The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Obviously I have no crystal ball. The only person who does is KTF, who knows the content of all my posts even though he has me blocked. Quite an amazing talent ;-) Yes, my view is on the pessmistic side. But only slightly. I agree with SP Angel, with just a difference in opinion on timeframe. And that's based on experience. I actually think 2026 for Phase 2 revenue is *optimistic*.
Cast your mind back more than three years to February 2020. The micro LNG strategy had just been announced and first LNG was targeted for 2021. If anyone had dared to predict that SOU would trade between 1p and 2p for the next three years, you would have called them crazy. A year earlier they had been at 30p. But that's exactly what happened.
Think of all the "transformational" things that happened since -- the deal with Afriquia, the successful bond restructuring, acquisition of the Schlumberger share, two successful fund raises, the Phase 2 gas sales agreement with ONEE, the farmout announcement, the Attijariwafa appointment, the tax issue resolution, the Calvalley announcement.
Most of these things were good, but many have dragged on far longer than projected. The bond restructuring proposal took six months. Phase 1 planning was 18 months instead of 6, from HOT with Afriquia to notice to proceed. We wasted five months on the weird Angus option. First LNG slipped from 2021 to 2024. Time is money and SOU spent lots of it. The number of shares and warrants on issue doubled in those three years. Everyone noticed the upbeat announcements -- how many noticed their share value had gone down 50%?
The thing is, none of these announcements has budged the share price more than temporarily. Claims that the price is "crazy low" start to sound a bit hollow after several years. What do you think the market is missing? One thing it probably noticed (that you might not have) is that SOU was within a whisker of running out of cash multiple times. Even now it is struggling to make it through to Phase 1 revenue, and that is reflected in the Calvalley deal which kinda sucked in my opinion. (If you disagree, why did the SP Angel valuation drop by a third in just two weeks?).
So yeah, this is all just my tuppence-worth. It may not be worth the electrons it is printed on. But at least I have gone back and dissected everything that has happened over several years, re-read all the RNSs, looked the trajectory of all the SP Angel research notes. Whereas some seem to have the memory of a goldfish. Well, never fear, I'll still be here on your next trip round this side of the bowl :-)
We "should" be sitting at whatever the market is willing to pay, and of course that's exactly where we *are*. How could it be different? Nobody has forgotten that we touched £1, or that it was based on a pie-in-the-sky valuation. Nobody has forgotten the famous "£1.50 per Tcf to SOU" either. It turned out that SOU's 50% share (at the time) was half that, which made the 0.3 Tcf of C1 resources in the horst worth approximately 27pps. Roll on four years and a tripling of the number of shares on issue, and that reduced to 9pps. So no, it's not about forgetting the previous valuations -- it's that some people seem to have forgotten everything that happened *since*.
SOU's share went up with the acquisition of the SLB share, but has gone down by considerably more with the Calvalley deal, though it has the prospect of more gas from TE4. Meanwhile it has taken on a lot of debt to fund phases 1 and 2. All of the prospective cash flows feed into SP Angel's valuation, they're not just plucking numbers from the air. The punters talking about near-term 10-15p valuations are in denial or simply deluded. Read the SP Angel report, it's there in black and white. Also watch SP Angel themselves:
https://www.youtube.com/watch?v=G4uYygXCfkI
That was two weeks ago when the question of vendor financing versus industry partner was still open. After the Calvalley deal the SP Angel valuation per share dropped by more than a third. I swear some people on here do not even bother to read the information available.
So what happens next? The die has been cast with Calvalley -- there isn't going to be another third party putting up cash for exploration wells further afield. Clearly SOU is being valued as a development company now, not an exploration company. I see no reason why that would change before SOU starts raking in Phase 2 revenue and can fund its own exploration once again. And at the most optimistic that is not before 2026 as there is no way Phase 2 FID is going to happen inside 2023. My guess is you might see a slow climb toward the SP Angel target price toward the end of Phase 2. That said, let's not forget the horst gas does not become "proven and probable resources" until it has already been producing for some time. In the meantime you will see a lot of punters ducking in and out in the hope of a quick buck. That's why I say probably no *sustained* price rise above 2.5p for the next two years.
Beyond all that, sure, there's the prospect of more exploration. SOU will no longer be financially scuppered by the prospect of another dry well or two. If the cementation problems they've encountered so far do not turn out to be ubiquitous then the sky is the limit. I wouldn't expect to be seeing any results of that until a good bit later this decade.
Latest SP Angel update is not at all surprising to me. It was always about how much of the farm SOU would have to give away to totter across the finish line of becoming revenue generating. That is now in sight as the prospect of running out of cash in July has been averted with the loan notes and, I suspect, the second tranche in December will cover the bond holder payment that falls due then. Hopefully the back money from Calvalley provides whatever funding is needed for next year until Phase 1 revenue starts flowing. SOU has a lot of debt payments and other obligations coming due then, so it doesn't end up with a lot of net cash.
Phase 2 is what it's really all about. It gives SOU the revenue it needs to explore more of Tendrara. And they can't afford to dilly dally as the concession is time limited and some of it has already had to be relinquished. But as we see, raising the needed funds has cost SOU more than half its share. That's what's reflected in the latest target SP. On the up side, TE-4 will eventually bring some of that value back and the development cost is already covered. All of this involves getting both Attijariwafa and Calvalley over the line. By the way, whatever happened to the Attijariwafa decision being put back to Apr 28th by Eid celebrations? It's nearly two months later already! I think Graham has finally copped that everything takes more time than anticipated, as he has very wisely put the loan notes in place in case the Calvalley deal is not sown up by Christmas. Nothing's free, of course, and the loan notes will result in 50m new warrants even if never converted (to about 160m new shares) as well as a whacking interest rate.
At this stage I don't think it's too premature to say that Graham has played a blinder in rescuing what was a complete basket case of a company from the brink. At the same time, the costs of doing so are increasingly apparent. SOU was never going to raise development costs which were an order of magnitude greater than its market cap without giving away assets. We're finally starting to see that future mapped out in some detail.
I presume the three well exploration has been quietly dropped. Nobody's going to pay for that without taking an even larger chunk of SOU's share. So SOU will continue to be valued on its existing assets for the foreseeable future. The company will do ok but I don't think there's good news for anyone looking for a short term multi-bagger or hoping to break even on the higher valuations of old. If I was to hazard a guess, I don't think the SP will exceed 2.5p for a sustained period this side of 2026 during Phase 2 development.
This is very mixed news. Not sure why people are giving it such a big welcome (apart from the perennial optimists who think the SP is going to be 20p within months). SOU has just given away more than half of its share of the TE5 horst. The additional loan note for keeping the lights on, if converted, would be circa 10% further dilution. The list of things that SOU has to pay for out of future revenue is growing. Given some short term payments that are due, everything will need to go right to avoid even more dilution.
On the other hand, assuming this latest deal can be closed, and the bank come through with the other money, SOU can see its way to Phase 2 production which has to be good. TE4 volumes, if realised, would add about 75% to the ultimately recoverable value for the horst which offsets some of the value given away. More certainty is good. But I don't see any of this increasing the target SP price in the short to medium term. SOU will have to navigate its debt commitments very carefully. Any delays to Phase 1 will leave it needing yet more funds next year.
LOL. Someone had a lot of time on their hands but I like it.
His comments in earlier blogs merely said that BEY was rubbish at organising a farmout and that the loan note would result in a "death spiral" whereby Goodman acquired control of the company. He never suggested Ryan would refuse the lease undertaking, so any claim that he had a crystal ball is revisionist.
Biz Post: Directors of Barryroe Offshore Energy consider winding up firm as it faces insolvency
https://www.businesspost.ie/news/directors-of-barryroe-offshore-energy-consider-winding-up-firm-as-it-faces-insolvency/
As someone who will lose a packet, I thank god this old dog is about to put out of its misery. Successive management have been worse than useless -- their only talent was to play PIs like a fiddle -- and the latest bunch have been the worst of the lot. I don't recall the current CEO putting out one scintilla of information other than what was mandated. I always thought the latest placing was a bad joke, allegedly an "opportunity for shareholders to continue to fully participate in the Barryroe project" which was a sort of strange euphemism for "you will be immediately diluted by 90%". Now it turns out that the placing and EGM were timed for exactly a month before BEY would be completely flat broke. The supreme irony is that the plan was stymied by the equally useless Eamon Ryan. All that remains is for Goodman to buy the whole thing for £1 for some tax avoidance scheme, and the whole pathetic saga will be finally over.
Ryan's ass is well covered by his decision to engage external consultants. I quote:
"I, the, the, we did an assessment including a lot of independent outside experts to give a very independent and a rigorous view. We did not rush this, it wasn't done on a political basis it was done on a purely rational assessment by the department of whether the project was, was able to meet its conditions as set out in the license agreement, a view clearly and strong advice to me that was, was it wasn't and, and, that's part, that wazzizza said, eh, eh, the decision that ..."
He may be a moron but he's a cunning one in the style of Baldrick. No court is going to determine that Ryan was "malevolent". They can only determine if he applied the law as it is written. And that's a problem since the law leaves a lot up to the discretion of the minister. I would think the main argument against Ryan would be that he misapplied the investment cover clause of the guidelines since BEY came up with alternative specific financial arrangements (the loan note) as allowed under section 7. But the onus is on BEY to prove the sufficiency of this and "iut will be at the Department’s sole discretion as to whether such reasoning and evidence is satisfactory" .
But like I said, the cause for pessimism doesn't hinge on any of this. Retail shareholders are getting wiped out regardless.
This is nothing like the Rockhopper case. Nobody in that case disputed that Rockhopper were entitled to a license, or that the Italian government's legislative change amounted to an expropriation. The only thing in dispute was how the lost license should be valued.
Here, Ryan is saying that BEY/LOGP is not entitled to a petroleum lease at all on the basis of financial capacity. A claim for compensation under the ECT would therefore have no chance unless DECC's assessment was first challenged and overturned. A judicial review sounds like a better bet as it might assess whether Ryan invoked 6.2 of the guidelines to the total exclusion of 7.a.
The problem is that the guidelines leave certain things up to the opinion of the minister. How do you argue that the minister has the wrong opinion? The bottom line is that the whole set of exploration legislation was predicated on the government having an open and welcoming attitude to exploration and extraction (as it says itself in the preamble to the legislation).
To be honest, none of it really matters. Retail shareholders were about to get obliterated by the upcoming fund raise. The current state of affairs just means that'll either be delayed for a few years or (more likely) forever. None of them are going to get any money back.
The very act of commissioning an external report was clearly a premeditated ass-covering exercise against accusations of political motivation. It's what government departments are famous for -- shelling out big bucks for a leather-bound consultant's report so that nobody internal is ever held accountable. And since the report was on his desk last June, how could it possibly have factored in Goodman's money which didn't surface until after Ryan's hastily cobbled-together ultimatum issued on the last day of October? His pre-prepared excuse that "it wasn't done on a political basis it was done on a purely rational assessment" sounds like the transparent lies of a child caught with his hand in the cookie jar. It's frustrating that such a dribbling moron holds such sway.
Here's a transcript for those who understandably can't be bothered following the link (carefully proof-read, yes, Ryan really is this scatty):
Cooper: Well, Gearóid from Ballincollig in Cork wants to know why you're blocking the development of the Barryroe gas field to give us independence from fracked gas coming in from the United States.
Ryan: I wrote a letter to the developers last week and it was on the back of an assessment that was done by our department of whether they have the financial capabilities or met all the conditions that were set out in the licensing arrangements to be able to progress to the next stage and our assessment was they were not, and I wrote accordingly ...
Cooper: Sorry, Larry Goodman was financially backing this idea, the Barryroe, are you suggesting Larry Goodman doesn't have the money to do it??
Ryan: I, the, the, we did an assessment including a lot of independent outside experts to give a very independent and a rigorous view. We did not rush this, it wasn't done on a political basis it was done on a purely rational assessment by the department of whether the project was, was able to meet its conditions as set out in the license agreement, a view clearly and strong advice to me that was, was it wasn't and, and, that's part, that wazzizza said, eh, eh, the decision that ...
Cooper: Are you likely to face legal action, though, from the minority partners Lansdowne in relation to that, who say that the money is in place, they have a license or they, or sorry, not a license, but that they had been granted the rights to drill before you banned new exploration? This is a potentially very valuable source of gas to replace what we're going to lose in the next few years from Corrib.
Ryan: Potentially, potentially, there's always, eh, the gas industry and the oil and gas exploration are never certain as to what the outcome is going to be but putting that for aside, what I see the future is, the same companies that have expertise in marine engineering, in exploration, in knowledge of the seabed and so on, that's the expertise we need in what we do know is going to deliver energy in the, particularly in the waters to the south of Cork and Waterford where we have, that'll be the next round of auctions for offshore wind in developing wind in the south and in the west and I think the same capital and the same capability which these companies have in abundance needs to used in that energy future rather than one we know is coming to and end which we cannot afford as a world to keep exploring and finding fossil fuels.
Cooper: But we have immediate needs as well and wind energy is not really going to start kicking in from the offshore until about 2030. What about an LPG terminal in Kerry where you have American investors who want to do it very very quickly, a lot of lot of local support, so what's your position now on importing the LPG, eh LNG?
... and with this change of tack the Barryroe moment has passed.
Thanks for that. Catch up show just went up. Earlier there was a segment on "Why are residential electricity prices up 51% while wholesale rates are down 40%" ... you can find that here:
https://www.goloudplayer.com/radio/schedule/today-fm/the-last-word-with-matt-cooper-145#podcasts
Then you can find The Last Word show here:
https://www.goloudplayer.com/radio/schedule/today-fm/the-last-word-with-matt-cooper-145#listen-back
The segment on electricity prices starts at 1:05:40 and leads straight into the Barryroe item.
Given a one-sentence summary of the background, this is what ChatGPT came up with:
In a realm where tales of greed reside,
There lived a man named Parsons, full of pride.
A CEO he was, with charm and flair,
But his deeds would lead to a tale of despair.
With words like honey, he spun his tale,
Hyping a gas company with promises, so frail.
Investors flocked, their hopes held high,
As Parsons painted dreams across the sky.
He spoke of riches buried deep below,
Natural gas reserves that would surely grow.
The shares soared high on his silver tongue,
And for a while, it seemed the man had won.
But alas, the truth began to unfold,
As the foundation of his claims began to erode.
The gas reserves were not as grand as told,
And doubts among the investors soon took hold.
Like a fleeting mirage, the riches disappeared,
As the share price plummeted, leaving many seared.
Parsons, the mastermind behind the ruse,
Left the crumbling ship, his reputation bruised.
His words, once persuasive, now rang hollow,
Leaving behind a trail of sorrow to follow.
Investors wept, their dreams shattered and lost,
While Parsons retreated, counting his ill-gotten cost.
Oh, the man named Parsons, a cautionary tale,
Of greed and deceit that caused many to fail.
Let his story be a lesson for us all,
To seek truth and honesty, lest we too fall.
For in the pursuit of fortune and fame,
Integrity must remain, untainted by shame.
And though Parsons may fade into obscurity,
His legacy stands as a reminder of our own humanity.
That electoral reasoning doesn't stack up. Sinn Fein will be the biggest party after the next election and will have first option on forming a government, but it doesn't automatically follow that they will manage to do so. If they do, it will be with not only the Greens but a legion of loonie lefties who would give Leon Trotsky a run for his money. Here's how the numbers could stack up:
https://www.irishtimes.com/opinion/2022/12/09/stephen-collins-the-chances-of-sinn-fein-leading-the-next-government-are-slimmer-than-many-realise/
And yes, the Greens are perfectly willing to go into government with whoever promotes their policies, including Sinn Fein:
https://www.independent.ie/irish-news/politics/eamon-ryan-confirms-the-green-party-would-be-open-to-going-into-government-with-sinn-fein-after-next-election/42317956.html
FF and FG could end up in government again, but almost certainly with the Greens as king makers. In short, as the fourth largest party the Greens will probably be back in government for the foreseeable. They are more coalition-friendly than the other parties: basically they will do anything to stay in power. It's unlikely they will suffer the same electoral wipeout as they did in 2011 -- they might be tainted by association with the current government but their electoral support has soared in the past few years. Joe Public is also not savvy enough to properly connect the dots between Green policies and rising energy costs. Quite apart from that, another dose of FF + FG + Greens -- no matter how unattractive -- is probably the least worst option for BEY compared to a Sinn Fein alternative. As a populist hard left party, SF is as green as its electorate want it to be, and have amply demonstrated their opposition to Barryroe and Inishkea:
https://www.oireachtas.ie/en/debates/debate/dail/2022-06-15/8/
https://www.independent.ie/regionals/cork/opinion/theres-no-case-for-drilling-for-oil-off-our-coast-says-cork-city-councillor/41775073.html
Nope, BEY's main hope will be to win a legal contest fair and square on its merits and not expect Ryan to conveniently disappear off into the sunset. However, this will all take many years to play out and, as I've said, I expect there to be only peanuts left for PIs no matter which way it works out.
Let's face it, PIs here were fairly cattle trucked even before this latest development. The amount of dilution that was about to be visited upon us would have wiped us out anyway. The share placement and offer always struck me as a ruse to squeeze a final few million out of PIs before steamrollering them. Maybe the money was wanted to pay for legals in the case that the LU wasn't granted. Remember, the big boyz didn't have to put *their* cash in until *after* the LU landed.
The final money grab was probably interrupted by inside news of the impending LU refusal. The April 27th RNS never sounded very credible -- you have a paperwork holdup five days before money was due to leave shareholder accounts, and three weeks later it's still not resolved? Puhhleeazzz. Even former management never showed that much incompetence when taking PIs money. On the other hand they weren't going to risk jail by taking PIs' money when there was already inside info about the LU refusal.
Barryroe has been jinxed since the TransOcean debacle on the appraisal drill a dozen years ago. It's amazing it's taken this long for the mery-go-round to stop.
Yeah, one suspects that BEY management knew this decision was in the works for some time. If they had done the paperwork at the time originally announced, they would have collected up to £20m from PIs just before the LU decision dropped.
Attention must now turn to Ryan's outrageous decision. He had a report on the financial viability of BEY last June, waited until September to issue a three week ultimatum, and now -- a whole year later -- turns them down. Nobody could possibly believe he is being above board here, instead of ideologically motivated. The question is what does BEY have in the armory to fight this with? ... not a whole lot it would seem.
Why would anyone in their right mind buy at 2.5p when there are potentially TEN BILLION shares and warrants up for grabs at 1.5c ? There's no possibility of turning a profit on that until BEY not only drill an appraisal well but are fully funded and engaged in extensive field development (by which time they will be even more diluted). That's end of the decade, if ever. There's no future for retail investors here whatsoever. Goodman's heirs might do ok out of it.
Bitter experience suggests that when the BEY BOD are keeping schtum things are probably even worse than you imagine.
"A 20p share price should be justifiable on the basis of Phase 2 being in place. The DCF forecast cash flow alone points to a market cap of £400M+"
Sound's unrealistic. The SP Angel target for Phase 2 is 7.3p, with further dilution on the cards. A 20p share price might happen if SOU discovered an additional Tcf of recoverable gas but that's many, many years away if ever. I would guess even 7p is several years away.