Member Info for SeaTank8300

Suspicious yes. But these guys are so filthy rich, how likely is it that they're plundering their LSE listing for a handful of millions of dollars and ruining their credibility and future access to capital from any western credit organisation? Fairly minimal in my view. More likely to be related party transactions lacking paperwork but not actually fraudulent.

No mention anywhere of a resource update for Teren Sai? Wonder why...

I'm not close to any of the participants however I know Nigeria quite well. This is obviously a big corporate move that very much crosses the boundary between private and public sectors. As we all know well, almost all public sector leaders in Nigeria are on the lookout for personal gain in some shape or form. It had to be expected that someone in government or the NNPC would leverage the sale agreement between SEPL and Exxon to extract some kind of rent or benefit. Horse trading is standard practice in this place; even if the event benefits Nigeria and Nigerians. There's never an easy journey doing anything that involves government in Nigeria. So on the one hand this should have been expected; on the other it is quite likely that a compromise or adjusted agreement will be found; it could be as simple as paying off the right people. In my view there is a very good chance this deal will happen, since Exxon want to leave Nigeria and only want SEPL to have operational control of the asset; the question is at what additional cost, hidden or otherwise?

I presume the $125m is refundable, as a non-refundable deposit wouldn't make any sense given the background politics in Nigeria. If that is returned, SEPL will be debt free, more or less, by end Q3, certainly by end of the year, and management have said that they intend to increase the dividend substantially once ANOH has been commissioned.

The board won't horde cash, in my view, as it's not in any of the major shareholders' interests to do so. They'll be on the lookout for other deals I'm sure, as well as investing in green energy, but organic investments alone won't soak up the cash flow. ANOH was itself a monster project and has taken years - still, the capital investment by SEPL was around $200m by memory....a fraction of the company's current annual free cash flow. We know the former Chairman is in financial trouble and will surely want a raised dividend. So I don't see what should stop SEPL raising it's dividend substantially, at least by double, perhaps triple, possibly quadrouple if oil stays >$100 and special dividends are paid. The current dividend costs the company around $50m annually, which is really nothing in the context of oil at $100 and annual EBITDA >$600m.

This is a fantastic business: the attractive drinking, dining and coffee environment; the vibe; the value proposition; the fabulous staff. I believe Loungers will offset inflationary forces with delicate re-pricing and redesign of the menu, and economies of scale as the network expands. This is a business with a still long runway. Looking forward to full year results.

We just don't know what terms SOU may be offered. Perhaps they sell both projects with the exploration licence area for $250m and call it a day. Agree it's an unknown.

What does seem so is a $40m market cap with $30m debt (EV $70m) is little for a relatively advanced gas infrastructure project worth north of $200m with growth potential beyond that. 3p would be a fairer price level at this stage in my view. Hopefully all becomes clear by end Q4.

There are some seriously spurious assertions flying around. Someone for example is suggesting that Phase II Tendrara has marginal economic value to SOU because $60m equity is required and SOU has no cash therefore will need to dilute ownership to the point that it has marginal value. Weird claim to make. The equity value of a gas infrastructure project, with resource defined, licences subsisting, contracted sales agreement in place, and shortly a debt financing agreement, will be valued by any incoming investor by DCF/NPV, not capital investment required. If the NPV of Phase 2 is like $190m, think about what an infrastructure investor will pay for a stake in that. That’s why businesses are typically worth multiples of their NAV – businesses are worth their DCF value, not equity value.

Anyway, where did the assumption of $60m in straight equity for Phase 2 come from? The bank might require 20% equity input, but that equity input could be some quasi-debt-equity instrument, subordinated to the financing package, i.e. mezzanine type debt, which is exactly what SOU has suggested they are looking for. I wouldn’t be surprised if much of the equity component is mezzanine. Then there is the vendor financing to help along too.

Phase 2 looks to me a done deal at this stage. The bulk financing package will be in place soon, after which various infrastructure investors will be keen to either finance on a subordinated debt basis or take equity on the basis of a realistic DCF valuation.

SOU will then have the project funded and possibly also have some cash left over (if they sell an interest in phase 2) to fund further exploration.

The fact that SOU is trading at $40m market cap, hardly a distance from the $30m market cap it had a year ago, despite phase 1 launched and phase 2 about to launch suggests either SOU was very overvalued a year ago or more likely much more undervalued today.

As I said before, this project is virtually assured now; it will actually be so when this debt package with Attijariwafa is signed.

More interestingly, does this comment suggest no expectation of further equity dilution, neither company equity nor project level equity?? What "partial asset disposals" are available? Phase I? Broader concessions? Or is he referring to selling down their equity in Phase II? Either way, I read this as no further dilution at the listed company level, which is great to hear.

"The Company is also progressing potential vendor financing, secondary subordinated debt and partial asset disposal options to fulfil the remaining element of Project financing required to achieve year end FID."

NGN is not a floating currency. Black market rates give a truer indication of the fair value of NGN, around 750 per GBP, but this is overvaluing the NGN too I suspect. SEPL's Nigerian line is a hard currency safe haven for investors. Also there is a back door FX channel by switching local shares for LSE shares, only open to institutions and HNW investors, basically buy locals and switch to London line. All this drives demand for local stock. Also, the local line is illiquid as nobody wants to sell it. It's the best place to put NGN to protect from inflation. Bottom line is, this situation places some pressure on the LSE line as creates additional sales in London; but the more stock that switches to the LSE the higher the LSE float, which will hopefully ultimately trigger FTSE index inclusion, as we're not far away from the 25% free float required, in my view. But this can't be taken for granted, so in my opinion long term holders should just focus on the long term and fundamentals, namely big cash generation and growth, which will ultimately drive the re-rating, and not worry about all this.

https://www.theafricareport.com/215619/nigeria-seplat-seeks-to-raise-gas-production-to-match-surging-demand/

"Nigerian oil and gas producer Seplat has seen a jump in gas demand as higher diesel prices prompt a search for alternatives, director of new energy Yetunde Taiwo tells The Africa Report.

Seplat, which is listed in Nigeria and in the UK, produces about 30% of Nigeria’s gas. The outlook is “very promising” and there is “more demand than we can supply,” Taiwo says at the Africa CEO Forum in Abidjan. The company is trying to increase gas production to keep pace, she says. “There is huge potential.”"

Subscriber only access to the remainder of the report

At $80 oil, SEPL generates circa 500m in EBITDA annually, vs a market cap of circa $800m and shortly debt free, whilst investing around $160m annually in growth. This doesn't factor in any enhancement of realised oil price once the Ampuke Escravos pipeline becomes operational, or additional liquids output of 10,000 boe/d from ANOH from next year. These are the fundamentals. Rest easy.

https://masterinvestor.co.uk/podcast-master-investors/

Interview with Neal Gandhi

Agree, there are probably few quality institutions of note on the share register any more - my point being that many left long ago, or are now just too skeptical.

The competitor to Network is one of the big UAE universal banks, I don't remember which. I've been trying to find info about this possible third entrant. The attraction is the still fat pricing structure in UAE for issuance and processing, also merchant acquisition. So there are some fundamental risks to the earnings outlook, I just don't know probability or magnitude.

But at a certain point, it's worth the risk.

This stock as recovered +50% in a matter of weeks a few times now, so you might well get your 280p exit opportunity sooner than you think. World is looking quite dark right now though.

Agree, it just needs a desperate seller with some volume to hit the share price hard. That said, oil is holding up nicely all things considered, and SEPL didn't participate much in the oil sector rally of late, plus we have the pipeline news any day now...so I live in hope this resilience can continue. It's a roll of the dice though.

Chart tosh

Three things:
1. everything tech and fintech related has been sinking for a long while now; fundamentals and DCFs aren't driving share price action so much as sentiment and flows
2. Who's the natural institutional shareholder of this stock? Nobody...cos it's clearly a Gulf/Africa/EM company, so in my view UK institutions have been capitulating purely on share price action and fear of unknowns (read NMC Health)
3. There has been talk in UAE of entry of a third player in card issuance/processing or merchant payments, which could cut the cake and pressure pricing: this is a longer term threat and hard to assess but is terrible for sentiment.

My view is it's a solid company but the ugly chart puts me off, but at these levels I'm very very tempted

Breaking news folks: despite a massive risk-off day in the markets, supposedly nowhere to hide given building recession risks, Brent Oil just broke through $121. I think that says a huge amount about the physical supply-demand situation right now, that during a day such as this, the oil price can recover losses and even rise. The risk of oil collapsing this summer are fast fading; rather, risks to the upside abound. Institutions are yet to fully accept that we've entered a super cycle bull market in oil. Only a deep global economic contraction (rather than shallow economic contraction) can tip the scales from what I read, which seems reasonably unlikely at this point in time. Oil stocks, especially those such as SEPL that are delivering FCF yields in fat double digits, remain stupidly heavily discounted for oil price downside risks that are evaporating fast. This is my view, at the current point in time, with markets across the globe cratering, with oil breaking through $121. Good lord. Who would have thought.

On a similar note, I've been scanning for tech stock opportunities across the spectrum in recent days - they're mostly still unjustifiably expensive to any rational human mind with an ounce of financial acumen, but especially in a world of rising cost of money. That the broad market still doesn't see this is truly remarkable. Our opportunity, though.

Agree. The free cash flow being generated at these oil prices is outstanding. I don't believe there is a quality oil company listed in London or almost anywhere generating such profit at such a low multiple. EBITDA this year might well eclipse the market cap. That's nuts. What's more, it has signifiant short term profitability drivers as well as M&A options. I'm really pleased we cleared up the hedging question marks; now there is nothing not to like.

SEPL no longer in the running for Shell's onshore assets:

https://www.bloomberg.com/news/articles/2022-06-08/shell-said-to-be-receiving-two-local-bids-for-nigeria-oil-fields

Let's hope they nail the Exxon assets then

If they are indeed just put options, and there is no settlement cost, then SEPL is 100% exposed to the oil price full stop, and i've been overthinking this and SEPL's fair value is that much higher. This is when a responsive Investor Relations function would come in handy.

Thank you Herminator, and I appreciate contributions in return.

As far as I can ascertain, these hedges are mostly the same since last year, by which I mean they have persisted each quarter, which implies that SEPL has taken an active decision to postpone settling them by extending them each quarter, thus SEPL's P&L in recent quarters has reflected market level oil prices and maximum cash generation. The reason for doing this, presumably, has been to beef up the balance sheet for sought after acquisitions.

The issue with doing this in a rising oil price environment is that the future opportunity cost of settling the hedges increases. SEPL has been deferring the P&L and cash flow cost of settling the hedges in return for better than otherwise P&L and cash inflows today.

As Temple pointed out a while back, hedges can work in a producer's favour when oil prices are falling - which was the case for SEPL back in 2020. That is why the banks demand some hedging as a condition of lending. But when oil prices are rising, it's obviously a cost, unless settlement can be deferred until the oil price falls back again.

This is the point - SEPL's outstanding hedges lower the company's sensitivity to the rising oil price, agreed, to the tune of 6.5 months of production, however beyond that, the company is fully exposed to market prices. A DCF will acknowledge this and give proper credit to the expectation of higher long term oil prices in SEPL's NPV/NAV.

In my view, this lower sensitivity to the rising oil price (indeed also lower sensitivity to a falling oil price) doesn't ultimately matter to the investment case, because the investment case ultimately lies in the long term EPS and cash generation expectations of the company that feeds into its NPV or NAV calculation, not the incidence of the relatively marginal 6.5 months of production hedges.

The hedges could remain indefinitely, extended every quarter for a small fee. But they do not undermine the investment case, in my view; more accurately, they reduce the company's NPV/NAV sensitivity to the oil price.

I suspect that SEPL will continue to defer settlement of these hedges to prioritise cash generation while there remains the prospect of value-enhancing acquisitions. Hopefully the board is being smart about this and that this tactical decision signals their continued expectation that a transformational acquisition remains likely.

But this stock has no followers on LSE - great shame...