Lets not kid ourselves here, as etherazer has said, this is a reverse takeover of ROC by Horizon and FINALLY we have documentation which spells this out.
Below is from page 84 of the HZN scheme booklet
" Horizon deemed to be the acquirer"...and not just in accounting purposes
As has been said by critics of the deal all along, ROC are selling themselves even though ROC scrip is being used. HZN initially get 5 out of 8 board positions and even though they have to give up 1 position in 12 months , they effectively run the show.
Usually in a takeover there is a premium paid the the company relinquishing control. Because ROC scrip is being used it is the " legal acquirer" but because ROC is actually giving up control of the merged entity to HZN, then there is NO change in control in HZN which is why HZN holders do not " technically " get a premium. Conversely however, ROC holders should be getting a premium precisely because they are surrendering control to HZN. The fact that no major shareholder is" gaining" control is irrelevant, it is board control that is critical, and ROC are even losing the CEOposition for crying out load!
As for massive increases in revenue because of the Stanley liquids project , HZN will produce condensate at a rate of 900-950 barrels a day ( 4000 x 30% x 0.775). starting in 2016-2017.... hardly massive!
The main game is the Elevala-Ketu complex and it is gas, not liquids which provides the sex appeal
As you can see, the production step up is not until 2021, and that is assuming there is a market for the gas. If you read the documentation, any delay in the gas coming on stream significantly decreases the merger benefits to ROC
As a ROC holder, I do not want a permanent 137% dilution of my capital base, give up control of the company to provide funding to HZN for a possible increase in production in 7 years. If ROC want PNG assets I would rather they buy KPL and achieve the same results on a PER SHARE basis without diluting its capital... they would just have to spend approximately $130 million cash, to pick up a 15% interest in Elevara -Ketu and some fantastic acreage immediately north.
HZN need ROC a hell of a lot more than ROC need HZN... without ROC , HZN holders a looking at substantial funding requirements which will either be in the form of debt, or more likely, as the report states, equity .
Without HZN, in 12 months ROC will have a cash kitty approaching $200 million, more cash coming in the form of the Balai cash return , a production increase due to D35 etc and still only 686 million shares on issue rather than 1.64 billion. If they want to issue 940 million shares to by an asset or company, I would rather the share price be closer to $1 than the current 1/2 buck...now is not the time to issue so much scrip so cheaply, especially when the company is throwing off so much free cashflow.
It is interesting to see that the report totally discounts ROC's ability to extend the Zhao Dong production agreement past the 2019 expiry of the PSC, ( despite management high confidence of a successful outcome), and due to technical uncertainty, only give ROC a 25 % chance that the EOR of the second and third phases will be as currently projected ( 2C reserves), yet despite applying a probability factor of 50%-60% to the NPV of the PNG gas assets of HZN, it is assumed that the HZN 2C reserves will be produced as projected thus it appears ROC's production will fall off a cliff in the next 2-3 years...that is total and utter BS.
Enough said...
IMO this merger will proceed as planned, I hope that my doubts are proved to be seriously erroneous and I will gladly eat humble pie.
Cheers
Dan
ROC Price at posting:
58.5¢ Sentiment: None Disclosure: Held
