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Minnow navigates Russian rapids

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Minnow navigates Russian rapids

By Michael Kavanagh

Published: August 27 2008 03:00 | Last updated: August 27 2008 03:00

The prospect of an agreed exit at £12.50 a share means that Imperial Energy, a relative minnow, could argue it has managed to navigate the treacherous waters of business in Russia more successfully than majors such as BP and Shell, writesMichael Kavanagh .

Investors enjoyed a volatile but rising run from its 25p a share debut in 2004 until 2006 as it set out to secure and develop oil licences in Siberia.

But a spectacular rise from below 473p to above £11.50 in the first few months of 2007 was brought to a sudden halt as the darling of the oil mid-caps was hit by allegations of irregularities by Russia’s Ministry of Natural Resources, which threatened to revoke Imperial’s licences.

The threats from the environmental agency, led by Oleg Mitvol, caused the shares to fall back to near 650p.

After normal relations were restored under the chairmanship of Peter Levine, the share price recovered as Imperial found itself being courted by Russia’s state-controlled Gazprom, which was keen to acquire a 25 per cent stake.

Mr Levine declined the overture though the approach lifted Imperial’s shares as high as £13.92 in January this year.

Shareholders were not out of the Siberian woods yet.

After rebuffing Gazprom, Imperial was forced into a discounted rights issue at 600p as the credit crunch forced it to tap investors for $600m to help fund oil field development and pay off debt.

As recently as June, the shares traded below 800p, significantly less than the ONGC offer.

RELATED FT ARTICLE

Imperial deal points to a richer route out of Russia

By Andrew Hill

Published: August 27 2008 03:00 | Last updated: August 27 2008 03:00

There are two ways for the west’s oilmen to exit Russia. The Robert Dudley route: by the backdoor, pursued by bear, for an exile’s existence “Somewhere in Central Europe”. Or the Peter Levine route: via the red carpet, with £90m of spending money, for the riviera of your choice.

Yet the trajectory of Imperial Energy, founded by Mr Levine, is not a straight line from Aim to fortune. Less than a year ago, a fierce stand-off with the Russian regulator was followed by an approach from Gazprom to buy a minority stake. At the time, you might even have bet that Mr Levine’s fate would match that of TNK-BP’s Mr Dudley, condemned by a politicised power struggle to run the company from a secret location.

Now India’s Oil and Natural Gas Corp has launched an agreed bid, are there any other surprises in store for Mr Levine?

Imperial’s chairman was careful yesterday to make frequent reference to fat ladies not yet having sung. His caution is natural for a man who as recently as spring was shunned by bank lenders and forced to raise funds for Imperial through a rights issue. But only two events could delay the final curtain. One would be a decision by the Russian authorities to block state-controlled ONGC on antitrust or anti-Indian grounds. Another would be the emergence of an even fatter lady in the form of China’s Sinopec, with a higher bid.

The first is the least likely. Assuming a large part of behind-the-scenes manoeuvring towards yesterday’s announcement must have taken place between two nuclear powers, there would be more at stake than Mr Levine’s retirement pot if Moscow imposed a last-minute veto. Still, stranger things have happened.

As for the second, Mr Levine and the Imperial directors have pledged their shares irrevocably to ONGC, as has Baillie Gifford, Imperial’s biggest shareholder. But the latter has reserved the right to switch allegiance if an offer emerges at a 10 per cent premium to ONGC’s, leaving the door ajar for the slim chance of a counter-bid.

Imperial shares stand at a small discount to the offer price. One option for other investors would be to cash in now – if you first invested four years ago when the shares stood at 25p, that would be the safe way out. Others can afford to stay put in the hope of a final positive twist.

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