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What I mean is that they would want to give it to someone who can develop it quicker than SOU seem to be doing. Couple of oddities in that most recent interview -- previously Graham claimed that the tax issue was not holding up Tendara development, now he says it *is*. And he also sounded a bit petulant, suggesting that they might drag their heels on any development beyond their commitments. Could imagine the Moroccan gov getting a bit impatient. However, I'm purely speculating.
Utter nonsense, Morocco is desperate for gas and 'take it back for themselves' is also nonsense. Why would they have such a favourable tax regime if they wanted it all for themselves. I think this is going to be OK, its going to take another couple of years but for me, the future is much brighter with this team than with the last. Just got to be patient, but one thing for sure, there is a lot of gas down there somewhere, we just have to find it.
The price of Tendrara gas will be based on the market price, if I recall correctly. There's some complicated calculation, and it may be capped within certain ranges, so I can't say this with confidence ... but I'm not sure there's a saving compared to the international market. That said, the Algerians seem to be switching off the supply, and imported LNG would certainly cost more, so I agree the government would see merit in securing the supply. Not to the extent of funding it though, I'm pretty sure. They could conceivably throw some weight behind securing a loan. Alternatively, they could just sit out the lease period and take it back for themselves. In fact, without being too conspiratorial, I harbour a slight suspicion that the whole tax demand thing is backed by someone in government trying to make life difficult for SOU.
risk in proving teserves, yes i agree. the situation is different. if the gas already proved is enough to supply an importabt part of thedemand, a saving of 2to 3 $ from international markets would mzke ip for the250. without counting for the exploration upside.
"if the gas is there to sipoly ONEE, the government will step in in a way or another."
That is an extraordinary piece of logic. Governments grant hydrocarbon leases and concessions so that SOMEONE ELSE will take the risk. In return for taking the risk, the lessee gets a big slice of the pie. No government says "here, have a lease AND let me pay for the development AND then let me then buy the resources back off you". The government will step in alright -- to take the concession back if SOU can't develop it.
"Does anyone know where the £250 million is coming from?"
No, and that includes Graham. I believe £250m is slightly pessimistic. First off, it's dollars not pounds. Graham said it was the amount that SOU would invest in the project, which doesn't imply that it's all needed up front, e.g. several wells aren't needed right at the start. Also, ONHYM have to contribute 25% of costs which it's not clear if Graham is including.
Graham is a bit shy about giving a true estimate but one can be gleaned from the first SP Angel valuation which showed a debt figure associated with Phase 2. Unfortunately the debt figure disappeared from subsequent valuations, but going from memory it was $180m for Phase 2. There is more in the latest valuation from August (which seems to have strangely gone untrumpeted, maybe because the target price actually went *down* for some reason, to 8.2p).
The latest valuation doesn't show debt, but it does show CAPEX. It's a bit hard to decipher, though, because they have inexplicably used the same graph colour for Phase 2 expenditure and subsequent exploration. If we assume that Phase 1 and G&A are covered by the Afriquia Gaz loan, then the Phase 2 expenditure in FY22-23 is 48.4 + 157.9 = $206m. There's another 61m in FY24 but -- taking the most optimistic view -- it could be either exploration or it could be Phase 2 wells that aren't needed before pipeline gas starts flowing.
I would say that the timeline looks crazily optimistic with Phase 2 construction starting in H2 2022. For example, we've had hints that flow rates from Phase 1 would be needed to make the case for Phase 2 funding. Also, the ONEE GSA will be needed, and we know how long that fiasco has been dragging on.
But regardless of all that, look at the Afriquia Gas deal which will have been nearly two years from inception to conclusion and it's for one tenth the eye-watering amount needed for Phase 2. Graham has been pretty tight-lipped about where the Phase 2 money might come from, but it's pretty clear they are not even on the starting blocks in terms of looking for it. It's going to be a very long haul.
The Algerian geology is prone to the same permeability problems too. In retrospect SOU's "high risk, high reward" strategy was an insane gamble that would leave them over a barrel if it didn't come off. It's going to take quite a while to "build back better".
To use an entirely appropriate gambling analogy, this is now an each way bet (lng / phase 2 pipeline etc are the place) and future drilling is the win. However, even the place bet will return more than the stake at this price. The win would be huge.
I really hope that GL is right about the the geology........I trust the man but heard these claims about similarities to Algerian geology before and hasn’t been the case so far. Hard to be too positive about the next drill after the previous 3, be brilliant if true though!