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You would like to think whoever negotiated the hedge would have negotiated decent early repayment terms that reduced the closer we got to the end of the loan, like a mortgage, but I’m not holding my breath considering our wonga lender fetish.
As i see it Art has signed the contract with the Hedged oil for all of 2022 just over 1,000 BPD , at $56 dollars then Hedged 2023 oil of some 400,000 Barrels and some (cant remember the exact figure ), so who ever took the Hedge on are making more money than what we are currently receiving , he cant get out of this Hedge without incurring serious penalties, this Hedge Covers the interest/loan repayments to the Company who borrowed us the money,
What Art needs to do is increase the Barrels per day to 2-3 times our current production so he can pay of the loan as soon as possible, i dont think we will see any significant ramp up until after the CUDA deal has been finalised and then were looking at August for the start of the drilling programme, which will take several months to get COPL into a profitable position, at todays Sp, we are priced to fail, imo
however i believe we are now on the cusp of ramping the assets up to make a huge return over the next 12 months
GLA LTH I would advise any serious investor to look over the Documents on SEDAR and check the financials out for themselves , i am a holder and buyer at these levels .
@Candlestick, re contracts (really need the detail of the actual contracts.
From page 18 of the MD&A …
NGL purchase agreements(1) 1,415 (2022), 4,165 (2023-24), 3,640 (2035-26) (USD$000’s)
(1) Includes commitments to purchase mixed natural gas liquids, consisting primarily of propane and butane for the miscible flood recovery program in the BFU.
Let's hope not (too) binding or an ‘exit’ clause, given we are reducing Butane to zero in favour of Methane?
As noted, done for (to get done) the Atomic deal. As with raises (to get deals done), this is AM 'deal making' pragmatism (or expediency, depending on your outlook). Think now we're coming out of this stage of our evolution - just a bit of 'clearing up' to do!
GLA
I agree with you regarding CUDA appearing to have a lower sale price. Your sums work out. I can only speculate they are tied to selling at a lower price but I'm not too sure.
Candle, see below from page 9 of the MD&A.
"Oil production for the three month Reporting Period averaged 1,114 bbls/d net to the Company at an average
realized price before royalties of $91.14/bbl as compared to 706 bbls/d at $56.33/bbl in the Comparable Prior Period."
I think the figure you have arrived at is after royalties have been deducted.
When you hedge you forward sell at a fixed price. If oil falls below that price you win if it rises above it you lose in so far as the buyer on the other side of the deal has obtained oil at below market price. No one in their right mind would be party to a deal where they can only lose. So yes the hedging may be part of a loan agreement but via a 3rd party such that if the loan changes the hedging would remain. That is how it normally works albeit I have no visibility here.
R_DUNC - the RNS today said:
“ COPL's net crude oil sales before royalties remained consistent at an average of 1,114 bbl./d” and “ Petroleum sales, net of royalties increased to $7.1m”.
Weirdly, I make that around USD$71 p/b - I think I’m misssing something as I also then calculate CUDA’s Q1 number to be USD$63 p/b, I’m just not sure how I get a lower price per barrel for CUDA than for COPL!
LLNP -
Just to clarify, do you know if we have it written anywhere that we can get out of the swaps contracts?
Not saying you’re wrong, but would be surprised that it’s that easy (saying that, I have no knowledge around swaps)
Candlestick is correct, just to add …
The arrangement is a ‘Swap’, so 2-way, Oil / Butane. Done for the Atomic deal financing.
Potential for a second arrangement to run from Jan 2023 to Feb 2024 – no wonder we need to be out of this, and so …
from the April Investor Presentation – Item 6, page 10 …
COPL America, Inc.’s current Hedge Program:
– 1,000bbl/d swaps at $56/bbl WTI for 2022 against COPL’s crude oil production *1
– 1.2M gallons/month of Butane (C4) @ MBV La swaps at $0.76/gallon for 2022 to offset COPL’s Butane purchases
• Currently the sales swaps (crude oil) and purchase swaps (C4) offset each other
• COPL is reducing its NGL purchases from 2.2M gallons/month in 2021 to minor to nil volumes in 2022, after switching over to pure Methane (C1) injection at its BFSU miscible flood
*1 Swaps entered into March 15, 2021; 2WTI and Butane as of March 23, 2022
(Methane good, Butane bad).
GLA
Understood Candle. Thanks. In that case, the point I made below should hopefully clear it up.
The company aren't restricted to selling the notional volumes of oil at the hedge price, it is a swap agreement only and they are not obliged to fulfill it. It is a two-way mechanism.
R_Dunc - have a look at page 18 of the Quarterly Report, all the info is in there for the oil and butane hedges
Thanks R Dunc
What hedge figures are everyone referring to?
The company have stated that they are now injecting pure methane for most of the wells, albeit some wells will require butane. So the 'hedge' on the majority of oil sales is irrelevant from what I gather. The company sold their oil at an average price of approx. $90/bbl which is evidence of that. The hedge of $56/bbl comes in to effect when they purchase butane, and that has hedged price itself. It is a swap agreement and shouldn't be used in isolation for oil sales only.
That is what I am hoping for anyway.
That must be Nigel's priority
When Copl have a new loan the hedge will be void.
There’s that many numbers flying around at the minute I can’t keep up but I’m sure I seen it documented that the current hedge was in place until 2024 (maybe over time of loan). I’m unsure of the terms.
Having the ability to renegotiate better terms through RBL would be a massive boost and yes I agree, sooner Nigel can facilitate the better. Discussions already taking place for RBL so suppose just waiting on RS report to firm it all up.
Thankyou. If it is directly linked to the debt then the sooner they refinance the better. If not, there must be an expiry date of the hedge but not sure I've seen that anywhere. Expiry alone at current prices would make a huge difference to the COPL bottom line.
TH
Im not sure if the hedge is linked to the finance deal, its via third party but linked to it maybe?
it said this in MDA before listing the hedge amounts on page 10:
"Effective March 15, 2021, in anticipation of the closing of the Atomic Group Acquisition and satisfying conditions attached to the Senior Credit Facility, the Company entered into a master risk management agreement with a third party institution. The Company has in place the following commodity risk management contracts with respect to the sale of crude oil production and the purchase of butane used for the miscible flood recovery program in the
BFU. "
The new loan is based on the new reserves and pays off the existing lender. Hence I was hoping that the hedge will no longer be stipulated.
Commercial banks should be queuing up.
@yact re: hedge, I thought the new loan was based on “the big discovery” only as it’s reserves based lending so unsure if this requires hedging, maybe one of the oilers can shed some light…
Hi Tiburn, Thankyou for your posts. Am I right I thinking that once the current lenders are paid off through new finance with a mainstream ban then the hedge will fall away ?
Wwal
yes $37m in sales
If two Frontier wells are online at 1000 bopd each for argument by end Sept, then COPL have another $20m on top of that period Oct- Dec.
If they can get the RBL away then production grows rapidly, two wells revenue pays for two more drills, four pay for four and so on .
Do your numbers include recent CUDA bopd? I didn’t think they were included in any hedged amounts.
If not, that’s looking great!
Does this translate to 321,000 (sep to dec) x WTI (currently 114)?
36,594,000 in sales…