Altinex Board: Noreco's Offer Undervalues Company's Shares

The Board of Altinex has found it necessary to inform its shareholders about the Company's asset values and strategy. This is a consequence of the recent announced share offer to be made by Noreco.

First of all the strategy of Altinex is to build a low-risk Exploration & Production asset portfolio, well-balanced between production, discoveries and exploration projects. The main value drivers are strong cash flow, short lead-times and technical competence.

So far this has proved to be a successful strategy resulting in a company with 22 production licenses, 6-7 fields in production, 8 discoveries and a number of exploration licenses. The portfolio has been built over a time period of three years.

Altinex produces around 10-11 000 boe/day, resulting in an annual income of USD 250 million (at $70/boe for the remaining three quarters of 2007). The free cashflow after tax, before capex and debt repayments is in the order of USD 90 million per year, giving a strong basis for self funded growth. The company's tax position is very favorable with an average tax rate between 40-50% giving a very strong after-tax position.

Recently Altinex and its organization has once again proven its ability as an exploration company with a very interesting operated discovery in the Danish Rau-1 well and two new significant discoveries in the UK Huntington well. All in all a very successful drilling campaign resulting in even higher shareholder values.


It has been registered that Noreco's intention is to merge the two companies. Altinex has the following comments to this:

The Noreco asset portfolio consists mostly of Norwegian licenses granted during the last two Norwegian licensing rounds. Most of the prospects are in our opinion high-risk, expensive and with long lead times characterized by complicated geology, deepwater and requiring substantial investments to explore and develop.

Noreco has no oil or gas production and no fields or discoveries under development.

Many of the licenses do not have a drilling commitment indicating the risky nature of the projects.

Essentially the Noreco strategy is thus very different to the Altinex strategy. This means that the strategic fit between the two companies is limited, and based on the Board's present information the industrial logic for a merger between the two companies is not clear.

The value of the Noreco portfolio to Altinex is consequently limited. If Altinex should want a look-alike portfolio to the one of Noreco it would be more rational to acquire it in the market, and not go through a "forced" merger.


Altinex has a diversified portfolio of 7 producing fields (including Enoch). P1 and P2 reserves from these producing fields, including South Arne Northern Extension, are 34.5 mill boe. In addition there are P3 reserves of 11.2 mill boe adding substantial value and upside potential.

In addition Altinex has a substantial reserve and resource base in 8 discoveries, including recent discoveries in Rau and Huntington. The earlier reported P50 reserve and resource figures for 5 discoveries were in the range of 40 mill boe. With the recent discovery in Rau and the two discoveries in Huntington this figure is considerably larger. Most of these discoveries can be developed fast.

Using the present oil price forward curve, and not placing any value on the Altinex exploration potential, Altinex has an asset value on producing fields and discoveries in the range of 3,15-3,45 NOK per share. The net interesting bearing debt in Altinex is around 235 mill $ or approximately 0,72 NOK per share. This gives an equity value before exploration potential of approximately 2,40-2,70 per share.

Altinex's has furthermore a considerable exploration portfolio with focus on mature areas and short lead time projects in Norway, Denmark, UK, Germany and Oman.

This figure is far above the recent share price offered by Noreco, and it is therefore the board's duty to inform the market and shareholders about its view regarding the underlying values in Altinex.