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New World Oil & Gas: analysis of Paternoster’s 8% purchase

By Ben Turney | Tuesday 22 September 2015

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

This morning, Paternoster Resources (PRS) announced it has bought an 8% stake in New World Oil & Gas (NEW). In yet another unexpected twist in the unfolding New World story, Paternoster’s motives are unclear. With New World’s AGM looming, shareholders in the company will be faced with a clear choice. Support the existing failed management and plan, or vote in Adam Reynolds and his team. Given this situation, there will be speculation why Paternoster has chosen to buy into New World at this particular point. However, judging by the manner and method of its announcement today, there could be some interesting clues that might help answer at least some of the questions.

The first point to note is that New World has not announced Paternoster’s purchase of 8% through issuing a TR1. New World’s board did not have authority to issue more shares, so that rules out a direct investment. The lack of a TR1 suggests that Paternoster bought its stake in off market transaction. If that is the case, then there is only one source of those shares; Alliance Trust Saving’s accidental position in the company.

Paternoster paid 0.07p per share for its stake in New World, roughly 18% above the previous day’s close. This price is significant, as the evidence suggests it was the price at which Alliance Trust was unwinding its accidental position in New World.

Since Alliance Trust first announced its stake in New World, every time New World’s share price traded above 0.07p it ran into heavy selling. Not only did this put a cap on any share price gains, but also it was clear that Alliance Trust must have been the seller. Alliance Trust all but confirmed this, through formally announcing its reduction in holding immediately after each occasion when New World’s share price broke through 0.07p.

Assuming that Paternoster bought the balance (or at least the majority of the balance) of Alliance Trust’s stake, the manner of its announcement suggests New World’s board was unaware of this transaction. After all, if New World’s board was aware that Paternoster was going to take an 8% stake in its company, surely it would have issued an RNS at the same time as Paternoster’s. This is the norm when two boards of directors are cooperating.

If my analysis about this is correct, this suggests to me New World’s directors could be even more in the cold than they were yesterday. So long as Alliance Trust held its stake, there was a chance that it might have voted in favour of the existing management at the forthcoming AGM. Large companies shy away from corporate votes. If they do vote, they tend to vote in favour of incumbents.

Although we can’t be sure how or if Paternoster will vote at the forthcoming AGM, it holds 5% less of the company than NWOGaction, the shareholder action group. Given that NWOGaction has put its weight behind Reynolds and his team, it wouldn’t make sense for Paternoster to swim against this tide, unless it has a spectacular plan up its sleeve.

One thing we can be sure of is that spudding an exploration well in Belize before 15 October, as New World CEO Peter Sztyk as made clear he wants to do, is not a spectacular plan. It would be grossly negligent, unless New World can find a partner to co-fund at least two thirds of the well costs. Given that it has failed to do this in over two and a half years of “trying”, it is impossible to believe it will find a partner this close to the licence expiry’s deadline. Any speculation that Paternoster might be such a partner seems misplaced, on the basis that its board does not appear to be cooperating with New World’s.

Although it would be foolish to rule anything out before the AGM vote, this all looks very positive for New World’s shareholders. Commenting on his company’s purchase of New World stock, Paternoster Chairman Nicholas Lee said “we look forward to realizing significant value for shareholders from this investment."

Make of that what you will, but it must a fairly safe assumption that Lee does not expect New World’s current board, with its wretched track record, to deliver this.

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  1. Its a shame Hot stock Rockets bottled it and called a sell . I am still in with a token gesture 1mill shares . All good fun . Hope to get some substantial beer fund tokens eventually for those long dark winter nights . Its the dark days before Christmas .

  2. Interesting that paternoster holds a 10% stake in MTR who in turn hold a large new holding themselves , now I know those 2 bods do speak to each other

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