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City broker upgrades Empyrean Energy highlighting ‘risk free’ exploration

Published: 23:52 04 Oct 2016 AEDT

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Cenkos analyst Ashley Kelty upgraded Empryean to ‘buy’ from ‘hold.

Empyrean Energy Plc’s (LON:EME) shareholder pay out effectively means investors are getting a ‘risk free’ option on a US onshore exploration play, according to City broker Cenkos.

The AIM quoted junior oiler, which recently sold its centrepiece asset in a deal worth US$71mln, this morning confirmed plans to release £17.5mln to shareholders. That equates to 7.9p per share for shareholders.

Cenkos analyst Ashley Kelty this morning upgraded Empryean to ‘buy’ from ‘hold’, and increase his target price to 13p from 10p which represents some 55% upside to the share price.

“Empyrean is now focussed upon other exploration and appraisal assets in the portfolio, principally the Eagle Oil Pool in California, and given the current price (which is below the mooted B share value), shareholders will essentially obtain a free option on these assets,” Kelty said in a note.

Kelty highlighted that Empyrean will retain enough cash to cover working capital needs (he estimates about £2.5mln) and it will receive a further £1.9mln of the asset sale proceeds from escrow in the future.

The shareholder pay-out  will be transacted through the issue of newly created B shares, worth 7.9p each, which will be redeemed from shareholders by the company for cash.

Shareholders must first approve the proposal, at a general meeting on October 19.

Investors holding Empyrean’s ordinary shares at 5pm on October 19 will be eligible for the pay-out, and it is expected that the process will be complete by mid-November.

Empyrean’s directors, which together own 11% of the company’s shares, have recommended the proposed cash return and they intend to vote in favour of the proposals.

“The directors believe that the passing of the resolutions is most likely to promote the success of the company for the benefit of its members as a whole,” Empyrean said.

Empyrean’s shareholder windfall comes after the group sold its main asset, a minority stake in the Marathon operated Sugarloaf project. The deal was worth US$71.5mln and it allowed the AIM quoted group to repay its debts and gave it a cash surplus.

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