CDF1, “many a true word is spoken in jest” I have no idea about Perenco but have thought as a private company they might list their UK operations to take advantage of the next big thing in the SNS, that being carbon storage, UK gov offering big incentives
As I see it for the coming week there are 3 possibilities given they have pulled the date for publishing the accounts. First they publish the accounts and say they will pay the bond interest in which case they limp on. Second they say nothing and AIM suspend them for not producing the accounts, in that event they have a grace period to ask for a reinstatement once sorted out, or three a voluntary suspension as I described previously. I think the latter two are the most likely. Place your bets not long to wait.
Will give another scenario, pure guesswork and call me a fool if you like because I am having invested and made it worse by averaging down. Suspension, a non listed private company fancies a listing but IPO could take a year, reverse take over, deal with bond and LOG to give them something back but not everything, name change, tax credits taken up, shares raised in new company, massive dilution for current share holders by shares given in newco, costs them nothing, BOD get share options in newco, but will probably get cleared out as well, no further investment in IOG, well the prospects they hold are rubbish anyway, H2 and H1 are run to depletion etc etc. Pure fantasy, yes could be
Yes snooz you did point it out, thank you. Another indicator here is not paying the interest first or second lot, given the suspension scenario that money stays within IOG and becomes part of the complex situation to be evolved
As others have pointed out IOG have taken down the date for the interims to be published on their web site. If they don’t produce them by the end of Sept they have to ask for a suspension then and they do not have to give the reasons for this. Or do nothing and AIM will suspend them without a company statement due to the fact the accounts have not been published. In the mean time they can still operate the business. They could have left the date on their web site and still have asked for a suspension on the 26th, so it is a mystery what is happening. They could of course still publish them next week. What ever it is looks like its been brewing for some time as in previous years the accounts have been published by mid Aug, so not a sudden event to pull the date. It looks to me like suspension “pending clarification of the companies financial position” which fits in with not paying the first of the two quarters interest payments. Once suspended they have 6 months to allow for resubmission after which the shares are cancelled. Could this be a reverse take over situation, I have no idea as its something I know little about. At the current share price LTH have lost all but a few quid so the damage has been done but I am curious to know how the sorry story of IOG finishes up
H1 along with Elgood started mid March 2022. On 15 May 2023 they said “The Blythe H1 well is initially planned to be shut in once the H2 well is fully onstream to reduce water production into the pipeline however the H1 well will remain available for production” It was shut in 2nd week in June 2023. On 13 Sept they said “ Planning underway for a Blythe H1 production trial to assess a sustainable gas rate and associated water rate, with a view to potential low-cost production enhancement” H1 was producing at about 15 consistently. What they should be doing is finding other ways of water disposal and increasing fluids handling capacity which is shared with the other 3 pipelines, these actions are within the control of IOG, yes it costs more for disposal but surely even a marginally increase in over cost is worth doing. The platform is remote controlled they can turn on and off supply. Are they doing it? Wouldn’t be surprised if the were not
Day ahead pricing
I don’t think anyone knows what’s going on outside of this company. The reality is that the board are very financially qualified and experienced, have access to city advisors and restructuring consultants and say they have been in dialogue with the bond trustees and their advisors for months now yet NOTHING useful has come out and that fact is very telling. They gave away 5m on the bond when its due for redemption, that’s a pretty poor outcome in return for a 3 month waiver on the measures. The bond is trading well under par and presumably the trustees don’t want a default, liquidation and fire sale on the assets and might find themselves much worse off than working with the company. Possibly if IOG go out of business the costs of removing the hardware and environmental reinstatement as stated in IOG documents are a liability cost as high as the debt and may have priority. I do not think it has been stated which has precedence. All shareholders have lost so much given the current share price and there is little difference now between it and zero. Events will take their course, we haven’t go long to wait to hear what will will happen next
Know Your company, the Shell part of Bacton was up for sale in 2022, I don’t think it sold. As I have said IOG are likely in my opinion to finance their part of Bacton and infrastructure and lease it back to pay down the bond, it’s the only asset they have except gas in the ground and the licences, a common practice for cash strapped companies. There wont be a shares for debt swap
One out of the blue idea would be to sell and lease back Bacton and the infrastructure in a deal to pay off the bond, for less than 105m euros as the bond holders might view this as better than administration, is it worth that much I do not know, would anyone want to buy it I do not know. That would save the quarterly interest leaving them spending it on the lease instead with £20m debt with LOG???
Looks to me its valued on cash so £5m at present equals a share price of about 1 penny. The cash holding at the end of August was £14.5m (£7.3m restricted) so about £7m net of restricted, from this take away the £3m approx. for the bond interest July to Sept quarter leaves £5m, hence 1 pence share price. Assets v liability is neutral. The month of Sept revenue should accrue for the bond interest payment so the cash balance higher and the share price higher, all guess work but may be back to 2 pence if better news from the half year results RNS, until then churn, possibly a bit below a penny. Its as if the BOD wants administration by the tone of their RNSs and has a plan thereafter given the wipeout of shareholders. For example the say they are evaluating running H1, why haven’t they done this months ago, go to the platform open up the flow and measure the level of water cut? Then report to the market the result. Same with Elgood, no mention in the last RNS. Assuming the covenants are not measured again until Dec, although IOG is required to report monthly, the bondholders will not be asked for another period of waver. Long term I cant see a future unless something comes out of the blue, short term it has to take its course and they limp on. Should H2 flow rates further decline I can see that as a catalyst for closure. We will see
The loss of the licences doesn’t matter they were not in a position to drill anyway. The concerns are low cash in bank and reducing flow rate. Cash balance at 30 June 2023 of £20.3m, of which £7.3m restricted. Cash balance at 31 August 2023 of £14.5m, of which £7.3m is restricted. 2 month decline of 6m, but early part of July rig and vessel costs still in place and one weeks lost revenue in Aug so Sept should look better.
They said in July RNS gross 2H23 production is expected to average in the 20-30 mmscf/d range, based on initial decline rate expectations. Now at 21 but running H1 (with water handling cost) may increase the total so still within the range of the forecast. Should have enough to pay the outstanding bond interest. Covenents measured June and Dec. Higher gas prices expected from Oct. So still in business. I mentally wrote off my investment months ago but haven’t sold as whats left hardly worth the bother.
Continues........The 2019 deal with CalE saw £60m committed to phase 1(I don’t know whats left) CalE are contracted to fund £65M to phase two, which is a long way off if it ever comes. In return they get half the revenue plus 20% royalty from date of deal. Arguably a satisfactory deal set before a drill bit turned but relied on constant exploration wells put into production, the revenue eking out IOGs portion of development costs made up of the bond and raises plus the LOG investment. The production didn’t come in quantity and Southwark failure blew much of the remaining IOG capital. It should be remembered that the assets are jointly owned by IOG and CalE, but all are held as security on the bond. I now doubt its viable for a takeover given the energy profits levy runs for 5 more years and consequently little appetite to invest in the SNS. To buy out the company a prospective company would have to pay the debt off in cash, make offer to shareholders, probably a share swap. But where does this leave CalE as they own half the assets, so would want paying for them as they are not shareholders? Therefore such a deal becomes very expensive even with the tax carries.
Thoughts anyone
Does anyone have considered views on the prospects for IOG for the next 6 months? I think best case they soldier on with higher gas prices and improved production until the end of the year, thereafter its very uncertain. They should be able to pay the Bond interest early Oct for the two quarters due and probably the one due at the end of 2023. Looking at the bond situation in Dec 2022 the unrestricted cash balance was £27m and restricted cash balance of £6m which is the next quarters interest on the bond and decommissioning security (not the decommissioning costs of the business). They say the interest cover on the bond is subject to covenants that are measured biannually in June and December, being minimum liquidity of €5 million, net debt to EBITDA of a maximum of 2.5x and interest cover of a minimum of 5.0x, based on measures as defined in the facility agreement. At 31 December 2022 interest cover was 7.0. Compare this to May/June 2023. Cash at bank as at 31 May 2022 was £21.5 million, including restricted funds of £6.8 million (the Bond interest to end June plus decommissioning security costs as noted) it must have been close on the interest cover, anyway, the next measure of covenants is not until end December 2023 so as long as they have the interest to pay at the end of Sept (we will know I believe when they publish the H1 results 26th Sept and comment on post period developments) there should be no more comments from IOG on the Bond interest and covenants until say November when they will say they may breach again come the end of December. This of course may not happen given the expected higher production and gas prices and the subject wont be raised. They say they want to refinance the debt, problem is while they can secure the loan against assets its unclear how they can service the interest and very importantly how they can pay off that loan when due. So that loan will be a very difficult thing if not impossible to do. It is not in the interests of the Bondholders for IOG to go bust because while the loan is secured on the assets, the cost of decommissioning would be as much as the loan, and its not clear if remediation would come first above paying Bond.
Next point, regarding maximising output this year, it is noted that the pipeline from Elgood to Blyth is a mere 6 inch diameter, little wonder they say it needs dewatering, why so small? The pipeline from Blyth to the Saturn Banks main is only 12 inches, again a capacity issue when pumping wet gas. This is why they say only periodically bringing H1 and Elgood on line because of the water issue. Next point; they need a drill that can be put into production in 2024 but cant fund it even with the CalE 50%. None of the prospects look near to the pipeline nor are identified as a high COS, so its an open question.
The 2019 deal with CalE saw £60m committed to phase 1(I don’t know whats left) CalE are contracted to fund £65M to phase two, which is a long way off if it ev
Any share raise other than the rights issue approved at the AGM would need shareholder approval and that’s not going to happen even with LOG behind it which is extremely unlikely as such dilution would be very detrimental.
A debt for equity swap against the bond while the company is solvent is not possible without shareholder approval in a listed company. The shareholders own the company not the BOD, again dilution is the issue
If it is a rights issue that’s coming, it would mean a discounted share price otherwise no one would bother and positive reasons needed to given to sell the idea, as when the shares enter the market the dilution may bring the price down thus wiping out the benefit of the reduced share purchase price. Leaving the interims to 26 Sept allows for post reporting period developments which is usual to include. Raising £3m or £4m guarantees the bond interest to be paid at the beginning of Oct and allows the company to continue in business, though raising to pay the interest is a pretty weak reason to do it, but if they put it that not doing it risks administration and wipe out that might get support. On the other hand some of the raise might be for working capital for the next drill. All pure guesswork, I could be 100% wrong
Looking at companies house listing for IOG 18 May, the resolution, if I am reading it correctly says the company is authorised to allot shares in the company by way of an offer to ordinary shareholders to a rights issue for £1.7M and £3.5M. Anyone with better knowledge comment?. Therefore speculating and could be wrong moving the interims to 26 Sept accommodates such an action
One point seven pence, not seventeen pence
In the absence of any valuations other than simplywallstreet which appears to be a legitimate and thorough analyst of companies; they state in their analysis of IOG business using a discounted cash flow model and based on a share price of £0.017 as of 1 Sept say fair value is £0.068 currently
SQZ, thanks for analysis, makes sense to me. On odd thing is that all assets are co-owned 50:50 with its joint venture partner CalEnergy yet at no point has any short term financial help been mentioned from them. Could not CalE have been asked to delay their portion of the income for a period of time to have avoided the interest cover breach, if so it would have avoided the BH discussions and saved the 5M extra Euros added on to the final bond repayment in 2024. IOG could have given CalE some share options as compensation that would not have cost IOG anything. Very odd relationship it would seem. Next point is Elgood; they say the pipeline has to be dewatered which we assume has now been done and onshore compression needed which they cant afford at present, so can gas be got out of Elgood without compression especially as its been shut in and pressure may be higher. I would like the answer from IOG on this