Member Info for JonnyGee

Given their £173mio of net debt at the end of H1 I wouldnt say they're swimming in surplus cash, though likely generated ~£100mio of OCF in H2 which would make a decent dent in that and might bring them under 1x Debt/EBITDA. To be honest, Id much rather see them invest in beefing up their online presence, and dont object to their international expansion given the continuing decline in UK card sales (by volume)

Thanks Sea7, that was actually a helpful interview. Pretty clear to me that the Woodside potential transaction is 50/50 at best - my read is more like 25/75 probability given the understandable comments around not wanting to issue chunks of new equity at the current share price. There are certain ways they can work round that at a higher price as has been previously discussed on this board but it all smells like a stretch and I gained the impression that PB was positioning the message more in the direction of "it could happen but Id rather get on with Vietnam once Akatara is up and producing"

Roxi - where did you see that theres an investor update on the 12th (tomorrow). I cant see anything on the JSE site

You're probably not far off. They are still a small ways' below their FY 18 and FY19 eps of 15p despite revenue having grown 12% in nominal terms and although theyve recovered their margins somewhat, the street forecasts I see dont expect them to get to operating margins beyond 13.5% even by 2025 (compared with pre-covid 17/18%) i.e. theyre going to have to work on controlling costs whilst pushing the top line to even get back to where they were 5 years ago. The bigger issue frankly is the 16% volume based decline in the card market since 2019, with online (where CF is basically nowhere, though click and collect doesnt seem a bad approach) also taking a bite out of it. Doesnt surprise me that theyve started expanding abroad given the UK is a slowly dying market though it means they have to run just to stand still, so to speak. A 6-7x pe ratio is basically an ex growth company price which is where they currently are so until they start to move the needle on the bottom line, I dont really expect a significant rerating.

Hi Tom - actually other parties are mentioned. Here's an S&P Capital IQ article

Carlyle Reportedly Lines Up for Woodside's Macedon Project

February 12, 2024 at 08:55 am EST

Private equity firms The Carlyle Group Inc. (NasdaqGS:CG), Hibiscus Petroleum Berhad (KLSE:HIBISCS) and Jadestone Energy plc (AIM:JSE) are believed to be the final contenders in the race to buy Woodside Energy Group Ltd. (ASX:WDS)'s Macedon oil and gas assets in Western Australia. Expectations are that the Macedon project could be worth about $500m ($770m). Woodside last year hired Morgan Stanley to sell Macedon and its other project, Pyrenees, but Pyrenees has not attracted buyer interest, sources say.

The Pyrenees oil and gas field is a mature asset with 24 wells and has rehabilitation costs of about $1bn. Now the question is whether Woodside proceeds with the sale of just the one asset, or insists on any suitor buying both. And if it cannot find one to take both Pyrenees and Macedon, does it shelve the sale process.

It's a process that slipped into the background last year when Woodside opted to sell assets in a deal to buy Australian rival Santos. Now the Santos talks have ended with both parties unable to reach an agreement - a result largely expected by industry experts because of price expectations, different shareholder requirements and a lack of synergies - other asset sales and acquisitions are again a topic of discussion for both Woodside and Santos. Santos boss Kevin Gallagher is likely to now assess options to unlock value for the company, such as with asset sales or demergers, but it's too early to say what his focus will be.

Woodside has always indicated it is keen on acquisition opportunities offshore, such as the Gulf of Mexico, and some believe it is under pressure to find new earning streams as other projects come to an end. Jadestone Energy, a Singapore-based upstream oil and gas development and production company focused on the Asia Pacific region, already has assets in Australia, so it is no stranger to this market, and neither is Carlyle. It is believed that the sale process is now in the second round after first round bids were received last year.

Woodside has a 71.4% interest in the Macedon field and a 62% holding in Pyrenees, which it operates. The assets will sustain production into the mid-2030s.

Hi Tom - I was looking for that (gas), but they make no disclosure on Macedon and Pyrenees in their gas production stats, which seems rather odd if they break it out in the oil stats. There is a large "Other" data point which covers Western Australia gas production and maybe its buried in there, but its an odd way to present things.

I think your comment that this could be a less expensive purchase than the headline barrels imply is true on several counts. Firstly, if additional drilling has proven unsuccessful, then that would imply there's not a lot that JSE or others can do to improve the assets, so they basically become run-off assets with ARO liabilities. Secondly, I saw a more detailed article on them and see that whilst the asking price for Macedon is "up to $500mio" (Investment banker speak for "only a fool would pay this much") the Pyrenees has a $1bn ARO liability and has apparently attracted no buyer interest. Woodside may seek to structure a deal that forces Pyrenees on the buyer, but if the numbers dont work, they'll just walk away. Finally, if you look at Woodside's own reporting, they show production rates around 7k bblpd, which is an awfully long way from 28k, so I honestly dont know whats going on with the volumes being touted around. In short, this could be a much smaller deal than headlines imply, with a significant potential for it not to happen at all, which therefore makes the share suspension somewhat irritating, though it could be just to provide share price cover until Akatara and CWLH Part 2 cash comes on stream and life looks better. Who knows.

Thats interesting - and somewhat surprising since Market price of a publicly traded company is pretty much the de facto and most transparent valuation of a company. Either way there is going to be enormous dilution given the 28k target production vs JSE 20-23k, which could be structured in various ways. In any event, I think you're going to see a fairly significant debt portion, but Id be surprised if that covers more than have the deal value, particularly with JSE's very tight cash flow this year, (I think the OG tourist article is pretty accurate there) There could be a situation where large institutionals (eg Tyrus) stump up the cash around the current SP which gives them very significant averaging down dynamics with decent upside from the likely valuation premium of a much larger, more liquid business (provided there are no more operational screw ups - note to company, get a damned COO) OR, there is a significant portion of stock issued to Woodside at a negotiated price north of the current share price. When doing paper deals, the SP becomes a game of optics and exchange ratios so it could notionally include a JSE "share price" of, say, 40p if they over pay for the Woodside assets. Id be inclined to think its likely to be a combination of the above however, though as has been commented on below, suspect nothing gets finalised until Akatara is flowing normally in order to allay the accident prone history

As a long term DEC holder (so unfortunately my entry price is rather higher than Treks!) whilst the dividends have been nice, the yield is currently so ridiculously high and the SP so low that it honestly strikes me as strategically appropriate for DEC to slash the dividend and plough the cash into share buybacks (and an ARO fund) . Though would doubtless be a lot of weeping , wailing etc , but paying this level of dividends at this price level seems like a ridiculous waste of resources for which the company is receiving no credit.

I realise this goes against certain UK "investor" mantra's, but in terms of cash allocation and value creation would make a heck of a lot more sense. I'll put on my tin hat now for the likely abuse coming my way, lol :)

Agreed - really need to see Akatara up and running stably before I can breath more freely on this. Vietnam was a nice unexpected bit of news but first gas not until 2026 and no idea what the capex or economics for that is going to be (not cheap looking at the presentation - it will need two platforms plus pipeline, and theyll be leasing an FPSO so opex wont be cheap) .

Talking of which does anyone have any idea of the anticipated Akatara opex? Ive seen the flow and price expectations/ agreement in the presentation but nothing on opex.

By the way does any know/ can point to the Akatara economics? I assume theres

Lol, it is blatantly obvious and DEC have pointed this out themselves , but as the Americans like to say “you can’t fix stoopid”

Thanks Sea7. Theyre clearly working away but I have to admit the building structures looks rather less than 91% complete, though Im no expert. Perhaps they have a different definition of completion which focuses on the core hardware and everything else is a post hardware completion stage?

Agree on the various points. Am aware they're not awash in cash, with around $15m of cash overstatement due to working cap timing as well as getting the December lifting cash in pre year end, but think they're reasonably OK given the back end of the year nature of most of the capex (ex the Akatara $20mio of course).

As for being operationally stretched, I totally agree and am frankly concerned they still havent got the COO on board. Blakely strikes me as good at his geology, but not on operations and they really need to sort this out before another Montara style clusterf***.

Curious comment. What's you rational?

Thanks for the heads up but have JSE actually been awarded this? It looks like its up for offers but no allocation yet and theres been no RNS from JSE

Interesting if it gets there as thats pretty close to the July Montanara bad news crash price, when I first entered. Have been accumulating some more sub 29p but think if it gets down to the 25p neighbourhood probably worth a bigger allocation. Dont want to get too large since Akatara is still not complete, let alone operating and the regular negative news flow still puts JSE in the "speculative" category until and unless they make good on Akatara and hit the anticipated numbers.

The market is down since production/revenue is being forecast around consensus BUT opex is around $40-90mio above consensus. Not a great look

Thanks redlse. That is a very well crafted letter. Question is, of course, whether it gets DEC anywhere with the grandstanders - truth is, sadly, a frequent victim of polemic. Id be curious whether the committee is required to issue a formal conclusion/ statement itself to either keep this s***show going or put it to bed. Anyone familiar with procedure here please chime in.

Yes, that was my reaction too - i.e. why do this? I just ran the maths so for other's benefit, I note the following.

1) The transaction sold of 50 MMcfepd, representing 7.2% of DEC's 806 MMcfepd output at 29/3/23 (latest info available per their last presentation)

2) They state a transaction EV multiple of 5.7x 2024 , though thats not quite right as they used the $200mio transaction proceeds as opposed $207.5 EV, including their own 20% rollover, so correct '24 multiple is 5.9x . A minor point, but should be noted.

3) This compares with their current '24 EV (though using June 23 net debt) multiple of 4.9x, based off the $488mio consensus adjusted EBITDA. As we all know this is a somewhat depressing price, but interestingly, the transaction multiple is equivalent to a profroma share price of £19 o 95p on "old money" per share, which I find an interesting benchmark, given that sort of where I figure fair value to be.

So far so (sort of) good, though I cant say I particularly like the disposal of a core asset. I note that the Appalachian assets, to my mind are higher quality than the central region. Rusty and co made a lot of noise about the central region price uplift (which is true), but were rather quiet on the fact that the central region has twice the depletion rate of the Appalachian and a much higher operating cost, so net net I feel the Appalachian assets are superior, though the devil is in the details and we dont know the exact details of the sold assets.

In short, Im probably just about neutral on the transaction but do not understand why they did it, which does concern me.

Thanks - interesting blog. Also got me thinking and digging into the company more, which elicited the following observations

1. Actual organic growth is extremely low - 3% on 2022 and 4% in 2021. Essentially inflation/ subinflation so "ex growth" in the terminology. Im an ex private equity manager and have done buy and builds, but the p/e multiples for ex growth business sure arent in double digits and ultimately your pro-forma earnings growth and value creation is not based on growth per se but on scale driven margin improvements.

2. They clearly got a bloody nose with the Astragon development costs - as a result, capitalised development costs exploded form 9.3mio in '21 to £26mio in '22. Since they dont expense this immediately this has the potential to badly distort margins, and overstate profits if you overcapitalise/ underamortise. To be fair, their policy is to write off over two years, so it doesnt hang around too long, but what it tells me is Astragon came with a higher ongoing cost base than they had assumed

3. I note that not only the CEO has gone but also the Chairman - that is a very exceptional occurrence and implies there have been serious f'ups. The internal staff abuse culture clearly was an issue that needed addressing but the above issues are just as big (if not bigger for investors) and further indicators that all is not well.

As the blogger commented, that could be more bad news coming out with full year results as the new team clears the decks, which typically includes sandbagging all provisions and coming out with the worst story so they can then start afresh looking good as the new team.

I was about to pull the trigger and had a buy order at 1.80, but have now pulled it pending full year results to understand what is their real operating margin and also see if the new team have a solution for the lack of growth (the biggest issue for me when its still trading on a double digit earnings multiple). Am not surprised Jefferies (who know their tech) issued a hold recommendation recently with a 180 target price.

My 2 cents for what its worth