All though fundamentals, production, risk management and what's in the ground all matter to oil & gas companies, the main indicator for all is news flow!
Frr, a case in point! You could have it all, but no news of what you are doing, producing or financing, means the share price goes up and down like a sea wave! No dynamic rise to the next level, just a larger than normal wave then back to normal. Sound familiar
Still got my full holding still and will be holding until the CPR to make my next decision . I for one welcome Nobulls opinions on this board and hope that he remains here to add to the debate, a happy clappy BB is not a heathy one. Wishing all holders all the very best !
Evening all. I just read back through the last couple of days posts.
Recommended reading from all those that have contributed to the current debate. I'm afraid I can't contribute here, so quite happy to sit on the sidelines.
However, you don't have to be an accountant to understand that businesses need to generate profit to survive. The longer it stays in debt, the company is reduced in value accordingly, until the financiers pull the plug.
The question that has always perplexed me is why have we spent so much time, effort and money to produce a relatively small daily volume of gas, which in turn generates a modest monthly income. Additionally, why bother shipping fraccing gear over from the States to increase a wells productivity by an unknown daily quantity?
Stop fanning around Stevie baby and go straight for the jugular. Re-enter Nico 1 as soon as possible and get that 1000 bopd to market, toots suite! Simples!
I've just ploughed through an entire Georgian government file regarding technical regulations which came into force on April 4th 2014..it mentions (in the usual broken English) .. wells, bores, fossil fuels, reserves, depths, geology,and blasting parameters... Basically fracking guidelines...It's full of rules & reg's, and this is the process I now believe that Frontera are "hop-scotching" through..I also think some of Frontera's recent Admin court appearances are linked to this.. Anyone fancy a look through it, here it is.. https://government.gov.ge/files/382_41698_186325_27140414.pdf
Turning to depreciation. This is an expense that has already been paid, and so it doesn’t need to be financed. As I said previously, of course a company will need to finance new assets at the end of their useful life, but it is not an going expense. For example, lets focus on automobiles (page 11 of accounts). FRR has at some point spent $500k on automobiles in the last 5 years. On day 1, the cash would have been spent and the asset placed onto the balance sheet. It is fully depreciated equally over 5 years, so will see a depreciation charge of $100k per year. The double-entry accounting movement for this is: i) A depreciation charge of $100k is taken, leading to a reduction in net profit by $100k. ii) Because net profit has fallen by $100k, the stockholders deficit also falls by $100k on the balance sheet. iii) The value of the asset on the balance sheet is also reduced by $100k to reflect the fact it has been appreciated. The key point here is that no cash has changed hands, and therefore it does not need to be financed. The only time the company will need to spend more cash is at the end of the 5 years when new automobiles are required.
I suppose we will have to agree to disagree on how much finance will be needed next year, but I still maintain that your comment around needing $12m to stay still is wrong, as outlined above. If we get to early 2016 and nothing has changed then I, like most, will probably not be here.
Hopefully it will be a moot point anyway as the gas will be amped up, oil will start gushing, and Coggy will be swinging from the rafters.
I’m not arguing against the fact that the company needs cash to continue operations, in fact I fully agree with you here (what company doesn’t need cash!?).
I’ll repost your original point:
“Is nobody concerned about the relative valuations of the debt and the shares owned by the Related Parties such as the directors, and about the ability of the business model to deliver cash to plug the annual $12m financing requirement just to stand still (i.e. without doing any development work)?”
Ok, so you are saying that the company needs to add $12m of finance every year just to stand still (and you have reiterated that this is what you meant in several other posts).
We can both agree that there was a net loss in FY13 of $11.2m, and I will agree that with all things being equal this would grow to over $12m next year due to the increased debt from accrued interest.
We can also both agree that cash balances grew from $0.71m in FY12 to $1.36m in FY13. It says so on the balance sheet and also in the cash flow statement. We also have the following from the cash flow statement: Cash Flow From Operations = -$5.16m Cash Flow From Investment = -$1.49m Cash Flow From Financing = +$7.3m
So lets reconcile this. Starting cash of $0.71m - $5.16m - $1.49m + $7.3m = Ending cash of $1.36m
So overall the financing requirement from both debt/equity was $7.3m
Note: for those who don’t know, cash flow from investing refers to investing in company assets (i.e. plant & equipment) rather than investing as we would think of it.
Given the above, lets now assume that next year the company simply treads water…it doesn’t grow, doesn’t buy any more assets. We can strip out most of the $1.49m used for investment. Whilst there will be some ongoing maintenance costs, these are passed through as expenses as per the note on page 11. Adjusting for this reduces the financing requirement to $5.8m.
As we said earlier, debt has increased by circa $6.1m in the last year. At an interest rate of 15%, the annual interest will be just under $1m. Adding this in puts the financing requirement up to $6.8m (although the company can elect to issue debt to cover this, and so this is already pre-financed (i.e. no financing risk on this element)).
If the company was treading water then administrative costs would also come down as they cut back on wages etc. (they wouldn’t need to pay for exploration and the costs associated with this), but it is difficult to estimate what this would be so I will ignore any savings here.
So, in a nutshell, if the company was to stand-still then next year it would need $6.8m of additional debt, of which $1m is already agreed. Assuming gas sales are coming in (and as I said previously, the HY14 financials will hopefully confirm this) then we would need I come of $483k a month to cover this (or $370k if you also take into account the $1.36m held in cash which could also be us
Just reading Hydrofracking by Alex Prudhomme: "In preparing a well for production, as many as 25 fracture stages may be used, each of which uses more than 400,000 gallons of water - for a total, in some cases, of over 10 million gallons of water - before a well is fully operational"
Do you remember one of those court cases six months or so ago; the broken translation talked about a lake...
Interesting board today and it raises the issues this company faces if 2014/15 does not see a significant turnaround. I am an optimist and I'm hoping for a strong finish to 2014. I have a feeling September will be our big month? We are expecting interim results, FRR will have completed assessments on how massive our gas fields are, new Georgian gas pipes are due to be completed and there seems to be a big financing event by Bank of Georgia called BG Capital Equity and Bond Conference on the 4th Sept. Hoping it will all come together and some luck rubs off on us...!
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