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HCI SLIPS INTO OIL WITH OFFSHORE FIRM

14 Aug Mining

INVESTMENT conglomerate Hosken Consolidated Investments (HCI) has broadened its exposure to the energy sector by snatching a stake in an offshore oil company.

Earlier this week HCI, which already holds coal mining and soon to be unbundled natural gas production assets, bought a 13% stake in Impact Oil & Gas (IOG) through a subscription of ordinary shares for US$17m.

The agreement makes provision for HCI to subscribe for another 7% of IOG for $8m to push its stake to 20%.

The additional share purchase, however, is subject to Reserve Bank approval.

IOG was founded in 2009 by Mike Doherty. Doherty is an industry veteran and was a co-founder of Merlin Geophysical Company in 1979, which later merged with Seismic Profilers to form an integrated acquisition and processing company called Merlin Profilers (acquired a few years later by Schlumberger).

Doherty also served as CEO of listed Ardmore Petroleum (which later merged with Tuskar Resources Plc) and CEO of Toronto-listed Trans-Dominion Energy Corp.

Explorations

IOG targets areas off the coast of SA in a bid to secure petroleum exploration licences. According to IOG’s website, it is exploring for oil in the Transkei and Algoa Basin, as well as the Western Bredasdorp Basin and the Tugela Fan.

Its African efforts include Guinea-Bissau, Gabon and Namibia.

IOG seemingly has no ambitions to be a producer, but rather intends to farm out the exploration licence to a larger oil company.

HCI CEO Johnny Copelyn notes that IOG has already secured a partnership with ExxonMobil to work on an exploration programme off the SA coast.

“Together, the two companies are working on a substantial exploration programme off the coast of South Africa.”

The value of the IOG deal represents just 1,3% of HCI’s market capitalisation. But whether HCI is intent on creating an energy hub in its investment portfolio remains to be seen.

HCI already runs a profitable coal mining company anchored on the promising Palesa Colliery. It racked up almost 2Mt in the year to end-March.

Sustainable

In that period the coal interest generated revenue of R556m and profits of R86m.

HCI, though, is having less luck with Montauk Energy, which produces natural gas from landfill sites in the US.

Montauk’s projects are not yet sustainable in the US, where the current abundance of available supply of natural gas from shale formations and a warm winter has kept a lid on natural gas prices.

Montauk reported a sharp drop in profits to $2,9m and, despite poor prospects for the short term, HCI proposed earlier this year to unbundle the investment to shareholders and list the company separately.

Market watchers, though, believe a chance of forming a diversified energy hub might appeal to HCI, and it might defer the decision on unbundling Montauk.

“It’s possible HCI may prefer to accumulate energy assets and then unbundle and separately list a more diversified company rather than hand Montauk over to shareholders who might not be that keen to hold shares in a small alternative energy play,” an analyst says.

Source: Financial Mail – Marc Hasenfuss