Ophir in talks about takeover by Indonesia's Medco

Ophir Energy said it has been approached by Indonesian oil and gas company PT Medco Energi about a potential takeover.

The boards of the two companies were in talks about a possible cash offer for Ophir, which has seen its shares fall almost 90% over the past five years.

A deadline of 28 January has been set for Medco to confirm it is making an offer or to walk away.

Shares in Ophir jumped 37% to 49p in early trading on Wednesday.

The company, which was founded in 2004, listed in London in 2011 and spent five years in the FTSE 250 before the limping share price led to it dropping out of the mid-cap index in 2016.

After years working to develop the Fortuna natural gas discovery offshore Equatorial Guinea, chief executive Nick Cooper stepped down earlier this year, with non-executive director Alan Booth taking over in an interim executive appointment.

The Fortuna development has been hampered by a lack of funding and a loss of key partners, with industry giant Schlumberger pulling out in May.

But in September, Ophir completed the acquisition of producing assets in south-east Asia from Santos and said it will "significantly downsize" its presence in London ahead of its transitioning into being an Asia-led firm, which excited some analysts but was not enough to arrest a 47% decline in the shares last year. Peel Hunt had in December stated a 'buy' recommendation and 58p target price, while UBS had an 80p target price in September, seeing potential for the Santos acquisition to "supercharge" free cash flow.

In early December, a sizeable gas discovery was unearthed in the Sampang production sharing contract, part of the Santos acquisition, with a development plan to be submitted in coming months. The company also said the initial stages of the final phase of the Bualuang development in the Gulf of Thailand had gone well, with the programme delivered on time and under budget.

Analyst Mark Wilson at Jefferies said the Medco discussions "should not come as a surprise", noting Booth's comments that "you build a business that's valuable, so it becomes valuable for the trade".

Wilson said he believes a valuation in line with his core net asset value per share of 52p "could be achievable", citing less conviction as to the strategic value of Ophir in contrast to, for example, Faroe Petroleum's strategic value to DNO.

Russ Mould at AJ Bell said that with Ophir Energy trading at just a fraction of the market value it enjoyed in the early 2010s it is "perhaps unsurprising" a potential cash bid has emerged.

“How generous its Indonesian suitor Medco is prepared to be is open to question. With oil prices still volatile, any deal could flounder over a lack of agreement on what represents a fair value for the business."

Mould said the pivot towards producing assets in South East Asia "has been only partly successful and, should a firm takeover offer materialise, long-suffering shareholders may welcome an opportunity to realise some value from their investment".