The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
The details on that tracker are for holdings of 0.5% or more. That's upwards of c7m shares. If GS loaned the shares to a few clients, the individual loans might not register on the list of short sellers (the individual amounts being less than 0.5%). The announcement today was for a reduction of 12.7m in the shares that GS loaned to shorters. If that was three clients, they might not individually register on the tracker at all. The bottom line is that 12.7m of the GS-held shares that were loaned to shorters are no longer loaned to shorters and they now have only 32m shares loaned to shorters.
The message says that on 13 April they completed their reduction in shares held, from 51.53m to 41.07m. Of those, they has originally lent 44.7m (to Short sellers) and, by 13 April, the shares loaned to short sellers had reduced to 32.01m. i.e. a reduction of 12.7m shares. That means that GS now have 9.1m shares on their own account and 32.01m shares loaned to other parties.
The funny way that disclosure works is that this shows as 0.7% overall increase even though it was previously 0.49%, as the increase moves it into the threshold of being 0.5% or more! So what was actually a 2.9m short sale of shares looks like a 9.8m short sale of shares.
At 16:18:19 we had trade 1551 for 50.40p. At that time the buy/sell ratio was 4,178m/3,908m.
At 16:35:22 we had, post the closing UT, a ratio of 8,151m/4,970m, but the price had fallen to 47.58p. So, in the space of 17 minutes we had almost 4m shares bought v 1m shares sold and the price dropped almost 6%. The last trade was 2338, so there were c790 trades over that period. How does that work that demand exceeds supply so significantly but the price drops?
Lemming, A couple of questions:
1. Are those gross numbers for Ten/Jubilee, prior to deducting other shares
2. Is there not a natural fall in production from other wells as the field matures
Will the real benefits not come until 2023, if they deploy an addition ship to drill more fields?
Happy, I enjoy your posts. Investing is all about risk and how one manages it, but there are always things outside one's control. So, when the SP rises, most investors are happy and use confirmation bias to minimise their views of the downside risks. Those risks still exist. One reason why Tullow is going to reduce debt by such a small amount in 2021 is, of course, due to the need (and desire) to invest in increasing production. Yes, there is currently a timing mismatch between source of funds/use of funds but, in the near future, this will be corrected. When that is done, $2.2bn of debt, with an increasing volume of oil production, will be much more meaningful. The debt will have a longer period to maturity, to match the future production timing profile. The real upside for Tullow will then be a combination of higher levels of cash generation, the prospect of a material stake in a significant new development (Kenya), which will help diversify political risk, and the prospective finds that may be waiting in Guyana/Suriname.
Keep posting the downside risks, to help keep overexuberance in check. Have a good one All.
Some of you may have been concerned on 2 Mar. to read of the seriousness of the liquidity issue. We knew the Board had to print it, but seeing it was still unsettling. That got me to think of the bigger picture and the progress made over the past several months. The 2021 picture so far:
27 Jan. the CEO said “Tullow has a busy year ahead as we begin implementing the business plan that we laid out at our Capital Markets Day”. This showed the CEO’s confidence.
9 Feb. the CEO said “These are important, value accretive deals for Tullow that will have a positive effect on our financial position as we look to further reduce our net debt and continue constructive discussions with our creditors”. Again, this showed positive steps i.e. “constructive” discussions.
10 Feb. the CEO said "We will be able to repay the debt and we have line of sight to say how do you get to $1-$1.5 billion (debt) and importantly to be in the 1 to 2 (times) net debt to EBITDA range". More confidence shown from CEO.
26 Feb. The Company issues an RNS titled “Redetermination Agreed”. This said “The Group is confident that a mutually satisfactory agreement for all stakeholders can be reached in the first half of the year” and “Based on the new debt capacity amount, Tullow will have liquidity headroom of free cash and available debt facilities of c. US$0.9 billion”. This “confidence” referred to the RBL, the 2021 maturing Bonds and the 2022 maturing Bonds. The “mutually satisfactory agreement for all stakeholders” said that shareholders would be satisfied.
2 March Shareholder Circular said “This potential liquidity shortfall in relation to the Group’s financial commitments of approximately US$365 million in the reasonable worst case scenario is first forecasted to arise in April 2022 (the month in which the US$650 million 2022 Senior Notes fall due) which is within the 18-month testing period from March 2021 to August 2022 (inclusive) that is relevant to determining whether the Company will pass the Liquidity Forecast Test which is currently in progress . . . there would be an event of default under the RBL Facility by the end of April 2021”. Further “The Directors note that passing the Liquidity Forecast Test which is currently in progress would require satisfying a majority of lenders in relation to the Retained Group’s liquidity”.
The unsettling part of the message is that this is not over until the Banks and/or bondholders agree to a revision of the 18 month Liquidity Forecast Test/an increased facility/a change in the Bond repayment date, possibly via a roll-over of debt to a future period. The confidence shown in the above messages, as well as the reduction in the bond yields to c14%, shows that one can have considerable confidence that this Liquidity Forecast Test will be sorted. It may be sorted by 10 Mar. but, if not then, shortly thereafter.
So, rest easy LTHs. There must be a high likelihood that this particular Grey Cloud will lift in the near future. DYOR
@Lemming99: Thanks for the picture. One important point to note is your comment "if the oil price (OP) went up 10%, a company whose main product is the production of oil would naturally go up 10% too". If the cost of production per barrel is USD25 and Brent is at USD25, the company is at Break-even. If Brent doubles to USD50, this should result in a more than doubling of the SP. The company has gone from zero profit at USD25 to a significant profit at USD50.
The value, theoretically, is back to discounted cash flow of future earnings (net). In Tullow's case, if the debt maturities can be reorganised to match the need, this company will be in a very strong position. It will have options on developing either or both of Kenya and Guyana. In the Guyana case, even though the Orinduik finds were heavy oil with a high sulphur content, they are still likely to be commercial at USD60 per barrel. Add in their share of the Hammerhead field (Exxon find that extends into Orinduik) and the possibility of finding better quality oil in future drills in Guyana, and one has a very interesting future, as a LTH
@jellyj4: the share price improvement has been largely based on the improved financial position of the company. If you look at the bonds and how they have moved since March last year, that gives a better overall picture of how Tullow is faring. https://www.bourse.lu/security/USG91235AB05/210267 While success in Suriname would be good news, it is unlikely that failure in that particular well would have a significant impact on the share price. The real change over the past several months has come about from the balance sheet improvement (through Uganda and EG sales), the improved picture with Ghana in 2022 onwards (as a result of the planned drilling activity there) and the massive increase in the price of oil. It's likely that Tullow's current value is majorly as an improved view of it as a producer and minorly as an explorer. So, exploration is big on the upside and small on the downside, IMO.
@antonvb: Thanks for that. I now see the updated sheet! If you look at the first page you will see it does not report any positions less than 0.5%. So, while the reporting requirement threshold did indeed reduce to 0.1%, the FCA are not reporting on lower amounts! It looks like the 0.49% on 25/2 was their last position, reduced from the January '21 position of 0.69%.
@Antonvb, I had looked at the FCA website: https://www.fca.org.uk/markets/short-selling/notification-and-disclosure-net-short-positions . They did not update for 25/2 (and have not yet). However, the Shorttracker site shows Key Group at 25/2 with a position of 0.49% i.e. just below the 0.5%. I don't know where they got their data (without the FCA site being updated) but I went by what they were showing and, in their picture, they removed Key Group because it went below 0.5%. I'd be delighted to receive better intel, if you have it, as I thought the FCA site was meant to be the Bible on this.
While the overall picture looks like a bigger fall, Key Group short went from 0.69 to 0.49, a reduction of only 2.8m shares. The list of those with 0.5% or more reduced by the full value of their 0.69% (prior to the reduction), making it look like a fall of c10m shares. The last Key Group short change was on 4 January 2021, when the SP closed at 28.79, and that was a reduction of 1.4m shares.
It'll be interesting to see if a) GS changed their position yesterday and b) there was a reduction in Shorts yesterday, hidden in the high volume of shares traded. We should know by about 4pm. That could influence the close.
The exact words are "this remains subject to formal approval by a majority of lending banks", so it is not a certainty, albeit extremely likely. Clearly the reporting deadline that Tullow set itself resulted in having to make an announcement before the RBL redetermination process had completed. One would imagine that the subjectivity will be removed by 10 March. Good news.
It's in the FCA data. Short Tracker takes their update from there so they are a later source of data.
https://www.fca.org.uk/markets/short-selling/notification-and-disclosure-net-short-positions