Member Info for OofyProsser

Well, Paul Forrest, the sole Director at Forum Energy Services and SEL, the latter the re-named Wingas, which sold the Saltfleetby field to him in 2019, and of which he then sold 51% to Angus for £1, has sold the great majority of his shareholding in Angus. On the Angus chat site, someone is saying he’s not an insider! That’s funny, he’s a big shareholder in a private company whose address is the same as Lucan Fashion, and in which Tidswell and Carlos Fernandes, the Angus FD, are also big shareholders. At the time they did the original Saltfleetby deal, Angus’s office, and his his were in the same building in Chiswick. He owns 49% of the Saltfleetby project. Not an insider?

Eileen13: no, I agree about Angus. It’s likely that, with Sound Energy being the senior partner on the new platform, the Angus Directors - and Jonathan Tidswell - would be be surplus to requirements quite soon after the deal and Saltfleetby were completed. Not at all what Angus wants.

Yes, good luck to all investors in both.

Petroleum1: these figures appear to be well in excess of those in the CPR. Have you removed the hedges?

What does the genial Malcy mean by “provide a platform”? It seems a lot of shares to issue for a platform. These companies need cash flow, not a platform and a Sound Energy share issue for Angus shares doesn’t improve either company’s cash or earnings position (at a time when Angus, at least, really needs more cash).

These companies are in business, however, not for shareholder returns but to keep their Directors in very gainful employment. Being seen to be doing something gives the appearance of competence. So even assuming, following a successful takeover, that the combined new company with its “platform” manages to retain ownership of Saltfleetby, shareholders shouldn't expect dividends. Profits from Saltfleetby, if there are any, will all go in some further speculation intended to keep the ball rolling and the salaries and emoluments paid for a few more years. I suspect that we all know this but that residual hope and/or greed prevents our admitting it to ourselves.

Zaphod: I found two or three defunct companies with very similar names, but this one didn’t come up at all until someone posted a link to it. It’s miniscule in any case. Still, Tidswell, Carlos Fernandes and your man Forrest, all at the same registered office as Lucan Fashion. Forrest was in an adjacent office to the other three three years ago, in Chiswick, when the Wingas/SEL/Angus/Saltfleetby deals took place. All very odd. None of them is exactly Warren Buffet though.

Irishmouse: yes, and it’s well taken!

Petroleum1: I think the Angus statement referred to six bids, not six bidders. They’ve now had four from Sound Energy, that leaves two more. What do you think - Forum and SEL? If so, they can’t afford it either. And they know the situation Angus is in. The Sound bid has not been accepted, it’s gone into the pot along with whatever other indications of interest they’ve had from the remaining two parties.

The hedges are not valued at £12mm. The loan is for £12mm. There’s no relationship between the two, other than that the inability of Angus to meet the terms of the hedges may result in the Lenders taking over Angus’s assets. The hedges are open-ended. Angus has contracted to sell all the oil it produces to Shell. It has also taken on forward sales contracts, on a monthly basis for 36 months at fixed prices. If the market price of gas on the monthly settlement date is higher than the price they’ve paid for it, Angus will have sold forward for 43 (or whatever the monthly price is) and, being unable to deliver gas, will have to buy it in the market at whatever price then prevails. The gas price a lot higher now, and looks like staying higher for a fair while. It’s OK if they’re producing gas in quantities sufficient to meet the forward sales contracts. They just use the cash that Shell pays them every month to buy the gas at a similar price in the market. So they’ll get the hedged price for it. If they produce more than they’ve hedged, they’re fine, they’ll sell the excess at market prices and make lots of money. The issue is, if they can’t produce enough gas to cover the amount contracted for in the hedges, they’ll have to buy the shortfall at market prices for it, and subtract the 43 from that for their net payment. This could amount to a huge amount of money every month and it starts on 1 July. They’re not allowed to borrow more money, unless they’ve paid off the £12mm. loan and the interest for one year at 12%. There’s no chance of this, unless a bidder with deep pockets pays it off. So if this rich bidder paid Angus shareholders out at the current share price, that’s £13mm-odd, plus £13.4mm. for the loan and interest, and they’re still left with the risk on the hedges. And the thing isn’t finished, it’s late, over budget and untested. And the sidetrack, predicted in the CPR to be drilled in January, has been put off until some weeks after they’ve got gas flowing. The CPR predicted that the two existing wells would flow at 5mmcfd. The author of it expected a sidetrack to meet the small deficit from September/October in the amount they’ll produce from the two existing wells vs. the volumes contracted in the hedges. And they’re still missing a vital part of the sidetrack drilling rig. The time it will take to drill and achieve production is anyone’s guess and all previous attempts at a sidetrack from that well have failed. And the OGA may not approve a takeover anyway.Pump and dump, anyone?

Petroleum1: what do you mean by a hedge of £12 is not that much?

Irishmouse: if you were on the right side of binding contracts which look like making you millions, would you accept much less than the present value of the contracts to settle them early? I wouldn’t.

Zaphod: I’ve found a link to it.

Zaphod: I can’t find this company on the Companies House website. Where can I find these data, please?

petroleum1: forward contracts are legally enforceable instruments and commit you to meeting their terms, though they’re normally settled in cash, not in the physical commodity. Angus’s gas is contracted for sale to Shell. They get cash from the latter. If Angus can’t sell enough gas to Shell to cover their financial obligations under the hedges, they’ll have to find money elsewhere. They can’t borrow more under the terms of the charge. The sums will be far too large for shareholders to finance every month. Yes, the Lenders, who are their counterparties in the hedges, might be willing to negotiate a price but it would be 36 months worth of the difference between gas at 40-something and the prevailing market price - did you say 212? x the volume of gas per month specified in the contracts. 50-70% of the expected volume of gas over 36 of its expected most productive 48 months at Saltfleetby is pre-sold at 40-something. It’s in the CPR, page 48 or 49, I think. The proposed bid by Sound Energy doesn’t seem to offer any advantages as far as these factors are concerned and I’ll be surprised if the bid goes through,

If they get the project working in time and gas flows as predicted, it will be a really good investment - and a first on both counts for this management, which has never got anywhere near meeting a single one of their forecasts.

petroleum1: the CPR assumes the beginning of production in March. However, Angus are way behind the CPR schedule and way above the CPR budget. Lots of pieces of kit have still not been delivered to the site. Angus needs more cash too. The wells haven't been tested, there’s a sidetrack to be drilled once the gas has been flowing at a reliable rate. .

Any gas they can produce before July can be sold to Shell at close to the market price. After 1 July, the hedge sale prices are in the 40s. The hedges commit Angus to selling fixed volumes at these prices for three years. You have to decide whether they’ll produce enough gas by May to meet the £4.4mm+ that they have to pay the Debenture holders in May (probably, we don’t know the payment date) and whether by July they’ll be able to meet the hedge requirements. If they don’t do either of these things, the Debenture holders can take over Angus’s assets. The potential losses on the hedges if current gas prices stay near or above current levels are very large.

If you think Angus will get the asset into production by April and that production thereafter will meet the hedge requirements, Angus will be an excellent investment. They may have to raise quite a lot more money if they’re to have a chance of doing so, but they're a long way behind schedule and, as I’ve said, some of the kit they ordered last summer is not yet there. It’s not clear that the Sound Energy proposals bring anything to the table in respect of meeting bills as they fall due - or in any other way. There’s a lot of scepticism among more knowledgeable and long term observers of Angus and its management as to their ability to get them over the line.

It boils down to the same thing - Angus and Saltfleetby are different entities. There’s value in the gas. There may not be value in Angus. Saltfleetby may belong to the Lenders in the summer.

Skittish: well, I doubt this all-share bid from Sound will succeed, or that its intended to.. They may have given certain shareholders the option to exercise their 1.2p warrants, however, which will be as good as another small placing to Angus and will give its friends a nice little earner, if they’re nimble.

Petroleum1: re the hedges. I believe they are monthly forward sales contracts covering 70% of Angus’s expected production calculated on a conservative basis, and entered into last summer, when the price of gas in the forward markets was a small fraction of what it is now. The Lenders gave Angus 6 months leeway - the hedges begin in July this year: Angus said at the time the contracts were arranged that they’d have the plant in production at the end of 2021. The risk in them to Angus is therefore that they won’t be producing enough gas in July and thereafter to cover the full amount of the contracts and will have to make up the shortfall (their gas is being sold to Shell: the hedge contracts are settled in cash, not physical gas).

The value of the hedges to the Lenders is very high currently and they're expected at least to maintain their current value in July. Yes, in the event of a bid for Angus or for the Saltfleetby project it’s likely that the bidders might be able to come to an agreement with the Lenders to settle them immediately, but the payment would be huge. And it’s possible anyway that the Lenders, being commodity traders, may have offset the forward sales contracts with another contract or set of contracts, to crystallise a profit, rather than leaving them to fluctuate in value between now and 2025. If they’ve done that, the Lenders will be anxious about the possibility that Angus won’t be able to meet the hedge terms from July. And it will be much harder to unwind them as well. If the Lenders are seriously worried about the quantum of their possible losses on the hedges if their terms can’t be met and if the Lenders are not very impressed with the Angus management’s project management ability/commitment, it’s even possible they might mount a bid for Angus, in spite of the fact they may be able to take Angus over gratis in the summer. It would be complicated and time-consuming, though. The cost/benefit might be marginal. Complicated, isn’t it? The thing investors have to focus on is that Angus and the Saltfleetby asset are two different things. There’s value in Saltfleetby. It’s not clear that there’s value in Angus.

I agree with you, the hedges are the biggest single financial issue in all this and will be the focus of much attention in any bid that’s under consideration. This could just be a pump and dump though.

Petroleum1: the well-informed posters on the ADVFN Angus site, including HITS, 1347, JA51Oiler, JTidsbadly and ClottedQ are worth a read. It seems the detailed terms of the Finance Facilities Agreement between Angus and the Debenture holders have not been divulged. So we don’t seem to know what has been agreed in the event of a bid either for Saltfleetby or for Angus itself in terms of either immediate repayment of the Debenture and interest, or its assignment to new borrowers. If the Debenture holders prefer to retain their 12% annual interest, we don’t know whether the terms of the Debenture stipulate that they can do this, or if new owners of Angus or of Saltfleetby can repay it in full. If it can be repaid at the option of Angus, or anyone taking Angus over, the permission of the Debenture holders for a sale of Poundland or a bid for Angus won’t be required. I apologise for getting this slightly wrong in my earlier post. But it’s just another element of uncertainty, isn’t it? . To add to the absence of information on the condition of the wells themselves, the further cost overruns and completion delays, the unknown current location of some important pieces of kit etc. And Anguish’s apparent need for more money.

Petroleum1: it may or may not be a lucrative opportunity. It depends on getting gas flowing at 3.4mmcfd by July and at 5.3mmcfd by September, the latter of which probably will require a successful sidetrack. Otherwise the hedges will probably cost a buyer a great deal of money, on top of the purchase price and the cost of completing the project and drilling the sidetrack. All the forecast data we have on flow rates are from the CPR , which is based on data provided to the author by Angus. The hedges continue until June 2025, shortly after which the gas flow is predicted to fall quite sharply. The wells haven't, as far as I’m aware, been tested yet. In view of the OGA’s recently expressed advice, there could be significant regulatory delays following a change of ownership, so the sooner any bid is put to bed, the better. It’s entirely possible that no bid will be forthcoming. Angus appears to need money quite soon, so in the absence of a bid and/or a delay in putting one together, a large placing is quite likely. In any case, the EA and the HSE, as well as LCC, are yet to give approval. And there’s no sign yet of some important bits of kit. Angus revealed in their 6 January RNS that there will be a further delay of some weeks and that it will be a further 10% over budget. And the work at Saltfleetby appeared already to be a month or so behind the October RNS schedule,. There’s significant risk in all this, in my view. It’s murky though, isn’t it?

Petroleum1: yes, if AAOG is or becomes one of the entities that takes over Angus, those tax losses will be valuable. Angus has £19mm of its own to get through but If Saltfleetby is as good as Angus says, the £19mm worth will soon be used up. It’s all so murky, though, there’s no saying who will get Angus, or even if this bid talk is just a smokescreen. Either way, it does look as if gas production and exploration in the UK is about to be right back in fashion, doesn't it?

Petroleum1: as I said in an earlier post, I’m not disputing that there’s now real value in the the Saltfleetby gas field. I’m disputing who will benefit from that value. The terms of the Debenture are onerous, there are near-term deadlines in place and Angus are well behind schedule. And the management, never up to much, are now apparently distracted by the presence of at least six potential bidders in their data room.

But the hedges will still apply. They will need the existing wells to perform as predicted and a successful sidetrack to make enough money to justify paying back the £12mm loan and interest and taking on the hedges and the royalty. And the potential delays to do with regulatory approvals. Delays beyond 1 July would make the hedges very expensive to an acquirer.

irishmouse: I don’t know more than I’ve read. I could be completely wrong, though my comments on the Debenture, the charges and the hedges are, I believe, accurate. You’re right though, it’s very murky and open to all sorts of interpretation. My sceptical bent is based on the past performance of the management of Angus, which has been execrable.

..sorry, “be obliged” should read “feel obliged” - i.e. there might be a compelling case to bid for Angus in these circumstances. The Lenders might start with a very low bid, though, which in the absence of a competing bid, the management might have to put to shareholders, with a description of the alternatives open to the company.

As someone has pointed out today on one of the Angus sites, it’s also possible that the Lenders will be obliged to bid for Angus, if they’ve laid off all or part of their hedges in the forward markets. If Angus has taken its foot off the accelerator in the knowledge that it can’t now get Saltfleetby producing in time to save itself, the financial risk to Mercuria could be higher than the cost of paying to take over Angus now and spending the money needed to get it finished quickly. This would explain Angus’s putting itself up for sale at this stage. They’ve no confidence in their ability to avoid seizure of their assets in July. So they point out to the Lenders the potential cost of allowing the Angus management to continue mucking it up until the hedges start to cost them millions. Of course, if Mercuria has not offset the hedges with monthly foward contracts, and is merely waiting for the profits to roll in, they may take the view that the Angus management should not be rewarded in this way.