Member Info for SeaTank8300

Does anyone know why COPL haven't opened a competitive process for finding a JV partner, or are not speaking to other potential partners beyond this one single entity that has been mentioned so regularly lately? If the asset is so interesting, why wouldn't COPL formalise a wider search process for JV partner or have more than one in discussions by now?

Thanks in advance for your thoughts....

Yes it's also been disrupted badly by evacuation problems. Q3 production was bugger all.

Sibiri has been highlighted as having a lot of potential, but not yet materialised

Anyone have good information or analysis of SEPL's OML 40, acquired via Eland?

SEPL own 20.25% of OML 40 via Eland which owns 45% of Elcrest, which in turn owns 45% of OML 40. However SEPL are currently fully consolidating Elcrest on the basis that Elcrest's heavy debt burden is provided by a company called Westport which SEPL owns 100% via Eland. The debt owned to Westport and ultimately SEPL will be repaid by cash generated by OML 40. Company reports aren't clear what the current financing outstanding amounts to, but I guess it is around $400m based on reports at the time of the Eland acquisition, with an additional $150m owed to banks. I believe OML 40's production has fallen from around 30k bod to 20k bod since acquisition, so presumably the investment has continued to require financing rather than generated much cash back to SEPL.

As I see it, Elcrest's consolidation has flattered SEPL's production figures by around 5k bod but has also resulted in the bank debt (circa $150m) being consolidated + the funding receivable owed by Elcrest (circa $400m) being extracted from SEPL's balance sheet.

In short, the optics don't seem great for SEPL right now. SEPL paid around $500m for Eland, production figures have disappointed, EBITDA contribution has been acceptable in absolute terms (I guess around $70m EBITDA fully consolidated this year, although actual due to SEPL more like $30m), meanwhile $150m of financing has come onto the balance sheet. Considering the market is valuing SEPL at perhaps 1.5x or 2.0x EV/EBITDA, the huge cash outflow for Eland followed by debt onto the balance sheet and limited EBITDA has detracted shareholder value.

Anyway, assuming all the above is approximately correct, my question is what happens when all this unwinds and production then recovers?

As I see it, first of all, around $400m must come SEPL's direction as Elcrest's debt burden is repaid by the underlying operating asset which is OML 40. This is not an insignificant amount of cash inflow. This will be followed by a deconsolidation of Elcrest, and therefore deconsolidation of bank financing of OML 40 (circa $150m). So in all, SEPL's balance sheet will strengthen by $500m+.

SEPL will be left with a 20.25% stake in OML 40, generating EBITDA of perhaps $50m annually if production recovers to pre-acquisition levels (circa 30k bod). This is much more flattering optics: $50m annual EBITDA at an acquisition cost of circa $100m.

The $500m improvement to SEPL's balance sheet should be valued at 1.5x or 2.0x but to SEPL's equity, which is approximately what SEPL's market cap is today (i.e. shareholder value uplift of 100%).

Would be interested in views on this, if anyone has looked into it closely? Obviously it requires OML 40 to start motoring and some patience before the huge receivable is repaid, but it should be another substantial catalyst?

I don't see TPX as a take out target by anyone but especially not the Chinese. This is an organic growth story valued by DCF.

The last two recent acquisitions have been at 7x EV/EBITDA, which WAS relatively cheap, but not any more it has to be said.

I met someone on the board and they told me they won't do any more acquisitions until the share price recovers - why would they?

You got to remember that this is a heavily owned company by management. Not just the board but also divisional MDs. Erick Grant owns 10% and he's not even a PDMR applicable person. Not to mention the other former owners of acquired companies. They all have skin in the game and are incentivated to fix the current issue with business wins, which according to recent outlook figures they have corrected very quickly.

The additional central and finance cost base will need to be diluted over time, but that should be doable.

My main concern has always been top line momentum. They lost it entirely for a quarter last year but have since regained it.

My outstanding concern is whether they can maintain the top line momentum without additional dilutive marketing & sales cost burden. The issue remains, in my view, that key figures (former company owners) are winning most of the business and how sustainable is that? We need to see the business institutionalise, but not at the expense of a bloating cost base or loss of top line momentum as happened this time last year.

The talk of a share issue is absolutely crap analysis. The business is fundamentally cash generative, which is why they are paying a dividend still. The management shareholders wouldn't sanction a pointless and dilution share issue.

I heard from one of my contacts locally that NUPRC's rejection of the MPN sale is unlikely to stand the test in court - there might indeed be some ambiguities but nothing concrete enough to prevent the deal being consumated if Exxon is obliged to go through the courts to force acceptance. In all likelihood there will be a change-up of key positions post election and this saga will be put to bed quite quickly as there's no value in dragging it out longer. This is only an opinion, but it stacks up against the radio silence from the NUPRC since the summer, in my view. If NUPRC was sure about its position and had a tight case it would have sent SEPL packing long ago and Exxon woud have acknowledged the issue. The government itself has signed off on the acquisition, so this radio silence from NUPRC until the elections is most likely a face saving exercise, in my opinion. Bring on the elections. AND outsider Peter Obi continues to lead in the opinion polls, which would be a huge win for the entire country.

Without the MPN deal this stock is obviously mispriced, with market moving catalysts in the near term (namely ANOH and, in my view, a sustainable increase of the dividend). With the MPN deal, SEPL's current value is fractional as compared to what it will be. I've owned SEPL for years, never sold or traded - I keep it for the dividend stream. It's the largest position in my portfolio - yes, I own way too much of this stock, it could easily be argued. But it's an educated risk I'm taking. Well, here we are in January 2023 and, IMO, a major valuation uplift is likely to be no more than months away (either ANOH and dividend related, or MPN related, or both) and I'm going to be very content when it happens. I'm sure there are a few of you out there beyond the handful of regular posters/shareholders on this board that will be celebrating with me when this stock breaks through 200p. I firmly believe it will happen and quite probably in 2023. In the meantime, enjoying the dividends.

Sorry, I got to point out that Dartron is misinformed. These acquisitions have all been enhancing on an EV/EBITDA basis. They have all been relatively small companies and they agree to be acquired on relatively low EV/EBITDA multiples for a mix of cash and shares. TPX targets companies that will add a new skillset or industry vertical with substantiated track record, with which they can then leverage to grow the business further. Therefore, TPX won't acquire companies with material overlap in skillset. The organic growth potential is large, so it is cheaper to grow organically than acquire again in the same domain. That said, the acquisition element of the strategy has been paused indefinitely, given the lowly multiple of the share price. At this share price, acquisitions will be dilutive, so the board won't agree to any. That is alright, as TPX already has a wide product and vertical expertise.

It is a fundamentally cash generative business, so suggestion of a diltutive share placing is absolute rubbish and marks out those who claim such to be extremely poorly informed or just very unsophisticated.

Correct, deal is backdated to 1 Jan 2021.

If the legality of NNPC's first right of refusal is ambiguous, which we know it is, then it will be decided either by the courts or the government, and so far the government has been supportive of the deal. If NNPC appeals to the supreme court to rule on this, it could go either way but one would assume that Exxon's argument is robust enough to defend in court. Personally, I like the radio silence on this, as suggests to me it's not an easy claim by NNPC.

https://www.thisdaylive.com/index.php/2023/01/12/kyari-without-opec-quota-restriction-nigeria-will-hit-2-2m-bpd-oil-production-in-2023/

bodes well...

https://allafrica.com/stories/202301040004.html

Other than that Peter Obi apparently comes from outside the usual corrupt patronage networks, his origins are Igbo. Corrupt vested interests in government and the Igbo origin of SEPL seem to be the two factors that seem most against SEPL's bid to acquire MPN - if Peter Obi is elected, both hurdles could evaporate.

Persistent buying continues

Merry Christmas all

Here's a contrary bearish opinion on oil you might find interesting:
https://twitter.com/BurggrabenH/status/1606459855170060288?s=20&t=smuWzSc6GMG69PQCDk6miQ

I don't know where the oil price is going but I like SEPL's dividend and the high probability of a big increase in dividend in 2023 once ANOH is operational. I feel pretty safe here and welcome the future.

Best of luck everyone

Good news flow around the corner quite possibly. That said, this stock was very oversold and due an upwards correction. I would have bought more last week but for my already majorly oversize position. Anyway, very pleased this has found its floor.

TOD, yes probably a big local to LSE switch/sale. Doubt enough retail selling to make such a block.

I reckon Sustainable Capital perfectly timed another dip - good for them

I'd like to know who the seller was - strange price level to be exiting. Then again, with an esoteric African stock such as this, often happens with exiting institutions who don't have the regional understanding. I suspect it was the disruption to export routes that spooked them - not new news to anyone who really knows this company and Nigeria.

Agree ToD

I wonder if this geographical revenue allocation relates to the Eland asset, perhaps owned via a UK company structure. Frankly, these data service providers often don't make much sense.

Sustainable Capital are traditional long only, so not using algorithms. They know the company very well indeed and this position in SEPL must be one of their fund's largest positions, if not the largest position. I'm guessing their fund is not larger than $1bn. For me it's always been interesting that they haven't been invested in SAVE, or not sufficiently for a holding notification. SEPL is their preferred and core O&G play in Africa.

I thought it was interesting that shortly after their last major purchase of shares Buhari blessed the Mobile acquisition. They have boots regularly on the ground in Nigeria and a good network.

Sustainable Capital are the leading Africa institutional investor, based out of SA and Mauritius. They know what they're doing.

Video about their ISO certification. Quality operator in African context.
https://www.youtube.com/watch?v=TD7Z2-JsBso