Ophir Energy up 42%, but what's it really worth?

There have been plenty of false dawns at this oil exploration and production company, but what will a bidder pay for the business? Lee Wild looks at Ophir's potential.

A star stock back in 2011-12, Ophir Energy has spent the past six years unwinding an impressive rally to over 500p, bottoming out at just under 32p in November. Now, it's received a takeover approach, but what's Ophir really worth?

Well, after finishing 2018 at 35.7p, Ophir shares traded up to 42% higher at 50.8p following confirmation that Indonesian oil and gas company Medco Energi Internasional is mulling a cash offer for the £250 million (now £334 million) London-listed driller.

There isn't much more detail, other than that Medco must announce a firm intention to make an offer for Ophir by 5pm on 28 January, or walk away. 

Ophir is clearly working in the right areas for Medco. Most of its producing assets are in South East Asia, and the company bought the Vietnam and Indonesian assets of Santos in September for $144 million, but while recent investors will no doubt be happy with the sharp uptick in share price, long-term shareholders will be unimpressed. 

Many believe the shares are worth much more than this, but Ophir's history of failed mergers and takeover speculation that came to nothing will count against it.

In April 2014, Ophir tried to merge with Premier Oil, but was rebuffed, deciding instead to pay £314 million for Salamander Energy months later. The following year, with the oil price having more than halved in 18 months, rumour had it that Ophir was talking to lots of potential bidders. No money ever found its way onto the table.

Source: TradingView (*) Past performance is not a guide to future performance

Analysts at UBS are big fans of Ophir's business. 

In a research note published in October, their base case valuation was 80p a share, set at 0.85 times the broker's Risked Exploration Net Asset Value of 95p, with operational progress unwinding the current discount.

On the upside, they believed Ophir shares could be worth as much as 190p if oil held at $80 a barrel and progress was made at the Fortuna development, Ophir's troublesome liquefied natural gas project offshore Equatorial Guinea.

These observations are just an indication of the potential UBS thinks Ophir has and what circumstances were required for the shares to go higher without a bid. Medco likes what it sees, but investors won't rest easy until there's a firm offer on the table at the right price. 

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.