The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Question. Italy apply for an annulment on day 120. How long does the process of deciding on their application take?
Don't confuse (or underestimate the significance of the difference between) the legal precedent set by decisions of courts and the awards issued by arbitrators in tribunals.
The issue with "not setting a precedent" through a settlement is that any settlement will nonetheless set a semi-precedent. It might not be a clear cut court or tribunal precedent, but a settlement will make it quite clear that in similar circumstances a party could either expect an award or their own settlement.
As a public company, RKH will not be able to keep anything (certainly the most important parts) confidential, which is when settlements can be useful.
GS
falklandinvestor,
The main difference between nigoil and the naysayers is that nigoil, particularly of late, was continuingly making statements, not simply of opinion, or based on analysis, but claiming to be based on purported inside information.
If someone has a positive or negative opinion, however unreasonable, there is no foul, however annoyingly or persistently they might put it across. BUT if someone is publicly postive or negative AND claims the basis for that is knowledge that, if true, would be inside information, it's clearly an issue, regardless of whether that knowledge exists or not (as is the case with Nigoil). Either way, it's market abuse, and I'm pretty sure LSE would take a dim view; as it appears they did. They may even be theoretically liable if they knowlingly let it persist.
GS
The 120 days (plus possible extension) runs from the date the proceedings are declared closed.
It stands to reason therefore that the question you'd ask is when that declaration was made. Then you'll be able to judge for yourself how aggressive or otherwise Q1 is.
GS
"But, as with a stopped clock (which is always right twice/day), if SimpleS goes on making its predictions, several times/day, every day, then one day it'll be right and then he/she/it will claim to have been the genius who correctly predicted it!"
Never was a truer word spoken.
GS
markednmbr1,
It's a good list (for the most part) and certainly filters out some of the noise. Mine shares some significant simularities. Unfortunately, it doesn't leave much, if anything, at all, which is a bit sad. Unfortunately, as a forum for any sort of reasoned debate, this board has become pointless, and many historic contributors with worthwhile things to say no longer post in no small part i suspect due to the toxic atmosphere whipped up by a few posters. Today, you're either in the relentlessly postive camp or the relentlessly negative camp. Neither gives an inch and anything in the middle is shouted down from both sides.
FWIW I do actually think falklandinvestor actually knows a bit more than most on this board due to their location (?), so can be worth listening to (with a healthy degree of scepticism), but as of yet hasn't been able to translate that knowledge into riches. As is often the case, and particularly in the history of RKH, I think a little bit of knowledge has actually proved quite a dangerous (unprofitable) thing.
GS
Spot on cyan2.
As I stated before the disposal was announced, RKH were reasonably open for some time previously that Egypt was a platform for growth and that if that growth (through acquisitions) could not be achieved (and some came very close) it would be let go. As it was, it was materially sub-scale.
Add to that the delays we are seeing manifest with FID, OM, etc. (which I'm sure the BOD had some visibility of) and realising cash was clearly an additional catalyst.
Any connection to the Naviatas deal would be coincidental, but certainly wasn't the primary motivation.
GS
It is extremely doubtful that Navitas had anything to do with the Egyptian sale.
RKH has been saying for some (more than a year) that the Egyptian acquisition was intended as a platform to grow a more significant presence in the area. Several opportunities were pursued but RKH was ultimately outbid, or walked away. It was always intended that if they failed they to scale it they could look for an exit rather than maintaining a sub-scale business. Common sense.
The delays to any sanction decision and OM outcome, pushing them beyond RKH's accounts signoff, merely sharpened the mind.
GS
No particular fan of Edison, but the substance of their report is in line with the well-reasoned reaction we have seen.
1. Farm in makes sanction more likely.
2. Terms make sanction less valuable.
3. Ignoring OM, as you were or thereabouts until sanction decision for potential significant appreciation.
GS
I think any sense of frustration is justified (capitulation, surrender - call it whatever you want), but the terms of the proposed "farm-out" reasonably reflect the reality of the current situation for RKH that many put their head in the sand and ignored. In the circumstances I think it's about the best that could be hoped for.
Has the BoD made bad decisions? Yes
Has RKH been unlucky at times? Yes
Has PMO acted against the interest of RKH's shareholders? Yes
Has PMO acted in the interest of its shareholders? Yes
Would a different BoD have resulted in a more favourable outcome? Possibly
Should the BoD be criticised or removed? Sure
Will the BoD be removed? No
Will the BoD get big bonuses for securing this "farm out"? Yes
None of this matters! RKH is where it is (or was) and one can choose to invest in or not. The reality is that RKH found itself without the cash likely to be able to sign itself of as a "going concern", which meant that there was only ever going to be significant dilution on the bottom or top line. For now, it's transpired that will be the latter, which I can assure you is the most favourable of the two.
In this scenario RKH's bargaining power was zero, and I'm pleasantly surprised RKH didn't just get absorbed into PMO at its depressed valuation with the whole lot split between PMO and Navitas.
RKH can multi-bag from here if Sea Lion is sanctioned, and that should be good for every investor today. What anyone paid for the shares in the past, or the hopes and dreams they once had, are irrelevant.
GS
Nig,
Will you have the audacity if sanction happens in 2020 to say that you have proven your insight? You seem like the kind of person who would...
GS
Hi Nig,
"FID and Project sanction of Sealion 2020"
You might actually be right this time, but perhaps do the board a favour and don't repeat it endlessly. The vast majority of the board don't want it to turn out like your previous "forecasts".
GS
The fundamentals of an E&P (don't let yourself believe that RKH is ever going to be valued like BP) is its NPV. Single year yield is irrelevant, even forgetting you continue to do it on peak earnings.
As you ask, and based on what we know now, I think anywhere approaching £0.60 (before an actual sanction call) or £1 after it in the short-term, would have me seriously evaluating to see if there were better places to deploy investment.
That said, human nature would make it hard to sell before any sanction decision (even if it became largely priced in) and OM is an option.
Much,
I am not misrepresenting what you said. I am pointing out you ludicrous use of P/E (which you just repeated) as viable multiple of market value for a single asset E&P.
That renders everything else you say on the topic meaningless and misleading.
Given RKH's own $4bn NPV statement for 100% of Ph1 at first oil is based on a $75 real 2020 price (so ~$85 nominal) and favourable assumptions, I'd think you might use that as calibrator for your expectations.
Upside there is; £5 there isn't.
GS
Marunam,
"Deals are done in real time, who was to say POO would go down to $50 - $60 bpo range when the farmin was done with PMO."
Please point to anywhere where I said it would. The only reference I have made to price was in response to Much's nonsensical claim that a $10 move (up or down) in the oil price could move the valuation of RKH by ~£2.5bn or >£5/share.
GS
LTT,
If there is any value in Isobel, RKH will have 30% (not 64%) under this arrangement in exchange for $12m.
Anyone still think the FOGL deal and associated share dilution was worth it..?
GS
Much,
I am not really assuming anything. The ~£2 share at first oil (probably not including the debt repayment, etc.) is based off RKH's own statement which is itself based on a 2020 $75/bbl real price.
But, to point out some very obvious flaws.
- Small-cap E&P's with limited assets do not trade on P/E. They trade (if anything) on NPV's. Putting a "market" P/E on a peak production number is beyond ridiculous. By your logic a $10 lower oil price would also have a negative £2.5bn impact on RKH's valuation. Just lol...
- Under this arrangement, RKH retains only a 30% WI in Isobel, and is responsible for 30% of further exploration, future development, etc. They gave all their existing WI (and potential to farm-out in the future in exchange for $ and a carry) for the mighty sum of $12m; and what's more it's paid out of any Isobel cashflows.
FWIW I think RKH's oil price assumption is certainly at the upper end at the moment in terms of certainly what the market might base any long-term valuation on. Now this might change, and will the oil price have an impact. Of course, but nothing like you think.
GS
Having spent a bit more time looking at this, if one is prepared to accept the reality of the position RKH had found itself in, there are very significant positives from the announcement assuming it completes.
- PRE-sanction costs are covered by PMO. Delays, provided ultimate sanction occurs, are now of very limited consequence to RKH and crucially it should facilitate a “going concern” sign-off in the 2019 accounts.
- An equity raise, which would have been extremely dilutive for existing holders, is off the table.
- Ombrina mare is now a “nice to have” rather than a “must have”.
But there is also clearly a reality check in terms of potential achievable share prices.
- RKH has a reduced its WI in Ph1 to a straightforward 30%, losing the carry/guarantee fee arrangement. HOWEVER, due to the fact that the loan (paying RKH’s WI share of capex) is interest free and thus repayments will be affected heavily by the discount rate, if you run the numbers I actually think the reduction in today’s NPV (50/50 under the previous carry and guarantee fee arrangements) might be a lot less; 50% to ~45%.
- More significant is the changes to Ph2 and beyond:
-- The second half of the original carry (~$337m) “reserved for phase 2” is gone.
-- RKH’s WI in Ph2 is reduced to ~30% in exchange for minimal contingent payments of up to $48m in the distant future.
-- RKH’s WI in Ph3 (Isobel) could be reduced to ~30% (and will be if there is any value), for a payment of just $12m. This was the “bigger than Sea Lion”.
- And in the short term, Navitas appears to have paid nothing to farm-in, apart from becoming liable for it’s pro-rata share. This doesn’t help in fixing a high value for the project.
Even on RKH’s $4bn NPV claim (almost certainly based on favourable assumptions, below market discount rates, etc…) Ph1 would be worth ~£2 per share at first oil.
Perhaps a bit of sobriety could now return to discussions of potential longer-time possibilities for the share price. Multi-bag = yes; great buy = yes; £5; no.
I also hope there’s going to be a bit of a humility at this years AGM, because I can foresee a smug-looking BoD painting this as a success, and while it avoids annihilation it isn’t on so many levels.
GS
A quick scan suggests that the best way to think about this is that it basically takes a ~50% NPV interest to a ~30% NPV (probably a bit better due to the time value of the zero interest repayments), but makes sanction much more likely, and an equity raise a lot less likely.
Don't fixate on the carry. It isn't there anymore, but neither is the guarantee fee, which was going to rebalance the NPV at sanction to 50/50.
Most crucially, RKH is not longer responsible for PRE-sanction costs, so additional delays are no longer a matter of life and death.
I would far rather take some dilution on the top line, that would would be far far worse on the bottom line, and that's the reality of where we are/were.