Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Manyana: "When did Providence apply for a petroleum license? It's current request is under the standard exploration license until they have drilled the exploratory well at "K". If that is successful they will then apply for a petroleum license. Until then they are subject to standard exploration license SEL. 1/11."
Providence's exploration license expired on July 13th, 2021. They submitted an application for a Petroleum Lease Undertaking in April 2021, which is under consideration. That is the only "request" they have outstanding. If they are to drill an appraisal (not exploratory) well at site K, it will be under the terms of the Petroleum Lease Undertaking. They cannot even *apply* to drill anything until the lease undertaking is granted.
If you're not clear on this, what do you imagine they are waiting for? Especially since, according to you, they were set to discover lots of oil during a seabed sonar survey (even though that's impossible), and a single well at site K can unlock vast quantities of oil (even though PVR themselves say they need 10 wells -- 5 production and 5 injection -- just for the first phase of an initial field development).
Manyana: "I mentioned the 1992 document which was further clarification to the original law which was set years prior to that."
The 1992 document is not a statutory instrument. It does not have the status of law at all, let alone being "the official and current law". You suggested Varadkar might "like to point out where his contention [about needing financial backing] is covered in the Licensing Terms for Offshore Oil and Gas Exploration and Development 1992, which is the official and current law". I showed you that it's there in section 3. It's not "the law", but it doesn't matter because the 1960 legislation already grants the minister the right to do everything that's in the 1992 document. If it didn't, the 1992 document would be illegal.
Manyana: "But one element in that original document, which was a law, stated 'such lease shall be made subject to the payment to the Minister of such moneys ....' ... In other words, if the minister was being paid a fee for the license, it was a legal entity that the minister was not the custodian of the lease unless the lessee did something illegal."
You will find in Chapter 3 section 6 of the legislation that there is a clear distinction between:
a) the licensee under an exploration licence, a petroleum prospecting licence or a reserved area licence which is for the time being in force and includes that area,
and
b) the lessee under a petroleum lease which has not expired and which includes that area.
Each term is then separately defined -- petroleum prospecting licenses (section 9), petroleum lease undertakings (section 10), and petroleum leases (section 13). You are quoting section 13.
PVR DOES NOT HAVE a petroleum lease, has never had a petroleum lease, and has never paid money for a petroleum lease. It paid for an exploration license, which expired in July 2021 and at the end of which "the Licensee is required to either forfeit the licence or apply to the Minister for a successor authorisation, which could be either a Lease Undertaking or a Petroleum Lease".
Manyana: "So, has Providence been paying a fee for the Barryroe license, is it still paying a fee for the license? If so, Ryan will end up with a big bill for all the payments Providence has paid over the years if he tries to crush the lease".
THEY DO NOT *HAVE* A LEASE. What's more, the terms of the extension of the Barryroe exploration license to July 2021 (previously 2019) included a commitment to assess the potential of the underlying Jurassic which, as far as I'm aware, they never did due to the APEC failure. So PVR could be accused of not even carrying out their commitments under the exploration license, let alone not qualifying for a lease undertaking by way of lack of financial resources which the minister is entirely within his rights to consider.
PVR can certainly make the case that they should have the right to progress their involvement in Barryroe through its normal course, but it is by no means a slam dunk.
Manyana: "And Veradkar is talking through his hat when he says " “My understanding is that to get the renewal, part of the process is that you have the financial backing to actually do it,” Perhaps he would like to point out where his contention is covered in the "Licensing Terms for Offshore Oil and Gas Exploration and Development 1992" which is the official and current law."
The Licensing Terms are not a statutory instrument so they are not any law at all, let alone "the official and current law". As to Varadkar's point, apart from nitpicking about the difference between "financial backing" and "financial resources available", he is quite correct:
1.5 The receipt of an application will not create any obligation on the part of the Minister to grant any authorisation.
3. In considering an application the Minister will take the following into account having regard to the authorisation applied for:
(a) the work programme proposed by the applicant;
(b) the technical competence and offshore experience of the applicant;
(c) the financial resources available to the applicant; and
(d) where relevant, previous performance by the applicant under any authorisations to which the applicant has been a party
Manyana: "to think that since 2012, with all the latest technology in seismic that they do not know a lot more now than they did back then when they declared it commercial would be unthinkable."
There has been no new seismic on Barryroe since 2011. In any event it is no guarantee of success -- they had the same sort of 3D seismic for Druid/Drombeg, which was a complete dud. That's why appraisal drilling is needed in combination with seismic. The 2012 48/24-10z well established the presence of an oil-bearing interval, and the seismic allows the areal extent of that vertical interval to be modeled.
Manyana: "What I believe is that the number of wells has been the issue. Barryroe was original defined as a "shallow" field (25m) covering a large amount of ground that would have needed 24 wells due to the possibility of non-contingency so the current assessment, in my opinion, is that they have assessed that the K area of the Barryroe field is the "sweet" spot which will mean it will supply huge amounts from a single well, hence the appraisal."
This is an impossibility. The assessed volumes are based on the vertical and areal extents of the oil bearing interval, and the porosity and oil saturation of the rocks. The productivity potential of any given well then also depends on the permeability of the rocks and viscosity of the oil. Even if you could get the whole billion barrels out of one well (which you can't) but it was at 10,000 bbl/day, it would be no use. Providence themselves estimated that a single 1000 foot horizontal well could do 11,000 bopd under natural lift. Any real development plan would have to be doing ten times that at peak. The only question is what is the smallest commercially viable early field development scheme
What does one say about today? Great news for the company, cannot deny that Graham is solidly delivering on promise!
54 million traded, 6% drop? WTF? How do you begin to make sense of that? If you bought in on the mid-April operational update on Phase 2 financing, you are down 50%?!
Still, at this price has to be a potential multibagger for any brave soul willing and able to take the plunge. Not going to know until the dust settles from Phase 2 financing and the final dilution picture emerges. I still find it hard to believe that's going to be this year -- Attijariwafa is only a part (an important one!) of what sounds like a labyrinthine arrangement. A lot of other pieces will all have to line up and be triggered together.
That Oireachtas debate was painful, and a good indicator of how screwed the country is. Everyone agrees the renewables transition is not working, or at least going too slowly, but there is no Plan B.
"The Iron Law of Climate Policy: When policies focused on economic growth confront policies focused on emissions reductions, it is economic growth that will win out every time."
https://rogerpielkejr.substack.com/p/the-iron-law-of-climate-policy
It's a red day across the markets. To be honest, I feel gratified that anybody took enough notice of PVR that it went down in tandem.
Thanks Fernan10, your analysis makes sense. As well as the SOTP valuation, SP Angel says that a yield-based valuation would make sense in the future. You can see their calculations on page 9. They show a yield of 26% based on today's share price. It is left open as to what a reasonable yield percentage would be, and therefore what multiplier for today's price. But there again, it depends on the number of shares on issue. Under both methods of calculation, if the number of shares goes from ~1.7 bn to 2.5 bn without commensurate increase in assets, the target price goes from 8.2p to ~5.6p.
My bad -- I took the market cap values on page 9 and divided by the share prices. But one's in dollars and one's in GBp. It does indeed look more like 1.7 bn shares. But then a dilution to 2.5 bn shares could mean a third off the target price? i.e. 5.6p instead of 8.2p. Have I got this right?
The SP Angel research note has some dilution factored into the 8.2p target price (which I didn't notice first time round). Taking the share price and market cap rows from the table on page 9 of their note, they are allowing for 1.76 bn shares initially, rising to 2.24 bn in 2023. Remains to be seen if they can keep a lid on equity dilution beyond that.
"Sounds like the Greens would welcome a fuel shortage"
That's not even a joke. I attended a meeting organised by the Green party many years ago to hear a talk given by a retired petroleum geologist from BP. His topic was "Peak Oil", back when that was a topical thing, and how it would result in the destruction of the global economy and widespread famine and death. One of the party members opined, and this is a direct quote: "this is good for our agenda because we want to get people back on their bicycles and cycling to work".
Indo: "People will be ordered to work from home in the event of a major fuel crisis sparked by the war in Ukraine, under secret Government emergency plans".
https://www.independent.ie/irish-news/politics/return-of-work-from-home-plan-to-save-fuel-in-event-of-crisis-caused-by-ukraine-war-41724210.html
Good article which, though written in an American context, sums up our situation and Ryan's attitude to a tee ...
http://www.rrapier.com/2022/06/we-need-win-win-energy-policies/
"Energy demand just isn’t that elastic in the short term, so people pay what they have to pay to get to work ... Hence, what we are seeing right now is one of the possible consequences of the energy transition. When alternatives don’t scale up fast enough to fill the gap between oil supply and demand, oil prices skyrocket. I know that many people who have opposed any additional fossil fuel development saw a different scenario unfolding. They believed that alternatives would scale up fast enough, and that we wouldn’t need the oil."
"Here’s the thing, though. If we invest in fossil fuel development — and we don’t need the oil and gas because alternatives do scale up rapidly — that’s a loss the fossil fuel companies would take. That is the risk they are taking, for the potential reward that demand will be there in the future. What’s the downside of continuing to support our domestic oil industry? That it will simply continue our addiction to fossil fuels?"
Steady on there. This was signposted in the annual report just seven weeks ago:
"As detailed in note 1 on page 70, the Company’s cash flow
forecasts for the next twelve-month period to March 2023,
indicate that additional funding will be required to enable the
Company to meet its obligations. These conditions, along
with other matters described in note 1, indicates existence of
a material uncertainty on the Company’s ability to continue
as going concern."
I pointed this out then amidst a general ramp fest and to general shrieks of protest from chief rampers bigbench and sharetrader123. Go back and read the forum from Apr 20th (the day after the report and the occasion of a very upbeat GL interview with Proactive) to get a flavour. It wasn't just me. Fernan10 also posted a cautionary note, estimating about $18m of unfunded commitments (including Annoual drill and Sidi seismic) BEFORE first revenue from LNG. We've just seen the first $5m of that raised.
There are only two ways for SOU to raise the money it needs -- debt or equity dilution. There is no other way. Nor is there any point complaining about those certainties. 200 million new shares is not out of the ordinary compared to any of the last several years. The only somewhat regrettable thing is that it has to be done now, at such a low SP. That is why I will keep on repeating ad nauseam, watch the dilution like a hawk. SOU is still on the same path to monetisation as it was seven weeks ago, and its prospects look reasonably good. The value of that to existing shareholders depends on how the coffers are managed over the next 18 months.
Malcy says:
"This is good news for Sound who have made this first public raise in two years and with a very good addition to the register from institutions and of course Afriquia Gas. The money will enable them to prepare for FID, new activities and corporate G&A. "
"Before today’s raise Sound had achieved a very creditable 133% rise in the share price in less than a year and therefore justifies the 20% discount it is money that will ensure the future is very strong for Sound. I am confident that management who recently held a great investor presentation will do well in the coming months."
Uh, Malcs, that was 133% from an utterly abysmal 1.3p rock bottom, and they've now shed half of it. This is the drongo who said 19p was a transformative deal (which fell through, of course) two years ago. Seems like Malcy has ridden this one all the way down along with the rest of us ... though in his case, not with his money.
"I was under the impression that funding was trivial. That banks were beating down the door to lend us ..."
If you have that impression, it was not gleaned from anything GL said. I give him a plenty hard time, but I don't accuse him of saying something he didn't. What he *actually* told you was that SOU have battered their operating costs down to 300k/month, so this raise of 4m for the next year or so should be in line with expectations. In retrospect, GL was doing a bit of advance a$$ covering at the Q&A.
Nor would I expect this to be the last time SOU will have to tap new equity. I have to admit I once naively thought the $18m Afriquia loan would cover SOU's G&A up to first LNG, but it became very clear if you've studied the RNS's that this is wholly tied to project construction costs and can only be drawn down on that basis.
No, it's only the punters on here who have come up with the syllogism: "gas is really needed, we have gas, therefore we are really needed". The logic is flawed. Private lending institutions are in it for the money, like any business. They aren't forking out $200m for the good of SOU shareholders, but to extract maximum value for themselves. Expect all negotiations to be tortuous. (And, IMHO, to stretch well beyond the end of this year).
Hmmm. The RNS makes soothing noises about Phase 2. On a positive note, the director participation indicates a certain level of confidence. On the downside, this isn't really about Phase 2 but basically keeping the lights on ("INCLUDING enabling pre-development work up to a final investment decision on our Phase 2 gas pipeline development"). And another 12+% of existing existing shareholder equity bites the dust. The SP Angel target valuation is predicated on the existing number of shares in issue as outlined in their research note of last month. One can infer that the target price now goes from 8.2p to c. 7p. As I said before, watch the dilution like a hawk or someone else is gonna eat your lunch.
Fault lines starting to show between Ryan, government, and regulator:
Indo: "Leo Varadkar defends meeting LNG developers as Eamon Ryan insists the gas terminal should not proceed. Mr Varadkar said the meeting was “permissible” and would take place in the coming weeks. His move drives a further wedge between him and Environment Minister Eamon Ryan... Mr Ryan said the energy crisis and moves at EU level had not caused him to rethink his position on LNG. He said the focus must be on rapidly developing offshore wind energy. “My thinking [on LNG] hasn’t changed,” he said."
https://www.independent.ie/news/environment/leo-varadkar-defends-meeting-lng-developers-as-eamon-ryan-insists-the-gas-terminal-should-not-proceed-41716141.html
Biz Post: "Regulator offers to incentivise LNG terminals to boost ‘security of supply’. The Commission for the Regulation of Utilities has said it would allow a cut in the charges for any LNG facilities adding gas onto the national network... But Eamon Ryan, the Minister for the Environment, is opposed to the project as he believes it could lock the state into the use of fossil fuels for decades to come."
https://www.businesspost.ie/politics/regulator-offers-to-incentivise-lng-terminals-to-boost-security-of-supply/
If Ryan is this intransigent on LNG which everyone is telling him is needed, I can't see much chance of him bending on Barryroe.
My caution about the timescale for Phase 2 FID is simply based on observing Phase 1. The finance discussions with Afriquia Gaz were ongoing very early in GL's tenure. It took nearly two years to get to FID from that point. The need for gas was no less urgent, customers were lined up, it was low risk, and it was an order of magnitude cheaper than Phase 2.
Phase 2 is technically low risk, but there's likely to be a larger number of parties to the financing, each with their own terms to be negotiated and a lot of I's and T's to be dotted and crossed. I could be completely wrong, but then it'll only take 6 months to find out ;-)