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Keep losing reception, but pilot is right on point (2) - apologies. COPL paying $0.75mil in shares. However, point remains - you would not convert and seek these extra shares unless you thought price was going to rise. Huge and unnecessary haircut.
Sorry, bit of confusion here.
Two separate points in the RNS:
(1) A conversion of $1mil of bonds at 13p (I think)
(2) "In addition, on February 15, 2023, the Company issued 8,530,951 Shares pursuant to the share settlement option exercised by certain Bondholders for settlement of $0.75 million of Conversion Payment amounts (and related accrued interest) due in respect of two converted 2024 Bonds and four converted 2025 Bonds" I had understood that to refer to the warrants that went with the bonds - but I may be wrong. Either way, it is $0.75mil in COPL's account that has not been spent.
I agree that one way of looking at point 1 is that certain bondholders are giving themselves the ability to 'cash-out' at a huge loss. However, that makes very little sense as a tactic if COPL were going bust given that the value of the assets (equipment plus existing production) is worth considerably more than COPL's current debt (including bonds). More likely that they think there is going to be a significant rise to come - at which point they may well cash-out - and want it all in tradable shares for that point.
Struggling to understand the negativity here. Some bondholders have converted at the previous conversion price (either 13p or 18p) and used their warrants to buy more shares. That means:
(a) They are happy to be shareholders rather than debtors, and so lower in the pecking order to get their money back;
(b) COPL is getting $0.75million in badly needed cash.
They would not do this if they thought the company was going bust at the end of March. I think we can firmly take that possibility off the table now - it is not going to happen (IMHO)
Thanks Doug. On the productions setbacks, I agree more to be said:
- The gas pressure issues is a real one but has been known about for a year and is entirely fixable. An overhang of Atomic putting in cheap plastic pipes rather than metal ones (in laymans's terms) as I understand it. Not cheap (a few million) but should produce hundreds of extra barrels per day, so quick payback once we find the capital. It really goes with my point (3). It's not a reason to go bust or affect the share price negatively over the past year, but another reason we need proper capital to exploit the field.
- Same with the drilling issues. Drilling here is challenging, and so takes a long time (and more capital), but the concept has been proved multiple times now and oil is there and will flow - hence 2P reserves have been booked already.
- The delay in allowing flaring - until the gas-gathering in place - was again a pain, but short-lived and now dealt with.
So these are really past challenges and future big CAPEX needs, rather than any perceived threat to the company continuing, namely working capital needs - which is what I think caused the share price drop. We all know we need an RBL and/or JV for this to go big and nothing has changed in this respect.
So, in short, I agree short term we wait for the bondholders. Once that's sorted, we're back on an even keel. Longterm we wait for the banks/prospective JV partners.
Final point - another person (Corby?) queries where the capital from these new shares went. For those new to this board or who forget, it is what bought us CUDA and, in respect of the recent Winter bonds, our immediate CAPEX/admin costs - recompletions, starting work on one horizontal drill, fees for organising the RBL.
Sorting the CUDA issue was required for the RBL, hence it was vital for the survival and success of the company. All I'd query is whether the finance deal on that - with the bondholders - was a bit too generous, or whether we might have paid a bit less. However, (a) that was done last summer and is now old news (not really relevant now) and (b) it gives the chance for COPL to go big, in which case few long term holders (myself included) will care!
Have read much of the board over the last few days, and a lot of perspective seems to have gone - rampers vs derampers giving their assertions with nothing to back it up. Someone will be right and someone wrong, but that helps no-one
For all long-term holders - and newbies hoping to be - I think we have to stand back here and look at what we have:
- A company that is making a small operating profit, at least until June
- Production now increasing - but very slowly (more slowly and later than expected) with set-backs - de-waxing, supply chain, weather
- A working capital shortfall that leaves us in breach of senior lender covenants, and in need
- 40milbbl 2p reserves - that is reserves which independent experts say has at least a 50% chance of being extracted commercially - with the potential for hundreds of millions more
- A need for big capital/JV to properly exploit that oil in place and 2P
- Physical assets (equipment, gas etc) that are slightly more than debt
- A medium-sized financial backer (Anavio, or rather a fund connected to them) who has big skin in the game, but will be taking a big cut if this goes well through bond conversions.
Where does that leave us? In my view, a potentially very valuable company, but with three big requirements:
(1) We need Anavio or another backer to provide some cash short term;
(2) Production to move up a bit (not a lot) by the summer when the hedges re-start, or further capital until that happens
(3) big capital to exploit the asset
If we're honest, without those two happening, the company is in jeopardy. However, if (1) happens, we should be back to 16p-ish very quickly, but will only stay there if (2) happens as well.
If we get the big capital investment as well (3), this can shoot up - by how much depends on the terms.
In the circumstances, it seems to me the company is priced at more than 50% chance of failing, i.e. not getting (1) by March, or not getting (2). My view is that is way overblown:
- Anavio and the senior lender both have big skin in the game. They won't want the company going down for the sake of a couple of million.
- The December figures, despite some weather, showed improvement with the flaring only really getting going
- The first recompletion will already have started to lift production this month. We probably only need a couple more (of the 5-6 further planned by the summer) to be sorted and making profit even with the hedge coming back.
The risk is real and the need for working capital urgent - no sugar coating that, given the RNS. However, even TW (who has been down on the company for a couple of years) thinks the cash will be found. If it is found, the company will surely bounce back into the teens and we are where we were before (just a little bit diluted for further bonds/fundraise and hopefully wiser) - waiting on increased production and the JV/RBL for major capital.
You take a chance - but to my mind, it is a very good bet to make right
I recall something about that too - min number of drills per year as part of the licence. However:
(a) Unclear to me whether the recompletions count. If so, we're fine.
(b) Horizontal drills count double (or at least more - can't remember precisely). It may be just one horizontal, but I can't immediately lay my hands on a doc to reference.
(c) We don't know what the legal position is on waivers.
It concerns me to, btw. Something to ask the company direct? I suspect there is a solution, however, otherwise should have been mentioned in the prospectus. Would be nice to know what it is to set minds at rest. Any thoughts out there?
I recall he needs the permission of the bond holders for a further placing though. They would likely only agree if Art couldn't get the money another way, e.g. through them and another bond. I reckon more bonds from Anavio (and poss others) is the most likely option for working capital.
I suspect the RBL and JV are then linked, and we'll get some sort of announcement on that either late this month or early-mid March. Should have been this month, but I imagine the hoo-ha of the last few days will push that back - the working capital position will have to be focused on.
Agree with both to a degree. Big overreaction, but the fact remains that the urgency of fixing the working capital position was not known. Most - me included - thought we had until the hedges came back at beginning of Q3 to get that all sorted. Now has to be done by start of Q2. The going concern point has been in several previous prospectuses, but never with quite such a near-term brickwall.
I'm sure the company will find a way out of it. It's just a question of how much value is lost in doing so. The big drop in share price won't help, but hopefully a week of calm heads will bring this back to 10-12p, and any further bonds will be set at least at that conversion price. We otherwise await the results of the further recompletions, the JV negotiations and hope for good weather in Wyoming!
These are really important pages. They set out what needs to happen in black and white. All very achievable, we just don't know at what cost.
All I have to say otherwise is, bloody weather! That's what's clearly caused the sudden crunch. Otherwise there would have been a month or two more to increase production, sort out long-term financing. Bear in mind that each day of shut down probably cost at least $80,000 in revenue after marginal costs (trucking etc.). As the report makes clear, the company is making cash, it just is likely to breach its liquidity covenant and can't do all the capex it wants. The company is not bust, but will have to tap the Anavio credit card again, and cut back in the meantime.
Best of luck to at LTH tomorrow. Stressful day, but tomorrow will be better!
Definitely Ryan deserves to be sacked - cashflow should have been flagged earlier enough to get the necessary loans in place to avoid this announcement. Would have still been a dip, but we'd take that.
However, hold tight. Fact is, if the trucks start moving again, we are back in operating profit. It might be just we breach the liquidity covenant - which means a fee but nothing more.
Agreed this was avoidable with a bit more forward planning. However, bear in mind the terms of the RNS. It was a requirement to announce this as a material risk event. It does not mean it is going to happen.
Best
Not sure they will mind that much - re-read the RNS and sounds like they might be tapped up for a further round of bonds, no doubt with a much better conversion price and warrants. A real pain for the rest of us, but they will be fine. In their interests to loan a bit more.
sbrown, is a difficult day. However, chin up. All is not lost. A third read of the RNS confirms my view that the company will survive. I suspect we'll have to swallow another 10-30% dilution to give us the necessary working capital, but frankly that would put us back to 12p+ from where we were this morning. And then still all the positives.
Best to all holders today.
Certainly agree we are oversold. The issue is that we have gone from a small chance of going bust to a real one. If that happens, as shareholder we will likely lose out if the company can't wash it's own face as the assets will cover debts first. However, the value is still there - we just need a bit of cash.
If the company survives, the returns are now huge. Really a matter of whether you take that chance. Personally I am.
You may be right that they have not started. A pity that hasn't been clarified if so - by saying the spud date has moved back whilst discussions continue. Easy, what's your source on this?
Subject to that, whist I see your point on the JV, I had understood the licence on the land to require at least one horizontal drill. Or will the recompletions fulfil that requirement?
Thanks for the reminder on spud date Edge. If I recall, that date was also given some weeks earlier, and the weather would very likely have delayed it somewhat in any case. As with the first recompletion, you also wouldn't report the result until you had a good idea of what was coming out. There will be some mud and water there to start with which (from other wells in the field) may take time to settle down before you get a good idea of flow rates and how much of what is flowing is actually oil.
However, thinking it through, unless the result of the horizontal is subject to the NDA (and it may be) we could get an RNS on the horizontal any day.
Fair on the horizontal number - perhaps my below is not best case, more of a 'if things go well' - although remember that none of the well here are yet individually producing quite as much as that. This one could be better as a modern horizontal, with a pressurise field - maybe 800bopd? A proper oilman could tell us. Would mean best case is perhaps 93kbbls/month - and add another 5p to the share price.
Richie, if you mean the JV announcement was promised in Jan, that is flat wrong. Art very clearly stated the potential partner was to present to COPL, responding to COPL's proposals, in early Jan. Nothing was said about when the deal might be tied up - not even a 'hoped for' timeline. The timelines on this board - including my own - are educated (or less educated) guesses from what we do know.