Hartshead Resources NL (PGNYF:OTCMKTS;HHR:ASX) agreed to farm out some of its assets and is raising AU$20M in equity, reported Auctus Advisors analyst Stephane Foucaud in an April 5 research note. Based on these developments, Auctus lowered its target price on the Australian oil and gas company to AU$0.17 per share from AU$0.18.
"Overall, this transaction provides an industry valuation on Hartshead's equity well of AU$0.088–0.117 per share, which is well above the current share price," AU$0.043, Foucaud wrote. "It also provides Hartshead with enough funding to reach first gas."
Consideration in Detail
Hartshead agreed to farm out 60% of its Southern Gas Basin assets in the United Kingdom (U.K.) to RockRose Energy, an independent oil and gas production and infrastructure company.
In exchange, RockRose will pay Hartshead AU$52.9M in cash in three tranches and carry Hartshead's net development cost for up to AU$95M for phase one, starting at the time of the final investment decision (FID).
As for the timing of the payments, AU$12.2M is due on closing of the deal, AU$9.8M is to be paid on FID and AU$31.7M is due when the final development plan is approved, expected later in 2023.
Added Tax Benefit
Foucaud pointed out Hartshead will also gain a significant tax break with the transaction. Because part of the consideration is cash versus a net carry, Hartshead can fund a larger share of capex and, thus, capitalize on a related, U.K. tax advantage, amounting to about AU$48M in this case. That is that companies can deduct about 90% of U.K. capex from payable taxes.
AU$196M in Total Proceeds
The total consideration to be paid by RockRose comes to about AU$148M, or AU$0.053 per share, Foucaud noted. This is well above the price of the equity raise, which is AU$0.04 per share.
Adding the tax benefit boosts overall net proceeds to Hartshead to about AU$196M or AU$0.07 per share.
The value of the 40% of U.K. assets Hartshead is retaining is about AU$99M, or AU$0.035–0.047 per share.
Funded to First Gas
Hartshead's portion of gross capex to start gas production is US$100M. The company will fund this with proceeds from its asset farm-out and its equity raise.
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Disclosures For Auctus Advisors, Hartshead Resources NL, April 5, 2023
Hartshead Resources (“Hartshead” or the “Company”) is a corporate client of Auctus Advisors LLP (“Auctus”). Auctus receives, and has received in the past 12 months, compensation for providing corporate broking and/or investment banking services to the Company, including the publication and dissemination of marketing material from time to time.
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