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Oktane, precisely. The actual terms behind the hedge are very unclear- however, what seems clear to me is that it's for a fixed volume of gas, and definitively not (as some seem to believe) for a mere percentage of whatever monthly production turns out to be. That fixed volume is according to the company "around 70% of conservative production forecast".
As you say, this does potentially expose ANGS to substantial risk, if it cannot produce the volumes required to be delivered under the hedge contract - though there are measures it may have put into place to mitigate this risk, eg the put options you mention as possible.
I don't think they've done that. Which is why the spectre of a production-delaying sidetrack keeps being raised. I suspect that George already knows that a sidetrack will need to be successfully drilled in order to have a chance of producing committed-to volumes.
Forget ANGS's reliance on some outdated CPR... the biggest sign of this is the last set of official OGA figures from when Poundland was last producing. Those show an average yield around 50% of the "conservative" 5 mmscfd that ANGS seems to have been assuming and has worked its numbers on.
We'll see...
Yanis that hedge conversation is exactly the same as someone saying: I bought shares at 8p when GL and new management took over and now at 0.8p two years later I'd like my money back and cancel the trade...
Credit risk for whoever did the hedge is a very valid issue, for the other side of our hedge, is ANGS good for the settlement sum?
IF ANGS had used a put purchase then IF they produce gas they would enjoy much of the recent huge price increase. We don't know much about the hedge mechanics. All hedges are a compromise, doing no hedging is always either the best or worst outcome, any insurance outcome will fall between these. Clearly if ANGS could have not hedged that would have been best here, but lenders had a big say in this. Big worry is does the hedge give enough protection if gas flow is too low or too delayed, or both. Payments may be due from 43p all the way up even if no gas is produced...
Mirasol, see your point too. Was just wondering as I believe nothing is cast in stone. This sky high price increase was not anticipated … is a bit like force major.
"will it not be overall cheaper if it is renegotiated?"
oh yeah - ANGS - "can we renegotiate the hedge please?"
Hedger "No, you wouldn't if prices had gone the other way and I asked to renegotiate. I took the risk and so I will benefit"
Ocelot, the gas prices have gone sky high and will not be coming down anytime soon but I see your point. Renegotiation may not be possible.
Cuddo, 30% at 300% upward price is massive, yes, but will we have 1st gas in Feb. Will be interesting to see if Angus addresses my IQ. We cannot afford to wait too far past Feb.
Yanis,
Think of the counter-party! In order to provide a hedge at 43p, they will, in turn, I imagine, have laid off their commitment, in a similar way to insurers laying off their risk.
Ocelot, I don’t know the process but given that the gas prices are circa 300% up since the hedge was negotiated, will it not be overall cheaper if it is renegotiated?
That would be an extremely expensive exercise, Yanis.
Is that hedge cast in stone? Can it not be renegotiated given current circumstances?
"ICE gas futures average p"rice of 183.6p for Q2 2022 say that Angus can potentially deliver £15 million in clear profit between February and June 2022"
But they've hedged much o their production....... at low prices
Absolutely agree with that PB, if we can make £15 million in revenues when production starts,
the Debt Should be paid off in less than 5 months after commencing production.
Come on Angus, let’s get it sorted?
GLA