Click photo to enlarge
L&M Energy chief executive John Bay, with (seated,
front left) L&M Coal Seam Gas chief executive Kent
Anson, briefs Dunedin investors yesterday on coal seam gas
potential in Southland and Otago. Photo by Gregor
Richardson.
Dual-listed L&M Energy will be going to shareholders
and institutional investors within weeks to potentially raise
up to $10 million - if its proposed takeover of private sister
company L&M Coal Seam Gas goes ahead later this month.
Although it holds a range of on-shore and offshore permits in
New Zealand, L&M Energy regards the Ohai and Waiau permit
areas 70km northwest of Invercargill as having the most
potential for development, and has initiated talks with
Fonterra and its Edendale processing factory and Rio
Tinto-owned Tiwai Pt aluminium smelter in Bluff.
The takeover proposal would encompass 12 permits, covering
almost 13,000sq km, including Otago, Southland, the West
Coast, Taranaki and the Waikato.
Under the cash-less takeover offer, L&M Energy will take
possession the coal seam gas (csg) permits of L&M Coal
Seam Gas, covering an estimated 173 petajoules of csg energy
around Ohai, which it wants to harness and sell in the South
Island.
L&M Energy chief executive John Bay and L&M Coal Seam
Gas chief executive Kent Anson, who would be joint chief
executives under the merged company looking after
respectively petroleum and csg exploration and development,
were in Dunedin yesterday for the first of eight New Zealand
roadshows.
Talking to about 15 investors, Mr Bay said $6 million
cash-in-hand would finance L&M Energy's drilling
programmes through 2010, which crucially must move the
estimated P3 resource to P2, or from a 90% chance to 50%
likelihood of being "proven and possible" to extract and
commercialise.
"P3 [in fishing terms] is a baited hook in the water where
you've caught fish before. P2 is a fish hooked and about to
be landed in the boat; P1 is a fish in the boat."
Mr Bay told investors of the significance of upgrading
southern csg estimates from P3 to P2 during further test
drilling this year.
Mr Bay predicted the company would be cash-flow positive by
2012-13, but confirmed no supply contracts were signed.
Craigs Investment Partners broker Peter McIntyre said
Australia had recognised the importance of csg exploration
and development as an energy source and L&M Energy was
well placed to make progress towards commercialisation.
However, he cautioned investment was "not for the
conservative".
The forecasts coming from L&M Energy's roadshow would be
closely scrutinised for the next three years; from the
takeover, commercialisation plans, gas contract sales and
estimated cash flows.
The takeover proposal has raised the hackles of some
investors concerned at the percentage dilution of their
shareholding, and of three major shareholders taking a more
than 80% stake in the new company.
Mr Bay highlighted that the issuing of 444 million shares to
L&M Coal Seam Gas shareholders would move L&M Energy
from a company with $28 million market capitalisation to one
of about $100 million, saying shareholders would benefit from
the increased size and opportunities available to a larger
company.
Mr McIntyre said while the company would move from $28
million to $100 million, at present about 16c per share, the
volatile commodity sector was in general "wide open to wild
swings" in share values, being a "high-risk high-reward"
investment.
Investors were told by Mr Bay a "relatively small" capital
raising would be announced, assuming success at the
shareholders' meeting for the takeover on February 22.
He later told the Otago Daily Times that possibly $A6 million
to $A8 million might be sought, which could include an offer
to existing shareholders and institutional investors.
He acknowledged to the investors there was a perception the
South Island had no infrastructure for distributing gas, but
highlighted the southern potential for on-site power
generation, replacing South Island imports of 80,000 tonnes
of lpg with csg, big-business opportunities such as Fonterra
and Tiwai Pt, with which L&M Energy has been in
preliminary talks, and also domestic supplies.
Mr Bay updated investors on what the Waitutu offshore
Southland petroleum permit held, predicting it would cost
$US25 million to explore further.
Partners might be sought, but going ahead was "a coin toss",
because of the high expenses involved.
