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Journalists need to pay their mortgages too you know...
It would be much appreciated if someone could please post the ft article in full. I cancelled my subscription in 2016 after it was clear Brexit derangement syndrome was having a significant negative impact on their content
Part of a larger article 8 weeks ago in the FT 6/7/21 on the energy transition which has unintended consequences so worth reading in full for greater context. My view is that this is how SAVE in part will catapult to the premier league (as mentioned in the finncap note in June) at much lesser cost that those companies before them that expended on much greater levels of debt and time/effort to reach significant production levels.
' A $140bn asset sale: the investors cashing in on Big Oil’s push to net zero
Yet despite the intense spotlight on the energy sector, there are potential buyers for these assets — from smaller private players such as Ineos, independent operators who are backed by private equity, opaque energy traders and state oil companies.
The cash crunch triggered by the pandemic is creating further pressure to offload assets. Major companies have been forced to cut dividends, dramatically reduce capital spending and raise debt. When their share prices tanked last year, they diverted attention to streamlining operations and trimming costs.
The recent spate of deals has been helped by oil prices rising to more than $75 a barrel as lockdowns and travel bans are lifted. But despite this, securing buyers is not an easy task. The pool of buyers able to fill the gap is still relatively shallow and deals are not necessarily simple to execute.
“The list of assets is way higher than the number of buyers out there and particularly for some of the bigger deals,” says Greig Aitken, director of mergers and acquisitions research at Wood Mackenzie.
Not only are the selling companies having to be more flexible about which assets they dispose of, they are also having to concede on price given that they are prioritising cash buyers who will help to pay down debt and finance their push into cleaner forms of energy.
“If others come to us and say an asset is attractive, we will look at it,” says one oil executive. “It’s fair to say — there is definitely an increasing focusing of the portfolio, so you’re going to see more assets out there for sale.”
The oil majors are being pushed to turn away from potential cash generators at a time when demand for fossil fuel products is still robust and necessary to meet global energy needs. Even the IEA has conceded the world will need oil and gas for decades to come as renewable producers play catch-up.
“These operational assets will mint money like you have no idea over the next three to five years,” says Laurent Segalen, a clean energy investment banker and managing partner at Megawatt-X, a platform which aims to enable the funding of the energy transition. “Hedge funds, private equity, companies you have never heard of, will pick these assets off.” '
https://www.ft.com/content/4dee7080-3a1b-479f-a50c-c3641c82c142
Slightly OT but a read across from Shell’s challenge shows liquidity issues. Another string to AK’s bow regarding our funding options. AK can really squeeze Exxon here!
“Nigeria’s lenders likely don’t have enough dollars to fund clients seeking to acquire oil assets put on sale by the local unit of Royal Dutch Shell Plc, the country’s biggest lender said.
Guaranty Trust Bank Plc doesn’t see the likelihood of any client raising the estimated $2.3 billion needed to purchase the Shell assets, said Segun Agbaje, CEO of the financial group that owns the lender. Such a deal would require a syndication of up to $1.8 billion, and it “can be very tough to raise this kind of funding locally at the moment,” Agbaje said”. ....continues
https://www.bloomberg.com/news/articles/2021-09-14/shell-s-sale-of-nigerian-assets-faces-dollar-crunch-challenge
Trek
Then I’ll no longer be the most hated here! Bring on the herd :))))) Don’t I just love this group.
Hi Agadem,
"By comparrison for half year SAVE
Net debt $390m
Production circa 20-22k boepd and $102m revenue."
Then got the equivalent revenue for a 60k boepd production rate, so as to compare with Tullow's half yearly rate and revenue.
But as Zengas rightly said, this is being overly myopic on one parameter - current O&G production. I realise that, but I just thought, we are where we are. The historical numbers are for a "pure" O&G Nigerian business which could be reasonably compared with Tullow's similar business, during that time frame. Looking forward, SAVE will be a much different animal, diversified by country, by revenue stream types, by risk levels....and should justify a higher valuation level than the likes of Tullow, ceteris paribus, for the truly LTHs here.
Try and apply some rationale O&W instead of one focus at one point in time. There’s lots of factors to consider. Costs in Nigeria are predominantly priced in so any new higher value margin customers (including expected growth from the generator contract would rapidly change the metrics. Who else is doing 78% margin ? Another metric not considered will be actual infrastructure ownership valuation, potential tolling revenues in Nigeria to come and what the actual C-C pipeline fees are which are different to government take. Also increased C-C pipeline throughput upside potential ? These have the opportunity to provide substantial additional income streams. TLW as I see it don’t have those in their mix ? As I see it, we will be more than just an oil & gas production company given the pipeline sides to the business.
Zengas, on a boepd equivalence basis, why was SAVE's half yearly revenue on its production less than half that of Tullow's? ($300mn vs $726mn for 60k boepd). Is it down to weak local gas pricing and fixed price contracts?
Why is SAVE's half yearly revenue half that of Tullow's, based on equivalence of production?
Looked at Tullow results today to end June 2021.
Production guidance for full year = 60k boepd.
Revenue half year $726m (on 61,230 boepd)
Debt $2.6b. Cash $301m. Net Debt $2.3b.
6 months debt servicing $157m (pro -rata full year my estimate $314m)
Share price today = 47p = £676m m/cap. (Recently £800m+)
------------------------------------------------
By comparrison for half year SAVE
Net debt $390m
Production circa 20-22k boepd and $102m revenue.
Pro-rata addition of 13k bopd in Chad worth $155m ?
Pipeline interest/revenue $20m+ ?
Total revenue pro-rata for a half year = circa $300m ?
Say $600m max for Chad = $1b total net debt.
Save worth half of Tullow at £340m - £400m ?
Upisde 50% on Chad production (+6.5k bopd). 50% on Nigeria gas (+10k boepd) ?
Production potential moves to 50k boepd - improves valuation further ?
Further acquisition of say 20k bopd production only and more debt of say $600m. Production upside 8-10k bopd.
Net debt moves to about $1.6b but production at 75k+ boepd.
ie net Debt $700m less, but production 20%+ greater than TLW as of today - theorectically then min £800m+ m/cap for Save??
Imagine if TLW today announced it was servicing 30% less debt and had something like 15k extra production.
Above assuming no more shares than present but using maximum debt for buying assets.
Alternatively less net debt and some shares issued to pay for acquisitions ?
Make sense to anyone in seeing the growth /valuation potential ahead via the acquisition strategy ?
Niger upside of production/reserves growth still to come.