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I think they will be conservative in not taking on too much debt. Say what you will of EGY acquisition one good thing about it is that all the growth, exploration etc. will be self funded I.e. Through the asset cash flows. Cne wouldn't have to draw on any debt for capex of these assets. North Sea assets or Senegal capex would have meant drawing of debt especially when they are not necessarily low cost hence exposing the balance sheet during oil price downturns.
I think next acquisition would be similar I.e. In terms of low capex and opex costs. Given that cne are focusing on the word growth in the next phase of the company post India, and they have clarified they are going after scale of production would mean in total having assets that could cash flow at least $400-500mn a year(extrapolation of c.$150mn OCF)? A net debt of $300-500mn could generate sizable returns to the equity holders. Or even much less debt or near net cash position should be high return to equity depending on FCF generation and use of capital. The options with $600mn of cash would be very attractive for equity holders?
Genl has $300 gross debt(marginal net debt)
Tlw and enq have much bigger debt loads
I'm surprised there hasn't been more talk about the debt "end point" for CNE. There's a huge difference between buying one more Egypt-sized asset or taking on significant net debt and perhaps buying three. I'm hoping they lever up but given the amount of exploration opportunities they have I think they might be fairly conservative. Analysts on the quarterly calls don't seem to care enough to ask.
Thunder - yes, it's low capex but that $140mn ocf was based off of when the production was already above 45kboepd net. Production has been down below 40k since 2020. One good thing with the ramp up is that cne is planning to focus more oil and liquids production so that might help boost cash flow as more oil price linked vs gas, but with PSCs it's a headache to go about valuing correctly. It's definitely a good deal in terms of price paid for the acquisition which is fairly low in comparison to other assets. But cash generation does look like it's going to be paltry compared to the north sea oil assets.
I'm hoping that cne leverages with $500-600mn + debt alongside existing cash to execute a $1bn + acquisition of a portfolio or a take over or merger of another E&P in a stable jurisdiction like UK or USA or similar less volatile jurisdiction. Hopefully this time CNEs board will go after majority oil assets which will give cne exposure to markets oil price alongside gas. Worst to be stuck in silly fixed prices for commodities when inflation is rampant. You take the commodity risk but then also get the reward.
Oil assets should be a key target for acquisition because oil price has a floor set by OPEC. No other commodity has a price floor set which benefits the oil producers a lot in normal circumstances. But a good mix of oil and gas is always prudent.
All IMO dyor
Cashflow on Cairn stake in Egypt averaged $140m over last 3 years I believe. Board are talking about ramping production at least 50% in fairly short order.. I think with fairly minimal capex. I think you can look at it a few ways. If the cashflow and capex comes out as value accretive, given its fixed price, the only risk left is political instability or operational failure. If you think they are so significant, then I agree its not worth the risk. I do not hold that view though. In my view the value is in increasing the production level in Egypt, and less about the price. But they did say on the recent interim results call new agreements would be negotiated for further production bought online, at least that is what I believed. I think the price they are paying to acquire the assets from Shell is at a discount (please correct me if this is wrong) because Shell just didnt want to but the capex in. If there is a further aqui that has productive market rate exposure then the portfolio will start to look fairly well balanced.
It's about overriding commercial decisions of the E&Ps. Exports give market prices to the E&Ps. What do you think the prices would be for the E&Ps selling domestically instead of exporting? Fixed gas prices that cne has so happily accepted should give an indication?
If you can't sell your own product via exports your risk is tied to a single customer and that customer also sets the price. No point of having low cost assets if the product price you receive is also low and not market based? It's very silly to class EGY acquisition as low cost when the gas sales price is fixed at a very low price. What would happen if oil prices rise a lot and they ban export of oil as done with LNG ? What exposure would cne have for its oil exports which are more or less linked to market prices currently?
Does Cne board has a lot of experience in this region given they jumped head first into the jurisdiction? Cne should focus on regions they have experience in before buying into producing assets imo. Market and analysts alike can't see the value proposition. Makes you wonder if cne management is just thinking about setting their jobs/profiles years to come? Cash flow seems terrible compared to what Kraken and catcher are produce in a normal oil price environment? Unless CNE can come out with other big acquisition and commits to regular and growing dividend, along side exploration win monetization hard to see how EGY acquisition alone is going to get the market excited?
That just tells us the gas assets are actually even more critical to Egypt! Thus makes expansion even more likely and new agreements more lucrative. Not sure what the issue is. Just because the share price has dived doesn't mean we should all talk ourselves out of this opportunity. Egypt will make us as shareholders plenty of money trust me. Generally assets acquired from large multinationals are premium type plays - I expect production to significantly ramp up once work commences.
This is the risk operating in such regions. Cne management should think twice about considering another acquisition in the MENA region imo. It's a shame how the cne board thought it's good value and stable fiscal regime. There was value because not many other buyers wanted to enter such jurisdictions possibly? Exiting India only to enter Egy has been a terrible assessment of above ground risks when coming to E&Ps and psc regimes.
"Egypt has halted gas supplies to Shell’s ELNG export plant with immediate effect. Eni, operator of Egypt’s second plant at Damietta, has been told supplies stop at the end of this year. The move suggests that either Cairo anticipates an output slump or it has other plans for the gas.
Egypt’s gas surplus appears to have been short-lived. Just three years after restarting LNG exports following a four-year period when it was reliant on imports of the super-cooled fuel, Cairo has again slammed on the brakes.
State firm Egas has told Anglo-Dutch major Shell and Malaysia’s Petronas, operators of the 7.2mn t/y ELNG export terminal at Idku that no more gas is available to export. Italy’s Eni, operator of the 5mn t/y Segas facility at Damietta – which only restarted in February after a nine year outage (MEES, 26 February) – has been told it will only receive gas supplies until the end of the year.
https://www.mees.com/2021/9/17/oil-gas/egypt-calls-time-on-lng-exports-end-of-the-countrys-gas-surplus/a5fd8d70-17b5-11ec-af84-fd006eb0a8cd