Member Info for Moleinahole

From my notes:

Peter Young: faith in current management. Founded and supported company. 20p offer not an offer outcome will be >20p.Difficult working with LOG (Mark brought them in) Pete left because of them. Better capital mix and breaks let off. Good fast decisions and better governance. Relationship agreement now signed, not over 30% holding, reduce BOD to 1 position. Independence and self determination and 30 day right to buy debt.

So yes I got that impression that LOG were a cause of disagreement within the board. MR brought them in and left as it unravelled. I don't doubt the board changes and non exec are a response to put clear water.

Happysparrow I would tend to disagree.

Since LCF disaster unfolded the company has been under a huge cloud. Do not under estimate the peril it has caused. While the administrators might have not been due a small amount in may they were clearly looking for a funded plan and likewise IOG were looking for certainty that they would not sell on the debt and threaten the company through it. I don't doubt there has been a micro scope directed on the company hence new non exec and no doubt the other board changes.

The price of lifting the cloud and progressing is the placing to give them working capital to complete the items that are in progress. I would have preferred such a raise to have been staged. It isn't and one reason has to be the admin wanting liquidity in the stock and a better mix in the shareholder base.

Have we list out here? Absolutely. I'm not happy at all about what has happened.

But I can see why a single painful hit has likely been chosen even if I would have preferred any placing staged.

Agree also with 600t that the other reason for doing this now is to allow farm in talks to progress without said cloud over head and with the company capitalised. It hurts seeing what has happened but to have carried on under capitalised would have meant Harvey going out of not happening at all and carrying on without the support of the administrators and no institutional holders. The risks would simply escalate.and we might then be raising from a much more precarious position.

Ian even a private company is ruled by its articles. Steve and Zaza have 25% - a blocking vote but not one that can carry resolutions. That leaves 75% of the shares with others mostly PI's. The AGM now becomes a very important event if the company want to progress any business. They could indeed leave the company private for a while but for what its worth I doubt that is the plan. They will relist when the time is right and once the uncertainty of this battle with Outrider is resolved. An AGM is now overdue.

I saw the posts on YA the other day. Now they are interesting. As preference share holders they benefit in the event of a takeover or sale. So them being out by July with cash or with the option of shares - if they were to be paid in shares they would be locked in as well at the moment and couldn't make their usual cut pre-selling! Should we come out of this intact a restructure and possible recapitalisation can't be ruled out before any relist.

Given the ongoing uncertainty its lucky we are private as being listed would have benefited only traders and shorters.

AJW - watching your posts on BLOE. Might post a bit on the relative geology and techniques between the two blocks in next few days. The sustained flows from the horizontal in that Its tempting to think what Schlumberger are up to and what GOGC are beginning to realise can be read almost directly across to block 12. Hence GOGC wanting the block back if they can get it! The growing realisation that Steve N might be right on his view of the Kura basin would explain the arrival of the Majors.

Happysparrow read the accounts carefully as I have done and focus on the cash as well as the timings on the licenses. The company is without doubt close to being insolvent if this restructure does not pass. They would not be able to fund the activities required to progress the licenses

I would be interested in where you think funds would materialise from to fund Harvey £9.6m and all the other activities needed to complete the FDP/FID and pay debts to LOG admin as they fall due. LOG admin if they think the company is not funded have already stated that their support is conditional on the equity injection.

Without it they would return to RRE and sell the debt. As stated yesterday there has been no formal offer for the equity at 20p from RRE.

The board have laid out a plan that makes sense to me to get from where we are today to first gas. Yes it is dependent on either an industry or capital market funding package for the big ticket items and yes there is risk for Harvey drilling.

Perhaps your hoping for a further offer? That's not impossible but again listening yesterday there is as good a chance of that at a later date once the assets have advanced a bit further this year. Time is not on the company side as there are key dates in 2019 that need to be hit for the regulators.

I have this morning voted all my shares in favour of the resolutions.

Because it supports the company with cash.

While they don't need the £2m from shareholders as their plan has been costed without it it comes in handy as contingency funds. I have sold some IOG shares this morning for @11p from 3 accounts and "bought" them back in the offer with a small additional over subscription simply because I don't have free funds to buy 3 for 19 outright. From current price that means it could drop to 9p and I would be even and the company has extra funds.

Should have done it yesterday but wanted to hear the board speak first. I understand the plan and understand the risks and am comfortable holding. It would appear LCF/LOG not only caused issues for the mini bondholders but were a malevolent influence inside IOG as well from what I heard yesterday.

Main takeaway for me from yesterday was that the admin had engaged an independent expert to run their eyes over the data room and the books. The large funds would have done likewise. Both are comfortable at a 10p price and must see a return > 10p. The return here is not what it could have been for the PI's. But I would guess IOG has some large investors who will take a chunk of that £2m as well. Even today volume is thin so in the round the majority seem to be holding into the offer.

Do management have skin in the game? building up assets to monetise. We are putting reputation in the pot. Financial skin joined at modest salary and benefits. All making salary sacrifice.

Proceeding with FID - do we need additional people? Core team of experienced individuals and will look to supply chain. Operatorship or not? Yes operatorship with IOG but happy to discuss.

Harvey: Rig subject to funding and permits request to govt underpinned by funding. Will keep informed as rig/materials progress.

How prevent a buyout rather than a farm? Noted arbitrage and trading at a big discount. Good competition in farmout but can't prevent an offer. Prefer them to work with us than outside the process.

What are main risks? Securing funding and FID - risk mitigated by the process and have capital market solution as an option. Execution risk mitigated by meticulous plans and mitigation of risk through project planning to first gas. Right team.

Trust? There was no 20p offer for equity. Attempt to offer for debt. look at Petroceltic and Worldview example. Same advisor. Bought debt and took value. Of course we talked to RRE. In respect of LOG we have been dealing with fallout 18 hours a day. Current offer is 15% below where we were pre RRE and post LOG!
This is an industrial process, strong team with skills for farming out. Tiny team for the asset base. There was no access to capital last 2 years.

Independent director: LOG funding context of no access to capital. Look forward not back. very capable management team. World class asset base and a plan validated independently by Administrators. He has been asking questions. RRe - smart/hostile opportunistic move - thing you would do if there was an opportunity.

Bacton: Continuing discussions. Number of parties (4) both legal and commercial. Slower than we want but close to finalising. Legal disputes to sort out and multi faceted commercial around operating teams but close to agreement. Agreements around land leases with Tullow. Confident it will complete but takes time.

Peter Young: faith in current management. Founded and supported company. 20p offer not an offer outcome will be >20p.Difficult working with LOG (Mark brought them in) Pete left because of them. Better capital mix and breaks let off. Good fast decisions and better governance. Relationship agreement now signed, not over 30% holding, reduce BOD to 1 position. Independence and self determination and 30 day right to buy debt.

Share offer: wanted to offer same terms as placing. Excess and outside the sources uses for 2019. We are funded for 2019 post placing.

Macro env?: Talking to a number of well funded parties. Funded 2019 we are not at beginning. Parties to fund off their balance sheet mid year and then choose capital or farm out. Brexit proof! Confident can avoid equity funding no farm in before EGM!

Present: Fiona, Andrew Hockey, Mark Hughes, Rupert Neil, James Chance and new non exec.
Preamble: Appreciate it has been challenging/stressful period but company has turned corner with support can move forward. Board are working to create a stable platform.

Engaged administrators. Leading to FID and funding Harvey with clarity on the £7.5m and clarity on relationship and independence of the company.

RRE - ensure we are not bought on the cheap. Debt offer rejected and preceeded by "possible" bid. Actual bid did not emerge but enabled a low ball offer for the debt. Petro celtic example quoted which shared same advisor as RRE used. Admin produced own independent report and determined offer from RRE worth less than supporting IOG. Advisor had full access to data room. for farm out. In "Best interests" of mini bondholders
Placing price - aware of the low 10p price. 20p RRE price too low. Debt restructure was conditional on new equity being raised. In future IOG will be able to have a 30 day right to raise cash to prevent opportunistic bids again for debt.

Farm out - quality of partner and well financed and having UK as a key strategic region. Confident on progress as quickly as possible. Funding helps discussions Timing "Coming months" will cover dev funding and avoid further dilution.

Funded for Harvey and spud ASAP Farm out not contingent on it but it helps. Will manage the cost base with intense focus - salary sacrifice and build alignment. there have been no cash bonuses, All share options currently under water.

Funds are high quality institutions. "We know our headroom" and near term triggers.
Asset base 600bcf (split into the phases per RNS).

Advise in Q4 2018 on capital markets was do not proceed. Operational setback with the pigging and FRD delay. Repurpose £15m loan for liquidity and funding pipeline, seismic/offshore surveys, FDP phase 1, FEED engineering including Harvey.

Now ready for FID close to approval on FDP and EIA. Harvey spud mid 2019 significant upside. Goddard reserves to come and competitive advantage in future licensing rounds for nearby assets.

Rig: renegotiating in market - no formal award yet but commit asap.

Farmout not contingent on the placing but having funds strengthens deal. Looking to wok with well funded counterparties.

Non exec comments: Very pleased about appointment. An entertaining 4 weeks and exceptional situation. Sees integrity in the organisation. exceptional assets and unique upside and a team to deliver. Appropriate strategy wants to be part of the story and develop it.

Placing: 3 or 4 new institutions >£200bn Asset under management. 12 in all as well as existing. Professional funds both general and specialist.

Question on why the ratio. Started with £2m but emphasised ability to apply for excess. Martin participating because offered to all management and still a supportive director.

£15m

You can pretty much work that out yourself from the accounts!

The statement was made that the state of the debt and equity markets delayed FID combined with the operational
setback on the pigging. The loan was repurposed for liquidity and funding he listed:

Pipeline, seismic/offshore surveys, FDP phase 1 , FEED engineering including Harvey and I seem to remember Goddard getting a mention.

It was covered by the RNS - the missing bit was how little ended up actually being spent on Harvey and how much on other things.

6 pages of notes from that call to digest later. Welcome call and looking at trains for EGM now. I will be supporting the board. You have to accept that the previous funding mix relied on LOG - that from Peter Young comments on the call came with baggage. That day has passed and they have attracted a solid mix of institutions for the placing.

A basic read of the accounts tells you all you need to know. If you vote against then the company is insolvent and they would need to do something drastic. The £15m loan as well has been accounted for in the accounts if you read carefully so no surprise when it was itemised. Its a big hit at 10p letting the institutions in but that's just how events have unfolded letting them in cheap. The delays from the pigging and skipper (not mentioned) failure have cost us. But they have a credible plan of what needs to be done from here.

The key now is Harvey short term, finishing Bacton, then farm in and hitting the milestones to first gas to avoid future dilution. It does sound like the preference is an industry partner. The placing is allowing the debt to be pushed out and fund the working capital prior to the big spends which a farm in or capital market needs to fund. There will inevitably be dilution with LOG warrants converted but there does seem to be a way out to buy debt in the event of an offer.

Marty - the main issue I would have with Roger having listened is that he started off by declaring that a shareholder action group had been set-up. Didn't know it had and don't think its needed. The company still seem pretty open and we are not in that kind of situation. In my experience that is the best way I know of being marginalised and ignored by a board. It did not fit with the tenor or details already furnished in the call so grated badly as they were being pretty open in my opinion on the call. You have to be able to adapt your approach and strategy to unfolding conversations.

Impressed with the new Non exec. That is shareholders best protection - a good non exec.

I think the of problem is time.

They have to compete FID by June. So anyone coming in would have to act fast. They will get the loan back regardless and some of the warrants are at too high a price.

The losers here are current shareholders and yes we are indeed being offered a choice of our way or likely insolvency.

So it's not a good position and yes if someone came in with an offer it would command a serious look from the perspective of current shareholders.

Surely the way it works is the salary is divided by the reference price first. So at 21p reference price they already took a cut. The low exercise price just means they don't lose further amounts when they convert to shares and then cash in future.

You can read it either as a vote of future confidence or a further sign of how desperate the cash position had become.probably both.

Not naked shorting. Just sells.

The crew you are referring to will have shorted using CFD or spreads.

Unfortunately I think the problem here is closer to home and they need to be pretty clear on the call if they hold it as to how they ended up with no cash and alot if liabilities falling due. The board changes do increasingly look like an exercise in separation from LOG which is where most of the very difficult questions are likely to be. They became over reliant on them and it looks like they couldn't spend the £15m quick enough as it unravelled.

But it does seem to have gone on the pipe assets so it's not been mispent. Just not spent on Harvey as originally intended. The accounts are actually quite a good detailed read with useful sub analysis.

I doubt it has been naked shorted. The volume is too low to support that in scale.

I think they have spent more on the engineering than they should have. They should have executed the finance in Q3 2018. Looking at the accounts they have effectively spent the Harvey money on engineering work and very little even on pre work on Harvey. The problem I think they created for themselves is that by delaying they exposed the weak balance sheet and growing short term liabilities compared to available short term cash resources. Once LOG was no longer an option the medium term plan of using them to fill the gap was dead. Equity was then inevitable. The main question is why they pulled back from funding in Q4 2018 and whether the one they do get in 2019 is really better. I notice there are some fid deadlines on the fields else those will need revisiting with oil and gas Auth. Those deadlines may be why it's this deal or everyone loses.

The admin of LOG now need this to succeed as else they will have little chance of getting the loans back.

The money has been spent on the pipeline and feed work. That is worth something. But by doing that they left Harvey unfunded. Skipper drilled at great cost has now also been lost and is no longer an asset.

It's interesting they also set up 3 shell subsidiary companies in H2 2018 for the restructures.

The going concern qualification is correct. As I posted other day I had not clicked that they had already burnt through alot of cash in 2018 on the front end engineering it seems. The cash position at year end says it all. Huge mistake not completing the finance in 2018 for still no explanation.

The fund raise is absolutely necessary and the board have delivered this message to force a vote to pass the dilution. With the dilution they are funded but obviously need the large injection of capital for the large capital expenditures and ultimately repay the ever growing debt. That is no unusual for a resource company on AIM.

Skipper relinquished Feb 2019 I notice and we still owe creditors on that. That is what has caused alot of the unravelling. Shouldn't have drilled it when they did.

I'll need a long forensic read later.

I think the answer lies in the fact that they have two potential paths on the funding. The industry and the capital markets.

Industry (could mean either an offtake type arrangements or a more traditional farm in) you would think are most interested in the resource. Higher volume is attractive to them in either case. Post Harvey the risk is lower.

The capital markets are more interested in primarily the security of whatever they are loaning. Hence Harvey would increase the resource base for pretty much the same capital in the round. A lower risk and hence that should translate to a better price.

So in both cases removing risk will enable better pricing. The biggest risk the recapitalisation currently underway is removing is the risk that LOG get the asset by default (due to cash shortage) or that we have to finalise terms pre-Harvey. Debt seniority will be a key discussion point. LOG uncertainty will have made that a difficult discussion since Nov. How we have ended up here is now history - but the current cash position and why the need to raise so much now at this low does need to be justified. That could as others have alluded be to do with who is investing in the placing or more likely to me the LOG admin want the company capitalised to production.

The COS on Harvey is good - they are drilling into a previously drilled formation with a good potential upside to the resource. Never certain as things can go wrong but better than prospective exploring.

There is value in advance of 10p a share here - but existing shareholders have had their future return clipped back severely here but that does not mean there is not still a return.

It's as fair a way of doing the offer as any. More like a rights issue so existing holders can participate with a bit of certainty. Will be interesting to see take-up.

What would be good to see some worked numbers for the asset to try and work a likely fully dilluted price. There is no question about the concept of the asset. The debate now for long term holders is how much pie will we be left with and the size of the pie post Harvey.

Time for the AGM is a pain would like to go and give them some feedback with some questions. If I can't I hope others can.

The whole restructure is a real below the belt hit for shareholders but a further lesson in the risks of trying to debt finance your company on AIM to long term holders. Just as the dinner is about to be served in come the institutions to dine at the top table at a discount to take advantage of the work in preparing the meal. Such as it has ever been.

They were drilling Colter off Dorset and last someone here posted the Ensco-72 drilling rig was on its way back towards Hull.

Colter rig being used elsewhere caused the drill delay in jan. But unless they were willing to drill on credit they did not have the funds either based on my rough cash calculation posted earlier.

I am inclined to believe they spent a lot more on Skipper and other current liabilities and were hoping for either more LOG money or the FID/Farm in to fill the gap.

Routh must have known when he vacated that he had left behind a serious problem for his successor to resolve. The LOG dimension made that more difficult to resolve as they had become reliant on that easy money. He has held his shares so at least he is in it with the rest of us.

Looking at the cash I think we can extrapolate from the Half year and the Feb RNS.

At half year we had £4.6m in cash. As at 25th Feb it had dwindled to £2.9m. A net change given the loan of £16.39m.

Made up of:
as at Jun 2018
Cash £ 4.60

Drew 2018 £10.76
Drew 2019 £ 3.93
Net spend £ 1.70

As at Feb 2019
Cash £ 2.90
Undrawn facility £ 3.93

Current Liabilities at half year were $16m and since then we have the rig at £9.6m. General expenses don't explain the cash consumption (they are low at £2m a year) and its not board expenses.

So if the cash was not spend on the rig then the trade creditors balance looks the likely destination unless the Harvey rig has more sunk cost well in excess of what remains due or license rounds have cost us cash.

If the LOG facility is not being drawn for the balance here then the £9.6m for the rig was unfunded by £6m with no working capital and interest falling due of £1.6m.

So the minimum requirement above current cash was £7.6m (loan interest plus £9.6m Harvey cost). but they are choosing to raise £18m. The loan interest is now paid in equity saving £1.6m cash in 2019.

A bit of contingency and buffer for the G and A costs (say £4m - £2m a year for 2019 and 2020). If they need £7.1m in april 2020 for LOG that is your £18m spent. £9.6m on Harvey £7.1m for LOG and £4m working capital/G & A.

I'm therefore now interested in what the current liabilities are made up of as that has to be the likely destination of any cash unless Harvey rig is way more expensive than the £9.6m. You would hope a lot of the cash consumed since June 2018 has reduced that. If not then that alone wold mean they needed to increase their cash.

On the positive side the assets are worth a fair bit! But when you run out of cash for current liabilities you have to do something about it.

Looking also at the comments on FID over same period its clearly likely to be a mix. Last comment in Feb:

"Development carry which would significantly reduce the new capital required for its Core Project.
Management expects to select a preferred partner in 1H 2019, thereby enabling an optimal choice between an industrial or capital markets FID solution. First Gas is planned to be delivered within 20 months of FID."

So its a bit of swings and roundabouts. With the land to LOG still needing to be repaid at some point and yet they still have lots of warrants to exercise on top of the generous interest. So its easy to see why LOG admin are keeping this going.

So in summary I can see why they need the cash. But we should not be in this position. The FID and funding mix they come back with better be good and they better have a good explanation of what the cash since Jun 2018 has been spent on.

I think there remain some key questions here.

The placing is inter conditional on approving the changes to LOG arrangements.

1. What is the current cash position. The drill cost remaining is £9.6m so of the £15m from the loan in sept where did the £5.4m go leaving it unfunded and how much is the drill costing in total?
2. Why £20m now? The statement implies to give them time and financial strength to get farm out on attractive terms.

Overall the restructure is bringing in £20m in equity (£16m placing, £200k board, £1.6m interest converted and they hop £2m from shareholders from the open offer.

On the debt side IOG get to role over the debt falling due in 2019 for 1 year to April 2020. But LOG admin get to not chip in with the funding by being able to push their warrants for 7.5m shares at 8p out. Not forgetting LOG already got 5.7m shares in 2015 as part of that loan! £13.2m is pushed out to Dec 2020.

So the trade off is pushing the debt out to April 2020 and Dec 2020.
Down the track LOG admin stand to get the warrants converted and make further profits in addition to the actual debt repayment.

So a few questions for me.
If the company achieve a farm in what sort of farm in is now envisaged. Share to fund the dev costs? If so how is the £7.1m principal pushed out by 1 year paid pre revenue? Is that why they are raising more cash than they need now to provide the certainty and that part of the balance of the @£18m is ring fenced?

The winners here are clearly the new equity and LOG admin have done pretty well out of this if the farm in is as advanced as it could be. Existing holders will struggle to get in on the open offer if it is limited to £2m and insiders also get to take up allocations.

So it looks like existing shareholders have paid the price for the boards failure to secure the FID in Q4 2018, failure to diversify funding mix, failure to progress Harvey drill.

I will probably have to support the motions in the end but want some clear explanations of where the cash has gone, why £20m equity NOW and how we have ended up in this situation. By running up a lot of debt hitting the key timelines in 2018 was key. If they get the cash I would want to know the rig will be onsite and drilling Harvey straight away - no ifs buts or excuses and the farmin and FID likewise progressed to conclusion quickly. If not then the equity raise should have been staged.