Egdon Resources (LON: EDR) shares jumped 90% this morning on the announcement of a bid to take the company private. The directors who hold shares are all in favour, there is already 14% or so of the equity pledged to the bid - it's highly likely to go through. Given the relationship between the bidder (HEYCO, effectively) and Egdon it's most unlikely that there will be another bidder. There's also little gap between the price of the bid and the current share price so there's not much for us to do in terms of speculation upon success or higher bids.
However, we can also see this as a wider consideration about ESG (environmental, social, governance) investing and even squeeze in a mention of J Paul Getty. That oil billionaire did point out that sometimes it was cheaper to go drilling for oil on the floor of the stock exchange. By which he meant that oil and gas assets can be built - by actually going out exploring, drilling and so on - and that the stock market value of doing this successfully was more than the cost of doing so. So, at that point, go out drilling. But there are other times when companies on the stock exchange are cheaper than their assets. It's cheaper to buy an extant company than it is to go drilling - or has he put it, go drilling on the stock exchange.
Egdon Resources share price from London Stock Exchange
The specific complaint that Egdon has, the reason for the HEYCO bid, is the contention that drilling on the stock exchange is now cheaper. Or, as they put it: “we have held the belief that the public market hasn't fully recognized Egdon's full value.” The reason? That ESG investing fad.
A part of that movement is to insist that no one - certainly not pension funds, insurance companies and so on - should invest in fossil fuels. If they did this would make Gaia sad so therefore don't do that. Well, what happens if a major part of the market refuses to buy a certain class of stocks? The value of those stocks falls. Possibly to - and this is the HEYCO contention - below objective value. It's therefore cheaper to pick up oil and gas assets on the stock market than it is to go drilling elsewhere.
So, buy a quoted company, take it private then profit. Which is a pity for us as that means we out here can't share in that future profit. But that is what ESG investing means - oil and gas stocks are cheap and some of them will be taken private as a result.
Which does give us an avenue of speculation. So, which others of the oil juniors are likely to be taken private under the same incentives? That's something that deserves more study.