Parkmead receives a Crossed cheque

15th Nov '11 by Cuthbert C

12 comments 6788 reads

Interesting news from Parkmead this morning.

1) PMG has acquired a 15% stake from Exxon in a gas field that was discovered by Dana in 2010. PMG's management is all ex Dana, so they know the assets intimately. Post KNOC acquisition, the operator of the field is still Dana. The field includes the original discovery plus at least one other prospect. Details at http://www.investegate.co.uk/Article.aspx?id=201111150700310993S

2) The deal is being financed by a loan made to PMG by Tom Cross - who did of course do rather well when Dana was sold. TC owns 28% of PMG. (for anyone who has not been following this saga TC was CEO of Dana and is now both Exec Chair and biggest shareholder at PMG)
Details at http://www.investegate.co.uk/Article.aspx?id=201111150700550995S

3) original discovery was announced last year - details at http://www.investegate.co.uk/Article.aspx?id=201004150700132276K

It's only small and it's only gas. But it's a start

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emptyend

15th Nov '11

Interesting set of RNSs in the last few weeks. Market cap now up to £95mn on the back of the deal....but the company will do well to find enough upside on the blocks to justify that number, despite them undoubtedly knowing the assets well. They may well succeed with the upcoming wells - but the risk/reward for shareholders still doesn't look compelling.....

Cross's loan is secured on the company's assets and pays L+250...which is a fair figure in current circs, comparable to a mortgage (though for only 2 years). No doubt it was the best deal available to the company. But I wonder why the previous CEO (was?) exited just before it was announced?

I also note that all of the directors are considered to be independent of Cross....which is interesting because all three seem to have had close working relationships with him for 5+years and, whilst they are highly respected men of integrity, I wouldn't see them as 100% independent, TBH.

So - interesting deal and very welcome progress. But investors are very much investing in Cross and the assets that have been acquired. Unless there are other deals to come (which I wouldn't rule out) there seems to be plenty of downside in the event that the wells don't exceed expectations - especially given that Cross's security gives him first dibs on the assets.

Cuthbert C

Must say that my first thought when I saw there were 2 RNS's today was that one of them would be connected with DEO where the problem is the inverse of PMG's - an over-sold share price with good assets that are going to need development funding. I'm starting to think that PMG + DEO might equal an interesting combo.

EE

Incidentally, given that Cross owns 28% of PMG, I'd say that his interests are pretty closely aligned with other shareholders - wouldn't you?

T

Yes - as closely aligned as they are going to get. However, the loan changes the picture somewhat, as he has greater downside protection than shareholders in the event of drilling failure (because he has a charge over £8mn of assets that were previously available to shareholders - albeit that the 15% stake has been added as a result).

It should also be noted that his own stake was effectively de minimus cost.....having largely/all been acquired under 2p (in other words all he is exposed on really is his [unrealisable!] marked to market profit in PMG).

No reason to doubt his abilities or anything else - but shareholders are fooling themselves if they think that buying in at 15p or so puts them on the same basis as TC.

rgds

sirlurkalot

Just as an only-slightly related matter, did TC get any sort of rollover relief from CGT on his Dana sale by means of investing in Parkmead? If so, that might affect his shareholding intentions - ie do you have to continue to own rollover relief shares for some length of time?

Am I correct in understanding that TC has made ~£25m profit so far on his Parkmead adventure? How does this compare to his total Dana profits? Seems an easy way to make ~£25m!

[Working: now holds 28% of £100m mkt cap company = ~£28m value now, purchase price at 2p = ~£3m, so unrealised profit = ~£25m]

Hi SirL

1) Sorry completely ignorant about rollover relief question

2) You are correct that TC has made a lot of cash on his stake in PMG - but only on a notional mark to market basis. We all know that the SP has soared far beyond any objective view of the underlying asset value. What would a "sensible" SP be? 2p? Given that TC owns 28% of the shares in issue, it's perfectly obvious that he could not sell a significant portion of his stake at anything close to the current SP - if he were to sell more than a trivial amount, the SP would tank- he is effectively locked in.

PMG is an interesting case study. The SP appears to have been driven by PI's who have defied logic and rational valuation. The co is now hamstrung by the fact that its SP is vastly over-inflated. I see no possibility of any share placing at anything like the current SP.

Frankly I think PMG is a very difficult conundrum indeed. If TC succeeds in unravelling it, he will deserve more praise than Alexander earned by "untying" the Gordian knot. Today's news reveals an Alexandrine style of cutting through the tangle.

I shoud add that PMG is one that I got wrong. I bought a large number of shares at 0.8p then thought better of it and sold at 1p thinking that I'd get back in when the inevitable fund raising was announced. What a missed opportunity. Had I timed my exit better and sold at 30p I would have made an amount equal to 50% of my total portfolio. Bummer.

T

I shoud add that PMG is one that I got wrong. I bought a large number of shares at 0.8p then thought better of it and sold at 1p thinking that I'd get back in when the inevitable fund raising was announced. What a missed opportunity. Had I timed my exit better and sold at 30p I would have made an amount equal to 50% of my total portfolio. Bummer.

Highly improbable, IMO. You can use a calculator as well as the rest of us and would have sold well before it got to 30p! ;-)

I thought it a reasonable punt at around 1p, with a view to perhaps making 5p. Didn't do anything though....no liquidity (except on rare days) and it was on AIM....so didn't seem compelling (before Dana was sold and TC moved over fulltime). IIRC 0.8p was about as low as it got - and TC and others bought quite a few at that level....so at least you did well to jump in then!

Hi EE

"...You ...would have sold well before it got to 30p! ..."

oh I dunno, I know a man who bought Soco at 7p or something ludicrous and is still holding..........

;~)

peterdm

Bought the bulk of my PMG shares the day after TC took over as Executive Chairman, and didn't sell any until several weeks ago, when I thought the share was going to go under 10p and was particularly pessimistic about all things Europe. I bought back in and increased total holding by 18000 shares, not much in the grand scheme. I tend to be driven by where I think a share will go and not paying tax (did a pile of envelope calculations on New Years Eve).

I am interested by current developments, as they build on the Dana connection and involve TC money. There has been lots of BB chatter about PMG not being able to raise finance, although I haven't seen anything definitive. With a better asset base, borrowing may become easier, although aall corporate M&A activity seems to be at an historic low.

hi peterdm

The problem as I perceive it is not so much that PMG can't borrow money, athough that could well be an issue. But rather that it will struggle to issue new shares in order to raise funds to be used in exploration. (E&P's have to fund exploration with equity or cash not by borrowing -since the most likely outcome of any exploration is failure, it is impossible to secure loans against an exploration programme. 0

If PMG wanted to issue shares to raise funds it would surely be difficult going on impossible given the gulf between the value of the actual assets in the business and the sky high market cap. I do not think that institutional investors would subscribe for shares at 15p when the business simply does not justify such a valuation. And I don't imagine that exisitng shareholders would be very pleased if PMG issued shares at 2p, which might enable an issue to get away.

I wonder if the amswer might be to create a different class of shares?

T

t,

You're quite right that TC couldn't actually sell any material amount of shares at anything like the current SP soon, so yes, I suppose it really is a bit unrealistic for me to suggest that he's made £25m profit.

That said, I don't agree the company is hamstrung or in a difficult conundrum at all. If TC wanted the SP to be, say, 2p, it's easily within his power to get it there over whatever timescale he chooses. A few public statements about irrational exuberance, a statement of intention to sell lots of shares soon, cautious presentations and bearish paid-for broker notes could get the SP to that sort of level, the only problem would be to get it there in a steady drift rather than an overnight collapse. All much easier than a Gordian knot, though actually the SP could be put to the sword about as quickly as the knot itself was "solved". I strongly doubt TC himself thinks the SP is anything like the sort of problem you describe.

16th Nov '11

hi tournesol

agree that the hype around PMG tends to make rational analysis difficult, but I'm not sure that getting loan funding is impossible. TC himself keeps referring to "available finance" and the "business case" may not just be about NAV, lenders will look at the team in place, IP, etc. I've seen some pretty dodgy balance sheets on some pretty big companies. And now that he's put some of his own money in, other lenders may look may more favourably.

This acquisition will have to be re-rated once oil/gas starts to flow, and the holding in Faroe could move positively (agreed it could move negatively, but they have had a bad run recently and may be due some better news). Would be interesting to see what the potential/actual value of the acquired assets will be going forward.

But a lot is based on having faith in TC, and in a couple of years the current share price/NAV might be irrelevant, and I'll be kicking it in the Caribbean. Or not.......

Parkmead receives a Crossed cheque

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Cuthbert C

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