Path Investments (“Path” or “the Company”) is an energy investment company, which is seeking a listing on the Standard List of the London Stock Exchange. Path expects to be admitted to the Standard List via an IPO on Thursday 30 March 2017 and aims to raise a minimum of £1million and maximum of £2.5million at 1p per share. On admission to trading Path’s market capitalisation will be between £1.22million and £2.72million.
Path is designed to be a low risk oil & gas play. The highlights of its business model include:
- Path will target acquisitions in oil & gas production or near production assets, with the intention of taking advantage of the opportunities presented by the low oil price environment. Path will target both listed and unlisted acquisitions. By investing directly in assets path expects to have a greater degree of control over risk management, investment decisions and cashflows.
- Path has 30 current Non-Disclosure Agreements (“NDAs”) with potential target acquisitions.
- Paths board has a track record of success in the oil & gas market. In making investment decisions it is guided by the maturity of asset development, life of income stream and potential for growth.
- Members of Path’s Avisory Committee, which will contribute to investment decisions, have been chosen to help conduct due diligence, identify targets, facilitate transactions and advise on target assessments.
- Path’s goal is to make dividend payments to shareholders on investment success.
- To help enlist support from investors, the directors have waived salaries accrued over 4 years (up to the point of listing) worth £917,119 in exchange for 73,187,500 options. If exercised, these options will raise an additional £587,000 for the Company. Full details are described on Page 15 of the Pathfinder document (linked below).
- The directors are subject to a six-month lock-in period.
The previous sustained period during which oil was priced at $100 a barrel or more had seen companies raise their appetite for risk; not just in exploration activity but also by investing in high cost appraisal and development programmes. The fall in commodity prices has led to pressure on project commitments and cash flow shortages which has left many proven and producing projects starved of capital. This is particularly acute at the smaller end of the quoted sector where exploration exposure is much higher.
It is possible for investors to acquire interests in assets which are both economic today as well as having development potential for the future. In addition to the fall in the cost of assets, new entrant advantages as an investor include the ongoing reductions in project costs along with, in many cases, significant sunk costs, infrastructure and technical understanding. In certain cases there is also the ability to access the cost or tax pools. Revenue generation from some of these assets can be either imminent or immediate.
The Company does not intend to be an operator of the assets in which it invests, but will seek to provide active management alongside the capital it provides to ensure that the assets are utilised as effectively and economically as possible.
The Company focus will be on identifying quality assets which are, in the opinion of the Directors, underperforming, undeveloped and/or undervalued, and where the Directors believe that their expertise and experience, in conjunction with that of the investee management, can be deployed to facilitate growth or unlock inherent value.
The Company initially intends to target assets amongst the 500+ quoted small and medium sized energy companies on the AIM, ASX and TSX Venture Exchanges.
The Company will apply strict financial hurdles which will include minimum cash pay back periods, a focus on Internal Rates of Return (“IRR”) and a requirement to be economic at today’s prices.
The Company believes the window available to deploy capital is between 24 to 36 months from Admission, and whilst the Company does not have any specific acquisition under consideration, it has been active in seeking out the necessary information sources to identify future opportunities. These range from internal sources such as desk research, existing shareholders, direct approach, institutional investors and country search; and external sources which include private equity, intermediaries, debt providers, regulatory news and industry referral. As a result of this work, the Company currently has 30 NonDisclosure Agreements (“NDA’s”) in place with various energy industry participants.
It is intended that the Executive Directors will conduct the initial appraisals of potential projects and, where they believe a potential opportunity merits detailed project work, it will be passed to the Advisory Committee who will ensure that an appropriately qualified person is available to assist with the detailed technical due diligence. Once due diligence on a proposed investment has been completed, the Board will be required to approve the proposed investment with a view to completing the investment from one of, or a combination of, existing cash resources, new equity financing or debt financing. The asset transaction management process will be managed by the Executive Directors with their work overseen by the Board.
Where appropriate, the Company will establish a local subsidiary office in the target country and expand its head office, including appointing appropriate local and incountry administrative and technical staff.
Stock specific risks
- The company are looking to acquire assets. There is no guarantee they will be able to do this, and furthermore if a bad acquisition is made it could have a negative impact on valuation.
- Development failure or technical production difficulties may impact the shares. Project value may be reduced by poor results.
- Commodity prices will fluctuate, which could affect the economic feasibility of the company’s projects.
- The company may subject to political risk which could have negative consequences on their ability to operate.
Please note that if you are buying outside of market size then this may prevent you from selling the shares at market price.