The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
On the rocky road back to former glory, a little optimism can probably do no harm.
Ashley Kelty, of investment bank Panmure Gordon said: “Overall, tone is bullish, but the paucity of actual detail will frustrate investors at the lack of concrete progress from this review and will do little to alleviate concerns about the poor performance of late.
His Majesty presides over opening ceremony of Duqm Refinery I Times of Oman
https://timesofoman.com/article/141731-his-majesty-presides-over-opening-ceremony-of-duqm-refinery
Tareq Kawash has commented on the opening of a new state-of-the-art refinery in the Middle East via LinkedIn.
https://www.linkedin.com/feed/update/urn:li:activity:7161748609284071427/
Using phrases such as ‘mega project’ or ‘engineering marvel’ is not something I would do lightly, but when it comes to Duqm Refinery it is hard to argue that the collaborative project between Oman and Kuwait isn’t exactly that.
With capacity of processing around 230,000 barrels of crude oil per day into a wide range of premium derivatives, including diesel and jet fuel, the site occupying 900 hectares was no more than a fishing village a decade or so ago.
As the #OQ8 Refinery is now running at full capacity, I am proud to remind people that #Petrofac, in a joint venture with Samsung Engineering, delivered engineering, procurement, construction, commissioning, training and start-up operations for all utilities and offsites. Navigating challenges that included a global pandemic, our people set a benchmark for future projects.
Our colleagues poured their energy into the project with the goal of turning an empty patch of land into a state-of-the-art oil refinery. They should all take pride in this achievement.
Even if that were the case, there would still be too many unpredictable variables on the table,
Apparently, they have not yet broken any covenants and the bonds worth 600 million are not due until the end of 2026.
By then, the interest rate environment will be completely different and, if Petrofac returns to profitability by then, a solution should certainly be found.
So a multi-billion dollar company with the positive prospects and capabilities that Petrofac has to offer is supposed to get into financial difficulties because of a low three-digit million amount?
I simply have no imagination to recognise that.
I'm not saying that it will happen, but the possibility of a Wood Group-style takeover is certainly one option among many being considered at the moment.
The announcement alone would catapult the share price to well over £1 overnight.
The risk that the short sellers are taking at the moment just seems crazy to me.
Perhaps their confidence has less to do with the difficult financial situation than with the fact that Schroeders is doing / wants to do further reductions in the background.
Perhaps they reckon, or know, that Schroeders has not yet reduced to 0
and expect that there will be a further reduction. But as always, we are the last to know when such important things are only communicated months later via RNS, which in my opinion borders on market manipulation. Maybe Schroeders is already close to zero and we just don't know it?
I just can't believe that petrofac is only worth £150m at the moment.
Ali's next door kebab shop is worth more than a company that employs 8000 people, with an expected 2025 revenue of $4000 million, a backlog of (status quo $8bn) and a pipeline of $62bn to be awarded in the next 18 months.
Backlog 2025?
With 10% won (minimum assumption) this would be an additional
6.2bn (total $14.2bn or $14200 million)
At a realistic 15% this would be a total of $17.3bn
It's just crazy.
In my opinion Petrofac will soon rise like a phoenix from the ashes and the short sellers will burn.
I am sure that the big players like Apollo, Azvalor etc. are currently looking at Petrofac with very big eyes and a sale or an announcement of a majority stake could take place at any time.
It would be grossly negligent to miss this opportunity, especially considering the strong backlog of $8 bn and the pipeline scheduled for an award in the next 18 months of $62 bn.
As I have already mentioned, an additional investment of a low double-digit million amount would be enough for Azvalor, for example, to acquire a majority stake together with Asfari and J O Hambro.
A multi-billion dollar company with these capabilities that precisely covers the needs of the coming energy transformation will never be as cheap as it is now.
For me, the pieces of the puzzle are slowly coming together.
Everything rises and falls with Asfari. Will he sell?
How strong is his current financial situation?
It's just a pure guess based on some evidence on my part, but I thought I read that some time ago Asfari had pledged around 20 million of his around 80 million shares.
Which to me indicates a very weak financial situation.
He probably won't have much left of the billions he once made.
Could this weakness therefore work to our advantage?
If we open at 150 pence or even more tomorrow or on one of the coming days after RNS has been received, this should definitely not surprise anyone too much because, when you think about it, this is a scenario that literally forces itself on you.
Every serious investor, no matter if big or small, should take a look at the following article.
https://splash247.com/europe-needs-435bn-investment-in-offshore-wind-grid-to-meet-targets/
The amount of 435 billion dollars mentioned in the article, which is expected to be needed for the expansion of the offshore grid infrastructure, does not come from a dog running around, but from the ENTSO-E, the European Network of Transmission System Operators, representing 39 electricity transmission system operators (TSOs) from 35 countries across Europe. And this voice carries weight and should give everyone a clear idea of where the journey will take us in the coming years.
Yes.
The introduction of the article is as follows.
The bank has projected that for European oil majors to maintain a 4.5% free cash flow yield by 2018, substantial cuts in capital expenditures would be necessary if Brent crude prices were to hover around $80 or $70 per barrel.
I'm thinking about a few possible scenarios for how things could go from here.
I could well imagine that Azvalor would like to acquire a combined majority stake (including the 16.1% of Ayman Asfari).
16.1% Ayman Asfari
15.0% Azvalor Asset Management
5.3% J.O. Hambro Capital Management
Total 36.4%
Therefore, they would theoretically need an additional 13.7% to reach a majority stake of 50.1%.
This would mean that, assuming Azvalor has already purchased the shares sold by Schroders, they would only need to purchase an additional 7.9% of outstanding shares to acquire a majority stake.
For example, at 25p per share, this would correspond to approximately £10 million, and at 40p per share, approximately £16.5 million, to acquire a majority stake in a multi-billion dollar company.
It is actually incredible when you think about it.
If they did not take the opportunity to buy these shares, they would need to invest in an additional 5.8%, which corresponds to £7 million at 25p or £12 million at 40p to acquire a majority stake.
If an RNS is published soon regarding the increase in Azvalor's stake, it should be clear to everyone what this means.
If Petrofac can get its short-term financial problems under control, I simply cannot imagine how they could let this opportunity slip away. Ayman Asfari would probably not mind making a multiple of his current £20 million.
Which brings me to the next point. What would be a reasonable price for a takeover? 150p+?
Sorry, 4 SEP. 2023
https://www.expansion.com/mercados/fondos/2023/09/04/64f4e092468aeb54038b45c3.html
4 SEP. 2023
https://www.expansion.com/mercados/fondos/2024/01/13/65a2e6d5e5fdeaa5698b457a.html
Primarily, it was probably the challenges of securing bank guarantees and the fact that they got wind that Schroders was quietly reducing its stake.
However, Schroders had already begun reducing its stake in Petrofac a long time ago.
Statement from Schroders on December 13, 2023: "We disposed of our holding in oil services company Petrofac following news of the CEO's departure."
25-Nov-2022 Reduction from 14.7% to 9.5%
30-Nov-2023 Reduction from 9.5% to 3.7%
Schroders' recent reduction in its stake in Petrofac was likely due to the company's need to raise funds for share buybacks. So, it has only indirectly to do with Petrofac, if at all.
26 September 2023
Schroders Capital Global Innovation Trust (INOV) has ‘altered its liquidity mix’ by selling a significant proportion of its publicly-listed holdings to fund share buybacks.
https://www.theaic.co.uk/aic/news/industry-news/schroders-capital-sells-ps245m-of-investments-to-fund-share-buybacks
The uncertainty surrounding Tennet came on top of that and even accelerated the downward spiral.
What would have happened to Petrofac if the first and second Tennet deals had failed?
The shorts are playing with fear and uncertainty and are now standing there with their pants down.
According to Petrofac's own statement, it appears to be a three-year multi-million dollar contract.
However, the following Senegalese website mentions an estimated amount of at least 600 billion CFA francs.
https://www.dakaractu.com/Petrofac-prestataire-de-Service-de-BP-C-est-l-expertise-locale-qui-est-sacrifiee-Moustapha-Diakhate_a243023.html
1 CFA franc is equivalent to 0.0017 US dollars
0.0017 * 600.000.000.000 = 1.020.000.000
That would be about 1 billion dollars!
Could this simulation/forecast be roughly correct, or is it far too optimistic?
Just a small update
As expected, the Dutch government is providing Tennet a bridge loan worth 27 billion dollars for the years 2024 and 2025. The sale of the German part of its grid to the German state for a comparable sum can now be finalised with all the time in the world.
Dutch government to finance TenneT while German sale delayed
https://www.reuters.com/business/dutch-government-finance-tennet-while-german-sale-delayed-2024-01-12/
These are fantastic news that only a few people seem to realize the full impact of.
The government is allocating more than 20 bn for Tennet to avoid endangering the energy transition.
https://www.nrc.nl/nieuws/2024/01/11/kabinet-trekt-meer-dan-20-miljard-uit-voor-tennet-om-energietransitie-niet-in-gevaar-te-brengen-a4186716
A pot of money of around 20 to 25 bn € must guarantee that grid operator Tennet can make the power grid 'future proof'. Doubts arose about this after the delayed sale of the German branch.
The outgoing cabinet will open a 'bn-$ helpline' for power grid operator Tennet to prevent the reinforcement of the power grid, and thus the energy transition, from being jeopardized. This way, the company - which is fully owned by the state - can make the much-needed investments in the near future to combat the current congestion of the Dutch power grid and make the grid 'future-proof'.
Sources who are aware of the proposed measure confirm this. The relevant ministries of Finance and Econ Affairs and Tennet did not want to comment on Thursday afternoon. The measure is expected to be announced this Friday at the end of the afternoon, after the cabinet meeting.
The measure is necessary due to the delay caused by the planned sale of the German branch of Tennet. NRC reported at the beginning of last year that the Dutch state wanted to sell the German branch in its entirety to the German government, after Berlin had submitted an official request to do so. The proceeds from that sale, estimated at 20 to 25 bn €, should actually be used to finance (part of) the 'grid reinforcement'. The intention was for that deal to be completed last fall. But due to the political impasse that has developed in Germany since November's budget crisis , negotiations are now at a standstill. It is not clear when the deal will be concluded.
The helpline that the outgoing cabinet is now introducing consists of a so-called 'loan facility' of approx. 20 to 25 bn €. Tennet can use that money for investments in the power grids in the Ne and Ge, a source said. Tennet may withdraw money from the pot as long as the sale of the German division has not yet been completed. However, the entire amount does not have to be used.
The sources emphasize that negotiations on the sale have not failed. The German coalition parties will resolve their differences among themselves in the near future, they think, but until then the German Tennet branch is "a bargaining chip" in this political game. Another source said negotiations are still ongoing, but are "taking longer than hoped." A deal would involve the largest sale of a state holding ever for the Ne,
In my opinion, the new circumstances described in the mentioned article should change the situation diametrically. In combination with significantly declining interest rates, I believe that banks are likely to move towards Petrofac. Now another RNS at the right time and the resulting Short Squeeze would scare even Sir E
Despite these short-term financial difficulties, confidence in Petrofac appears to be unshakeable and strong among the giants of the industry.
The following contracts speak for themselves.
Total Energies, 18 December 2023
Petrofac secures three-year EPC framework with TotalEnergiess
bp, 08 January 2024
Petrofac has secured a three-year operations services contract from bp for its Greater Tortue Ahmeyim (GTA) project in Mauritania and Senegal.
Repsol Sinopec, 04 Oct, 2023
Petrofac has won a three-year contract extension worth more than US$100 million, in support of Repsol Sinopec Resources UK's North Sea operations.
Tennet / Hitachi Energy (former ABB), 20 December 2023
Hitachi Energy and Petrofac announce second project to support TenneT's 2GW Programme with Petrofac's portion of the second contract valued at around US$1.4 billion.
ADNOC, 03 October 2023
ADNOC Gas awards Petrofac contract for landmark carbon capture, utilisation and storage project, the contract is valued at more than US$600 million
ADNOC, JUNE 30, 2023
ADNOC awards $700m contract for gas compressor plant.
The new gas compressor plant is expected to substantially increase ADNOC's gas output from the Habshan Complex
04 January 2024
Petrofac delivering FEED for Aramis, the Netherlands' flagship CCS project
Aramis, a joint development by TotalEnergies, Shell, Energie Beheer Nederland (EBN) and Gasunie
Small note
the CO2 will be carried by pipeline, designed to transport up to 22 million tonnes of CO2 annually. At full capacity and a current CO2 price of USD 72 per tonne, this would be equivalent to $1.6 billion.
The project is gigantic and by no means pinuts.
Stand firm like I do and don't give these canary wharf rates a single share.
And TotalEnergies!
18 December 2023
Petrofac secures three-year EPC framework with TotalEnergiess
https://www.petrofac.com/media/news/petrofac-secures-brownfield-epc-framework-with-totalenergies/
Who cares about +/- 4% at a short position of about 10% (greater than 0.5%) or 50 million shares, with the actual share including less than 0.5% likely even in the range of 15 to 20%. (That corresponds to 75 to 100 million shares!) Only God alone knows how high this short squeeze can go if it breaks out.
If this avalanche starts, caused by a positive RNS regarding e. g. asset sales, then Helikon will probably be the first to be swept away and overwhelmed by the avalanche.
And if an RNS, which can come at any time, should seem to be very positive. Up to 100 pence and even more in two, three days does not seem unrealistic to me in view of this gigantic number of shares that have to be bought back.
It should also be mentioned that hedge funds sometimes also bet against each other, and here is a tempting opportunity that they are likely to be unable to refuse, if they are not completely blind, in order to make a gigantic profit with manageable risk and financial commitment.