Member Info for Megla

A positive attitude isn’t going to stop the company issuing 2bln new shares to raise the £400m in new equity. Shareholders will either have to stump up 150% of the current value of their shares (if they get the opportunity to do so) or get diluted into oblivion.

Good post trellis35, interested to know why you want the log administrators to fend off the creditors?

The liquidation of LOG’s holdings wouldn’t be pretty, but I would certainly take the opportunity to increase my holdings substantially if the share price was weakened dramatically by forced selling.

I’d like to see LOG holdings liquidated, painful for the share price in the short-term of course, but would allow some bargain hunting and increase volumes.

Very few buys or sells so even a few trades can influence the price quite heavily. Hopefully the volume will pick up once the they closer to first Gas.

Slift/Bashrisks,

Shareholders didn’t vote against a rights issue, they voted against the option for new shares to be issued within the company that would be dilutive to current equity holders. Resolution 13 gives Tullow options to sweeten deals with creditors, it was only to a value of £50m, but still not great for equity.

The opposition to resolution 13 is good sign, shareholders would obviously prefer a rights issue (that isn’t dilutive if you take up your rights) over any equity dilution. Or in other words, they still see value in the company’s assets.

On another point, the negative balance sheet is meaningless, but the optics are terrible. Would expect a rights issue before year end unless something else is happening in the background that we’re not aware of.

Hi Slift,

Guidance has always been done on a working interest basis, so next years 70K guidance is more like 65K, worth checking with IR to confirm for yourself, but most oil companies do the same. Obviously at 65k, Tullow will struggle to generate the meaningful fcf to make headway with the debt, hence the need for the asset sales. Personally, I think the 70k guidance was a kitchen sink approach when the previous CEO was shown the door and that will be beaten handsomely. G&A costs will also likely reduce further as Uganda is sold and the stake in Kenya is reduced. Time will tell.

Net finance revenue was $50m, partner share of lease expenses, so yes I haven’t factored that in. On that basis, net finance costs should be about $250m for 2020, plus some additional advisor fees for the sales of Uganda and hopefully Kenya.

One variable to consider in fcf breakeven is the tax payments, before COVID tullow were guiding towards $200m for this year, what that is now I’m not sure. Maybe the same if 2020 cash payments are for 2019’s results?!

Slift,

A couple of points for you to consider. If production is 75k on a working interest basis, entitlement production is roughly 90% of that. The difference is the royalty barrels which is different on a country by country basis, but rule of thumb 90% works quite well. Check the factbook for more details on the entitlement percentages.

Finance costs need to include the ten FPSO lease costs of about $100m, so roughly around $300m per year currently.

Tullow really need to find some extra barrels for next year or will struggle again to generate any meaningful fcf.

Tread water in a new range is my guess. Can’t see it rising much more until there’s clarity about the capital raise and covenant waivers have been agreed.

$70 oil? Dream on Kenni.

Kenni, I bought a small amount of the equity on Friday and hold the retail bond from a couple of months back. No agenda if that’s what you’re alluding to, simply trying to debate what happens next to figure how whether to increase my holding or not.

What good debt deals has he negotiated? The last refinancing ended up with an increased coupon in the debt and millions of shares going being issued to its creditors.

This time around, ARCM have taking 80m shares for practically nothing. The interest rate on the debt is now going to be upwards of 8% following the extension to the maturities and the company is still to agree covenant waivers, what will they demand?

You could argue they were a victim of circumstances, the original oil price crash and now COVID, but the deals have simply not been good for equity holders.

Over the last 3 years premier have paid $600m in cash interest costs, yet shareholders have had nothing. Not a great record by any stretch of the imagination.

Good point AK57, more specifically I think the question should be, what will the creditors demand in order to waive covenant tests?! PMO have said they’re talking, but do those talks include sweeteners such as equity warrants to ensure the deal gets rubber stamped?!

If they do offer sweeteners along side the increased coupon, it once again raises the question of whether the company is solely for fun for the benefit of its creditors?

Unlikely, rights issue/placing will likely result in another 450m shares, add those to the 920m currently in circulation and then 70p comes the old £1.20.

Big question is, what percentage of the capital raise will be available to current equity holders?

Cash call inbound more likely, I can’t see this ending rosy for equity holders with premier having to go cap in hand to ARCM to ask for covenant waivers.

I’ve just bought some at 226 so I certainly hope so.

Lol, not sure you get the difference between bonds and equity oilheadgame.

That has to be the worst take I’ve ever seen on these forums.

Yuri, not sure what you mean when you say money is expensive these days?

The Rights issue would never be designed to fail, would be discussed with major shareholders first to ensure their backing and would be fully underwritten. If it had any chance of failure it simple wouldn’t go ahead.

Jayhuss,

Personally, I’d like to see it happen. The company is still a going concern, even though the sale of the Ugandan asset (once complete) have mitigated that somewhat. If the company did choose to raise cash I think the companies share price would rise when compared to the theoretical ex rights price, due to the reduction in risk for equity investors. Personal opinion only for someone that sees value but also sees risks associated with COVID-19.

Unlike some have mentioned, shareholders didn’t vote against a rights issue. The votes against resolution 13 were to stop the issuing of new shares which would be dilutive to current holders to a max value of about £50m (I can’t remember the exact number). A rights issue would have to be authorised by a shareholder vote and obviously isn’t dilutive if you take up your rights. The opposition to resolution 13 suggests suggests major shareholders might actually prefer a rights issue to any actions that dilute equity at these levels. IR might have more to say on it if you ask.

Strengthen the balance sheet, negotiate the sale of Kenya from a position of strength. I’m all for it and the opposition to resolution 13 suggest the major shareholders are as well.

Resolution 13 has nothing to do with a rights issue, a rights issue has to be authorised by a shareholder vote. Major shareholders voted against resolution 13 to avoid any equity dilution via a placing or by converting debt into equity.

Rights issue nullifies the going concern so would be welcomed in my view. Zero dilution if you take up your rights.