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WD, for sure a lot to be answered to install some trust. That assuming they care though all point to the last thing they think about is PIs interests.
Perhaps as a private company they can only raise so much?
I asked this even more fundamental question about the deal, which they should have been fully entitled to answer despite their disclaimers re non-public info. It went unanswered.
"The TE-5 Horst concession was independently valued at 27p per share un-risked. This deal values 51% of our interest at a headline figure of £87.75m, or 8.12p per share – a 40% discount to the independent valuation. Not only is that a terrible deal for the TE-5 horst production concession, you have also decided to give away 51% of the exploration upside for free (or alternatively, if you assign some value to the exploration potential, the price received for the TE-5 Horst is even more abysmal). Why do you feel that a 40% discount to PV, and giving away half of the exploration upside for free is a good deal for shareholders?"
i asked a very specific question about that very point in the FSC, but it obviously went unanswered...
"The option appears to give a free ride to the purchaser – i.e. if things go well, they get to pick up a significant portion of the production concession and exploration potential for a fixed, low-priced sum. If things go badly, they get to walk away. There is literally no upside for Sound from including this option. Can you please explain why this aspect of the deal is good for shareholders?"
Agree, ericnat, this deal could be quite exciting if we kept the 23%. Unfortunately it's hard to see why the purchaser wouldn't take the extra 9%. It is the most inexplicable part of the deal -- all upside for the purchaser and downside for SOU.
The numbers for the revenue if we maintain our 23% are very significant. Over $30 million a year for Sound. I can see us undertaking a couple of exploration wells a year and also getting a dividend. Our share of one well would be approx 3 million and with all of the exploration team moving over to the JV the sound Energy running costs are going to be very low.
I think the 50p value that Malcy has mentioned about the deal looks a little optimistic with the current discovery. But if they find 600BCF at SBK then we could see some interesting times.
My guess is OGIF are now pulling the strings and want a return, this deal provides regular revenue with plenty of upside in exploration.
Here’s to that Eric.
Maldini
I am happy either way. From email exchanges with the company there may be funds left over from the initial carry portion of the deal to undertake at least 1 exploration well.
The deal covers all infrastructure and costs to first gas...
Pipeline
Processing facilities
Producing horizontal wells
Service of infrastructure.
Other associated legal and regulatory cost.
What we need (and I hope we will have) in any final deal is an undertaking from the JV partner to commit to a minimum number of drills during the first year of the deal. If we don’t get that and dividends from the Horst don’t start coming in till 2022 the shares could remain undervalued till then. Conversely, finding gas during the first year would kickstart the share price, giving people half a chance of recovering their positions and an opportunity to monetise their holdings before first gas, if that’s what they chose to do.
Jones I certainly hoping we drill and find a lot more gas. Breaking even asap is what i am keen for, and I am sure we all want that.
I never heard shiit or bust. I heard golden ticket, £10 a share, massive connected gasfield, plug and play etc etc. As the risks became apparent they certainly weren't advertised, and then one day my biggest investment was sex and violence rather than a financial legacy in the making. A 1.6 p dividend in 2/3 years time will mean I get my investment back in around 20 years without the shareprice rising, and 2 months on aim is a long time, nevermind 2 years. This share will be fortgotton about and the shareprice will be in the gutter for at least a year. 50p ha! 17p would be a great start. Sad state of affairs but at least its something.
I think the issue with the deal is the ambiguity of it when trust is at rock bottom already.
The s**t or bust statement is infuriating tbh. Certainly wasn’t marketed as that. Financially legacies*
*Or financial ruin
It was Malcky who said shareholder may be pleasantly surprised and NOT JJ
Trust, as we know, is of paramount importance and in short supply, so having confidence in the people responsible for a new drilling campaign could go some way to restoring it. However, wouldn’t it put the cat amongst the pigeons if the JV partner, having completed their due diligence, decided that Brian and his team were still the best people to lead the drilling. An inspired selection or sheer madness on the part of our prospective partner?
Well, if you were private equity and you were just about to put a few £m into drilling, wouldn’t you want to leave no stone unturned in order to reduce as much risk as you could? We might be assured therefore, that whoever is chosen to lead the drilling, the decision will have been made in sangfroid. And if you were a country, who thought that it was finally going to secure it’s own sizeable gas reserves, only to be let down again, you might want to ensure that you didn’t end up disappointed again. Two reasons maybe why investors should begin to feel a bit more confident that decisions taken by these parties during this critical phase will have been subject to significant scrutiny and challenge....and if it increases value for them, then it should for us.
I'm not too sure it is as easy to weigh up the "agreement" as disliking the extra 9%. If receiving the $42 million upfront means having a 14.3% share in approx.14 exploration wells and $20 million cash there is a balance to be made. It all depends if you trust the expertise of the people doing the drilling and the Sound management not to waste funds as they might be doing at present. It's all comes down to trust. And that is why the share price is 3p.
Just listen to Malcy
Well he is certainly very vocal about how undervalued sound is.
He does say that sound has 50p of value, and it appears he is just talking about EM.
This is why we do not like the 9%.
IMHO
Sound will take a non operator status in both Eastern Morocco and Sidi. This can be the only explanation of the exploration team moving over to the JV.
Let’s say we keep 14% of EM and 30 % of Sidi. Our share of capex for EM is 100% covered to first gas. We will get a deal on Sidi to cover the most of our share of the initial lump of Capex.
With very very little running costs we will just sit back and take the revenue.
If I am to believe my own figures: that a producing horst would yield $32.62 million at 23.3% and $20 million at 14.3% respectively to Sound; then the cost of the sale of the extra 9% over 10 years is $126.2 million (10years) and $189.3 million (15 years). This is set against Sound receiving $42 million upfront after 1 year ( same carry terms). That could be a lot of wells in Tendrara where the cost of a $10 million well would be $1.43 million (14.3%) to Sound. However a $10 million well in Sidi Moktar would cost Sound $10 million (75% interest).
If I was the Purchaser I would currently be on the phone to the BOD, negotiating for the whole company.
If they put a bid in of 15p , they would be spending I very small amount more and get in the other half of the eastern Morocco and Sidi.
That’s how misunderstood this deal is....
davefrench/bigbench I think that’s right. Whilst recurring revenues from the Horst will likely keep things ticking over for a decade or so with regular payments, a concerted drilling programme and new gas is going to be the way to restore a material uplift to the share price. It remains to be seen how the drill ready targets closest to the Horst and other larger prospects are going to be funded in a way that sees them being drilled in a timeframe that satisfies shareholders and also meets Morocco’s requirements.
one way or another, we should get some sort of dividend, albeit in 2 years time (long wait).
A 1.5p dividend at 5% of the share price would report to a 30p per share.
Then there is Sidi Moktar that many seem to have forgotten about, maybe some upside there too.
There is more exploration to come and surely some success will occur (even very modest it will add a few P's)
And finally, the company might want to explore new ventures in a few years time, who knows.
All the above give an optimistic outlook on the future, the real downside being that without medium term drilling success, we will have to wait a long time to see decent share price level.
This bickering will continue until we get more clarity on the deal from Marco or whoever puts out the RNS's these days....Macly does seem very optimistic for some reason and if it was such a good deal then why all the cloak & dagger approach regarding the buyer? Plenty more info to come here I'm sure.
Jones, think you are spot on there!
Ziggy if you look back at the interview it was Malcy that said we would be pleasantly surprised.............also people have short memories or just don’t listen. I went to several presentations and listened to a few interviews where JP said this is a ‘high risk high reward strategy’........... my gripe is the constant claim of £1.50 per TCF that had an effect on how much investment I was willing to risk
My figures were a gross estimate and do not include the usual costs associated. Worth people bearing in mind the management will want a slice of this came for their own purposes.