This oil company will be bought by the CEO for 12.50 usd per share.
I am a big fan of companies paying out, including merger arbitrages with a big spread. After the announcement the price stabilized around 10.50 for a while. Now it is still just below 11. The spread reflects the uncertainty of the CEO being able to get financing for his offer. There is also the possibility that the other shareholders reject the offer, after which the share price will plummet.
Venoco's CEO already has about halve of the shares. Originally I suppose he had all the shares of this 600 million dollar smallcap. After the company went public he sold for about 50 million dollar common stock for 15 usd per share or above. In the mean time the value of the company has increased due to a rising oil price and some other favorable developments.
Their oil production costs are slightly above 40 usd per barrel. This information is not exactly provided in their 10-Q or K but an indication is given for the average production costs, oil and gas together. Given 40 usd costs per barrel oil they can make a margin of about 40 usd per barrel oil.
So just the proven oil reserves of 42.8 million barrels alone accounts for a value of about 1600 million usd. At takeover price the market value of the company plus the debts minus the cash (enterprise value) is only 1420 million usd.
And this reflects only the value of the oil reserves, I did not do the same computation for the gas reserves. It seems that the proven gas reserves account for a couple of hundreds million usd of extra value.
The company makes a solid profit but has also been heavily investing in exploration. The forward PE is about 11 according Yahoo. The company has a negative book value. Last year they made some one-time losses in hedging the price of their oil production. Last year they also got the permit to build a pipeline which will reduce their oil production costs with a few dollars per barrel.
Proven oil reserves are relatively easy to exchange for cash. So given the proven reserves, the CEO's wealth and the profitability of the company I would be surprised if he could not find financing for the offer.
Is the offer too low? Most miners trade well below their proven reserves minus costs since there are environmental and legal risks involved getting the oil and gas out of the soil. And of course the oil and gas price might decrease.
On the other hand, I would not be surprised if they discovered some huge reserves just after the management buyout.