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"Secondly, at 12.3% you're almost talking credit card rates, so we'll have to agree to disagree on your interpretation."
I think the debt from Energean will be a "high yield loan", that carries a 12.3% interest rate at current market conditions.
And I still think the 7% royalty will be calculated based on the difference between realized gas prices and based prices. It´s a way for letting CHAR participate in the eventual surplus to be earned by Energean as a consequence of extraordinarily high natural gas prices.
The words "in excess of a base hurdle on the realised gas price" instead of "above a base hurdle on the realised gas price" supports that point of view, in my oppinion.
As always, time will tell who is right
Regards
Hi BCD.
I don´t think I agree with some of your cals
"The interest rate on Chariots share of the carry is not 7%, it's 7% above SOFR which has varied between 3-5% over the last 24 months since inflation hit. It's currently at a peak rate of 5.3% (because interest rates are at a peak). Interest rate cuts are anticiapted to begin in 2024, but if they don't and instead continue to remain at around 5.3%, then 7% above this rate would be 5.67%."
I understand that the interest rate to be paid by CHAR to Energean for the carry amount will be:
SORF + 7%= 5,3% + 7% = 12,3 %
"This rate could well be nullified or even succeeded by a 7% royalty payment on Energean's gas production revenues in excess of a base hurdle on the realised gas price."
For the reasons explained below, it`s impossible to know if the royalty will nullify of even succeded the interest payments to Energean. I think it will be difficult for this to happen.
"Important to note: this 7% royalty is set on all of Energeans gas sales revenues which would represent a 55% (not 80%) stake in the asset (if they were to take up the additional 10% post drill). A 7% royalty payment on Energeans 55% stake would equate to a (2.75x, not 4x) compounded revenue uplift for Chariot, which could add up to and extra +19.25% in income from Anchois."
As Jimmy23 explained, the 7% royalty is going to be applied on the difference between the realised gas price and the hurdle defined in the farm out agreement.
If, for example, the realised gas price (net of transportation costs) is US$ 9/mcf, and the hurdle is US$ 8/mcf, then the calculation of the royalty will be as follows:
(US$ 9/mcf - US$ 8/mcf) X 7% X Energean production
Of course, no royalty will be earned by CHAR if realised prices are below the minimum hurdle set up in the farm out agreement
I don´t expect these royalty payments to materially change the fundamentals of the project, or to somewhat compensate the interest to be paid by CHAR to Energean. Personally, I´m not going to take that eventual royalty into account in any calc of the economics of the project.
Regards
This is what I posted here on Sept 10,. 2023, about the need to drill an additional well before getting to FID:
_________________________
I remember the case of Barryroe oil project offshore Ireland.
Back in 2012, Providence Resources, the operator of the project, announced a very sucessfull appraisal well (including a very interesting well flowing result), and immediately started a farm in project to develop the field.
10 years past, and spite of the operator´s regular announcements of "plenty of interest" in the data room, nobody farmed into the project.
It seems the field had some geological risks/uncertainties that couldn´t be adequately addressed by the first well. In that case, the principal risk was the eventual compartmentalization of the reservoir, and the resultant increase in the development cost.
A few months ago, the Ireland government refused to give the operator another extension to its exploration license, and the project is dead.
Maybe something similar is happening now with Anchois, and hence the need to drill an additional well.
If that is the case, it´s likely CHAR will be obligated to drill Anchois East with its own resources (i.e., more shareholder dilution) before continuing with the farm in process. In these circumstances, I would have liked the company to use the recent fundraising to drill that offshore well, instead of acquiring the onshore exploration license.
Time will tell.
Regards
Fernan
Whimax:
I asked here a few months ago about the requirement for a flow test before advancing the project. I was told that was not necessary.
Besides that, I read here various calcs about the potential outcome of a "development farm out", in relation to what CHAR will receive.
It is now evident that we were all in dreamland. The project is not derisked enough to make sure that an eventual development will be successfull
This is not the "development farm out" that we were all misleading to wait. This is a kind of an "exploration/appraisal" farm out, with an option in case of a future development.
Regards
As I said before:
- the "carry" is a loan from Energen to CHAR, at a market interest rate (7% over a reference rate). It doesn´t affect the valuation of the project
- the 7% royalty to be paid by Energean to CHAR is condicional on FID. It doesn´t have anything to do with the current value of the project.
For now, the only reality is: Energean will pay US$ 25 million for a 45% stake in Anchois. If the flow test in uncessfull, we will only receive the initial US$ 10 million, and that´s all.
Regards
If the upcoming drill and flow test are successfull, then Energean "will have the right to acquire a further 10% of Chariot's equity in the Lixus licence for:
o US$850 million gross development carry to first gas (including the US$85m gross carry)
o US$50 million 5-year zero coupon convertible loan note with a strike price of £20 adjusted down for dividends or issuance of three million Energean shares, at Chariot's option on FID
o 7% royalty payment on Energean's gas production revenues in excess of a base hurdle on the realised gas price (post transportation costs)
___________________
My comments:
As I said before, the "carry" is a loan from Energean to CHAR, with a market interest rate, and then can´t be taken into account in any attempt to calculate the market value of Anchois.
But the other elements of the "price" to be paid by Energean to eventually acquire another 10% of the project (a US$ 50 million loan note or 3 million shares from Energean, and a 7% royalty) are relevant in order to make an estimate of the market value of Anchois, after an eventually successfull flow test.
Just the US$ 50 million note puts the "after flow test value of Anchois" north of US$ 500 million.
It clears that, Energean currently perceives that the lack of a flow test so far poses a substantial risk, that should be reflected in the current market value of the project. In its current state, the project is not derisked enough to be valued at more than a few million. That`s the reason they agree to pay only US$ 25 million to acquire 45% of the project. After a successfull flow test, the the project value will increase more than 10 times
Regards
That is the real market value of the project.
As I explained in my previous post, the "carry" by Energean is simply a "loan" from Energean to Chariot, to be repayable from CHAR´s share of sales revenues from the project.
Posters like BDC, talking that "in a success case, we will have a 20% equity in a 1 tcf project, almost free of costs, with a 10 year holiday" forget that we will have to repay the carry to Energean.
Regards
Surfit:
you asked for clarification about the following paragrah in the press release:
"Energean's carry of Chariot's costs is non-recourse, and has a coupon of 7% over the one year Secured Overnight Financing Rate (SOFR), with the carry including interest repayable from 50% of Chariot's future net sales revenues from the Lixus licence"
It means the following:
- The amount of the carry will simply be a "loan" from Energean to CHAR, with a market interest rate.
- CHAR will repay the amount of the carry only from their share of the revenues from Lixus, without exposing CHAR´balance sheet (that is, if sales revenues are not enough to repay the debt, CHAR will not be obligated to compensate the déficit).
Nothing to write home about
We were previouly informed that Lixus had a NPV of US$ 1.2 billion (net to us).
We have given up 60% of that value, or US$ 720 million (our equity in the project is down from 75% to 30%) in exchange for:
o US$10 million payable on completion of the transaction
o US$15 million payable on Final Investment Decision ("FID")
o US$85 million gross carry (US$ 34 million net to us)
Total consideration to be paid to us: US$ 59 million
In addition to that, if Energean don´t exercise their option, we will have to contribute our share of future development costs (more dilution coming).
No wonder the share is down on the news
I remember Jimmy´s previous calculations of potential payments to CHAR at the closing of the farm out deal. This is a long way from that.
Regards
Here is my calc of SOU´s funding requirements for 2024, after the successfull restructuring of the bond, and under the following assumptions:
1. current cash position dries up by the end of this year
2. phase 1 first revenue delayed until the end of 2024
3. phase 1 CAPEX continues to be fully funded by the Afriquia Gas debt
4. the eventual reimbursement of phase 1 pasts cost by Calvalley must be applied to a partial repayment of Afriquia gas debt, and then can´t be used to fund G&A expenses, and/or bond interest payments.
FUNDING REQUIREMENTS FOR 2024
G&A expenses (£1.25 million per semester, similar to 1H 2023): £2.5 million X 1.26= US$ 3.15 million
Interest on bond payable in cash: €25.32 million X 2%: €0.5 million X 1.08= US$ 0.55 million
(only 40% of the 5% annual interest rate is payable in cash)
Total funding needs for 2024: US$ 3.7 million
Regards
Fernan
The Meskala gas well to de developed by ONHYM is adjacent to our Sidi Moktar exploration license.
It produces gas and condensate from a subsalt Triassic reservoir, the same type of geological horizon pursued by us.
Regards
_______________________________________
"It is intended to allocate a large part of the investment to projects such as the "development of the Tendrara operating concession, the maintenance of the Maghreb-Europe (GME) gas pipeline, the Office's participation in the Nigeria-Morocco gas pipeline and the development of the MKL-110 (Meskala) gas well"."
https://www.atalayar.com/en/articulo/economy-and-business/morocco-boosts-energy-investment-with-26-billion-dirhams-for-mining-and-hydrocarbons/20231029090000192721.html
In addition to that, after been processed at the central processing facilities, the onshore gas should be transported through the still to be built 40 km pipeline to connect to the main GME gas pipeline.
Those waiting to monetize the onshore gas in the near term forget that the gas should be processed before being sold to market.
And, to do that, it´s necessary to build the required pipelines and central processing facilities.
Previous to building them, it`s necessary to obtain enviromental permits, rights of way for the pipeline, basic engineering, funding, etc, etc.
I doubt all of this will happen in the 12-18 months timeframe mencioned by some here.
Regards
Ps200306:
Here is my calc of SOU´s funding requirements for 2023, should phase 1 revenues are delayed until the end of next year:
FUNDING REQUIREMENTS FOR 2024
G&A expenses (£1.25 million per semester, similar to 1H 2023): £2.5 million X 1.23= US$ 3.1 million
Bond amortization due June 2024: €25.32 million X 5%: €1.25 million X 1.06= US$ 1.32 million
Bond amortization due Dec 2024: €25.32 million X 5%: €1.25 million X 1.06= US$ 1.32 million
Interest on bond payable in cash: €25.32 million X 2%: €0.5 million X 1.06= US$ 0.54 million
Total funding needs for 2024: US$ 6.3 million
This calc was posted here on Sept 22th
Regards
One issue that can be inferred from last presentation is that, after the end of the exclusivity period with Calvalley, and as Calvalley completes their due diligence, SOU`s management has reactivated the analysis of alternative equity funding options.
These options include: mezzanine debt, subordinated debt, and partial vendor financing (slide 5 of the presentation).
This is confirmed in slide 7, where management informed that near term next steps include "close equity financing-partner or vendor"
It´s clear that having Calvalley on board to fund the project development is by no means a sure thing.
In that scenario, I think SOU´s management wants to have these alternative funding options well advanced, in case Calvalley finally decide not to participate in the project.
Regards