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Simply answered, it is how much the market values it, which on Friday's close was £14m.
There are many ways to value public companies. One is P/E ratios. Majors are 17x, but CEG is not a major nor making a profit yet. Others: https://www.investopedia.com/articles/investing/110613/market-value-versus-book-value.asp and https://www.investopedia.com/articles/basics/11/common-multiples-used-in-oil-and-gas-valuation.asp
IMO, CEG’s true value is substantially more than its current MCap. The maths (approx) and assumptions:
1. Unless Stena debt is paid in shares, all the $10m cash CEG had (on 31/5/21) will be used to pay it. This leaves zero cash. If paid in shares, the net cash will be an asset.
2. @ $60-$65 PoO, based on RNS 29/6/21 (https://polaris.brighterir.com/public/challenger_energy_group/news/rns/story/rng62px ), CEG is earning $8m/yr gross, with $4m G&A/yr.
3. In a hypothetical takeover, strip out G&A and other costs such as CEG BoD expenses. Assumption: most G&A will be within the acquirer’s current budget. This happened when BPC merged with CERP in 2020. Especially if the acquirer is Trinidad based, with additional savings based on efficient use of local manpower, tech expertise, and automation.
4. Add cash if applicable (point 1)
5. Add $25m net tax credits for T+T which is a USP. Although ring fenced, this increases the NET ROI to the acquirer.
6. Add a percentage of 1P/2P/3P reserves and contingent ones.
7. Add Bahamas IP (we will know the gov position soon). Refer to mini Percy-1 autopsy here https://www.cegplc.com/operations/bahamas/ . With or without a license this IP is worth ‘something,’ even if is not monetized for years for other spuds north and west Cuba.
8. For a non-hostile M&A to succeed, the sale would have to be at a premium based on points 1-7 otherwise the 75% vote will not pass. Note, when CERP was facing covid/PoO collapse, not only did it not have access to Capex, but was haemorrhaging Opex/G&A cash. Due to this, it was arguably sold in a fire sale for £24m. (Note: CEG’s MCap reached £45m in 2018, albeit less evolved than assets now)
9. Whatever happens with S2 testing, CEG is not in the same predicament as CERP was in 2020. CEG could at any time use the nuclear option and outsource everything at the asset level.
10. And the OO/Placing @3.5p was arguably perceived to be at a discount otherwise it would not have succeeded.
Conclusions: IMHO, the current SP/MCap is very much undervalued. If S2 is a success, the SP should soar based on substantial de-risking of future Saffrons and additional income purely from S2. However, if S2 is a total failure, I would argue based on the above metrics, CEG is still worth a premium to the current £14m MCap if local operators have the inclination to play M&A Game of Thrones.
IMHO. DYOR. GLA. Enjoy Sunday and be nice.
Starchild
https://www.lse.co.uk/profiles/starchild/
Thank you Starchild - a good read.
Just a couple of points I'm putting across for others to think about:
1. Does CEG still have $10m sat in the bank as at today? It's been 2 months since they gave us that figure. Would be interesting to know what their cash balance is now and what they used to pay for company cost and S2 costs.
Is that $10m to Stena finalised? If paid in shares, yes the company will hold that cash but be prepared to see some serious dilution because of it.
2. Agree with PoO.
3. Not sure where the idea of a takeover is coming from? Speculative? In which case the market is going to ignore.
4. Add cash? Where from?
5. Tax credits can't really be used as an current asset as an action is required for this to be crystallised. It's like having a safe full of gold bars and you don't have access to the key (yet or ever will).
6. Percentage to use?
7. Agree that it is worth "something" but with the lack of news recently, I doubt unless CEG gives an RNS saying they plan to do something with it (which I doubt will be in the next 1 or 2 years as CEO openly said Bahamas only play a small part in the portfolio and they don't have the cash to do so). The market is going to continue to give this a 0 value.
8. Same as point 3, not sure where this idea comes from.
9. True but I'm not even going to think about what this will do to the SP.
10. Did it succeed? Only 38% of shareholders took the deal. The rest were sold to institutional investors. I think the 38% is the key figure to walk away with. That only slightly over a third of the investors thought this was a "discount".
Conclusion: I agree that if S2 succeeds, then CEG is undervalued. I disagree that the SP will soar because this is only one well and is not enough to turn the company around. It will increase but not soar.
If they continue to drill wells (S3, S4, S5) and they all succeed AND an annual report is released showing CEG can stand on it's own two feet then the SP will soar.
If S2 fails I argue that the company is over valued i.e SP will continue to fall. They will be carrying a lot of debt (especially if they signed the Arena agreement which I will be annoyed at BOD if they don't release an RNS tomorrow to confirm whether they have signed it or extended it or in talks with someone else), have expenses to cover on a daily basis and the only thing they have in their pipeline is the Suriname field which CEO already said is a smaller version of the Saffron fields.
I think talking on behalf of typical investors, after the P1 fail, if S2 also fails, no one will even bat an eyelid at Suriname.
On that note, I'm still in but this is a very high risk play.
GLA
another nuclear option: sell all assets, get rid of all staff but a view, become a cash shell, get acquired. (tax credit are a good asset).
Depends on flow rates from the well currently undergoing production testing.
you really seem to be expecting a lot from this. What is there to expect apart from what we have seen al those years? A rise, followed by yet another equity raise. A next drill, too slow after S2 to be truly accretive production wise. (by the time S3 is drilled, S2 will have suffered such strong decline rates, that by the time S3 is here we will be back to square 1). Even if they did have the cash for S3 (which they don't) T&T authorities will d**k around for so long that by the time the can start S3, S2 will be producing peanuts or will need water flow/CO2 injection. So it will be water paddling at best. Lots of noise to stand stil and never ending equity raises in between. Only hope is to get acquired by a company with an astute BOD.
My post yesterday provided some basic valuation parameters, one of which was how much CEG was worth in a takeover, to argue its MCap is very much undervalued at £14m. There was some cerebral feedback posted. Thanks.
To be clear, unless there was another long-term PoO collapse, the company does not need to merge with a 3rd party for survival. As such, any takeover would have to be hostile and at a premium to pass the 75% shareholders’ vote.
However, the BoD should consider an alternative to self-funding S3-S9. Today, subject to S2 NOT being a failure, Arena have agreed in principle to lend substantial funds (with CLN rights @4.2p) to start the development of the SWP in two initial phases. The pros are obvious. If all the Saffron ducks line up in a row, and PoO remains > $60/b for several years, with wells consistently producing despite production declines mitigated with CO2/water interventions, CEG will do very well. But why take this risk? If Percy-1 was a success, it would have been farmed out. The whole SWP is potentially the size of a decent offshore oil field, so why treat it differently?
If I was advising the BoD, which again I emphasise that I am not, I would strongly suggest SWP and its potential 220mboe be farmed out. There was interest to do so for S2 in CERP days with a 25% - 75% split, reverting to 75% - 25% in CERP’s favour, after the farmee had recouped all their Capex.
To be totally frank, unless the Arena deal is clarified, I consider it a risk. Why is the Arena deal a hybrid loan based on conversion rights @ 4.2p which is fair enough, yet CEG must provide security of all its assets? This implies it is ostensibly reserve based lending with a Lombard type ‘have your cake and eat it’ type guarantee. What happens if S3-S5 production rates go into decline before the debt is serviced?
Let’s cast our minds back to February. Had BPC announced the Percy-1 spud had been a success with a potential 220mboe (the minimum offshore commercial parameter was stated at 150m-200mboe), there would have been substantial BoD criticism if BPC further announced that instead of a farm-out, it would seek and use $60m in exotic funding or an OO/placing to get to the next stage.
So why go it alone with SWP? By undertaking a farm-out, CEG would be the ones who would have the cake that could be eaten. It would save $10m - $60m Capex and totally remove risks associated with exotic financing, yet CEG could potentially earn a substantial ROI and be a cash cow. The week such an announcement was made, CEG’s MCap would soar, based on potential NPV underpinned with a CPR.
Today CEG has two USPs for leveraging such a move: its tax credits and PoO predictions for the medium term. A third leverage USP could be this week: A successful Saffron 2.
Thoughts?
News awaited
IMHO. DYOR. GLA.
Starchild
https://www.lse.co.uk/profiles/starchild/
it all depends on the numbers, i.e. the business case. Might not be a bad idea.
LGO-fan: To justify my case further, I would add, why seek one farm-in partner for SWP when we could have 7 for Saffron 3-9? The deal could be a ‘pay to play’ deposit on signature, proof of Capex availability at +/- $3m each, and a spud by end of 2022. Result: 9 saffrons in a franchise type arrangement, rather than waiting 3-4 years for a full field development with its associated capex risks and delays. Upon each successful Saffron, the farmee would have first dibs at wells and developments nearby.
Win big or lose little.
GL
Starchild
Could Starchild be the reincarnation of onceatrader aka Honest John?
The budgeted total cost for the Saffron-2 well is $3 million, with an anticipated drill time in the range of 25-30 days.
The Saffron-2 well was spud at 7:30pm on 23 May (Trinidad time).
The final section of the Saffron-2 well (at 8 1/2") is currently being drilled out, to a final target depth of 4,557ft. This hole section will include the primary reservoir targets of interest in the Lower Cruse, which will be logged and (assuming positive results) sampled via MDT (a wireline formation testing tool). This process, which should be sufficient to provide an indication of the aggregate resource and production potential, is expected to be completed on or around 23th June 2021, which timeline remains consistent with an overall 30 day expected drill.
Thereafter (and assuming positive results), the well will be lined and readied for production testing. It is expected that the process of preparing for production testing (including perforation) will take 2-3 weeks, such that initial production could occur in around mid-July.
Drilling is continuing to target depth of 4,557ft, at which both Lower Cruse sections - the primary reservoirs of interest - will be logged, and thereafter the well will be production tested; the inclusion of an intermediate casing string has extended the schedule for completion of drilling and logging by approximately 7 days to 30 June 2021, with production testing remaining on track for mid-July.
Prior to intersecting the first of the Lower Cruse reservoirs, at approximately 3,890ft, a mobile shale zone was encountered as prognosed, starting at a depth of 3,630ft and continuing to 3,770ft. As compared to Saffron-1, the impact of this zone on drilling has been significantly mitigated by the use of synthetic oil-based mud. However, based on conditions encountered while drilling, the decision was taken to set intermediate casing at 4,118ft before drilling on to TD. This will serve to better secure the already drilled horizons of the Middle and upper Lower Cruse for production testing, whilst at the same time allowing unencumbered drilling of the remaining Lower Cruse reservoir sections.
The impact of this decision to set additional casing (and associated additional logging runs) is expected to be an additional 7 days of rig time, and associated additional cost. Accordingly, drilling and logging of Saffron-2 is now expected to be completed on or around 30th June 2021. Thereafter (and assuming positive results), the well will be lined and readied for production testing. It is expected that the process of preparing for production testing (including perforation) will take 2-3 weeks, such that initial production is still expected to occur in around mid-July.
Eytan Uliel, Chief Executive Officer, commented:
"The objective of the Safffron-2 well is to understand the production potential from the various reservoir units identified by both the Saffron-1 and Saffron-2 wells, starting with the Lower Cruse intervals. "
Thank you Starchild - good points put across.
Again to put forward another perspective.
1. Why should the BOD consider alternatives to self funding S3 to S9? S3 to S9 will only go ahead IF S2 was a success. In the instance S2 delivers, why give away a good thing? Arena has already said they will fund the first tranche of the Saffron field development and the second tranche of money will come in subject to the first tranche being a success.
As an investor the potential to drill 30 wells that are all successful says a lot more to me to stay invested / keep buying into CEG over a farm out where we will see one huge surge in SP then gradually decline again until the next "good idea" comes along.
Like I mentioned in previous posts, CEG drilled 2 Saffron wells now. Their drilling risk will be mitigated by the knowledge and technology they already have. The only risks now such as amount of oil and oil flow etc are outside CEG's control, farm out or not.
If all goes well, the Saffron fields will allow them to consistently generate large amounts of cash to fund further projects i.e. stand on their own two feet.
2. Re the Arena deal. Why are the BOD not providing investors with an update about whether that funding has finalised? The exclusivity deadline was end of July. A simple sentence this morning saying yes it's signed, no we extended it or even we are looking at other options will show investors that CEG is on top of things.
Right now investors can take this 100 ways with the worse being Arena pulled this deal and CEG has no funding to take things furthers.
Going back to the Arena terms, it's simply the case of beggars can't be choosers. Let's not kid ourselves into thinking CEG isn't literally knocking on every funders door asking for money to fund the Saffron project. The only thing keeping this company afloat right now is the fact that the field has potential.
3. You mentioned the point about if P1 was successful, that investors would have kicked off that we didn't farm out and instead spend $60m on taking it one step further. I agree with this but the difference between Percy and Saffron, is that the Saffron fields cost relatively nothing to drill one well compared to Percy.
BOD and investors can drill one well at a time and play it by ear.
Like everyone, looking forward to the next RNS.
GLA.
Looking forward to the next Rns??? Why? When was the last one that did you any good? The idea the next one will is just another example of the alternative universe some live in.
Next RNS should be production rates for the successful well the company has just drilled, surely all investors are looking forward to that after the last one being a duster?
DavidBrent - I'm looking forward to it because I'm invested in the company so whether good or bad or meaningless it's in my best interest to know what's going on.
Otherwise why stay invested in a company you don't want to know anything or care about?
I assume you're posting on this board because you still care, whether that's out of love for the company or hatred for the company I will leave that to you.
News on production rates update tomorrow.
News on production rates update tomorrow.
News on production rates update tomorrow.
As always, I am in broad agreement with posts by S/C. However, I remain concerned about the legacy of debt from P1 which has never been headlined to shareholders in detail. We know in general that the BoD are disputing or negotiating such debts. Does anybody know what is owed for the rig or companies providing the logistic support during P1 including Halliburton?
Is this really an attempt to work out what CEG is worth? Where’s the answer - it’s more like a list of supposed positives followed by but not quantifying to the conclusion CEG ex-Saffron is worth more than £14m.
1. Stena don’t want shares. I’m sure they are capable of making investment decisions if they want oil company exposure. They’ll have all the cash there is left, so they’ll be no leftover cash. In fact CEG are $7m short on their bills as best we know.
2. CEG is not making a meaningful profit. $8m less $4m, if that is what is being inferred, completely misses at least another $4m in royalties and extraction costs. There isn’t a multiple of (zero) earnings that would put CEG over £14m.
5. You’ve already valued the tax losses. They are only available to offset the profits from CEGs own fields, so If you considered already ongoing profits with zero tax, you already included their valuation gain.
6. Likewise you already valued the 2P. The earnings (or non-losses) come from extracting the 2P. 425bopd is 150k per year - i.e. all the 2P barrels during the 10 year licenses.
So what’s it worth. Well TRIN recently bought 85bopd for $3.5m so you could multiply that by 5. Or TRIN itself has 3000bopd, seven times CEG’s production (and 20mbbl of 2P) so you could divide TRIN’s $75m EV by 7. And then adjust for CEG’s net debt position...
Anominity, but it has to make a difference, otherwise its worthless, seriously what difference do you think the next Rns will make? I think absolutely no difference. What are you looking forward to that you think will make a difference. Whatever it is let me assure you it will make no difference, and as such is worthless and not worth looking forward to.
Challenger unfortunately isn't cash flow positive and will probably go bust. It washed up all its cash on a stupid 100mil drill which wasn't successful.
All its other assets won't do much either especially one bought over from LK.
Most shareholders which came over from Columbus energy are down considerably some as much as 94%.
Best you all take your loses and moved whats left over to Crypto.
Regards Limopete
Wasted
Although Chalenger energy has many assets in its portfolio it just will and probably never generate enough cash so share holders ever benefit.
The company cannot continue much longer with its business model.
All its wells which came over from Columbus energy just wont produce enough oil. Its cash flow negative definitely know after its last wasted venture. Its 100mill gamble just didn't pay of, i can see a change of ceo once again unfortunately.
Regards Limopete
Aside from Stena (and possible subcontractors), and LO, does anyone have an estimate on what is still outstanding on payments to Bahamas govt? I can't imagine other countries like Uruguay will permit CEG drilling in the future if they see a track record of non-payment of license fees to Bahamas.
Noel
Who know what they owe,10 to 1 they owe LSE some money along the line,hence they stopped printing their RNS’s
Strange saying SC (Honest John.’ It’s the sort of name a somewhat dodgy used car dealer in the suburbs of Melbourne would use) and that’s the sort of saying someone living in Sydney would use. You don’t post in the day because your busy as you say (my foot your asleep) No wonder you greet us each morning with the full page you,and the BOD’s have had all day to put it together tut tut.