View from City Road: There are better bets than Lasmo

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The Independent Online
If they had any sense, shareholders in Lasmo, the ailing oil independent, would stick two fingers up at yesterday's cash call - a pounds 219m rights issue.

Since its ill-fated acquisition of Ultramar two and a bit years ago, Lasmo's share price has plummeted and the company has lurched precariously from one crisis to the next. Lasmo has squandered shareholders' money on a scale that makes Robert Maxwell's raid on his pensioners look tame by comparison. Furthermore, you don't need a great deal of intelligence to work out that pounds 219m isn't enough, not nearly enough, to restore the company to health.

With no immediate prospect of a sharp recovery in the oil price and production still some years off for many of Lasmo's oil and gas plays, the company in truth needs more like pounds 400m to do the trick.

As it is, Schroders, the company's merchant bank adviser, has probably done enough to ensure success. Having worked so hard to get Lasmo into its present mess (it took a hefty fee for advising on the Ultramar deal), Schroders presumably feels honour-bound to help it out again. Rudolf Agnew, who has a long tradition of working with Schroders, has been persuaded to become chairman in an attempt to restore confidence. He may not be the best choice - many in the City would have preferred Sir Alastair Morton but he's not ready to give up Eurotunnel yet - but he's certainly an industrialist of sufficient stature to command support.

The issue is also deepishly discounted, leaving shareholders with little option but to take up their rights. If they don't they face significant dilution. In the end they have little choice but to cough up. Otherwise, the company is in trouble.

Shareholders are nevertheless being asked to take a lot on trust. If past experience is anything to go by, the latest pounds 219m will be just sufficient to tide Lasmo over to the next crisis. The hope is that in the meantime the oil price will rise and all will be well. Given Lasmo's luck, however, it's much more likely that it won't. It's cruel to say it, but those who think the oil price is set to recover (there's certainly a reasonable case for it), might find it a lot safer to stick their money in the commodity markets.

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