Adam Davidson, CEO of Trident Royalties, discusses offtake milestones and catalysts to boost FY24. Watch the video here.
The valuation of an upstream asset has nothing to do with a FCF in a single quarter (or several quarters)
Tge asset heeds to have stable or, better, growing production, ability to consistently generate positive FCF without sacrificing the production and management willingness to distribute that FCF to shareholders
JKX currently has none of the above
You dont have a clue about upstream oil and gas. They stopped all capex. They cant repeat it even with minimal drilling. And they now need to drill a lot. But they dont have good structures for that anymore
I am here because I actively trade Ukrainian oil and gas stocks and JKX is just one of them.
I am also here because I am CEO of an upstream oil asset with production of ca. 4 kbopd and therefore is genuinely interested in how peers are doing
Last but not least, I am here because I had covered JKX (and most of its ex-USSR peers) for almost a decade in my previous life of an O&G investment banker
What are you doing here except for watching your investment is evaporating?
And the decline accelerates. In 4Q20 it was 8%, in 1Q21 - 12%
You don't normally see such steep decline rates in such a short period of time. Figures speaks for themselves - the existing fields in Ukraine are dying
The share prices will sink below 20p if they do not fix their Ukrainian production trend
They have already lost over 40% since the highs of 2019. Decline of 12% in a quarter is unbelievably high
Their cash only increased because they skipped capex. Once they start drilling it will change. Another quarter like this and over half production will be lost. And more than half cashflow
All-in-all, operationally JKX is in a big trouble. Don’t be amused by this latest cash increase - it works against the company
ENW gas production:
1Q20 - 598.5 mcm/d
1Q21 - 612.5 mcm/d
A huge increase of 14 mcm/d (2.3%)!
This is after completing two wells - in May 20 and Feb 21. Having spent $30 mn on these
They either stole a significant chink of that capex or are plain idiots. Not sure which one is worse
Being a London-listed company gives some kind of protection on the turbulent Ukrainian environment. I think Novinsky therefore sees some value in retaining the listing, it costs him nothing
Other than that, minority shareholders are of no interest to him. Why should they?
Don’t see any positives in the next 9 months. This is likely to be a 20p stock for the rest of 2021
I am really ****ed off by their recent operational performance, on top of all this fuss about dividend and cash pile
Free cash flow in 2021 will likely be negative, so cash will decrease. This means no dividend, again
To complete the picture, they will beed to f@ck up on the next two wells. Like they did with two previous ones
Looking further into the report, I am shocked of how awful the results of the two latest wells have been
This is simply a disaster
Before digging into details, a quick look at what they spent. Capex was $19.0 and $12.8 mn in 2019 and 2020, respectively. Total capex was therefore almost $32 mn. Huge, given they just drilled two wells
Now about the wells
SV-54 was put in production in late May 2020, the flow rate was 565 boepd. Ten months later, in late March 2021, production fell to a mere 212 boepd. This is a 62% decline! 75% if annualized! Really?
Most recent well, SV-25, started its production in late February with 452 boepd. Just one month later it is producing at 423 boepd. This is 6.4% drop in a single month! Again, almost 75% annual decline, if annualized
How is this possible? What are they doing there?
They spent $30 mn to get 600 boepd of production, which will fall to 400 boepd by year end
Their current CEO, Sergey Glazunov, is a financier. He has no technical background. Don’t understand why Novinsky has not fired him yet to replace with a proper CEO
Disgusting
With the exception of 1H results which will explain why ENW made no money in 1Q21, there are no material developments till the end of 2021. At least on the positive side
Given capital commitments (2 wells + 3D), FCF in 2021 is likely to be negative
Unfortunately, ENW has failed on all expectations. Don't see what can drive this stock in 2021
No increase in cash at record gas prices. No dividend, even intention
Interest income on cash balance decreased by 70% and is a lousy 2.5% per annum
Cost of previous well of $12.5 mn (net of VAT) is ridiculously high. With the flow rate they received, it is a waste of money
What a shame. Will sink below 20p shortly, I am afraid
Look forward to reading “what a great update!” type of posts on twitter
Dont touch this sh@t, it is worth nothing
From the very beginning it was plain clear CAD and Proger has been acting in concert to get cash out of CAD
There will be no repayment
CAD assets are worthless, so it gradually spends the remaining cash on its Italian management
Thordon, not sure why you keep asking questions re JKX on ENW board but here are the answers that will not make you happy:
1) JKX production in Russia hardly breaks even, free cashflow is slightly above zero. For the record, they invested over $300 mn in this asset in the past. Sunk cost, I know, and most of it has been written-off in previous years but worth mentioning nonetheless
2) I would advise JKX to sell the Russia asset for $20-25 mn, the recent Volga Gas deal is a good comparison. This asset gives very little value to JKX currently
3) JKX production in Ukraine dropped by 30% in the last 1,5 years. In 1Q21 it will most likely touch 4 kboepd, in 2Q it will sink below 4 kboepd. Awful result, plain awful
4) JKX has to spend a lot more than ENW simply to maintain production, as its assets are highly depleted. When it decreases capex, production decline accelerates. This is the case in 2020 - 8% production decline in 4Q20 alone
5) Look at cashflow, not profits. Free cashflow in 2019 was a miserable $6.5 mn. Again, because they had to spend a lot on capex
6) JKX is unable to earn more than $10-12 mn of FCF per year. Whatever they earn they need to spend on capex. If they underspend on capex, their production in Ukraine will suffer even more
They did a miracle in Ukraine in mid-2019 but it turned out to be a short lived one
They will likely continue to earn $10 mn from their Ukrainian operations, maybe $15 mn this year but only due to prices. Nothing to do with company specific factors
Will sink below 20p again in summer if my production forecast is correct
Also, do not rule out potential implications of US sanctions against Kolomoiskiy - they may do quite some harm
Good luck anyway
Novinsky acquired the stake from Pinchuk increasing his shareholding from 55% to 83% without even caring to disclose the purchase price, let alone making an offer
Did Pope say anything? They didnt, at least in the public domain
The have a zero bargaining power like the rest of us
Qalbabbass, why agree for 85% when he can get all of it?)) why pay taxes from his dividends when there may be other ways not to))
This is a joke. But in Russian we have a proverb saying that every joke has a piece of truth in it;)
70 mn cash pile + 3p divi
Still my hope
Bulldog, good to see someone who really understands how things work in this part of the world
Though, I agree with you in general, I tend to disagree with you re ENW
Novinsky appears to be a better person than an average Ukrainian oligarkh)) He is a truly religious person, look at his personal telegram channel - it is all about God and religion
Regarding schemes, there are three options where Smart Energy (SE) can steal money from ENW:
1) Transfer pricing. SE purchases 100% of ENW’s gas
2) Inflate drilling costs by using affiliated contractors
3) Sell assets to ENW above their fair value
Out of three, I think number 3 is somewhat relevant - that what’s happened when SE sold PEP to ENW a few years ago
This risk is still on the agenda as SE may transfer its asset UGV to ENW and get all cash out of ENW. Or even make ENW borrow more cash. That’s real
On #1 and #2, I dont think they steal much, if at all. Can easily be checked
CAD and to a lesser extent JKX are good (or rather awful) examples of what you said. ENW appears to be a slightly better (by Ukrainian standards)