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Nigoil,
I can't quite tell. Have you updated your timetable, or will FID and Sanction still be in 2019?
Thanks,
GS
The BOD won't be happy. Their LTIP's aren't typically awarded until towards the end of April.
GS
Do we actually know that the 120 day period is running, or are we just assuming?
Perhaps the post-hearing period isn't necessarily limited to single post-hearing brief from each side?
GS
MajorThomas1,
Dismiss it as scaremongering if you wish or incorporate in your risk calculation, but in either case do it with the correct facts.
1. The cash balance at YE was actually ~$35m in practice. The ~$40m includes ~$5m of accrued expenses that had yet to be paid. So cash balance lower and annual spend higher if you want to assess in that way.
2. The RNS makes it quite clear (see paragraph I quoted earlier) that despite FEED finishing, the elevated level of activity and expense will continue until sanction.
3. The BOD would be reckless to, and won't, wait until cash is $0, or anywhere near before having to take mitigating actions. What do you think would happen to the share price if the accounts weren't signed off as a "going concern", which requires a comfortable 12 months plus of funding..? Read the sign-off for 2018 and fast forward a year if RKH is still on the hook.
No-one's predicting anything in the next couple months as far as I can see. The issue rears its head if there are any further delays, and there have, as anyone will accept, been plenty of those.
It's the business end and a very big year for RKH.
GS
elcapitano66,
The stress test you refer to which runs to 31 December 2019 involves reducing oil price assumptions by $10, not reducing to $10.
GS
elcapitano66,
That statement repeats what we already know; that post-sanction RKH is carried for Ph1.
Looks like a bit for everyone, although I believe it reiterates we are reaching a critical period in this investment which will determine what range of outcomes might be reasonably achievable.
Specifically,
"During 2018, FEED contracts were awarded for all the outstanding elements of the project scope with a corresponding increase in activity, expenditure and expansion of the Operator's project development team. Although FEED concluded in March 2019 increased activity levels are expected to be maintained throughout 2019 in the lead up to project sanction"
So either sanction happens within the next 12 months and pre-sanction dilution can likely be avoided, or it doesn't and, subject to OM, the picture looks quite different.
GS
suresh786,
I think you've largely answered you own question. If EC funding is approved it unlocks the whole of Ph1 given the minimal equity contribution then required from PMO, which should, at least in theory, lead to a much higher attributed value - PMO (and possibly RKH) having to sacrifice much less for any given contribution. The companies have commented on this motivation previously. If the parties are confident of EC approval (or the current obtainable valuation suggests a low probability of approval), either of which you might argue are true, why negotiate from a position of weakness. Basic commercial principles.
You're right that it could also provide some an additional level of due diligence for any interested partner, although I would hazard a guess that anyone who does ultimately come in has probably been looking over SL for some time.
GS
Ovets,
The latter half of that is almost certainly true. I'm not going to go back and find the wording, but I recall that at the time PMO (possible TD specifically) were more or less referring to EC as a certainty. Given the heightened political angles, and the fact that at stage the process was largely an informal one, I don't think UKEF liked the attention, particularly as the signoff around or by this point had been passed to other departments.
GS
carroteater,
I couldn't disagree more. I am someone who believes there are some longer-term benefits to a proper (or hard) brexit, but that possibility has been a drag on RKH and will continue to be as long as it remains.
Anyone considering making investments wants certainty, but far more importantly the EC process gained (and I would guess retains) a significant political angle. The UK Gov doesn't want to do anything that harms securing trade deals. As soon as there's a political angle, pure economic arguments become much less dominant. That's why this EC process has been drawn out and the parties are now looking to force a decision.
Anything that reduces the likelihood that the UK Gov would be going out to strike its own trade deals in the near-to-medium term would be a big positive for the RKH investment case in my opinion. Getting sanction in a timely manner trumps all longer-term benefits.
GS
Ovets,
I thought better of you. The full sentence.
"No-one else, as far as I can recall, although easy to get buried in this rubbish, has advanced any fact or opinion as to why that's wrong."
"That" referred directly to "...there is a considerable risk of dilution (either on the top or bottom line) either before sanction (or certainly pre first oil), subject to the get out of OM which has therefore taken up a great deal of significance..."
The actual arguments advanced against that position, and of which I would like to hear, have been limited so far.
Much's diatribe, which I take it you are referring to, doesn't change this.
As I stated I'm not here to win a popularity contest (just as well it would seem!). I'm here to seek intelligent challenge to my thesis and make better investment decisions.
GS
Ovets,
Have you suddenly lost the ability to read?
GS
MajorThomas1,
You want to look at the GM capex and SL pre-sanction costs.
GS
Robpug_uk,
With respect, this is the issue. That's not what I've said, so you've either misread my post(s) or read them third-hand from someone who has.
I have not suggested a pre-sanction placing is nailed on (implying a certainty), although based on the information we do have I have suggested that if sanction is further delayed past Q1 2020 that dilution (bottom line or top line dilution, so this isn't restricted to a placing) is probable. I'd consider that a "considerable risk", based on what we've been told about sanction timing indicating potentially year-end or early next year.
If you broaden the time window until pre first-oil then and if RKH exists at some point, I do believe it's fairly obvious that some dilution will have happened along the way.
All of this been said consistently subject to OM, the increased importance of which initially started this topic.
GS
Ovets,
Not sure what "view" you're referring to.
If it's the substance of what I have been saying in recent days, which is that there is a considerable risk of dilution (either on the top or bottom line) either before sanction (or certainly pre first oil), subject to the get out of OM which has therefore taken up a great deal of significance, "the considerable majority" you refer to seems to be Much and Nigoil. No-one else, as far as I can recall, although easy to get buried in this rubbish, has advanced any fact or opinion as to why that's wrong.
If it is how I have been saying it then I kindly refer you to my prior post.
GS
Ovets,
Fortunately, I don't discuss RKH to be popular. I discuss it to make the best investment decisions.
If people don't like what I say or how I say it they are free to ignore.
GS
Much,
I trust you feel a little better now having written all of that, but I'd suggest you time might have been better in self-reflection.
Until the AGM.
GS
carroteater,
In my opinion, it depends on several factors:
1) RKH's expected cash burn through 2019. As far as I am aware, no guidance has been provided for cash balances either at the end of H1 or YE. Hopefully there will be more clarity at the AGM.
2) How low the BOD are willing to take the cash balance. You don't want to wait until the last penny, so it's not as simple as asking when it will reach zero.
3) What happens with OM both in terms of size of award and timing of any recovery.
4) If RKH manages to restructure the arrangement with PMO (or a third party comes in as PMO has spoken of) in such a way to provide a cash-sum in exchange for asset share, or at a minimum to end or cap its pre-sanction costs.
Absent something positive happening in respect of 3) or 4), my own thoughts is that if sanction goes beyond Q1 of 2020 there could well be some pre-sanction placing, potentially triggered by going concern issues with the 2019 accounts. The price and impact clearly depends on the outlook for SL at the time. I'm not worried at this stage, and I wouldn't be, unless as I've been "discussing" with Much, you're anticipating £10+ shares.
GS
Much,
I'm not going to explain who I am or my background on an internet bulletin board for any number of reasons, not least because why would I expect you to believe anything I told you, much in way I take anything anyone says about their own experience with a pinch of salt, focusing on what they say, rather than whom they claim to be? Sort of when someone claims to be an "international banker", but appears to fail to appreciate some fairly basic financing concepts...
I've exhausted the topic of dilution with you. Subject to OM, and if RKH continues to exist in 4-5 years time when I hope SL Ph1 begins producing, it will do so with a higher share count or a lesser share of its Falkland's assets than it has today. Cash doesn't lie and management's desires are quite irrelevant. In fact, their stated intention to build a fuller-cycle E&P and not wait until SL begins producing to do so increases the likelihood.
In any case, best avoid full sentences or heaven forbid full paragraphs. Nigoil doesn't like them.
GS
Robpug_uk,
A little under 30p, but I don't really think about it. It has no bearing on whether I hold what I have, sell, or buy more.
GS
Ovets,
Selling the claim/award to a third-party might be an option, but I have little idea what sort of discount that might typically involve, so it would introduce a further level of uncertainty to what ultimately might be received by RKH. Presumably it would depend on factors like finality, etc. Fibonacci112 might have an idea about this?
I asked about this early last year and it wasn't even being considered as an option then, but perhaps is something that might now be revisited given the slippage to the timetable since then.
GS