Member Info for Fernan10

hi Bluedefender.
where did you get that info?
I think this clarification is of the outmost importarce.
Regards

Fernan

I tried to calculate PMO free cash flow in 2020, assuming an average oil price of US$ 35/b

ASSUMPTIONS

1.Production: 72.500 boepd (mid point of the 70-75.000 boepd range provided by the company).
Annual production: 26,5 mio barrels

2.Operating cost (including leasing costs): US$ 21/b

3.CAPEX: US$ mio 420
Source of all the above info: PMO press release on Jan 7, 2020.

Assuming that part of the CAPEX is deferred to 2021, I will take an annual CAPEX of US$ mio 350

4.Efffects of hedging
PMO hedged 4,7 mio barrels at an average price of US$ 64/b
Source: PMO 2020 annual resuls press release
So, at a market price of US$ 35/b, this hedging activity will provide an additional revenue of US$ mio 136
4,7 mio barrels X (64-35): US$ mio 136

5.Average selling price for PMO: historically, PMO have an average selling price for their oil and gas equivalent to 80% of Brent price. This historical discount is due to 2 basic reasons:
- Part of their production is natural gas, that carries a lower average price (in terms of barrels of oil equivalent)
- The effect of the Production Sharing Contracts in Indonesia and Vietman. According to the mechanics of those contracts, part of the oil and gas produced go the state, resulting in an equivalent lower selling price for PMO.

6.Interest charge:
Gross debt: US$ mio 2.200
Average interest rate: 7%
Annual interest charge: US$ mio 154

7.Foreign income tax (to be paid in Indonesia/Vietnam)
PMO paid US$ mio 61 of foreign corporate income tax in 2019. Due to the lower prices in 2020, I assume (conservately) US$ mio 20 to be paid in 2020.

FREE CASH FLOW CALCULATION

Oil/gas sales:
26,5 mio barrels X US$ 35/b X 80%: US$ mio 742
Effect of hedging: US$ mio 136
Operating/leasing cost: 26,5 mio barrels X US$ 21/b: (US$ mio 556)
Interest charge: (US$ mio 154)
Foreign income tax: (US$ mio 20)
CAPEX: (US$ mio 350)
FREE CASH FLOW IN 2020: (US$ mio 202)

This is not the end of the world for PMO. Just a partial reversal of the US$ mio 330 debt reduction they got in 2019.
We just need to get rid of the reckless North Sea assets acquisition to right the ship

Comments?

Regards

Good morning..

According to IMF, Saudi Arabia requires an average oil price of US$ 83 per barrel to get fiscal break even

Source:
https://www.reuters.com/article/us-saudi-oil-output-breakingviews/breakingviews-saudi-sets-global-oil-a-stress-test-few-wil/bl-pass-idUSKBN20W18L

At a Brent price of US$ 33/b, and production of 10 millon barrels per day, they are losing US$ 500 million per day, or US$ 184 bn per annum

Their foreign exchange reserves in January were US$ 490,6 bn
Source:
https://www.ceicdata.com/en/indicator/saudi-arabia/foreign-exchange-reserves

Of course they have plenty of running room to issue more debt.

But history shows that this price war could not last more than a few months.
In the last 40 years, after initiating a price war, Saudis and their OPEC peers have always came to the negociation table to make a new output cut deal.

Regards

Fernan

Good morning..

According to IMF, Saudi Arabia requires an average oil price of US$ 83 per barrel to get fiscal break even

Source:
https://www.reuters.com/article/us-saudi-oil-output-breakingviews/breakingviews-saudi-sets-global-oil-a-stress-test-few-wil/bl-pass-idUSKBN20W18L

At a Brent price of US$ 33/b, and production of 10 millon barrels per day, they are losing US$ 500 million per day, or US$ 184 bn per annum

Their foreign exchange reserves in January were US$ 490,6 bn
Source:
https://www.ceicdata.com/en/indicator/saudi-arabia/foreign-exchange-reserves

Of course they have plenty of running room to issue more debt.

But history shows that this price war could not last more than a few months.
In the last 40 years, after initiating a price war, Saudis and their OPEC peers have always came to the negociation table to make a new output cut deal.

Regards

Fernan

IJWT:
Very interesting info in my oppinion
The methodology to calculate the "reward" to the partners willing to drill in case of a successfull well should be interesting to know.. A successfull well will surely be tied up to the same FPSO as the rest of the wells in the block....so the economics of this individual field will have to be accounted for separately from the others on the same block

Regards

Fernan

Hi IJWT.
you wrote:
"Incidentally, Tullow IR has confirmed partners can proceed individually or in tandem with drilling on the licence - they do not need Tullow to participate.
I haven't asked what it means in terms of deferred cost sharing or other arrangements which may be in place but Total/QP/Eco are free to go it alone if they wish."

It´s a very important bit of info in my oppinion
Can I politely ask you who told you that? was Tullow´s IR department in a phone conversation?

Regards

Fernan

I think that all options are on the table at the moment.

Regards

Fernan

I just can´t see TLW telling the partners: "We are the operator, and we do whatever we want, provided we meet the minimum requirements of the license", as Proselenes suggeted. This is not the way big companies treat their business partners.

Regards

Fernan

I think that both Total and Eco informed TLW that they want to drill at least one of the big Cretaceous targets this year. TLW didnh´t have the budget for that. Likely that TLW asked the partners for more time to review their options and come back with a proposal.
Total/ECo should be waiting for TLW´s answer now. Hence the silence, since there is not material news to inform the market for the time being.

Regards

Fernan

IJWT:
The consortium agreement was initially negociated and signed by TLW (60%) and ECO (40%). Then ECO sold part of their equity interest to Total (and subsequently Total sold part of their own interest to Qatar Pet).
So, Total (and Qatar Pet) will be subject to the terms agreed by TLW and ECO.
But, independently of who signed the arrangement, I would like to know what are the standard provisions in these type of agreements, in relation to the real power of the operator to decide by themself about future plans for the block.

Regards

Fernan

Lots of discussion here around the real power of the project operator (Tullow) to decide what to do and when to do next.
My question is: what is the real power of the operator according to partnership terms? Tullow have 60% equity interest on the project.
Is there any clause stating that the operator could not unreasonable deter future exploratory/appraisal/development activities on the block?
Suppose that, after being named operator in Orinduik, TLW finds oil in a potentially much better block than Guyana (e.g., Peru), and then decides to put Orinduik on hold until 2023, in order to explore/appraisal that new discovery in Peru.
I cant believe there are not provisions in the agreement preventing Tullow to do that.
The logic way would be:
- First, for the partners to discuss and vote future drilling plans.
- Second, after the partnership approves the following steps, the operator executes the previously approved plans.

But to leave the operator to decide by itself future plans and activities, with all the other participants in the consortium having no say on that...I don´t think this is the way these type of agreements work in reality.

Comments?

Fernan

Good afternoon sirs.
I understand that Accugas customers will have the right to compensate any gas delivered to them in the future, in excess of minimum "take or pay" quantities, with amounts paid for in the past, for gas that was not actually delivered to them, due to the "take or pay" agreement.
For that reason, revenues not related to gas actually delivered to the customer (due to the application of the "take or pay" clause) will not be accounted for as revenues in the P&L statement, but as "deferred revenues" (kind of obligation) in the Balance Sheet statement.

See note 3 to December 11, 2019 news release:

"In accordance with applicable accounting standards, Savannah will report revenues on both the income statement (in relation to delivered gas volumes) and on the balance sheet (as deferred revenue, in relation to the difference between delivered gas volumes and take-or-pay volumes). "

Is my interpretation right?

Regards

Fernan

I wouldn´t be surprised to see Total paying Tullow´s share of cost of drilling one or two wells, in exchange for an additional equity interest on the block.
After all, they have previously sold an equity participation to Qatar Petroleum, and they will probably feel the pressure from the qataris to do something in case TLW decides not to drill in the short term.

Regards

Fernan

Cyan2:

You wrote:

"Note the 9-12 months after first oil . It appears to me that they are giving a 9-12 month period when we actually receive full revenues from our share of the growing production. "

I don´t agree with your interpretation of the wording of the agreement.

My take is:
-PMO and Navitas will keep funding 100% of CAPEX after first oil (drilling will continue after that date) until finishing all CAPEX for phase 1 (estimated to occur 9-12 months after first oil).
- RKH will be repaying the non -interest loan to PMO and Navitas from day 1 of production.

There is nothing in the agreement that leads to the conclusion that the repayment of the loan will commence "9 or 12 months after first oil"
Regards

Fernan

Excellent info Proselenes.

Thanks for sharing it

Regards

Fernan

Hi Trop
After the deal, and provided the option to farm into Isobel es exercised by the partners, RKH still will have a 30% equity interest in a potentially 1 billion barrels basin.
If this deal helps to get funding to Phase 1 development and unlock all the potential value of the basin, a few years from now (with all 3 phases in production/development) it will be deemed as a good deal for RKH.
I´m sure that, after reaching FID for Phase 1, exploration/development of phases 2 and 3 will be straightforward, and this is the real value of the deal.

Just my oppinion

Fernan

From 2014 Annual report (page 13):
CAPITAL GAINS TAX (“CGT”) LIABILITY
During the year Rockhopper reached an agreement in principle
with the Falkland Islands Government (“FIG”) on a total capital
gains tax liability of £90 million with the first tranche of £26 million
paid during the year ($41 million at the rate on the date of
payment) and the balance of £64 million ($107 million at the year
end exchange rate) payable at the same time as the first royalty
is due from the Sea Lion field. This liability was recognised at
£52 million at 31 March 2013.
This movement is mainly due to the application of a 10% discount
rate to the valuation of the development carry, on the basis that
the non-cash proportion of the tax due will not now be payable in
2017, as originally expected, but instead at the same time as the
first royalty is due from the Sea Lion field.
Included within the agreed increase is $8 million in respect of the
exploration carry. Whilst an exploration carry is not usually subject
to tax in the Falkland Islands, this carry can be spent elsewhere or
added to the development carry and so has been treated, for tax
purposes, as part of the development carry. Once any of the carry
is utilised on exploration in the Falkland Islands, Rockhopper can
apply for a refund on the proportion spent up to the full $8 million.
This is expected to occur before the payment falls due.
The remaining balance of £64 million ($107 million at the year end
exchange rate) has been disclosed as a current liability within the
financial statements as at the year end as whilst an agreement in
principle is in place no finalised agreement was signed as at that
date.
MY COMMENTS:
rpoodle was right about the parcial payment of the tax liability that aroused from the 2012 farm out deal with PMO.
The portion of the liability associated with the upfront cash payment was already paid in 2014.
The amount related with the exploration carry was cancelled as a result of RKH applying that carry on the FI.
And the balance to be paid in relation to the development carry is subject to a downward revision in case that the carry is no longer in effect, as it happened in the recent deal.

Regards

Fernan

Hi Biffadog.
Navitas raised US$ 242 million of debt/equity in 2017 (see my previous post on Jan 8, 11.23 hs).
I assumed that, before farming into the project, Navitas´ CEO would had convinced both PMO and RKH about their ability to raise money for Sea Lion.
But, the right of Navitas to withdraw from the deal after signing into it, and that of PMO to remove them in case they didn´t get the founding, tell us that Navitas´capability to secure the funding is by no means a given.

Regards

Fernan

Hi Biffadog.
Yes, of course you are right
Regards

Fernan

From RKS`s April 9 2015 press release:

Highlights of the Tax Liability deed signed with the FIG:

· Outstanding tax liability confirmed at £64.4 million (approximately $95.7 million) and
payable on the first royalty payment date on Sea Lion (or earlier subject to certain
events)

· First royalty payment date anticipated to occur within six months of first oil production
which itself is estimated to occur in late 2019 (assuming Sea Lion project sanction in
mid 2016)

· Outstanding tax liability amount may be revised downwards if the Falkland Islands'
Commissioner of Taxation is satisfied that either (i) the Exploration Carry from Premier
is used to fund exploration activities in the Falkland Island license areas; or (ii) any
element of the Development Carry from Premier becomes "irrecoverable"

· Rockhopper provides certain "creditor protection" undertakings to FIG while the tax
liability remains outstanding including (i) restriction on dividends or distributions; (ii)
granting of first ranking security over Rockhopper assets; and (iii) while such security
is in place, restrictions, subject to conventional carve outs, on granting further security

· Intention that at the point Rockhopper is able to secure senior debt for the Sea Lion
project, the security provided to FIG will be released and FIG will be provided with a
standby letter of credit to preserve its creditor position

My comments:

It´s clear that the amount of the tax liability will be revised downwards, in light of the cancellation of the development carry from Premier Oil (US$ 722 million). Of course, the amount of the tax liability associdated with the upfront cash payment (US$ 231 million) and the exploration carry (US$ 48 million) will remain in place.

Regards

Fernan