We spoke to gas explorer and developer Sound Energy. Here are the latest updates from Executive Chairman Graham Lyon. Watch the full video here.
I believe the new shares were admitted on 28 March (to be checked). Also, completion of the CLN is expected to take place around three weeks after Admission.
A few more days before I am expecting announcement of his appointment
It is now 7 weeks since the last operations update and only 5 weeks to 31 March. The final days of Q1 may be significant as thereafter the 2021 operations plan could be adversely affected. It is evident from the 5 January update that there were a number of hurdles to cross. At that time, PM had requested the Ministry of Mining and Heavy Industry to appoint auditors to review the Plan of Development. Nothing has been heard of this since so that it is unlikely therefore that the Plan of Development has been submitted to MRPAM and to MRPC for final approval. Moreover, PM and MRPAM have to mutually agree the Exploitation Area, for which the application includes the Gazelle prospect. Presumably the cost recovery also has to be addressed and the quantum agreed.
I have no doubt that PM continues to comply with the LSE disclosure obligations and is appropriately advised by the company’s Nomad. There clearly has been nothing requiring an RNS since 5 January, and while this remains the case, the company should remain silent. In fact, if there are sensitive discussions going on it could be counterproductive (even damaging) to make public announcements simply to satisfy frustrated posters particularly those who think they know the disclosure rules & regulations.
Please correct if incorrect: The incumbent prime minister is Luvsannamsrain Oyun-Erdene who has been in office since 27 January 2021. Ukhnaagiin Khürelsükh stepped down as Prime Minister but continues as chairman of the ruling Mongolian People's Party.
The facts have to be faced; very simply PM doesn’t have the financial clout to develop Mongolia’s oil reserves in blocks XX and V. The Mongolian Government knows this, Petrovis knows this and certainly PetroChina knows this. The only people that don’t appreciate this are certain board posters still dreaming of £1 parties!!
The position of Petrovis is interesting. While they are our largest shareholder, their percentage of the equity has declined from more than 50% to about 25% over the past ten years thanks to the dilutive Bergen deal and subsequent placings in which they did not participate. Actually, I don’t think Petrovis has subscribed for equity since 2010, ten years ago. While they did participate meaningfully in very early fundraisings, their equity interest emanates primarily from the original deal with Cap Corp whereby Petrovis became the dominant shareholder by contributing licence applications. Moreover, Petrovis has been very active for many years in promoting the Mongolian refinery as they are more interested in securing a contract for supply of refined product for their downstream oil distribution business than they are in their equity in PM.
Thank you OJAY for your helpful response.
While we cannot rule out the possibility of a conditional deal with a JV or farm-in prospect I consider it most unlikely, even with PetroChina who I doubt would contemplate a deal with a financially very weak partner. If PetroChina has any interest in PM’s licences they might consider a takeover bid for PM if they were confident of getting approval of the Mongolian government. While the Mongolian government would prefer not to be become overly reliant on Chinese state companies, they may have to be pragmatic because of lack of options as they have to secure long term supplies and viability for the planned refinery and PetroChina cannot be enthusiastic about seeing its declining crude oil production being diverted and not exported to China. While there is obviously considerable uncertainty, I believe there will be a resolution, nevertheless the clock is ticking.
Serious questions have to be addressed to clarify PM’s predicament while the EL remains unapproved. Firstly, a year ago MB stated that provided the EL was issued by the end of March, the planned 2020 operations would not be adversely affected. On the assumption that the 2021 plan will essentially be the same as that planned for last year it is reasonable to assume that the same timing issues apply and there is now less than 6 weeks to the end of March.
The key question: will the regulator approve an operating plan that is unfunded and take it on trust that PM will achieve a successful funding in order to commence operations at the start of the drilling season, i.e., by the end of April? There is barely enough time for this scenario even if the EL is approved imminently.
So, what are the scenarios if the EL is not approved by the end of March? Clearly, without the EL there is no realistic possibility of a deal with PetroChina, JV with or farm-in by a new party, or loan finance. In such circumstances PM would have to consider an equity fundraising, but I question whether this would be feasible. Firstly, PM would have to convince potential investors that the funds would be targeted at Block V exploration i.e., the Raptor prospects and possibly Heron development in the event that the EL were finally approved. Such a fundraising would have to be completed before PM runs out of cash and remains solvent i.e., before the end of Q2. There are significant issues to consider: firstly, would potential investors be prepared to risk investment for block V exploration given the Mongolian Government’s failure to approve the Heron EL, and the limited life of the block V exploration licence, extended for only one year. Secondly to raise, say, $20 million for the Raptors would surely be at a very substantial discount to today’s share price, and result in massive dilution.
The problem lies squarely with the Mongolian government and not with Mike Buck and team and I like to think that the government is working on a solution even at this eleventh hour. The government has a lot at stake, not least of which is adequate feedstock for its refinery.
Consider the statement made by PM earlier in January: “Under the law, the Exploitation Area (EA) is to be determined by mutual agreement between MRPAM and the Company.” So, after 14 months since the application was submitted, PM and its investors do not know how much of block XX will be included in the hoped-for EL. Will the EA comprise the entire Heron structure? Will the EA extend beyond the Heron structure and include the Gazelle structure? How much, if any, of the historic exploration expenses pre the Heron-1 well will be recoverable costs under the block XX PSC provisions. The fact is the application process hasn’t progressed to providing answers to these key issues.
The highest price paid was 135p in a placing in 2010. My lowest was 1.73p in July 2016. I added quite a few last year. I remember you questioning why I didn’t take profits when the share price peaked in February 2017 at over 30p. At that time the chat on the board was SP estimates by Xmas that year - £1 parties.
Just a thought for you over this weekend: As you were a shareholder in 2010 you will recall what happened to the SP in early 2011 when the first two wells on block XX were drilled. Initial indications were favourable, and the share price soared to over 200p, many people considered that £10 was a realistic expectation with favourable testing and further drilling successes on block XX. It was not to be – the oil had migrated, which was finally determined when about 10 -11 wells had been drilled before any were probably tested. This exhausted PM’s very substantial cash avails which had been raised, in all about US$55 million.
If PM had drilled on the Heron 1 location back then instead of the first wells DT -1&2, the company would be a significant producer today and without the horrendous equity dilution and reversal of all our fortunes. It really doesn’t bear thinking about!
By the way, do you or anyone else know the potential cost recovery under the block XX PSC?