The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
No, Yorkville and Riverfort are not selling in to the rise (at least not from the finance deal). The Prospectus hasn't been cleared and the proposed shares relating to the finance deal have not been issued (i.e. they don't have shares to sell). It's more likely to be private investors selling as technical analysis of the stock indicates a period of consolidation. Sellers will eventually dry up, TA indicators will flip and buyers will move back in.
Sub, as I understand it, Essar are only funding the first well. However, given the jack-up will already be on site and further wells can be drilled from the single rig, the costs will be lower for wells 2 to 4. I expect that further wells will be drilled based on participating interest and as such, we will be required to fund 15%. That said, should the first well be successful, it opens up the possibility of taking out finance against future production. We will by that time have positive cash flow which makes taking on debt a lot easier.
Exactly Yachtmaster. The drop from 40% to 15% ownership should be taken in to context with the wider development and cost to get the project developed.
Under the previous arrangement ShoreCan were responsible for minimum $80M finance and they would carry Essar's 20% costs in to the drill. We were also going to be arranging the $7M performance bond, which I assume has been put back to Essar as per original SHA. That is significant debt that we will no longer be burdened with.
I also think focus shouldn't be completely on the percentage of the project, rather what that translates to in terms of production and compare that to the MCap. This initial drill, if successful, is expected to result in net oil for COPL between 900bpd to 1500bpd at low cost due to the free carry / reduced debt burden. Additionally, the first phase development of 3 further wells could result in a total production of between 4500bpd to 6000bpd. There is still a way to go to realise that, but the point is that even a 15% stake in OPL226, given the sheer size and value of it, is comparable to a 100% stake in many offshore projects.
For me, there is a very clear road to value accretion from £5M MCap.
Berta, Essar M are to fund all costs of the first appraisal well up to $50M subject to following. ShoreCan will have a 10% interest of the project so Essar M carry ShoreCan's $5M. If ShoreCan take up the option of the additional 20%, they require to pay 20% of Essar M's historical costs (i.e. 20% of approx. $63M) + the additional 20% of drilling the first well. In terms specifically to COPL, an additional 10% of OPL226 will cost them approx. $11M which is something I think they'll definitely go for. Basically, we are getting a free ride on 5% but paying our way on the other 10% (plus additional for historic costs). It is unclear to me if the additional 10% can be paid from future oil revenues or if it has to be upfront. Worth noting however that under the previous arrangement, ShoreCan were required to come up with $80M of funding. We appear not to have that debt burden anymore.
Not at all ploppy - this should be an open forum so I'll not get my back up if someone has a different opinion than me. I understand where you are coming from in any case.
My opinion why RF haven't issued an RNS is because it is still subject to approval and they are not obligated to release the news until it has been confirmed - same as any deal really. However, this differs for COPL as the Prospectus has to include the specific details of the finance structure (i.e. subscription price, etc.) and it is structured on COPLs share price, not Riverforts. It is price sensitive for COPL and sets the subscription price for the Prospectus submission. That has always been the case - finance agreement, then Prospectus follows. There is a difference there but I don't think it is anything untoward. We will see if it turns up this week, if not, I'll be asking the question.
Ploppy, it's not Arthur that is holding clearance of this deal up. He can be blamed for many things, but I don't think he can reasonably be blamed for the FCA holding on to this. He has stated in the Annual Report that it is with the FCA - you got to remember that they are likely going through the same issues as the rest of us. Working from home, restricted access / comms, etc. It is an uncommon finance structure so may be going through some additional iterations. If it had been rejected without appeal, then the company would be obligated to inform the market. Do RF typically announce deals before they are finalised by the FCA?
Yes, I agree we will get some fairly large dilution, but the positives are that it is structured over 8 months initially so we shouldn't see a large overhang in the market. It is also priced at about 80-90% above of where we currently sit. The structure also encourages RF to hold on to their shares and for the Company to increase value-adding news flow as it benefits them also for the SP to perform well. Don't get me wrong, I'm not completely happy with the finance but from 0.0375 I don't agree with your assessment on the downside. Each to their own, so good luck with whatever your decision may be.
Agreed NoEasy, I'm in no doubt that Essar M have been disruptive to the project. Their motives are somewhat less clear and I doubt we will find that out. I think the important point to clear up is whether ShoreCan are able to overcome this and progress the project financing part despite the filed claim and the dispute hanging over them. My view on that is that they can - I can't see how EM can feasibly prevent SPA concluding (despite their best efforts with filing a claim). The court case can't be brought against them until they serve it in Bermuda and all the courts are closed anyway. It would be late 2021 / 2022 that this action could be brought against them in court. All ShoreCan need to do in that time is secure project funding and the case loses it's foundation. I'm sure that point is not lost on prospective partners when completing due diligence. The very action of them completing the finance effectively nullifies the claim, so why would they be worried by it? Some clarity on that from Arthur would be very useful.
I know Sub, I'm with you on that. We need more clarity on what the outlook is for the next few months. I'm not being an Art cheerleader by any means, just trying to put things in some perspective and offer a view from a different angle. The covid thing does sound like an excuse, as we've had many such excuses previously, but this one in particular I think is fairly valid. You don't have to look very far to see the impact it has had - Global markets crumbled, oil price collapsed, lockdown and offices closed. It's unprecedented. I think it's unreasonable to expect that it wouldn't affect progress. As I said, hopefully Arthur does another interview and gives some more detail on the project and what lies ahead.
NoEasy, it's a fair argument but I have a different view on it.
My take on why Essar M raised the dispute in 2018 was simply that they did not have money to take the project forward. This was during a time when Essar Global were on their knees and facing huge debt problems. Prior to August 2018, ShoreCan offered to buy EM out of their stake for deferred oil payments. This was not accepted (for whatever reason), yet EM were responsible for maintaining the performance bond, something they could not do. So I suspect that the dispute notice was used to deliberately disrupt the project because should ShoreCan finalise SPA & project financing, it would of backed EM in to an untenable position - they couldn't maintain the performance bond which would be in direct conflict with the Shareholders Agreement. They'd be forced in to a terrible deal to sell their stake of OPL226.
Following this notice, a mini oil price collapse happened, forcing the parties to re-assess the economics of the project. The field development plan was also submitted in Jan / Feb 2019 and I don't know whether this changed some of the talks with service providers. However, I do recall that NNPC wanted a more aggressive approach at that time.
The difference now is that Essar are in a much stronger financial position and ShoreCan have conceded to arrange the Performance Bond themselves. The dispute is the assertion that ShoreCan have not commenced project funding, but how could Essar present a case against ShoreCan if they were actively stopping the SPA happening? It doesn't make sense as it contradicts their case. It is ShoreCan's sole responsibility to attain project financing, therefore Essar M have no say in that matter - no veto and no involvement in discussions.
The case simply evaporates if ShoreCan tie down a Service Provider. Arthur mentioned in the interview that they were very close back in January / February in closing a deal with a service provider, despite the dispute, so it hasn't stopped parties talking and potentially closing. Then up steps a world pandemic...
The interview wasn't great as it didn't cover many of the things it should of. It was more immaterial than anything disastrous. My hope is that he will do another one (maybe LSE) and tailor around what can be expected in the next few months. An interview should be used to highlight the investment case, which unfortunately it didn't do. That's not to say it isn't there, because it is.
The finance structure could be worse and the positive out of it is that it drives the company to deliver value adding news. It's not straight equity for cash, rather it's linked to performance and its a point that has been largely missed. If the SP performs badly, the net cash the company receives is below the baseline and vice versa. The equity is structured over 8 months to alleviate any huge amount landing in the market in one go. Look, it's not the best but it's not all bad and certainly alot better than the usual bucket shop finance. It's unfortunate we've had to deal during the global market crash but there are far far worse alternatives.
The company are in a stronger position than they were last week and that should be viewed as a positive. The risk of bankruptcy has gone and it has assured continued operation for up to 2 years.
Art should now be able to focus fully on tieing up a service provider on better terms than previous. I think some clarity in the EM issue would be good but I'm not convinced the dispute would prevent a service provider agreement. In fact, I see it as the best way in which to resolve the dispute.
Further, the way I see the upshot of this financing structure as follows, using the same thought process as previous post:
YA/RF sell 10M shares at 0.1 for £10k, YA/RF receive 50% the difference to the benchmark £1.6k * 50% = £9.2k to YA/RF, £0.8k to the company.
So there is benefit in YA/RF holding shares and not flipping them for 20%, particularly below the benchmark. That 20% is banked regardless, yet there is upside benefit if the share performs well. It is essentially risk free for YA/RF as you'd expect.
There is also real incentive for the company to deliver results and translate that to the SP, as they too will get some return off sales. I very much doubt Art would of included both those terms if he thought the SP would perform badly as they have to make up the difference below the benchmark.
As I said before, it is NOT death spiral financing and is not structured as such. It's not the best deal that I hoped for but I certainly don't see it as bad as some "new" posters here have stated.
The way I've read it, and do correct me if I'm wrong, but as follows:
YA/RF sell 1M shares at 0.04 for £4k, the company pay the difference to the benchmark £4.4k = £8.4k
YA/RF sell 1M shares at 0.07 for £7k, the company pay the difference to the benchmark £1.4k = £8.4k
As they cannot take out a short, where is the additional benefit for taking the price to 0.04?
It's NOT death spiral financing. Read the terms:
"The Investors covenant not to hold a net short position in company's shares over the term of facility."
Investor protection against downward performance is using the "Benchmark" and if SP drops below this then the Company pay the difference (i.e. they get their money back +20%). There is no additional benefit should the price drop below 0.07 so that should be considered the floor. However, it's a lot more lucrative for both parties should the share perform well as they get their money +20%, plus an additional 50% from the benchmark (the company get the other 50% from any sale in shares). Basically, there is limited risk to the Investors if the share performance is poor. The upside shot is that should the share performance be good, then both Investors and Company benefit so there is a big incentive to move the SP up higher.
What is not clear from the RNS is what impact the escalation of the disagreement has with COPL's ongoing operations regarding OPL226, specifically finalising the proposed finance package.
The claim centres around ShoreCan not commencing financing of the development, the very thing that Arthur is currently pursuing with proposed investors. Jiving raises a very pertinent point that all involved will have done due diligence, which will have included the disagreement with Essar Mauritius, and were satisfied with the information they received. The risk of escalation will have been known, so now that it has happened, does it change ShoreCan's position? As I understand it, EM were responsible for the performance bond, something they haven't arranged so I do believe ShoreCan have a case to argue.
The question I have is, if ShoreCan can finalise their proposed finance package, where would that leave Essar's claim? If finance is completed as intended within the coming weeks, ShoreCan will then have effectively funded the development. I suspect EM's argument will subsequently collapse. So the best way to fight this claim may be to push forward with discussions with the investors and get it completed as soon as possible.
Texas Regulator Considers Oil Output Cuts for First Time in Decades. Source below.
Saudi-Russia gamble may have just worked. Demand has still taken a huge hit but may result to more cooperation between the big state producers to support prices. Good thing for prices later in the year.
https://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2020-03-19/texas-regulator-mulls-oil-output-cuts-for-first-time-in-decades