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OIL and intrigue go together. Just like the old TV series Dallas – where there was always some scandal going on revolving on oil.
It's no different with oil exploration and production in Africa.
SacOil Holdings [JSE:SCL], a relatively small company listed on the JSE and soon to be listed in the Alternative Investment Market on the London Stock Exchange, doesn't want controversy.
But it's there, through promising but complicated deals in Nigeria and the Democratic Republic of Congo (DRC) and a volatile share price.
To that can be added a bonus payment scheme linked to the increase in market capitalisation – which we'd question.
It's one of the best, probably the best, performing share on the JSE. Over calendar 2010 it shot up an incredible 867%, going from a serious small cap at 15 cents per share to 174c/share, along the way touching a high of 196c/share.
Year to date performance has been even better at 920%.
But the share price is volatile. Last Monday it lost 8.1% to close at 204c/share.
In the seven days to Monday its share price was down 20.6%, but over 30 days it was up 21.4%. Looked at another way, the share price has moved through a range of 15c/share to 257c share over the past year.
Even a skilled trader is going to have difficulty trying to read the share price.
SacOil CEO Robin Vela puts the volatility down to a significant retail shareholder base.
"The share trades a lot and the price is probably volatile because retail shareholders get in and out, often based on emotion. However, we do have a solid base of institutional shareholders."
Those include Metropolitan Asset Managers and, more recently, the PIC, which bought 7.4% of SacOil's equity at an attractive discount of 150c/share.
However, the PIC received some criticism for making a speculative investment.
The main driver of its share price is potential deals or, more exactly, the announcement of potential deals.
There are three "close to production" deals: two in Nigeria and the latest in the DRC. The latter has Total as a partner committing significant funding.
But Vela says drilling and oil production probably won't start until 2014.
"You must look at the fundamentals. We've completely 'de-risked' the Block 3 project with Total in the DRC, getting cash paid up front. On top of which Total is covering us for exploration expenses, conservatively about $70m. Additional money coming into the deal from Total will be a further $61.5m."
The estimated resource size of Block 3 is 260 million barrels, of which SacOil directly holds 12.5%. Though much still lies in the potential those are serious deals, making SacOil an interesting company with a growing presence in the West African oilfields. But can that justify its rampant if volatile share price?
More contentious are the "AIM admission bonuses" to be paid, though still subject to shareholder approval, to Vela and director Colin Bird.
Respectively, they're entitled to an amount equal to 1.5% and 0.5% of the increase in SacOil's market capitalisation between September 20 2010 to the date of listing in London, probably on April 8.
That looks like a conflict of interest and the perception, at least, that the two directors might try and boost its share price.
Vela says the company can't make any announcements before listing on AIM that would influence the share price.
"According to AIM, no announcements can be made within 20 days of admission. What's in the public domain now is all that will be – we can't influence the share price."
One reason for the London listing is because Vela feels South African investors undervalue SacOil. We'd argue the opposite. Despite its potential this is a share price that must, at some stage, return to ground.
* This article was first published in Finweek.
* To read more Finweek articles, click here.
It's no different with oil exploration and production in Africa.
SacOil Holdings [JSE:SCL], a relatively small company listed on the JSE and soon to be listed in the Alternative Investment Market on the London Stock Exchange, doesn't want controversy.
But it's there, through promising but complicated deals in Nigeria and the Democratic Republic of Congo (DRC) and a volatile share price.
To that can be added a bonus payment scheme linked to the increase in market capitalisation – which we'd question.
It's one of the best, probably the best, performing share on the JSE. Over calendar 2010 it shot up an incredible 867%, going from a serious small cap at 15 cents per share to 174c/share, along the way touching a high of 196c/share.
Year to date performance has been even better at 920%.
But the share price is volatile. Last Monday it lost 8.1% to close at 204c/share.
In the seven days to Monday its share price was down 20.6%, but over 30 days it was up 21.4%. Looked at another way, the share price has moved through a range of 15c/share to 257c share over the past year.
Even a skilled trader is going to have difficulty trying to read the share price.
SacOil CEO Robin Vela puts the volatility down to a significant retail shareholder base.
"The share trades a lot and the price is probably volatile because retail shareholders get in and out, often based on emotion. However, we do have a solid base of institutional shareholders."
Those include Metropolitan Asset Managers and, more recently, the PIC, which bought 7.4% of SacOil's equity at an attractive discount of 150c/share.
However, the PIC received some criticism for making a speculative investment.
The main driver of its share price is potential deals or, more exactly, the announcement of potential deals.
There are three "close to production" deals: two in Nigeria and the latest in the DRC. The latter has Total as a partner committing significant funding.
But Vela says drilling and oil production probably won't start until 2014.
"You must look at the fundamentals. We've completely 'de-risked' the Block 3 project with Total in the DRC, getting cash paid up front. On top of which Total is covering us for exploration expenses, conservatively about $70m. Additional money coming into the deal from Total will be a further $61.5m."
The estimated resource size of Block 3 is 260 million barrels, of which SacOil directly holds 12.5%. Though much still lies in the potential those are serious deals, making SacOil an interesting company with a growing presence in the West African oilfields. But can that justify its rampant if volatile share price?
More contentious are the "AIM admission bonuses" to be paid, though still subject to shareholder approval, to Vela and director Colin Bird.
Respectively, they're entitled to an amount equal to 1.5% and 0.5% of the increase in SacOil's market capitalisation between September 20 2010 to the date of listing in London, probably on April 8.
That looks like a conflict of interest and the perception, at least, that the two directors might try and boost its share price.
Vela says the company can't make any announcements before listing on AIM that would influence the share price.
"According to AIM, no announcements can be made within 20 days of admission. What's in the public domain now is all that will be – we can't influence the share price."
One reason for the London listing is because Vela feels South African investors undervalue SacOil. We'd argue the opposite. Despite its potential this is a share price that must, at some stage, return to ground.
* This article was first published in Finweek.
* To read more Finweek articles, click here.
