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On 21 July 2020, Deltic Energy’s largest shareholder, IPGL, a company held by Tory billionaire Michael Spencer, its support of the board, in rejecting the £12.34 million offer for the company from Reabold Resources.

This follows Deltic’s assessment of Reabold’s offer, in which it stated that the value was not appropriate, did not take into account Deltic’s significant non-cash assets, and ‘does not even reflect the existing cash balance’. Reabold that a valuation lower than the reported cash balance as of March 31 2020 was in fact justified, as Deltic is and will continue to ‘burn through cash’ due to its share in drilling costs.  The company stated:

‘Reabold is mindful that, if Deltic's two planned exploration wells are drilled, assuming Deltic's FY2019 annual corporate cash costs are at a similar level going forward, Deltic shareholders would be left with a diminished cash base at the end of 2022. Reabold believes that this, combined with the uncertainty and delayed nature of the Shell drilling campaign is clearly reflected in the prevailing market price of Deltic's shares prior to Reabold's Possible Offer announcement and that, given the corporate expenditure for an investing company with limited short term activities, which is burning through the cash on Deltic's balance sheet, a valuation of lower than the reported 31 March 2020 cash position is justified.’

Deltic has also expressed ‘serious concerns’ that a tie-up with Reabold would expose shareholders to risky investments, such as its West Newton project, an evaluation to which Reabold expressed  â€˜disappointment’ and ‘surprise’ in light of the fact that ‘West Newton is potentially the largest onshore hydrocarbon discovery in the UK since 1973.’ Reabold noted Deltic’s ‘detailed understanding’ of its assets was prior to the drilling of the West Newton A-2 well and therefore outdated. Reabold went on to state, as per its original announcement, its willingness to provide ‘access to detailed and up to date information and spend time with the Deltic Board and its advisers to explain the significant upside available from its exciting portfolio of assets’ and the ‘complementary nature of the existing Reabold and Deltic portfolios’.

The board of Deltic maintains that the offer ‘does not place an appropriate value on Deltic Energy; lacks any compelling strategic rationale, commercial logic or sufficient operational synergies; and does not reflect the commercial and technical risks associated with the Reabold portfolio and their potentially dilutive impact on Deltic's own portfolio and prospects’.

Market Tracker will continue to monitor this transaction as it develops.