Member Info for ps200306

Pardon if this is a double post but previous seems to have disappeared.

It's worse than that. LNG plant lease cost is $36,000/day or $13m/year. SOU's share of *net* revenue is $8.8m. Taking an industry P/E average of 17, that's a valuation of $151m.

If you include the 245m warrants issued last year and a further 159m new shares that are part of the proposed gas purchase agreement, that gives over 1.7 bn shares on issue. Value per share is a little over 8p.

SOU will also -- depending on tax bill -- have debts of $50m to $65m. That's six to eight years of revenue. And it will still have to raise money for pipeline and/or further drilling, with likely further dilution. In addition to my misgivings about whether the deal will actually be done, these calculations led mt to conclude that the upside is not worth the risk even in the *best* case.

It's worse than that. 4 million mcf at $8 is indeed $32m. However, the LNG plant lease cost is $13k/day or $13.1m/year. Net revenue x 47% is $8.8m to SOU. Take an industry average of 17 P/E ratio, values SOU at $151m. If you include 245m warrants issued last year PLUS 159m new shares that are part of the gas purchase deal, SOU will have 1.73 bn shares on issue. That works out a little over 8p/share.

SOU will also still have the bond + loan to repay, and possibly the tax bill. That means debts of $50m - $65m -- six to eight years of revenue. And it still has to raise further cash for pipeline or drilling or both. Whatever my misgivings about whether the LNG deal gets done, the upside even in the best case is not sufficient to justify the risk (in my opinion).

db71, I am indeed negative, that's why I sold 95% of my holding here with excruciating losses. But I still probably have more money sunk in this than many on here, and it's on behalf of an impecunious family member who can't afford to lose it so I am not engaging in schadenfreude. You are right -- the proposed gas purchase agreement involves a $13.5 loan to SOU and a further £2m equity subscription. That will more than cover SOU's commitment to ItalFluid and working capital to take it through to first revenue. My observation is simple: the resolution of the tax and bond issues will precede any deal being closed because nobody is going to deal with a company that is not a going concern. Graham has provided zero updates on either of those issues which have been live for six months, other than to say the bond would be sorted (and I quote) "sooner rather than later". It hasn't been sorted, and Graham more or less announced today that it wouldn't be by the deadline. That doesn't mean it won't be sorted sometime. I hope it is. I just wasn't prepared to continue letting my money ride on it, when there are opportunities elsewhere. I also don't believe SOU's valuation will exceed 8p even if the gas flows two years from now. Additional revenues are years further out beyond that. That's just my opinion, others will have to come to their own conclusions, and I wish them the very best.

Rubber, it doesn't say that. It's a contract between ItalFluid and its lenders. There's no contract signed between SOU and ItalFluid, as Graham told you today. Any bank loan to ItalFluid will also be contingent on that SOU contract, which in turn will depend on SOU showing how it's going to avoid receivership for the next 18 months.

koozer, that's just a translation of the article from "Le 360" reported here yesterday.

Rubber, as I mentioned at the time, I *am* still a SOU shareholder.

Btw, I am not disputing that yesterday's "leak" might have been about *something* real. $25m is about the right order of magnitude for the costs associated with the LNG plant, also consistent with industry norms for cost per gal. LNG capacity, and consistent with SOU's proposed lease terms reported in the December RNS. It just has little to do with whether SOU can close the deal.

People are talking through their hats here. The "leak" yesterday -- even if it was true -- had nothing to do with the SOU negotiations. It purported to be about 3rd-party financing provided to ItalFluid to build the mLNG plant. As Graham said in today's RNS: "The Company is not party to Italfluid's own financing arrangements". What is being negotiated between SOU and ItalFluid is not whether the latter can afford to build the LNG plant but whether SOU can afford to pay for it.

Right now, SOU is a six-man company with $40m+ of debt and no income. No company in their right mind is going to borrow tens of millions to build something for a buyer who could be in receivership in a few weeks. The same is true of the gas purchaser who will have to provide $16m of funding to SOU who will hand much of it over to ItalFluid. Why would anyone provide loans to a company which is drowning in short-term debt which falls due before any chance of revenue?

The short answer is: they wouldn't. That's why the negotiations are still ongoing and the gas purchaser hasn't even been named after NINE MONTHS! SOU cannot move this forward without resolving the bond and tax issues. There have been no RNS's about these, therefore they are not resolved. It's also clear from today's RNS that Graham doesn't expect them to be resolved by the end-of-month deadline.

soundreason: "GL has always been clear. When all agreements are stamped, they will release the news."

Quite the contrary, in fact. Graham has to release any price sensitive news immediately. News of the bond and tax bill therefore *must* precede any good news about Italfluid and the unnamed gas purchaser. To directly quote an uncomfortable-looking Graham from the January Q&A (1:50 mark):

"Clearly we use the RNS system and we report news -- good and bad -- pretty much instantaneously".

Yes, on the Green's depressing premise that if we don't have it we'll just have to do without. Lunacy. Meanwhile, Ryan gets away with vague aspirational statements about non-existent grid storage technologies.

Mamms: "I think it should be developed in the National Interest but the counter arguments are not the nonsense presented here. If the field is developed, Ireland's push for renewables and carbon reduction will weaken. The exchequer will get used to the cash and have no rush for the transition. On balance, the likely outcome is that Ireland will use far more fossil fuels over the next 30 years than if it has to continue to import all those fuels. "

Ireland will still be importing fossil fuels regardless. Even the governments most optimistic target is that one third of cars on the road will be EVs by 2030. That relies on sales almost doubling every year until then. And let's not forget that those sales are currently predicated on generous incentives which will be costing two billion a year by then. That is not a workable solution. Already a significant number of the EVs on the road are luxury cars, so wealthy owners are being subsidised by taxpayers. We're also going to need a significant increase in electricity generation to support them. Fossil fuel reduction will also entail switching to electricity for space heating as well as supporting the general increase in demand for electricity. We have plenty of capacity for more wind generation, but there are limits to wind's share of the energy mix without impact on the reliability of our power supply. I'm all for sustainable energy but the Green vision for renewables is not sustainable even in a wealthy country like Ireland. In any case, climate is a global issue and the global picture is much more stark -- developing countries will not and should not have to rely on diffuse energy sources to lift their standards of living. Green opposition to various low carbon sources of baseload power are blinkered, unworkable and immoral.

Carbon capture can be an element of any development *if* the taxpayer pays for it. CCS is not cheap. It might be part funded through a carbon tax, which Linn has already built into the Barryroe field economics. But I don't think the government has any basis to insist on carbon capture without recompense as a condition for granting a license.

I've no doubt whenever Barryroe gets a drilling permit that an appeal and a judicial review is almost guaranteed. However, if that was the worst of our problems we'd be sitting pretty. A judicial review can only confirm that the permit is legal, not that it doesn't live up to some green fantasy. You have to laugh at Ryan and his delusions of tiny Ireland leading the world on climate. The USA under Obama and Trump led the world on carbon reduction because of the fracked gas that Ryan despises. Twenty years of building wind turbines has not reduced CO2 by a single molecule. Nobody is going to meet their Paris Agreement targets, I just hope we don't flush the economy down the toilet trying.

It's a big "only", but yes.

Gassy: "PS - have a proper look at the graph; I can see why you make that observation but you are incorrect."

My mistake. Mea culpa.

soundreason: "Wow. I checked with my 11 Year old daughter and she managed to read the very simple graph correctly."

Does she have any investment tips?

Rubber.Soul: "I think he's just worried, I know I would be if I had just sold all my shares at these prices, just prior to news that could easily see us at 5p plus."

Why on earth would that worry me?

The graph in that article doesn't look very scientific. It shows Tendrara production starting in early 2021, peaking at end 2022 and then halving from 2023 onward. Looks like it was drawn with Microsoft Paint. Anyway, it acknowledges it's completely aspirational, depending as it does on financing. If there was any change to the current plan for financing I expect Graham would have to RNS it. Likewise if there was any news on the bond. Graham isn't going to wake up on March 31st and find the bond is all sorted, as any plan would have to be put to the bondholders and we'd hear about it.

That San Leon stuff doesn't tell us any more than we already knew. Nor does this analyst report: http://www.allenbycapital.com/research_1116_1559222830.pdf . They are all contingent on SpotOn coming up with the goodies. However, they are also consistent (by my rough calculations) with a valuation of PVR well above $1/share based on early field development alone. Everything pivots on the financing. I remain hopeful but that might change if things drag on late into April.

(of course it's not too difficult to find the only other share on LSE I comment on ;-)

Drule, don't want to be rude, but I'm not giving tips. The reason I was in SOU in the first place was because I was twiddling my thumbs waiting for another share to emerge from the doldrums when someone came along with a tip for SOU. I don't really want to return that "favour" to anyone. In any case I'm going back to the share I came from which is going through its own funding woes and is super-high risk, but technically capable of making back my SOU losses and more. I had a pot of money allocated to high risk ventures and after this it will either be all gone or not.

pduk, that doesn't sound like a very desirable scenario for private shareholders ... 5x dilution would mean PIs get crumbs.

If I had any FOMO I'd still be sitting here on four million shares. Unloading was exactly the right decision no matter what happens.

As mentioned, Schlumberger and ONHYM don't lose out if SOU goes down the tubes. OGIF does, but then, what did they actually do for their share of SOU? They handed over a license on some acreage which they presumably would have had to commit to some sort of development in order to retain. They would have needed an operator no matter what and, unlucky for them, they found SOU. I doubt they paid much if anything for the license, so they got 272m SOU shares for little cost.

OGIF is owned by six banks so they don't individually own big shares of SOU. And given they are financial institutions, it's telling that they aren't themselves fronting the money for LNG -- a paltry few million dollars -- let alone the whole pipeline project. Could it be they have no confidence in SOU? After all, they bought into SOU just as TE-8 was about to spud, the exact point at which SOU turned into one long train wreck of dusters and failed deals.