Companies: RHEP   

AIM-quoted oil services group Rheochem plans to raise A$35 million (£15 million) on the Australian market in September.

Chief executive Haydn Gardner says the London-based company has already received commitments for half the money, which it is seeking at the equivalent of 15p with its scheduled listing on the Australian Stock Exchange. Rheochem, which increased pre-tax profit 45 per cent to £1.25 million last year, has been moving into exploration and production itself and will use the money raised to buy into acreage and projects.

Although he says Rheochem’s existing drilling fluids and related services are catering for a sector growing at more than 30 per cent a year, Gardner is attracted by the potential — and perhaps stock market rating — offered in exploration and production. Using cash flow from its services activities, the company has taken 325 per cent of a US field and bought 33 per cent of another London-based concern, Zeus Petroleum, with stakes in ten North Sea blocks.

Gardner says Rheochem prefers to back companies or projects that have moved from pure exploration to the appraisal stage, now that ventures already in production have become increasingly expensive. He argues a consolidation is under way among the many smaller companies that have assets but are ill-placed to develop them.

Gardner insists Rheochem is not losing enthusiasm for oil services. Expansion is afoot in India and contemplated in New Zealand.

Rheochem's shares, which were floated in 2004 at 16p, soon sped to 26.5p, but then plunged to 8.5p early the next year. The recent conversion of pre-float loan notes at 9.6p has not helped, but at 15.75p, valuing the company at £18.4 million, today’s price is 37 per cent up on Growth Company Investor’s recommendation last year.

They have speculative growth potential, though the timing is uncertain.