Petroceltic investor feud flares once again

Activist investor Worldview Capital Management has ignited a fresh war with Irish exploration firm Petroceltic, claiming the latter’s debt-raising plans put control of its chief asset at stake.

The Swiss-domiciled investment fund manager— which has a near 30% stake in Petroceltic — yesterday opined that the Irish firm has “run out of money” and is effectively gambling its key Algerian operations against an expensive round of debt funding.

Earlier this week, Petroceltic announced its intention to raise $175m (€157m), via a three-year maturity bond sale, to mainly cover capital expenditure needs for the Ain Tsila gas field in Algeria, as well as to pay off existing debt and for general corporate purposes. Worldview wants to stop the action and put it to a shareholder vote.

Petroceltic holds just over 38% of Ain Tsila after two successful farm-out deals. With 10tn cubic feet of proven gas reserves, it is easily its chief asset. Around $2bn is expected to be spent at Ain Tsila over its lifetime and first commercial flow is anticipated by late 2018.

Petroceltic’s costs on the Algerian field are set to be covered to the end of 2016, thanks to this bond deal and an existing cost carry from project partner, Sonatrach. Management noted, this week, that the bond raise should close this month and that strong appetite for the debt exists.

However, it is set to lend at a yield of between 10% and 13% and is likely to return to the bond markets next year to meet further funding requirements for the Algerian operations.

Worldview has slammed the bond plan, saying that it could squander shareholder value and jeopardise the company’s chief asset.

In essence, Worldview — which five months ago failed in an effort to oust Petroceltic’s CEO, Brian O’Cathain and boost its representation on the Dublin firm’s board — feels Petroceltic won’t be able to generate enough cash to support the bond repayments and, using Ain Tsila as collateral, will lose the asset to its new creditors.

Petroceltic, this week, also reported a 2014 loss of nearly $282m (up from $19m) on the back of an impairment charge and costs related to unsuccessful drilling rounds in Egypt and regions it has since exited such as Romania and Kurdistan.

“Owing to the company’s consistent inability to produce sufficient cash flows, proceeding with the bond issue on the announced terms would, in our view, likely result in bondholders eventually securing the world-class asset for a derisory sum,” Worldview said yesterday.

The attack comes three weeks before Petroceltic’s AGM, but Worldview has called for a separate EGM for shareholders to vote on the bond issue, calling it an abuse of Petroceltic’s borrowing powers and an example of “poor corporate governance”.

The investment firm has also reiterated its ability to provide necessary financing via its own links with major global investors.

In a brief response, a spokesperson for Petroceltic suggested that the Swiss fund looks to be renewing its attempts to gain board control, “that were clearly rejected by shareholders”.

“Petroceltic’s long-term funding plan — including the intention to raise bond financing — has been well-documented and clearly communicated, as recently as the capital markets day in January 2015, to both investors and the markets; who, outside of Worldview, are supportive of this strategy,” they added.

In a research note on Petroceltic, RBC Capital Markets in London said that although additional debt may be more expensive, “we believe concerns are overplayed”.

Meanwhile, Worldview now intends to bring its legal case against Petroceltic — in which it accused the company of failing to undertake a promised strategic review of its business last year — to the High Court in Dublin, having lost the case in London this week.