A crucial element in the financial success of the Eroton/SLE deal is the ability of OML18 to produce adequate cash flows from the production of oil and gas. If oil and gas prices remain in the $50 range after 2019 then in order for Eroton/SLE to meet their obligations and responsibilities after the current $97 hedge expires they will have to raise OML18 output levels from it's current level of 60mboepd to at least 200mboepd - we know from existing field ratings that OML 18 is capable of providing such a level of output - Energy and services costs,hopefully awarded to SLE, work estimates are mentioned to be worth $539mio and other figures of $ 1.5 bio for oil field services over the next five years - I can't see where all this capital is going to come from - it is obviously an important development requirement to generate the cash flows for the continued payments to all parties -if the oil price doesn't rise back to $100 then it will be needed and somebody will have to provide the cash in the meantime we can certainly enjoy the ride to 2019.
Risers & fallers: Avanti Communications, San Leon Energy, Osirium Technologies, Bellzone Mining, Alexander Mining [Link Removed] 11:12 26 Aug 2016 Here we put the spotlight on Friday's market movers
A long awaited oil deal is drawing to a close - sending San Leon higher Below are some of the main news-driven share price changes at 11am
Avanti Communications Plc (LON:AVN), up 12% to 39.5p. The stock that rose earlier this month on takeover talk was rising again on Friday.
Industrial Multi Property Trust (LON:IMPT), up 12% to 175p. Interim results revealed a rise in asset value, narrowing losses and better occupancy.
Osirium Technologies Plc (LON:OSI), up 12% to 193.5p. The cyber security firm landed a contract to provide an asset management group with its full suite of products for some 3,000 devices. It is a three year deal that will add a material financial contribution in 2016, it said.
Personally the more I read about this deal the more I like the way it has been setup including the choice of Eroton as a company to invest in - if one "has" to invest in an asset in Nigeria - arguable Mart didn't get the cash flows they had expected to enable them to continue with their Nigerian investment - having said that I remember reading some months ago on their Canadian company's forum that there was considerable shareholder opposition to selling the companies holding in Eroton.
Eroton appears to be one or the first "new style" Nigerian oil companies - owned by Nigerians operated by Nigerians with a business rather than military background all educated abroad and/or have extensive experience with shell Nigeria, they should know what they are about politically and technically, the cool deal on the Eroton Nigerian ownership restructuring theme for me is bringing in officially the "local locals" to participate in the company ownership, they don't seem to be buying their way in, but then one wouldn't expect them to have access to banks/capital for investing their way in, rather they will be given via Bilton's escalating share ownership a way to participating in what is after all their indigenous resources. The increasing share ownership has been sensible set against maintain production targets - I like that.
The creation of Bidco as a vehicle to protect ownership of and control of cash is a sensible financial arrangement.
The pay back for write down of loans from SLE and Tosca has been given priority over others has been neatly built into the financing package.
The reducing SLE participation with time 9.72% to 5.4% I see as a positive towards maintaining the Nigerian ownership theme and my own theme that SLE/Tosca are a "bankers oil company" who's intention is to create a portfolio of projects with different geographically/political with limited financial risk.
OML 18 has the resources in place to be developed - the Nigerian ownership structure which will increasingly include Bilton should provide the security for this to be achieved providing SLE, who has first right of refusal to undertake expansion work, a potential major source of income over the coming years.
The success of deal still has many unknowns which include the future price of oil/maintaining continuous production/renewal of OML 18 licence/financial cost of forward oil price coverage/SLE ability to compete price wise in OML 18 development contracts. It can be said however that this is a transformational deal for SLE which will force the share price higher - it would not be unreasonable given the other projects that on there way to fruition for SLE to join the "real" oil company crowd with a corresponding share price of 100 times higher (58GBP) - now that would really float most peoples boat on this BB.
I play the G4,might upgrade if the multi bagger happens,which I doubt and when I hear 'multi bagger' it's usually a sales pitch/ramp , will only happen if oil leaps which would. Not appear to be on the horizon,happy to be proven wrong but 50USD is here to stay for a while yet.Your multi bagger will have to wait for about 5 years.
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