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*left, no peft... typing on a phone, my apologies
To be honest, it wouldn't make a lot of sense for Prax to try and wiggle out of it. Reasoning as follows...
- £250m is the maximum amount of money they will pay for hurricane, £110m minimum.
- Given they are offering us 17.5% of revenue, that will significantly reduce the profit on Lancaster.
- Add to that the fact that there are $300m+ of tax credits, which can only be utilised under the hurricane name
- $300m tax credits will equate to needing to drill around $900m of oil to actually use them all.
- No way does Lancaster have $900m of oil.
- This suggests that to use the tax credits they need to make acquisitions, which will increase the amount of money we get via DCUs.
I have no problem with the legitimacy of the deal, prax are a big company and would certainly benefit from a large upstream operation.
My problem is that 12.5p just seems fundamentally too low given the tax credits, oil peft in well 6 and the remaining contingent reserves. If they had a deal worth 17p with DCUs, then I would have no problem with it.
It would be interesting to see what the other offers were (With names/company information redacted) - I do wonder if Maris would be on for such a large bonus under the other offers (£900k for getting the deal passed alone, £3.5m if all 12.5p delivered to shareholders).
@Tonyt843 - If the deal goes through, you would get 6p back instantly. Lancaster alone will generate about 1.5p over the following year, so yes it is a bargain even if the deal went through.
And before anyone starts saying "But only 4p is guaranteed!": Look back at the size of every previous lift and try to find one with less than 450k barrels.
I think one thing we can all agree on: 6.5p per share is an absolute steal whether Prax's deal goes through or not. Well played @broomtree!
Now I'm even more envious. Ho hum.
I'm envious. I'm still waiting on both my workplace bonus and my SIPP application to be completed. Sigh.
Touché @chique - you can certainly see which of the two management groups (hurricane vs prax) actually cares. Maris, whilst I don't believe necessarily inherently ill-wishing, is certainly lethargic... Looks like he'll end up getting a £3.5m golden handshake. Sigh.
Completely agree - whilst I don't believe 12.5p is the true value of the company necessarily, I do believe more and more that 12.5p will be the full payout.
Some people on here were freaking out about the dividend only being 4p, but (famous last words incoming) I don't think I've ever seen a lift be less than 500k barrels?
So if you assume we get 6p back as a dividend 2 weeks after the deal is wrapped up, it seems like an absolute steal given the current price.
Thanks for highlighting this. I note that they have also stated they shall send out payments for the DCUs via cheques?
Would they instead be able to send this via our brokers electronically?
For every huge purchase made, there is also a huge sale.
But my personal hunch (and to be clear, it is just that) is that Prax have grand plans for expanding production in the near future
Exactly my thinking @Lyndon. I don't have a SIPP yet, so I may well get that in order today and buy up a huge bunch.
"There we see 2P
(‘the best estimate of reserves as per page 61) of 5.8 million barrels as at 31 December 2021. Produced volume in 2022 is shown on page 22 as 3.1 million barrels yet, due to a ‘change in assumptions in economic life’, 2P as at 31 December 2022 is shown as 6.6 million barrels. If the regression had been as previously estimated, the 2P figure would have been around 2.7 million barrels. The stated figure now is therefore around 244% more than expected. Given the company’s record in writing down reserves as in Q3 2020, how are we to interpret what is stated in this acquisition document?"
This is very insightful, if anyone is going to the AGM I think this should be on our list of questions (Plus any emails going out to other institutional investors)
I imagine behind closed doors Prax have told them of a plan to boost their production significantly... indeed, Prax have stated their intention to increase extraction to 50k bopd in the "medium term", whatever that means:
https://www.ogv.energy/news-item/prax-group-to-build-upstream-portfolio
What's the point? They won't/can't simply backtrack on the deal. The only way of stopping the deal is by getting other IIs to agree to turn it down.
sorry, that should be as far as I know they DON'T* have acquisitions in their sights currently (Implying it will probably be another 6 months before they even start extracting any oil beyond Lancaster at least)
"Am I understanding this correctly to obtain the maximum cap of 6.8p through 17.5% of nett profit this would mean an increase of approx 600% improvement on our current position over the next 3yrs?"
Few points to make here:
1) It is 17.5% of net revenue we get rather than net profit.
2) Let's calculate this properly...
12.5p per share is approx £250m, or about $304m. They have agreed to give back around 6.5p in DCUs at the condition I listed in (1), equivalent to £130m or $158m.
If they wish to pay us back $158m using 17.5% of net revenue, that assumes they sell around $903m of oil. At current prices of $73pb, that means they would need to sell about 12.3m - 12.4m barrels of oil for us to make back the full benefit of the DCU... so yeah, they would need to ramp up production massively (Which I believe is Prax's plan - utilise our tax credits and buy up a bunch of other wells in the area).
But to extract that much oil is going to take a while - they would need 34k bopd for us to reach that target in a year, and as far as I know they have other acquisitions in their sights currently...
@Brightsideoflife
If Prax make no acquisition, that's the amount you're likely to get in 2024 from Lancaster alone. Maris has estimated that at $80pb, we would get 1p per DCU per 5000 barrels per year. So basically he's expecting that in 2024, hurricane will produce on average 4000bopd.
Do you have a link @Gazelleman?
Does anyone here know the specific kinds of business the tax credits can be used for? In particular, can they strictly only be used in oil extraction, or can they also be used in oil processing?
If the former, then to me the deal suddenly seems a lot more credible, if the latter, then a lot less credible for the following reasons:
1) It would mean Prax could only utilise the tax credits via oil extraction, and would be unable to utilise them in their downstream businesses
2) It would mean that to fully utilise the tax credits, they would have to acquire more oil fields under the hurricane name (As after all, $300m tax credits is approx $900m-$1b of oil revenue which you definitely can't get from well 6)
3) As a consequence of (2), letting well 6 run dry to try and screw us doesn't make economic sense
On the flip side however, if they CAN utilise the tax credits on their downstream processes, then they could definitely screw us over.