this year, that had increased to 3,000 barrels a day and by early next year, production should have risen to around 5,000 barrels a day, doubling to 10,000 by 2021.
The increase in production will come from exploiting the assets that President already has, and acquiring new ones, where appropriate. Any purchases will come out of the company’s existing cash resources as Levine has no intention of going to the stock market for money.
A cash-raising exercise this year was disappointing. The firm tried to raise £6.5 million by offering new shares on the market at 8p, but take- up was limited, the group raised just £ 3.5 million and the shares have fallen since. There are several factors behind President’s lacklustre market performance.
First, it has changed strategy several times and investors want to see that the current approach really is working. Second, small energy firms have been out of favour generally. Third, around 70 per cent of the stock is owned by Levine and institutional investors, so minor sales by individual investors can have a disproportionate effect on the shares. And fourth, President is in Argentina, a country associated with instability and crises.
Looking ahead, these issues are likely to become materially less important. Results for 2018 come out next month and are expected to show a more than doubling of revenues from $18 million to more than $45 million, rising to almost $80 million in the current year. In 2017, President made a loss of almost $12 million. Figures for last year should deliver core profits of almost $ 10 million, soaring to $20 million this year. Levine is ploughing money back into the business, upgrading existing wells and investing in infrastructure to drive productivity. Within a couple of years, however, the company should be in a position to start paying dividends. The Argentina bias is almost certainly overdone as well. The country has serious economic problems but it has been involved in oil and gas for years and major international groups, such as Chevron, Shell, Total and ExxonMobil, all operate there efficiently. In fact, local costs and taxes are lower than in many other parts of the world, allowing President to generate high margins. The firm has ditched its London office, the headquarters are in Buenos Aires and most workers are Argentinian, driving down its expenses still further.