Imperial surges on ONGC approach

Imperial Energy, the Russia-focused oil company, has been approached by ONGC, the government-owned Indian company, about a possible takeover.

Shares in Imperial, one of the worse market performers among mid-sized oil companies in London this year, soared after it revealed the approach, without naming the possible bidder. They closed 138p higher at 910p, valuing the equity at £930m.

However, the company warned there was no certainty of a bid being made, and analysts said ONGC did not have a good record of concluding deals.

Imperial has had a busy couple of years, including a sharp upward revision of its reserves estimates, threats from the Russian authorities, an approach for a stake from a unit of Gazprom, Russia’s state-controlled gas company, and a deeply discounted rights issue.

An offer from ONGC would provide some certainty for investors after a year in which the shares have been as high as £14.27 and as low as 637p. A bid of about £13 a share was suggested yesterday as needed to secure the board’s agreement.

Tony Alves, an oil analyst at Peel Hunt, said Russian reserves tended to be valued at $2 to $2.50 a barrel in transactions. With Imperial having booked reserves of about 920m barrels, that would value the company at £10.50 to £12.75 a share.

JPMorgan Cazenove, however, has suggested a core net asset value of £12.40 a share, based on a long-term oil price of $75 a barrel, with higher values based on a higher oil price or allowing for Russia’s planned cuts in oil company taxes.

Imperial was forced to put out a statement yesterday morning after after the Times of India newspaper reported that ONGC was interested in taking a stake and forming a strategic alliance with Imperial. The statement made it clear that the talks involved a possible full bid for the company. People close to the talks suggested they had been going on for a few weeks.

Analysts said the interest from ONGC would have been based on top-level agreement between the Indian and Russian governments.

Manmohan Singh, India’s prime minister, held what was reported to be a friendly meeting with Dmitry Medvedev, Russia’s president, at the G8 summit in Japan this month. Mr Singh talked about how “owing to economic contacts with Russia, we are making steady headway in the production of hydrocarbons”, according to the official Russian account.

New laws in Russia will limit the extent of foreign investment allowed in companies involved in large-scale oil and gas extraction.

But Steven Dashevsky, head of research at UniCredit in Moscow, said he thought that was unlikely to create a problem for ONGC in buying Imperial.

“The company is not really that big by Russian standards,” he said. “Clearly any deal like that would require informal approval from the Kremlin but I don’t think Imperial really falls under the definition of strategic resources.”

A deal with ONGC would put an end to the nervousness about the position of the Russian authorities that has dogged Imperial. After the company announced last year that it had raised its estimate of proved and probable reserves by 150 per cent to more than 800m barrels of oil equivalent, Oleg Mitvol of Russia’s natural resources ministry raised threats to Imperial’s licences.

Mr Mitvol had led the pressure on Royal Dutch Shell over its Sakhalin 2 oil and gas project off the east coast of Russia, which led to it having to cede control in the project to Gazprom.

This year, the Russian ministry said that it had “no reasons to suspect Imperial had broken any of its obligations”, but the problems faced by TNK-BP, BP’s 50 per cent joint venture, mean that Russia is still seen as a risky country in which to operate.

Additional reporting by Catherine Belton.