Member Info for ps200306

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.

"2p or not £2 ….very soon that’s the question ? Buy Buy Buy Buy Buy Buy Buy before it does !!"

I see we have a new chief ramper and they're getting lots of upvotes :-\
Talk about delusions in the desert! Two quid??? SP Angel values the whole of Phase 1 and Phase 2 at 7p per share! And it's not clear what assumptions they've made about the remaining Phase 2 finance requirements. I've no doubt when the Attijariwafa deal closes there will be people buying at 3p who wouldn't buy at 1.5p. SOU may get a good raise on the back of it too. It's also possible they have an "oven ready deal" on the remaining finance just waiting for the senior debt to be finalised. Given SOU's history, though, I would not be remotely surprised to find we're not even off the starting blocks with the farmout. In any event there would be further due diligence to go through. And I can't remotely imagine someone putting up $60m for SOU's share of remaining Phase 2 finance, PLUS a free carry on three drills, without covering their a$$ is the case of drilling failure. That means getting enough of a chunk of Phase 2 revenue to cover their costs, in other words a ton more equity dilution. I also expect the whole thing to drag on for a minimum of another year before Phase 2 construction even begins. Short term price spike and gradual drift back down, with everyone scratching their heads as usual as to why the SP isn't higher. Just my pessimistic tuppence worth which I know everyone's dying to hear :) :) :)

The farm out, of course, is a lot more than just icing on the cake. It's needed to raise SOU's 75% share of the $80m balance of phase 2 development costs. The Attijariwafa decision, when it comes, also won't free up any immediate money for G&A. So there is definitely a raise coming in the next couple of months. If Graham times it right he might be able to piggyback on shareholder enthusiasm after the senior debt facility announcement. In addition to G&A he will want to raise enough to cover at least the first bond amortisation payment due next December. One assumes another 10-15% or so dilution (last one was 12%). That will reduce the SP Angel target price to a little over 6p (to be achieved sometime between now and first phase 2 gas -- in 2027 if I was to hazard a guess) . The interest rate environment has changed a lot since their last note in June 2022, don't know if that also reduces the valuation. A successful three well drilling program would enhance things of course.

Q4. Will PIs stump up 20m with the Damoclean sword of 90% dilution hanging over them even if the LU is granted? With the best case outcome, they might double their outlay by 2030. It's meagre returns, a long time to wait, and a high risk to take on something that has proven itself to be a total turkey for most of its history. Especially when it's far from clear that management gives a fig what happens to them.

My reckoning is that to retain your same share of the company you'd have to increase your holding by a factor of 7 (even after participating in the offer).

The warrants won't raise any money for years. Nobody in their right minds would exercise them until field development was definitely happening. So BEY raises 60m through the CLN, placing and offer. 40m gets spent on the appraisal well, assuming that's the real cost and there are no overruns (which there will be -- for instance, DECC continuing to drag their heals and we were told last time round it would take a year just to produce an environmental impact statement). A third of what's left goes on interest on the CLN alone. Subtract two years of salaries and G&A (which runs at 2.5m / yr )and you're down to well under 10m in the kitty if you're lucky.

What happens next? There is now 200m needed for a limited early field development. Where's that coming from? (Forget the standard answer of "people will be queueing up to lend us money" -- they never have and never will). SpotOn wanted 50% equity just for finding loans for that amount. With the best will in the world, I see PIs being diluted 95% here. I could see a billion dollar valuation being needed to get the share price back to 5c. The question now is whether you commit more funds in advance for an extremely long shot at at 2 or 3 bagger? Personally, have been down that road once too often before coming too late to the realisation that small shareholders are viewed as expendable. Someone mentioned raffle tickets. That's a pretty good description of what this is.

You have to admire the sheer brass neck of the current management. Surely even the shameless O'Reilly would have been blushing under his permatan to have engaged in such shenanigans. Another €20m raise on top of the Vevan et al. €40m. The proposed total shares plus warrants now stands at 10 billion!!! That's on top of the 1.15 billion currently on issue.

The Open Offer is a fig leaf. While the €8m notionally allows retail investors to buy 0.53 billion shares (about 10% of the company), they can only buy one for each 6 existing shares held. They would have to collectively hold 3.1 billion existing shares which -- it doesn't take a genius to work out -- is about three times the total number of shares currently on issue, i.e. it's impossible. That said, they can get more if they're mad enough to apply for shares not taken up by others unpersuaded by this "deal".

And this money has to be forked out *before* the EGM and with not a sniff of news about the lease undertaking. Remind me what the LOGP chairman said back in December? "With the greatly increased concern regarding energy security for Ireland, we are optimistic of an award being made early in the new year". Clearly even those you'd think might have an inside track on proceedings are talking out of their behinds.

The potential 90% dilution for retail shareholders is actually optimistic. There is no chance of an appraisal well being drilled by December 2024 when the CLN falls due. 1.5c is the *maximum* conversion price Vevan et al. have to pay. What if BEY is trading at 0.5c then? They'd be entitled to 20 BILLION shares + warrants!

I have to smile wryly about the commentators who thought the Vevan involvement was a master stroke that put DECC in an indefensible position. Of course the money would never actually be drawn down because the deal was so obviously awful. Other funders would step in to offer better terms. I said at the time of the "death spiral" RNS:

"There's dilution ... and then there's 90% dilution. The most optimistic interpretation is that Goodman has been gifted 10% for making DECC a proposition they can't refuse, but the needed funds will actually be raised from elsewhere (not forgetting that PVR has singularly failed at this for the past decade). One can only hope that the other big holders will want to protect their share and the smallies can ride their coattails. Otherwise it's curtains."

A few people berated me for failing to spot the genius of the move, and of *course* the funds would actually come from much more favorable sources. I presume we now agree that it's worse than anyone could have imagined and actually *IS* curtains. For some on here, an unlikely billion dollar valuation of the future company post-dilution wouldn't even see them breaking even. It's been a long time coming but we have officially run out of road.

The thing is, I've never been negative about the value of SOU's assets in the ground (apart from when they got cut in half by the "mix-up" over the famous "value of a tcf to SOU", although somewhat ameliorated by the acquisition of the Schlumberger share). But there's a difference between the "value to SOU" and the value to shareholders given the drip-drip of dilution. We know there is a funding gap post-April. We know there is the first bondholder amortization payment due this on December 21st this year. We know there is a very chunky payout due to ItalFluid on Phase 1 completion (which is not, as far as I know, covered by the Afriquia Gaz loan, but correct me if I'm wrong). It's not clear when there will first be revenue from Phase 1 that will actually be bankable by SOU.

The bondholders got a pretty sweet deal in the last restructuring (5% annual interest, 140 million shares + 100 million warrants). Getting closer to Phase 1 completion they are sure to have even bigger dollar signs in their eyes and will look to take advantage of SOU's possible inability to pay in December (c. $2m of the non-deferred part of interest + amortization).

I've no doubt the Attijariwafa negotiations are real and serious (to Graham's credit) but -- as I predicted last year to the usual cries of negativity -- Phase 2 FID this side of 2024 is looking dubious. That puts Phase 2 revenue out in 2026 ... very welcome but much too late to make any difference to these short term funding gaps. Anyone expecting substantial gains on the mere whiff of good news is also perhaps ignoring that there are hundreds of millions of shares waiting to be dumped on the market like hot potatoes by other shareholders just looking to get out with their shirts. Along with outstanding warrants that will be quite a drag on SP appreciation.

There is still value here for those with a low average and time on their hands. "Dreams in the desert" is probably over-egging it.

KTF: "filtered him years ago. it will be the usual negative BS."

LOL. How could you know what my usual posts are if you filtered me years ago? Glad to see you are still reading each one.

"I guess when you are forced to delete all your old posts and your old username because of alleged slander you might be a little bit bitter. anyone want to guess what month and year old trellis started posting? Posting Since 2003 06 :)"

Well, that's certainly a new twist. I've never been accused of being trellis before. Truly bizarre.

"further - I'm in profit here. I wonder if ps (or you, or any of the other negative posters) are?"

Unlike you, I never made any secret of my holdings. Even posted screenshots. I sold out the vast majority of it two years ago, almost to the day. The share price was almost identical to what it is today, in spite of that other chief ramper STD123 berating me for selling out too early. He's gone awfully quiet, having had TWO opportunities to get out at breakeven and now being down 50% (which is still a lot better than many here).

As for you, I challenge anyone to figure out how you buy "a few thousand worth" at 80p, and now have a million shares at an average of 1.5p. Sorry, it's kind of hard to make that stack up no matter how much you torture a spreadsheet. Also, that makes your holding worth 15k ... is it really worth making as much noise as you do over such a paltry amount?

That's a rhetorical question too, since you won't be reading this message. No really, you won't, scout's honour, not a single word. And you won't be posting a sarcastic reply while still pretending you didn't read it. No sirreee. ;-)

The April extension is probably to line up with the fund raise that SOU will need by then. Every positive RNS for the past several years has been accompanied by a fund raise, more dilution, and a gradual drift back to the doldrums. Every RNS and random share price fluctuation is greeted by posters (who ought to know better by now) with witterings about SOU being a "leaky ship". And yet, even with phase one funding in place and construction half completed the share price has been dragging along the bottom for three years now. There is only one truism about SOU both during and after the Parsons era -- they cannot meet a deadline to save their lives and going a year over on a six month project is not remotely out of the ordinary. Three quarters of the original value of the horst has been frittered away by dilution needed to keep the lights on. For now, the wheels are still turning but how much air is going to be left in the tyres when revenue finally flows? Most exasperating company ever.

"if I was happy to pile in at 60-70-80p seems crazy not to sub 2p….the gas is still there!"

The discovered gas was never worth 60-70-80p, that was predicated on potential further multi tcf discoveries. The actual gas in the ground was worth 27p at max, but subsequently got diluted to 7p/share. We are still depending on lack of further dilution for it to be worth even that.

P.S. when I say "commenters on ADVFN" that's probably you? Very similar username.

"By the same logic, why would they dilute their own 50% which represents millions in past investments at higher prices too?"

If Larry's money gets drawn down we get something like an 87% dilution (including warrants it's 2.5 shares for each 1.5c of his €40m). Getting in on a sub-allocation of this is the only way for the big shareholders to save their existing investment. That option is unlikely to be available to retail shareholders so it's effectively a chance to allow smallies to be diluted out of existence while the biggies are protected. The biggies between them have the vote share to carry this at an EGM.

I've no doubt that if the LU was granted and appraisal drilling was successful you could see a massive valuation increase, anything from 10x to 30x eventually. But that only gets those who have been diluted by ~90% back to current prices (and many are under water at that price), while the big shareholders retain their existing share for a modest outlay. (They also don't have to commit any money until the LU is granted and then only 40%, with 60% after the field is appraised).

"it makes a great investment case for an institution to take a share of that 10%, even if none of the loan is also converted."

I've been assuming that the 10% goes to Larry even if the loan itself get divvied up among other players, as his "reward" for backing the loan note when it was needed back in November. But that's a minor point in the bigger scheme of things.

The question is whether the loan gets drawn down at all. Commenters over on ADVFN vehemently disagree with me that it probably will. I can't see why it wouldn't be. Even if there was an alternative source of funding (which there currently isn't) why wouldn't the big shareholders take the opportunity to wipe out the retail holders at relatively modest cost and low risk? They're not running a charity and, as you say, expect a multibagger.

Far as I can see, this latest RNS marks the end of the road for retail shareholders. The previous RNS about the "death spiral" convertible loan note sees Vevan stand to gain control of 90% of BEY, which would be catastrophically bad for existing shareholders. That's even ignoring the €4m/year interest on the loan which would probably end up getting converted into shares. Commenters at the time were saying that *of course* the loan note would never be drawn down because the existing shareholders would never countenance such a bad deal and other funders would be flocking to participate on better terms.

The latest RNS looks very much like the institutional holders intend to get a sub-allocated slice of the Vevan deal on the same terms. Between them they own more than 50% of BEY so would be able to ram this through at an EGM. Retail shareholders won't be able to do anything about the move, which will dilute them out of existence. For them it's game over, ball burst.

The last delay on Phase 2 financing pushed it out by six weeks. Six weeks later it's now another three months. We were told "the parties will seek to negotiate binding terms for the Financing within 120 days of entry of the Agreement". The latest deadline makes that 265 days. How do you run 120% over budget on a four month project? It's an extremely poor show. This update also introduces an air of tentativeness about the Attijariwafa negotiations that wasn't mentioned before -- people still only "familiarising" themselves with the project at this late stage.

It has shades of the Phase 1 financing which eventually took two years to get from discussions with funders to FID (and that was after a previous failed funding attempt that was supposed to see first LNG in 2021). Nothing happens quickly with SOU. I'm sure the devil's in the details but their project estimation skills truly suck.

Goodman is no idiot. His investment in BEY is insanely good for him and, in all likelihood, curtains for other investors. The loan arrangement with Goodman is a fixed price convertible instrument, known in the industry as a "death spiral bond". See a brief description at 10:43 in this video:

https://www.youtube.com/watch?v=iisPX_xVMV8&t=643s

Goodman gets a rollicking good 10% pa return on his $40m. If the LU is not granted and BEY goes to litigation they will need Goodman's money to fund it. He probably reckons he can get his money back with profit if things go this route. Either way, if we get to the end of 2024 and Goodman's money has been drawn down, he can short the ar$e out of BEY. This is a hedge, because if he loses on his short he makes up with the extra value of the shares that he gets at a low fixed price. If the short drives the SP down Goodman can keep shorting -- this is the so-called death spiral -- because he knows he will both make money on the short *and* effectively own the company as he gets to convert his $40m at the lower price.

The only way BEY can avoid a Goodman takeover is to not take his money. In that event he has still clocked up 10% of the company essentially for free. But BEY are still left needing another source of funding, something they have singularly failed to find for the past decade. I know some here think things will be different this time. Maybe, maybe not. Every million they take off Goodman -- even just to keep the lights on and the execs paid -- can be leveraged up to more than 2% of the company owned by Goodman, even without the short selling trick. I would say the odds of small investors coming out of this with something worthwhile are narrowing.

Spending $6m up front to save $12.5m sounds reasonable, if they can afford it out of the Afriquia loan. At the 6% coupon on the loan it'll cost them c. $11m over ten years, so not as big a saving as it initially sounds ... but still sensible. Also, presuming the JV partners have to come up with some of the money the long term cost to SOU may be only $8m.

If Goodman's money is drawn down and he eventually opted for conversion + warrants (and why wouldn't he) he would own nigh on 90% of the stock for the cost of a single appraisal well. Fantastic deal for him. Pretty raw for current shareholders. Some here obviously think Goodman is being handed 10% of the company in return for providing a backstop to get the LU over the line. The question is -- why would anyone else farm in on *worse* terms than Goodman was offered?

The continuing share price slide is remarkable -- down to a third of what it was as recently as June. It may be no more than a reflection of the deteriorating macroeconomic situation. However, I still maintain that the future prospects are all about the dilution. In June SOU issued 200m shares to raise £4 million. That only keeps the lights on until next April (as per RNS of 08-Jun). Raising the same amount at current SP would represent a further 33% dilution. If the eventual target SP fell pro rata, it would be down to under 5p. That is a fifth of the estimated value when SOU first announced plans to monetise the assets and, despite the good (but slow) progress that has been made, reflects the creeping dilution ever since. Time has not been on SOU's side.