Member Info for Joek1

I think the position is the other way around. GS has the stock. They loaned it out. Now the amount they loaned out has decreased as a result of someone else reducing their Short. i.e. returning the loaned stock to GS or paying GS for the stock. That was probably Varde, even though the Varde position is supposed to have changed on 19 Feb rather than 18 Feb.

Even though the RNS trade is dated the 18 February, the % looks quite close to the Varde reduction in short position that allegedly took place on 19 February. It may be that the Varde reduction actually took place on 18 February. If that was the case the numbers would make more sense. It still leaves the question as to why the FCA reported the change for Varde as 19 February.

Pictet was not the real issue. Last Friday, per the FCA, Värde reduced its short by 4.48m shares. But Advfn shows that only 2,2m shares were bought and 5.1m shares sold, on that date. So, where did they get the extra shares? Or did they reduce the short on 18 February? Anyway, it looks like the top five shorters are still 100m short (in FCA-reported positions - which is the larger ones) and should be actively looking to buy now. Indeed, for Värde, who just bought 4.48m shares, they are still short a further 35m shares and Pictet are short c20m shares.Interesting few days coming up!

Re Shorts, the volume of shares traded on Friday 19 Feb was 7.36m. Of these, it was 2.2m buy and 5.1m sell. But the Short disclosure today shows Varde reduced its short position by 0.32% on that day. That amounts to 4.48m shares. Similarly, Pictet increased its Short by 0.15% (2.1m shares) on the same day. How do those numbers tie in with the daily volumes for that date? Am I missing something or are they mis-reporting data?

Overnight drop in Oil price looks like an opportunity for shorts to begin closing their positions. It will be interesting to see on Monday if any of them will have used the opportunity today. That may account for some of the buying we see today.

The issue here is not so much what this means to Odey but, rather, what it is doing to the market in Tullow shares. On 26 Jan, purchases came to 2.6m shares and sales came to 2.8m shares. Of those, 1.4m of the sales were short sales by Odey. This level of materiality in terms of shares traded is significant and would impact on the Market. On the 4th, 5th, 8th and 9th Feb, Odey was selling again, on four consecutive trading days. That was 6.44m shares of 32m sold over that period. Markets are driven by sentiment and, while the Odey trades are a tiny fraction of the 1.4bn Tullow shares in issue, they do represent a material percentage of the shares being traded. We shall see later today if he made it five days in a row or if the RNS on Monday has spooked him.

The last 5 days that Odey increased his shorts were 26/1, 5/2, 8/2 and 9/2. Over those days there was 5m more shares sold than bought. If you remove Odey sales, there was 3.5m more share bought than sold. So, Odey is helping keep the price down by increasing his short position. Indeed, on 26/1, of 2.8m sold, Odey was responsible for 50% of them! 5/8/9 Feb, he sold over 6m shares. If he stops selling the price will start to rise, and that will hurt him as he is short over 24m shares. He’s now close to 2% and if there is no drop soon he could be in real trouble, having to buy at the same time as other buyers. Could be a great squeeze. Let’s see tomorrow if he sold more today. There was 8.6m sold and 4.9m bought. If Odey bought another 2m it could show how desperate he is becoming, trying to average up.

Antonvb,
In my example I sell the initial shares (borrowed) short, realising £1m. I then buy the bonds with the £1m which gives me a nominal value of bonds of £3.333m at the price then of 0.3. When I then sell the bonds today at 0.81, I use the proceeds to close out the short at 29p for the 5.79m shares originally sold for £1m. That costs £1.68m at 29p. So, I lose on the shares but gain significantly more on the bonds, without having to initially spend any cash. The risk, as I see it, was that the share spiked significantly before one could close out the shorts. That spike would have to be huge to outpace the increased value of the bonds that were bought at 30% of face value with a redemption date of April 2022.

I was just playing with the numbers. See below. If one shorted £1m worth of shares in April last years and used the proceeds to buy bonds (2022 maturity) for £1m at that time, one would have made a great return. The net initial investment is nil. If the company then defaulted after that the bonds would probably be worthless but the cost of reversing the short would also be nothing. Thus, minimal risk. The bonds (2022 maturity) pay a coupon twice yearly so some cash would be received. I have assumed no cost of borrowing the shares and I know there would be some cost but it would not be significant. Anyway, my numbers below show what one could have made over that period with no cash invested and minimal risk. If that is the case, are the main shorters today all likely to be matching their short positions against bond holdings in Tullow? If so, the RBL being sorted should increase the bond value and lessen the value to be obtained by continuing to short as a hedge (as the hedge would no longer be necessary).
shares Price Cash
03/04/2020 Short 5,790,388 0.1727 1,000,000

03/04/2020 Bonds 3,333,333 0.3 -1,000,000

Net cost 0

05/02/2021 Shorts 5,790,388 0.29 -1,679,213

05/02/2021 Bonds 3,333,333 0.81 2,700,000

Net Profit 1,020,787
Interest 208,333
1,229,121

I had a hedging update on 11/12 and that said "we currently have 58% hedged with an average put of $48/bbl (floor) and an average call (ceiling) of $67/bbl". No doubt they will have done further hedging since then, including into 2022. On cost, they said "We take a very mechanistic approach and layer in hedges on a monthly basis during the year. We tend to use collar structures of puts and calls and spend premium of between $2 and $3/bbl".

That excludes shorts where the holder has less than 0.5%. That number may be material, when added to your number.

The actual 2021 hedging position as at 11 December was 58% hedged with an average put of $48/bbl (floor) and an average call (ceiling) of $67/bbl. They hoped to be 60% hedged by end December.

Any idea why, with the ratio of buy to sell of 2 today, the share price has fallen? This is against a backdrop of Brent at $55.4 and drilling just starting in Suriname.

Thanks Slift. Hard to believe that the debt maturing in 2022 was priced at 30% of the nominal value with a coupon of 6.75% as recently as March 2020 and was priced at 51% in September 2020 and has now moved to 83%. That would have been some return! Could Tullow have sought to purchase its own debt at a discount to the issue value just as some corporates buyback their own shares? There are probably some market regulatory mechanisms that prevent that type of activity. Anyway, it could have improved the overall net debt position, if it was allowed and if they could have used some of their RBL facility to do so.

I asked a simple question on Tullow bonds and got a couple of comments about bonds but did not get an answer to my question. I thought there was a greater knowledge base across the BB and am surprised not to have had an answer. I assume that the bonds traded in Luxembourg are traded in volume and by large institutional investors only. There must have been good arbitrage opportunities over the past few weeks, if there is any liquidity in the market for Tullow bonds.

Has anyone on this BB bought Tullow Bonds> They are listed on the Luxembourg Bourse but I am not sure how well traded they are or what sort of minimum purchase one can make. Do you simply contact a Luxembourg broker to enquire?

TT, I got the hedging picture from IR on 11 December. They said, in relation to 2021, they "currently have 58% hedged with an average put of $48/bbl (floor) and an average call (ceiling) of $67/bbl.". This is using collar structures of puts and calls and spend premium of between $2 and $3/bbl. They had not recommenced 2022 hedging yet, due to the low prices that were available. So, that looked positive compared to the CMD picture but still left 40% of production exposed to the vagaries of the market. They may have hedged further since then. All will be clearer at 27/1.

I wrote to IR and got a reply on 11 December. They said, in relation to 2021, they "currently have 58% hedged with an average put of $48/bbl (floor) and an average call (ceiling) of $67/bbl.". This is using collar structures of puts and calls and spend premium of between $2 and $3/bbl. They have not recommenced 2022 hedging yet, due to the low prices that were available. So, this looks positive compared to the CMD picture but still leaves 40% of production exposed to the vagaries of the market. Not a bad position to be in.

Could this be a shorter reducing exposure?

The CMD numbers were predicated upon $45 oil. With Brent futures above $48 on Friday, will Tullow have been locking in to reduce downside? If so, when should we expect to next hear the 2021 hedged numbers?