focusIR May 2024 Investor Webinar: Blue Whale, Kavango, Taseko Mines & CQS Natural Resources. Catch up with the webinar here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
Bought more today
It's more likely to do with gas falling . Added to that seventy five percent tax. Apart from the dividends there really isn't much to like about this for the foreseeable future inmv. It does add a buying opportunity the more it falls though.inmv
IF it is a YES , the real question has always been and still remains ''Why have the major SH supported the worst deal since Gordon Brown sold the nations gold at the base of the market'' ?
Why are the Hardys ok seeing their vast fortune trashed ?
As NewKOTB has commented , there must be more going on here than meets the eye, or maybe given what else is occurring in the country I really have woken up in an episode of the 'Twilight Zone' ....
The depressed SP in recent weeks might have a 'yes' vote already factored in i.e. this share isn't worth investing in and is going no where. I hope once a 'no' vote is established, we'll see some positive movement.
On a yes vote, will we get a sell off ?
I have voted NO. But if the vote goes the other way I may sell depending on SP action
Guess I am trying to gauge who will continue to hold Vs those that throw the towel in
Capricorn CEO, chair quit board in victory for restive investor
https://www.energyvoice.com/oilandgas/africa/ep-africa/477628/capricorn-board-activist-palliser/
Closed on a "won't she" ... :-(
After surge into close ~ +9.5p ended up with UT to close at +7p, hence dragged back into descending wedge, all lining up for big call on vote !!
Remember ... EVERY vote counts.
aimo & dyor
Cut-off circa mid-day tomorrow, 24/1/23 ....
So vote now, if not already done so.
You may need to phone / contact / online chat etc your broker directly to cast your vote as this is not a corporate action, rather a vote on resolution to dilute current holders by ~40% ... hence if passed, Mercuria et al will become, by far, our controlling shareholder....
aimo & dyor
Thanks Visitor for fleshing out many aspects of this derisory deal for us holders which most of us on here have amply conveyed our dismay, nay disbelief, in proceeding with it on such dilutive terms for Serica's shareholders.
Which begs the question - 'Why have our BoD been so keen to pursue it, as things stand'?
The rebalancing of our production, if the Board still wish to chance our arm in domestic waters, despite the increased risks of doing so, might be laudable from our overweight reliance on gas henceforth but everything has its price and what's envisaged currently is way over the top!
Having been regularly slated for not doing anything proactive with our bloated cash pile, doing a deal , any deal, at any price, cannot be the answer, bearing in mind it flies in the face of their mantra of 'not overpaying' for acquisitions that they've touted for so long.
I dunno - perhaps they've just lost it and want out? - sasa.
That's the thing, at the point in time the offers for sqz were indeed derisory
General - with respect you are completely missing the point.
We can't help market conditions and they should depress both valuations equally.
If Tailwind was a public company and listed they would be and its valuation would on all the evidence provided be much less than the £650m we are paying for it. Hence the offer has overvalued Tailwind as opposed to what value Mr market would assign.
I dreamt last night we had an offer of 350p cash and the BoD rejected it as it significantly undervalued SQZ.
Doesn't your exercise basically highlight how undervalued Serica is rather than tailwind being overvalued, not much we can do about that
Positive
SP ..... will she or won't she ?
Right up to resistance this morning of descending wedge which pivot point is next Monday !!! Gulp !!!
aimo & dyor
Judging by the market response and the fact that the license renewal is a pre requ for the deal. I suspect that if the vote goes through the SP will rise
Where's the corporate update? They published this on the 20th Jan last year.
For the first time in a while Gas is providing ~ 58% of supply for electricity production..
https://grid.iamkate.com/
NBP DA currently circa - 172p per therm..
Also fears of supply/demand issues later today :
https://twitter.com/nationalgrideso/status/1617198372884205568?s=46&t=r4R5ad9yrdTbWmd8eOUaeA
Mitch Flegg, Chief Executive of Serica Energy, commented:
"Once again we have secured a prompt renewal of the OFAC License for a period of a further two years. We are grateful to the UK government and regulatory authorities who have supported us in this process.
The renewal of this License satisfies one of the Completion Conditions required for the acquisition by Serica of Tailwind Energy Investments Ltd."
Very timely…..
Visitor super post and summary.
Let's hope major holders have done there reseach to.
If there is some hidden agenda they are not or cannot disclose it must be pretty big and valuable to drag what at face value is an awfull deal over the line.
Other key issues against:
1) UK Political & Tax Regime: 2 words… “sh*t show”. The only sensible position under this current Tory Government and an even worse potential Labour Government in less than 2yrs is to take HBR’s conservative and sensible position. And if you are going to expand in UK, it’s certainly not to pay top dollar.
2) Mercuria + TAIL board 30% holding – covered eloquently by NewKOTB and others herein on the political corporate governance side, where Mercuria will effectively control the voting and direction of SQZ, whose interests will not always be aligned with interests of other shareholders.
Whatever way you vote, yes or no, take the 5mins and any chasing with your broker to vote. And that goes for every share.
Decreasing the valuation gap:
1) Tax Offsets “Credits” of £470m against Corp Tax, in which Mitch stated at around 30min mark of presentation “Expect those tax losses to be utilized within the next 3yrs against the assets in current Tailwind portfolio”. I like that he explicitly stated “assets in current Tailwind portfolio”, as it’s the more conservative position and appears to directly answer one of my queries to SQZ on taxes, with heavy inference that their base case is you can’t transfer tax offsets post acquisition across other assets. However at $85boe (and with 33% oil production hedged at $57), I don’t believe they can utilize £470m of tax losses over 3yrs as implied. If they hit 20k boepd top end TAIL guidance, I would say they could utilize $330m over 3yrs, at 17.5k boepd, $288m. So my numbers appear to be broadly in line with Steve’s ones earlier in week. You also have to take in to account SQZ’s £70-90m EPL offsets for North Eigg drilling in any case. Additionally based on political risk, tax risk and internal breakdown of TAIL’s own tax credits which may be ring-fenced to specific assets or TAIL subsidiaries, as many of us have said previously you need to discount the Tax offsets accordingly. So the net value attributable for tax credits once taking into account SQZ’s own would be circa £150m ($288m converted to GBP and deduct SQZ own offsets from N.Eigg costs). Still nowhere close to the £329m valuation gap which is even wider when taking into account 1) thru 4) in post prior to this.
So with a complete and utter valuation mis-match, the only way to value the acquisition is calculating payback period in terms of how long it takes for SQZ to earn back Net £644m from TAIL assets and all value thereafter is “profit” to SQZ. Here it’s also not a pretty picture. Based on $85 (and taking into account TAIL hedges in place), it would take SQZ over 4yrs to earn the £644m. Back of packet I see them earning back $642-734m over 4yrs (that range is based on 17.5k boepd – 20kboepd and that is taking into account no corp tax paid at all of $395-451m over 4yrs) Based on TAIL 2P Reserves covering 6yrs production at 17.5k boepd, that is a terrible deal – to reach zero sum after 4yrs and only have 2yrs upside left, particularly in this uncertain political environment. Whilst I accept there are opportunities to increase reserves to 2030+, you must remember as told repeatedly by Mitch, the base case of the valuation was the existing 2P Reserves. The technical and political risks of increasing reserves must be completely discounted in such an acquisition.
For those reaching a higher profit or free cashflow for TAIL assets, I would expect it's because people are simply using an extremely low $20 boe for TAIL assets, which is not correct based on all info and costs we have on TAIL assets from TAIL's own audited accounts. They are well in to the high $40 cost per boe, even when pro-rating costs for higher 2023 production guidance.
After digesting the last investor call 10 Jan, which I did think Mitch was very transparent and did add some more meat to the bones, I am still a No vote. But for those particularly bullish on Oil over Gas I can understand why many would vote yes, when the positives of TAIL are exaggerated, the negatives ignored, whilst also downplaying the SQZ positives.
TAIL EV = £644m (£58.7m + 111m SQZ shares x £2.78 + £277m Net Debt)
SQZ EV = £315m (SQZ market cap at £2.78 x 273m shares - Net Cash £460m).
So how to bridge the £329m valuation gap? Or failing that, what is the “payback period” for the deal (being conservative) and is it reasonable on the basis of existing 2P Reserves of circa 6yrs?
Increasing the £329m valuation gap even further:
1) Reserves: SQZ 2P 62mmboe versus TAIL 42mmboe. The recent presentation does flesh out many growth prospects for TAIL for possible conversion to 2P, but irrespective any conversion of 2P Reserves will still be far less than SQZ reserves and we’ve been told many times the valuation of TAIL was not based on possible conversions.
2) Annual Production: SQZ 25-27k boepd (Nov ’22 29k boepd) versus TAIL 15-20k boepd (Q4 ’22 20k boepd, Dec 24k boepd). Many pro the deal will simply point to the high TAIL Q4 numbers, whilst also ignoring the SQZ high Nov ’22 production number. However guidance has already been provided for TAIL assets at lower 15-20k boepd, due to many factors, one being extended FPSO shutdown for maintenance already flagged. Whatever way you cut it, SQZ production is higher anyway. What I did like about the last presentation though is it gave me confidence the TAIL portion of guidance should sufficiently cover the FPSO shutdown maintenance schedule.
3) Hedges: SQZ Hedges very small now (amortised 6-7% of production) until Sep-23 where they will be nothing. TAIL has 33% of oil 2022-2024 at $57bbl, 80% Gas at 260p/ therm.
4) Cost of Production: SQZ cost per boe is far lower than TAIL’s as I and others have highlighted in many posts. Even with TAIL increasing production you can’t just pro-rata their 2021 costs to the higher production (even if you did it still pumps out higher cost than SQZ!), their costs will also be increasing too (inflation, interest costs likely doubling due to increased gross debt + higher interest rates, the new fields with their own opex costs etc.)
upomega, as the saying goes "A truth can walk naked, but a lie always needs to be dressed."
Just say no .inmv , dyor,inmho.
For those on Hargreaves Landsdown lastest you can vote is Miday Tuesday 24th Jan