Northern Petroleum – 61.75p: Surely a snip?

I am actually on holiday this week having fun writing about Cheryl Cole, Rinka, Polly Toynbee, cheap beer, Linkedin hackers and all sorts of things non-financial. But I am drawn back to the world finance by a crazy share price.

The market cap of this company with cash and which is profitable is now sub £60 million. This is crackers. I know that Northern Petroleum (NOP) has not always hit its targets but this is just silly season stuff.

Why are the shares tanking? The oil price is down and although Northern is primarily a gas play that is hitting sentiment. Smaller companies are unloved generally. As a company with assets in 5 countries it is not a natural bid target but surely it is a natural break up play? Some folks think the boss, my pal Derek Musgrove is a bit gruff and combative and that does not always endear him to posh boy City fund managers. I suspect there is an institutional seller but cannot prove it and in the current nervous climate shares can move sharply on thin volumes. Thus the shares could go lower in the short term. But remember that Northern is profitable and then look at its asset backing:

Cash – call it £15-20 million
UK assets ( a bit of production & some exploration upside) – call it £2-8 million
Guyane (based on the recent Wessex offer a 1.25% stake in this elephant prospect is worth £60 million to Northern)
Holland – (Generating £10-20 million cashflow this year – must be worth £40-100 million)
Dutch Shale assets – (could be worth a bomb or nothing)
Italy – (Exploration laws are being relaxed, 52 mmboe proven, a raft of farm outs agreed – value £50-£150 million).

Now it could well be that there is no break up of Northern or that it cannot monetize its Italian assets in any way but you cannot argue with the clear commercial value of a) cash, b) Dutch cashflow or c) Guyane. Right now if you buy Northern’s shares you are paying only for Guyane. The cash, Holland, UK, Italy, Dutch shale etc are all in there for free.

Short term – who knows. Longer term surely this is the wrong price?