Adrian Hargrave, CEO of SEEEN, explains how the Company is now funded through to profitability. Watch the video here.
"The New York district court delayed the tax suit to November 18, according to court documents.
This follows Cairn Energy and Air India jointly asking the court to stay further proceedings, given the enactment of a fresh law in India to scrap retrospective taxation in the country."
https://www.easterneye.biz/new-york-court-allows-cairn-to-settle-dispute-with-india/
If you read the circular from yesterday, there has been an update to the NAV which has moved up from 800mn to $1bn.
"On a pro forma basis and assuming completion of both the Transaction and the recently completed Egypt Acquisition on 30 June 2021, the Group would have had net assets of approximately US$1007.9 million (based on the net assets of the Group and the Sale Interests as at 30 June 2021) "
So basically CNEs current net asset value is $1bn or roughly 150p per share? Of course it's even higher than this given the higher contingent payments for 2021, Egypt cash flows,etc. This 150p per share is excluding India refund proceeds.
If you include the refund amount, you get a value of above 300p per share. Of course most of it is cash value and hence can provide a certain estimate but the number can be much bigger than this. And this increase over the 300p per share NAV is dependent on post consolidation share count, buyback effect, contingent payments and the next acquisition impact on free cash flows. Hopefully in that order to have a maximum upside impact on the NAV /sp.
"India will soon notify a separate set of rules to facilitate settlement of its retrospective tax dispute with British telecom company Vodafone, a senior government official told ET.
Vodafone had faced validation of tax demand under Section 119 introduced in the Finance Act 2012, as distinct from the others, and hence, rules also have to be issued under a separate section to withdraw the tax demand, the official said."
https://m.economictimes.com/news/economy/policy/separate-rules-soon-for-vodafone-retrospective-tax-settlement/amp_articleshow/86947479.cms
"Finance minister Nirmala Sitharaman will meet US Treasury Secretary Janet Yellen and interact with institutional investors, including BlackRock, KKR and global pension funds, when she visits the US for the G20 ministerial and IMF-World Bank meetings
Her interaction with foreign investors on US soil comes after India repealed the controversial retrospective tax provision and rolled out a national monetisation pipeline, sending a strong message to global investors. "
https://m.economictimes.com/news/politics-and-nation/sitharaman-to-meet-yellen-on-us-visit/amp_articleshow/86920528.cms
"Value investor Stan Majcher oversees a $972 million portfolio that returned 94% to investors over the last year.
He did this with a portfolio featuring an average P/E ratio of 7.7 times and a major bet on energy.
He explains why he believes this sector has a lot more upside potential, despite the recent gains, and shares 2 stock picks.
Cairn Energy recently won an arbitration suit against the Indian government that's worth over $1 billion. The market capitalization of the stock doesn't reflect the cash that they will have on the balance sheet, Majcher said.
"They are going to distribute through dividends and share repurchases a very large portion of their market cap," Majcher said. "We think that's an interesting company, low risk opportunity to invest in energy."
https://markets.businessinsider.com/news/stocks/energy-stock-picks-bull-case-outperforming-value-investor-stan-majcher-2021-10
We should remember that CNE and it's shareholders have waited for over 7 years to get to this point of seeing an end to this entire episode. CNEs management wouldn't mind waiting a few more weeks or even a month if there is an assurance of getting the money back to UK safely.
The alternative option of enforcement of the arbitration award would have meant CNE dragging the name of the biggest emerging economy and second most populous country in the world through the mud for years.
Nobby- that link directs to a contact form but doesn't seem to have an actual email address... No idea if anyone from IR responds to the form?
Ant- it's actually very fluid. It can be within a few days or longer depending on how trustworthy the words of the officials have been in regards to wrapping up the settlements within weeks.
From the rules it seems in a base case scenario imo - for example if CNE submits the first part of the below undertaking on 10th Oct then 15 days from 10th I.e. By 25th Oct the gov official needs to either accept or decline the undertaking. After accepting that, CNE needs to withdraw or stay proceedings as mentioned in the undertaking, so assuming CNE has already stayed AI case etc. and submits the third form saying all cases are withdrawn on 26th Oct then the official has 30 days I.e. until 25th Nov to provide refund authorization which will take another 15 days to be credited. Of course this would be the case for CNE and Vodafone who have had to pay. But any of the 17 companies will follow the above schedule for removing their claims imo.
Now of course if we take what CEO and CFO have said regarding "within few weeks", the above time table can be packed into a few days assuming the officials and CNE expedite and overlap the above stages day after another. Or it could be that the officials that communicated the timelines to CNE proved up to their jobs, dragged the process a bit longer and made CNE execs look silly with their timeline guidance. CNEs management would be thinking if they have waited over 7 years might as well wait a few more weeks for the funds?
From the news article ;
"According to the timelines drawn in the rules, the initial submission of an undertaking to withdraw all pending legal proceedings has to be done in 45 days. Thereafter the relevant Principal Commission of Income tax has to give a certificate accepting or pass an order rejecting the claim in 15 days from the receipt of the application.
After grant of certificate, the companies will have to within 60 days fulfil the condition of indemnity by all interested parties. After this, the order granting relief has to be made within 30 days and only after this the refund will be initiated... "
It's not that easy to predict the timing of settlement agreement because CNE has said the below (from the transcript) ;
"The key condition for Cairn benefiting from the terms of this bill would be the withdrawal of all related legal claims by us against India, including the enforcement actions taken in respect to the international arbitration award of $1.2 billion plus interest.
We've had excellent and constructive engagement with the Ministry of Finance in Delhi regarding the precise details and documentation involved, and we are now very optimistic that this can be successfully concluded in the coming weeks. The Government of India has confirmed to us at multiple levels that now the legislation has been put in place, it is aligned with us in wanting to see this long running matter resolved, and tax refund to be paid swiftly. And we are, of course, therefore working closely with them towards that aim. "
So payment could be just as well tomorrow or in a week or a month? Could be that CNE needs to accommodate any new requirements mentioned in the rules published few days ago? Something IR could confirm...
Think someone on this BB was in regular touch with the IR? Maybe they can check with the IR to see if the rules published few days ago are more time consuming than they originally guided during the half year results call as "few weeks"?
BH- is that net asset value based on oil price? If it's based on a base case oil price of $60-$65/bbl then that number might need to be revised much upwards given the oil price rise?
And there is contingent payments that also need to be accounted from the North sea assets sale of course alongside the Mexican oil discoveries, Egyptian oil production cash flows and Senegal $100mn payment on first oil 2023;
"Uncapped earn out consideration will be payable in respect of each of the calendar years 2021 to 2025 if both (i) an agreed minimum production volume for that year is met and (ii) the Average Daily Brent Crude Price in that year is not less than US$52.00 per barrel.
The earn out consideration will be equal to the amount by which Average Daily Brent Crude Price for that year exceeds US$52/bbl multiplied by the number of barrels of production in that year in relation to the Sale Interests multiplied by a percentage rate set for each year.
The percentage rates agreed for each year are:
Ø in respect of 2021, 60%;
Ø in respect of 2022, 50%;
Ø in respect of 2023, 40%;
Ø in respect of 2024, 30%; and
Ø in respect of 2025, 20%."
So basically CNEs north sea production has good upside capture mechanism. Although wonder what happens if CNEs consideration amount gets reached before completion?
Full article is on FT;
https://www.ft.com/content/0eb70a27-1878-4a26-a8ad-95fcc191b0f0
Should go after the full amount which is now close to $1.8bn.
"Ex-Elliott sovereign debt supremo gears up for final battle in India
After leading US hedge fund’s 15-year fight against Argentina, Jay Newman is now taking on New Delhi
October 4, 2021 3:00 am by Laurence Fletcher in London
The man who extracted $2.4bn from Argentina is now coming after India.
Jay Newman led US hedge fund Elliott Management’s 15-year battle to force the Argentine government to pay out on its defaulted debt. The campaign, which came good in 2016 when the country agreed to settle the claims of “holdout” creditors, is seen as one of the greatest hedge fund trades.
Now, the 69-year-old, who during a more than four-decade career on Wall Street built a reputation for high-risk bets on defaulted sovereign debt from Latin America to Asia, says that one case has helped entice him out of retirement.
Newman has been hired by a group of shareholders of Devas Multimedia, a satellite and telecoms company embroiled in a fight with the Indian government. Founded by a former Goldman Sachs banker, Devas was awarded about $1.3bn in arbitration rulings after a contract, which it had with an Indian state-owned company called Antrix to develop broadband, was cancelled a decade ago. Interest on the amount owed is accumulating at about $350,000 per day.
India has refused to pay, alleging the original competition for the contract was mired in fraud, and has launched legal proceedings to shut down Devas, which counts US investment groups Columbia Capital and Telcom Ventures as well as Deutsche Telekom among its shareholders.
India is trying to “bully its way through” the dispute, Newman told the Financial Times. “It rivals the behaviour of Russia and Argentina combined,” he said.
India is locking horns with Devas just as its approach towards a series of decisions by international arbitration panels has drawn scrutiny.
Scottish oil producer Cairn Energy has for months been trying to force the country to pay $1.2bn awarded by a tribunal in a stand-off over tax, echoing earlier disputes with telecoms group Vodafone and French drugmaker Sanofi.
With little sign of India paying up in its dispute, Newman says Devas is sizing up Indian government assets and it could try to seize them abroad. The threat carries echoes of Elliott’s sensational seizure of an Argentine naval vessel in Ghana in 2012, during a campaign that set new and controversial precedents for pursuing financial claims against sovereign states.
“People will be surprised by how many assets India has,” said Newman. Assets liable to seizure “could be literally anything”
Planes owned by Air India could be next, subject to a court’s decision. In June, Devas shareholders filed a lawsuit in the southern district of New York trying to establish that the state-owned airline is “the alter ego” of India and therefore also liable, following a similar move by Cairn..."
https://www.ft.com/content/0eb70a27-1
And to put things into perspective in terms of cash flow and asset value;
CNE acquired Egypt assets for $325mn out of which $125mn was cash. And this Egypt asset NAV is close to $600mn according to the acquisition circular. So clearly CNE bought the asset under NAV from Shell as it was concluded in a depressed oil price environment. So good counter cyclical acquisition(of course would have been better if K+C was also retained).
So $125mn cash got CNE an asset which generates $140mn annual Operating Cash flow (debt service charges seem minimal I.e. around 2-3%)
Conservatively extrapolating the above transaction for next acquisition, with $400mn cash CNE could get an asset portfolio that generates $400mn-$500mn operating cash flow? So in total with Egypt, that would be roughly $550mn-$700mn operating cash flow?
To put this into perspective, Harbour Energy generated for HY21 operating cash flow of $646mn, so annual roughly 2x = $1.3bn operating cash flow. Harbour has a net debt of $2.45bn. And market cap of £3.4bn
Tullow generated $250mn operating cash flow in 1H so 2x= annually $500mn. Net debt $2.3bn. Market cap of £750mn
What does this put CNE at in terms of potential market cap, pre and post India resolution? Remember, market prices by discounting future cash flows. Given that CNE has not come out with the next acquisition there are no cash flows to discount yet. So it's just cash value for now imo. But If CNE does manage to generate $500-600mn in cash flow or roughly $200mn Free cash flow, then market would have to value CNE very differently given the potential for annual dividends or buybacks especially post the upcoming divi, consolidation and buyback?
If you take 270p as the Net asset value any take over on that price would be hard for the board to agree on.
What's more interesting would be what could CNE do with $400-500mn of cash and similar level of debt capacity. The value addition the next acquisition could easily take CNEs valuation in £1.5-2bn range including India proceeds. So we are looking at 300p to 400p per share. Few years ago CNE was valued at above £1.6bn with Senegal asset and without the award result. So if you remove the Senegal assets $300mn consideration, you are still looking at CNEs valuation above £1.5bn which is above £3 per share imo.
Hope the CNE management is looking at the natural gas prices not just spot but year ahead. All are above 100p per them for next year. Any exposure to North sea /Norway oil/gas assets will be most welcome. Look at Serica which is fast approaching CNEs market cap- cne could have just taken over Serica last year. Whats the need for asset acquisition when corporate acquisition could make sense? Cne could just take over one of the smaller north sea players who's sitting on decent reserves and undervalued on the AIM market?
EGY fixed gas prices mitigates the commodity risk but also removes the entire commodity upside. If I recall Kraken and Catcher also has some associated gas production? At least Kraken and catcher are printing cash for cne. Although curious as to what happens if the Kraken +catcher cash flows goes above the consideration amount that Waldorf is due to pay?
Wasn't aware of Transglobe who's a London listed Egypt E&P. Their main production is from Eastern and western desert assets. Recently their PSCs went through a serious upgrade where cost oil recovery and profit oil percentages got bumped up. I suppose CNE has this PSC upgrade upside once the production is back to 50kboepd levels. Would be also interesting to see if or when the fixed gas prices get revised upwards as majority of the E&Ps in EGY including CNE will focus production growth on oil instead of low value gas. So to incentivize the E&P operators in Egypt, the EGPC will have to think about revising the gas prices especially when gas prices are so high, along with oil? Interestingly enough, the $140mn average cash flow from the EGY assets that cne mentioned was at an average oil price of $63 /bbl between 2017-2019.
Transglobes quarterly cash flow numbers could give a rough idea of cash flows from CNEs EGY assets (although gas and oil mix might be skewed) and a general idea of operating in EGY. Rough numbers, but seems CNEs cash flow could easily be above $170-180mn per year from these assets.
https://www.trans-globe.com/news/news-details/2021/TransGlobe-Energy-Corporation-Announces-Second-Quarter-2021-Financial-and-Operating-Results-for-the-Three-and-Six-Months-Ended-June-30-2021/default.aspx
Would have preferred if the AI case was ongoing and cne kept the pressure on and didn't loosen the grip. Avoids these gov officials dragging their feet.
And in your earlier list, I'd also add the visibility of cash flows of EGY assets for Q4, as it will be under CNEs ownership for the full quarter.