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Taverham: why did they not have a small share placing to stay within the loan covenants?

Taverham: I would, too. If enough people make enough noise, something may be done, in this company and in AIM generally. They did say that they had enough cash to last only until the end of June though, didn't they? I suppose investors thought they were addressing the issue and the company’s management thought they’d given the shareholders fair warning. I do think that shareholders should have been told why share placings were not being considered. Better a large element of dilution than the appointment of Administrators. It still doesn’t make sense to me. Surely their brokers and NoMad would have advised them that an issue could be got away?

Taverham: I agree with you that investor communication in this has been pretty shocking but this is very common on AIM, isn’t it? And such rules as there are are observed only in the breach. It’s a casino, not a stockmarket. Even so, what’s happened here is egregious.

I don’t short shares myself but I don’t think shorters had much to do with it. In view of the fact that the management could have raised more equity capital, their silence and inaction leading up to the appointment of Administrators is hard to understand. In a properly regulated market, there would be an inquiry, with penalties if Directors were found to be at fault. But this is AIM. Rule-breaking and the misleading of shareholders by management is endemic. Everyone knows it but nothing is done. The ineffectual recent CEO of the FCA is now the Governor of the Bank of England. What hope is there?

Why are many posters here blaming shorters? The management pointed clearly to the financial risks they had taken on shareholders’ behalf in the latest financial report and the Charges on the company’s loan were there for anyone to see on the Companies House site. What mystifies me is why they didn’t have a large share placing a month or two before this all blew up. The FD could see this coming. The share price may have been affected by shorting but there was still plenty of scope for raising money through an equity issue.

I can only conclude that the Board saw no viable future for the company as presently constituted. That must be the result of either disappointing results from the company’s products or a perceived need for substantial ongoing financial support which was unlikely to be forthcoming. Or a combination of the two. It’s extremely disappointing for current shareholders but if this is why the management, in effect, pulled the plug, shareholders were inevitably going to suffer at some stage in the medium term.

What has just happened here seems so extraordinary that if it comes to legal proceedings, the apparent failure of the Board to defend the interests of their shareholders by taking some very basic measures to prevent such an outcome may well trump the get-out clauses in the risk statement in the recent final results, and the conditions listed in the Charge documents. Why did the Board not organise a share placing months before this? There should be a proper inquiry into the circumstances of the suspension. I see that DDDD has already been deleted from the FTSE AIM All-Share Index. They didn't waste any time, did they?

Saltfleetby is already a substantially depleted field. It’s true that flow rates can be quite high for the first month or two when a well is reactivated but the flow rate normally falls back after a month or two to a more sustainable rate, as I understand it. The fact remains that from 2026, the rate falls off dramatically, just in time for the hedges to end. Most of any profit from Saltfleetby gas is going to Mercuria, not to Angus. To confuse the gas field with Angus itself is wrong.

The CPR states that all data were supplied by Angus and that Oilfield hasn’t checked them.

Gazprom could have completed the plant years ago, when the Theddlethorpe terminal closed and they would have done it more cheaply. But with gas prices as they were, they’d have made no money on it. The recent rise in the gas price was forecast by no one at the time, as far as I know. The problem for Angus Is that they grossly underestimated the cost of completing the project and had to accept an usurious loan, with hedge contracts built into it. With the rise in the gas price, unless Angus get the plant working on schedule and in the volumes required by the hedge contracts, they’re either going to go bust or they’ll have to have placing after placing to keep going. It’s a simple as that. If they manage to get It producing properly in time and to drill a successful sidetrack on time after that, investors in Angus will make a multiple of their investment.

Have a look at p.44 of the CPR. A very large drop-off in 2026. The CPR assumed first gas in mid-March. If Angus don’t get it finished by mid-July, they’re likely to be in difficulty. But overall, the CPR schedule should only be 3 months out, by Angus's reckoning. All the data in these CPR tables are provided by Angus.

Wasn’t the 25% windfall tax Rishi Sunak’s stated policy suggestion?

..re the tax losses. Didn’t the draft 25% windfall tax provisions announced the other day state that historical tax losses could not be used to offset against profits on oil and gas? I don’t know if I’ve got this right but if I have, I can’t see much point in Angus acquiring AAOG. By the time the tax is removed, Angus will have produced much of the gas remaining in the field - the CPR P90 assumes quite a rapid dwindling in production after the first 3-4 years. With the SEL losses, they’ll have plenty.

Petroleum1: yes, I’ve seen those posts. I think that if Mr. Forrest thinks the game’s up, then Lord Lucan must suspect it is as well. This deal so far hasn’t changed the situation for Angus dramatically. They’ve given him £250,000, written off a debt owed to Angus and he’s sold his first 91mm tranche of Angus shares for £1mm or so. It looks as if Aleph may have sold many of their first tranche as well, though it’s also possible that Aleph’s clients have lodged their shares with their own custodians so they’re not included in the Aleph % holding declaration. Angus has got £3mm from Aleph - with another £3mm to come, as long as shareholders approve the increase in authorised share capital at the EGM. But the work is way behind schedule, the regulatory permissions are not yet in place and the crucial sidetrack may require suspension of gas production before it can be drilled. Any combination of these things could bankrupt Angus. Lord Lucan will know all this at least as well as Mr. Forrest does. This deal won’t make any difference to the outcome and very little difference to shareholders. It merely gets Mr. Forrest out with a nice profit on his involvement with Saltfleetby.

Petroleum1: you write as if there were no time constraint. If Angus have not got Saltfleetby into production at least by the first week of July, the monthly forward sales (hedge) contracts with Mercuria are likely to cost them a lot of money. If the sidetrack isn’t drilled successfully by October, the higher rate of production demanded by the forward sales contracts for nine months from then are unlikely to be met. This will cost Angus even more. There is an interest payment and a debt repayment each of about £1.5mm to be met by the end of September. There are likely to be some very big further share issues next month, including conversion of Knowe’s £1.4mm. convertible. So more dilution without a cash infusion. If Angus can’t meet their debt service payments, it will be an event of default, triggering the charge provisions on the £12mm. debenture. The recent share issue to Aleph raised £3mm. This appears to be needed to meet cost overruns. The second £3mm placing money is subject to shareholder approval and also appears to be earmarked for spending on the sidetrack etc. So they may not be able to use the cash to be raised this way to meet the debt requirements. Or they may be raising this money to meet the debt service payments but don’t want not say so. And if the share price on 13 June (the date of the EGM) is below the issue price of the second tranche of shares to be placed with Aleph, there’s no guarantee Angus will get the money. And if they’re not producing gas in enough volume in time to meet the hedges, the higher the gas price goes the greater their losses will be.

It may work, they may surprise sceptics like me but these are the risks here and they’re substantial.

Petroleum1: if you believe Lord Lucan, that they can have Saltfleetby in production this month and the sidetrack drilled and producing 5mmscfd by the start of October, Angus will be a great investment. Sadly, nothing he’s said since he was appointed Interim MD in early 2109 has happened as he said it would. It’s all been very late and way over budget. I can’t see any chance of gas production this month and they haven’t got permission yet to drill the sidetrack while gas is flowing in the pipes from the existing wells. They haven’t even got the EA approval which they said would be given by mid-December last year. Then there’s HSE and NG approval. After they’ve finished the welds and the electrical works. They may not be producing gas before August. Saltfleetby has turned into a valuable asset but who will benefit?

What have 500mm. AAOG shares got to do with Angus?

Irishmouse: I’m sorry about the repetition, my old IPad playing up.

You’re right, I’m not very impressed with Angus, or with anyone connected with them - with the exception of Mercuria. And Gneiss! The information I’ve got on Mr. Forrest is scanty, it’s impossible to form a conclusion from it. What is it that you’ve identified, that gives you confidence in him?

I think it would be interesting if more light were shed on the relationships between the players here. Mr Forrest has kept his head largely below the parapet. His assets are largely related to Angus. Lucan is in charge there and has had umpteen equity raisings, in addition to the huge loan, to keep Angus’s head above water while building the plant. It seems to me the recent re-arrangement at SEL/Angus may haveresulted from Mr Forrest’s coming to the conclusion that Saltfleetby will not be finished in time. It’s only the huge rise in the gas price that’s enabled him to walk away with a profit on his investment in Saltfleetby. His assets are in a privately-held company owned by himself, where he’s done deals with people known to him, who were running companies in the same or contiguous offices. He’s not built a business for shareholders. Whether the recent deal represents good value to Angus shareholders, we’ll find out within the next four months. Whether he’s going to be good for AAOG shareholders, we’ll have to see.

Irishmouse: RedbullRJ wrote an interesting post here on all this on 18 January. In fact, Wingas, the Gazprom subsidiary that owned and operated the Saltfleetby gas field at the time the latter was closed in late 2017, gave the field, with a cash sum ostensibly to cover eventual de-commissioning expenses, to Paul Forrest. Angus promptly paid him £1 for their 51% stake in it, and received a payment of £2.5mm, while Mr. Forrest kept the rest of the cash and the pipeline de-commissioning liability, and the “tax losses”. Angus then told its shareholders, and anyone else who wanted to listen, that they could build a whole gas plant, and complete the pipeline to the NG pipeline at Theddlethorpe, for the £2.5mm. they’d been given. And that it would be completed by May-August 2020. Lord Lucan had been Interim MD at Angus for three months when this investment was made and these forecasts given. The office which Angus inhabited at the time had the same address as the Wingas office. Wingas shortly afterwards became SEL.

The gas price pretty promptly fell away to wholly uneconomic levels and Lucan found that his forecasts re costs and completion date were a bit optimistic (as has been every one of the very many updated forecasts since then). It took him 18 months to negotiate a £12mm. loan at usurious rates, which loan he never once mentioned until he had to in September 2020. Even this £12mm. has proved grossly insufficient. The whole project would be worthless without the recent huge, and unforeseen by anyone involved, rise in the gas price.

SEL guaranteed the £12mm. loan. Mr. Forrest has now sold SEL to Angus for £250,000 in cash, £1.4mm. in debt forgiveness, a 25% or so holding in Angus and an interest in any net earnings from Saltfleetby until 2025. I can see that this aids his cash flow (I believe Angus said one of the reasons for the deal was to finance cash calls at SEL) but fail to see how it benefits anyone else. None of his companies appears to amount to much - though Forum’s next Accounts will be interesting. The tax losses at AAOG don’t appear to be useable at Angus.

I’d say that at best, the jury is out.

Irishmouse: RedbullRJ wrote an interesting post here on all this on 18 January. In fact, Wingas, the Gazprom subsidiary that owned and operated the Saltfleetby gas field at the time the latter was closed in late 2017, gave the field, with a cash sum ostensibly to cover eventual de-commissioning expenses, to Paul Forrest. Angus promptly paid him £1 for their 51% and £2.5mm, while Mr. Forrest kept the rest of the cash and the pipeline de-commissioning liability, and the “tax losses”. Angus then told to shareholders, and anyone else who wanted to listen that they could build a whole gas plant, and complete the pipeline to the NG pipeline at Theddlethorpe, for the £2.5mm. they’d been given. And that it would be completed by May-August 2020. Lord Lucan had been Interim MD at Angus for three months when this investment was made and these forecasts given. The office which Angus inhabited at the time had the same address as the Wingas office. Wingas shortly afterwards became SEL.

The gas price pretty promptly fell away to wholly uneconomic levels and Lucan found that his forecasts re costs and completion date were a bit optimistic (as has been every one of the very many updated forecasts since then). It took him 18 months to negotiate a £12mm. loan at usurious rates, which loan he never once mentioned until he had to in September 2020. Even this has proved grossly insufficient.

SEL GUARA

Irishmouse: what do you see in Mr. Forrest that I’m missing?

Re Orwell Group, it’s been commented on on one of the Angus chat sites that this company shares its registered office address with Lucan fashion, of which Lord Lucan is a Director. It would be exaggerating to say that Orwell Group is a well-capitalised company, but the Directors are both accountants so there’s doubtless a solid reason for it’s incorporation - which coincided quite closely with the arrival as Interim MD at Angus of Lord Lucan. I read nothing into this - make of it what you will. I regard the management of Angus as half-competent at best, I don’t think they’re financial or oil/gas gurus, any of them. And I think it’s perfectly valid to regard the latest developments at Angus and Forum as akin to a re-arrangement of the bar stools on the Costa Concordia.

Irishmouse: he’s going onto the Angus Board too, so you never know.,

Irishmouse: I’m not aware of it either. In view of the recent changes in oil and gas company taxation, it’s hard to see what use Angus would have for AAOG’s tax losses - though Lord Lucan at Angus doesn’t seem quite au fait with the proposed legislation on the subject.

Mr. Forrest didn’t sell his stake back to Angus, by the way. He sold them the 51% that was Angus’s total holding in Saltfleetby until last week’s announcement, in 2019. Now, he’s sold them the 49% that he kept. He’s done a nice deal in the circumstances. I think he will turn out to have done rather better from his investment than Angus shareholders will in theirs. Time will tell. No work is likely to be done from this evening to 6 June. The first monthly hedge contract applies in July. I think Angus will be using the proceeds of their placing with Aleph to defray the cost of their gas production falling short in July. They must be hoping for a much lower UK gas price. And they still haven’t worked out whether they’re allowed to drill a sidetrack while producing and piping gas from the plant. If they have to cease gas production while they do it, there will have to be more, substantial, cash raising through the sale of new shares to cover their hedge losses, in my view. And success with the sidetrack is still in doubt.

I wish you and Petroleum1 good luck with your investment in AAOG.

And there’s the answer on the sidetrack! Hardly different from last September’s answer to a similar question. They haven’t got regulatory approval yet to drill one while producing gas from the existing wells. Yet they’re predicting drilling to start in the first three weeks of July.