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They have mentioned on the results call that they will be going ahead with the sale. What consensus? PIs on a BB have no consensus value. Almost everyone on this BB was against the EGY acquisition but still it got voted through almost 100%. Let's see if it makes any difference to the vote count on this transaction.
Meanwhile we still wait for the tax return rules to be finalized and published so CNE can get the ball rolling regarding getting the refund. Been 3 weeks already since the results call. Let's see if it's out this week given recent media reports saying it should be out in days.
The CFO mentioned on the call that Waldorfs backers and third parties had last minute changes to funding of the transaction etc. So that was the reason for the delay. That process is supposed to finish by Q4.
The whole reason CNE wanted to sell North sea assets was to bulk up cash position for another acquisition IMO. And this was decided before they could have imagined that India is going to change the law and refund the principal amount. Now that there would be $350mn post dividend and buyback retained why should the sale of k+c assets proceed. These assets had very high capex outlay initially. They should just retain these assets and run them as hbr and enq chose to.
You can see how valuable these assets are - the asset cash flow has already paid the consideration amount that the buyer initially would have paid. Now the buyer will only have to worry about the capex if any and oil price related contingent payments essentially getting the assets for free. If these assets even hold production constant the next couple of years, at $75/bbl the cash inflow will be lot higher with minimal capex imo.
It's true but the value of the money is already going down even before we've received it via inflation. And as oil and gas prices rise we are losing purchasing power of that cash. With higher oil and gas prices you might have sellers coming back before signing the dotted line, asking for a bit more exposure to future performance of the assets and oil price, just like we did with the north sea assets sale.
Having the north sea assets right now would mean having the same cash flows as those assets produced in 2017 or 2019 at $60-65 oil prices and 23kboepd levels? Given that oil prices are rising and possibly moving to a sustainable high price environment, CNEs board should have had foresight of acquiring oil assets at the bottom of the cycle and not sell them off as we did with Senegal and UK oil assets. That's what I meant that the board is too old and set in its ways operating on hindsight of oil crash and covid instead of foresight of what's coming. Senegal disposal is understandable given the capital overlay but still think there is enough in the north sea oil assets to juice out for the next couple of years at low capex levels. EGY assets oil production cash flows we'll have to wait to see what it looks like but the way market is pricing it is like there is not much juice in the EGY assets.
And cne is dragging it's feet at what it does best I.e. Exploration, in Suriname and Mauritania. Hence would have thought there would be new management from Board level to IR to renew the CNE story post India. When CNEs sp is still far away from its 52 week high, at $80 /bbl oil price and small timers like Serica are approaching our market cap for a fraction of the Cash, assets or potential, then some tough questions need to be asked and answered of this IR /Board to understand what is their strategy. If they at least guide to the market that they are planning to build on production scale so as to instate regular annual dividends then the market will finally get excited about the CNE story.
Exactly, and look at their market cap approaching £600mn vs CNEs £900mn odd. It's such a shame Cne is valued so lowly even with its massive cash firepower - not sure why cne board is keen on low cost assets in dumpster jurisdictions. It's all down to leverage to oil and gas prices. If cne chooses to just acquire assets with fixed oil or gas prices then cne will no longer be a oil and gas company but a retail commodity store with fixed values more or less.
Cne should aim to get leverage to oil and gas prices else we'd be valued for peanuts as we are now. Hope Kraken and catcher sale falls through and we retain those assets and drive them to decline especially when oil and gas prices are moving to a bull market. The past 5-6 years of oil and gas bear market has impaired the existing management teams in thinking counter cyclically. Covid also scared a lot of management teams for their jobs probably why they are after low cost assets. But imo Usually low cost assets mean low return assets else why would the seller be selling it if it was a low cost high return asset? Cne should be priced to at least 250p by now excluding the Senegal disposal. And the award has not even been valued in the sp yet.
"Sources with direct knowledge of the matter said the finance ministry is framing rules that will lead to withdrawal of the retrospective tax demand on Cairn and 16 other companies, including Vodafone Group of UK.
These rules require the companies to withdraw all litigations against the government in return for being refunded any money that was collected to force the retrospective tax demand.
A format for the undertaking that the companies will have to furnish committing to withdraw litigations is under finalisation and should be released in coming days, they said.
Companies will have to use that format to give an undertaking, post which the money will be refunded. "
https://m.economictimes.com/industry/energy/oil-gas/new-york-court-pauses-tax-suit-to-allow-cairn-to-settle-dispute-with-india/amp_articleshow/86524016.cms?__twitter_impression=true
Whitehat - completely agree. CNE should go for UK, USA type regions instead of another expansion in the MENA region. Although, the recent reports of CNE bidding for Tamar field share wouldn't be too bad. A part purchase from Delek for Tamar or Leviathan field could be great for cash flows. CNE seem to have bid $1.1bn for the Tamar field according to those news reports. Strangely Delek is trying to diversify away from that region with purchases in the North Sea via Ithaca Energy. CNE could have teamed up with Delek for swap of assets?
Re Egypt cash flows - CNE have made it clear that EGPC pays in arrears for the purchases of Shell/CNE production entitlements and in the circular seem to have mentioned that the overdue amount net to Shell was $80mn so I guess $40mn net to CNE still to receive from Egypt? Hence, why I disliked this acquisition irrespective of the numbers, reserves,etc. Genl, gkp krg experience shows how much market hates irregularities in cash flows. The next acquisition hopefully would be better than this EGY one?
Also, CNE has made it clear that this EGY acquisition is only the first step - so my guess is there might be two more acquisitions I.e. Step 2 & Step 3? Let's hope EGY acquisition is the worst CNE could do in terms of political risk of assets. USA seems to have a lot of disposals going on although not sure if they might be low cost large reserves that CNE is after.
34a - Catcher and Kraken sale has not completed- due for Q4 completion, and there will be a shareholder vote on the sale of these assets so still to go through that as well. Current cash flows will be retained adjusted against the consideration.
Would be interesting to see how many shareholders vote for the sale of these North Sea assets vs Egypt acquisition vote.
CNE production now is 35kboepd(Egypt) + 18kbopd(Catcher +Kraken) = 53kboepd
Would be interesting to see what would be the cash flow contribution of Egypt assets for Q4 of this year to CNEs cash position.
HBR seems to be planning Catcher infill drilling next year. Plus Kraken for next year. Nice exposure to upside without any capex outlay for CNE next year.
HBR might be looking for a merger with Neptune in the North Sea according to Bloomberg. At least it's not a competitor for CNEs hunt for acquisitions.
CNE can use, say, $300mn post dividend/buyback cash and lever it up with $600mn-$900mn debt to get a decent sized($1bn +) acquisition of a producing portfolio, with sizeable op. cash flows of at least $500mn?
After acquisitions if CNE can generate, at least $500mn annual operating cash flow with let's say $300mn annual capex - that potential $200mn annual free cash flow would need to be valued by the market a lot higher than what the market is valuing residual CNE currently (minus India proceeds).
According to the Egypt acquisition circular, CNE is already going to generate $150mn operating cash flow from Egypt acquisition with an annual capex of c.$80mn. If we assume that post ramp up the annual operating cash flow goes up to $200mn and capex at these assets is $100mn then Egypt acquisition will generate $100mn in free cash flow year in-year out sustainably for CNEs net interest.
And if another acquisition is done on similar metrics as Egypt, then we can extrapolate EGY cash flows 3x to get $300mn free cash flow. This $300mn free cash flow would mean Cne having gross debt of $600mn-$700mn. Of course its just rough numbers but you can see the opportunities CNE can access with that much cash and debt capacity. Also must remember that CNEs debt for Egypt acquisition has very low interest costs. The interest rate on the $180mn debt for Egypt acquisition is priced at Libor + some margin. So such a low cost debt can create huge value for equity holders imo.
That's correct. The AI case gives a rough time line.
"The implementing regulations are in the rulemaking process and will take some time," the two said in the petition seeking extension of the October 21 deadline for the presentation of case papers and initial pretrial conference on October 28.
They requested the court to "stay any further proceedings in this matter through October 31, 2021, and reschedule the initial pretrial conference and, respectively, the deadline for the parties to submit their Joint Pretrial Letter and Proposed Case Management Plan, for new dates in November 2021."
"The Parties have conferred and agreed that the stay will facilitate the efficient resolution of the dispute, conserve the Court's and Parties' resources, and is not intended to obstruct or delay," they added
https://m.economictimes.com/news/economy/policy/cairn-energy-air-india-seek-stay-on-new-york-court-proceedings/articleshow/86227073.cms
Agree. Read in an article few weeks ago that gov officials are open to accommodating companies feedback into these draft rules. I suppose one company out of 17 haggling the gov to remove a clause might mean a bit more time needed as these rules might be same for all? Best would be to send the notification to the companies and get the ball rolling individually in a bespoke manner.
Haven't seen anything regarding the finalized rules yet? Not sure if they will be publishing again or going ahead with bespoke ones ?
This article says;
"A new format is under consideration to resolve these vexed issues while providing ample protection to the government. The financial daily quoted another person as saying that companies have shown interest to indemnify the government.
The rules provide up to 45 days from the date of final notification for litigants to give an undertaking for settlement, and up to 15 days after submission for tax officials to accept or reject this. All lawsuits, arbitration and enforcement proceedings will have to be withdrawn within 60 days of the undertaking being accepted."
So not sure if they sent notification already given CNE has said that they are in process of agreeing the documentation?
https://www.timesnownews.com/business-economy/economy/article/govt-may-issue-rules-to-settle-retrospective-tax-cases-this-week-address-concerns-of-cairn-energy-vodafone-idea/811119
Check the HY results call transcript - CEO mentions about consolidation. The consolidation will be a better move especially when there will be a buyback following that. Last time post Senegal there was no buyback.
AA - I meant the share count post dividend consolidation but before buyback commencement.
As in, the way it was done post Senegal. So if share price on the day of ex divi is £2 then by my calculation(which could be wrong!) the share count would drop down to 320mn post consolidation.
Calc : 1 minus 72p/200p multiplied by 500mn current share count.
So in this example, buyback would essentially start after the share count has been adjusted to 320mn shares post consolidation. So £140mn would buyback a lot more of these 320mn which could get the share count down below 300mn if my rough calculations are right? Feel free to correct me?
Megla - they brought the new legislation in so as to get out of the trap cne had them in. Since its a law now, it's just a matter of dotting the i's and crossing the T's in the forms /documents. They are actually gaining a lot more with the settlement /refund, as CNE could have dragged their name through the mud via seizing of gov assets etc., given how bullet proof the award was.
Regarding buyback closing the value gap - I think it would depend a lot on the post consolidation share count as c.£140mn buyback would have a bigger impact on sp with let's say 350mn shares outstanding vs 500mn currently. But the market does not always close the gap fully as it's also dependent on what's the value story on the remainder of the company post buyback and divi.
This is where CNEs "what next " story comes in. It's quite possible that the big IIs like abrdn or even aegon in the last few months had conversations with CNE on it, but didn't like the story or direction the company will be taking with EGY and any other acquisitions in the region? It's just a guess really, but the remainder of the company needs to be exciting enough for new IIs to replace the ones that are exiting. And imo entry into such high risk regions can make cne a bargepole stock for many IIs, as we've seen with the likes of genl, gkp etc.
On the other hand if cne had some similar value propositions like sqz and kist then there is a story that these IIs can sell to their investors regarding looking for green investment angle and hence investing in CNEs new story?
Whitehat - the main issue is that assets (EGY, K+C cash flows etc) are being valued at zero in that calculation. Only on a cash basis after divi and buyback, CNEs new market cap comes to roughly £500mn( sadly valuing cne lower than Tlw sqz enq on debt/cash basis) in your calculation.
And NAV of EGY assets is $500mn(from the circular) and if you subtract ($180mn) debt for it you have $300mn to be valued. The number you are starting off with of 200p per share is already a discounted number, as broker analysts mentioned on the call. Their and the CFOs guess is that the buyback will help close that gap. So in your calculation the 111mn buyback number is what needs to grow to close the value discount gap.
Given that CNE would do a share consolidation and after that the buyback would start means the supply demand numbers might be different to what you have assumed in your calculation I.e buyback start point of 500mn when in reality buyback could start off at a post consolidation share count of less than 400mn? So the share count would be a lot lower when the buyback starts off and hence buy pressure would be felt more vs if share count is at 500mn?
Hopefully CNE would finish buying back the shares before the announcement of another acquisition because if there is a sp bump post that new acquisition announcement, CNEs buyback would be able to purchase fewer shares. On the worse side, if market again does not like the next acquisition as it did with EGY acquisition news, the share price could go lower and cne could purchase more- which will be worse nonetheless.
CNE has explicitly mentioned their exploration focus near term is EGY. PHAR, SDX, UJO type plays who have EGY exploration ongoing should give an indication the value this board is going after. Chasing pennies in a fixed gas price and volatile jurisdiction, when north sea and Norway has an actual supply constraint and robust demand for oil and gas.
DELT license drilling decision is a non-event until 2023. Hopefully CNE does get some assets/production in North Sea. No need to go after an entire portfolio but individual assets farming in should be fine as well for the market.
It's a shame Cne has pivoted away from a region like uk north sea or Norway where they could still find decent gas assets.
Look at the likes of SQZ and KIST - they are valued higher than CNE post divi on an asset/cash level. Because of the leverage the gas prices and stable jurisdiction brings. Terrible deployment of capital for acquisition by CNE in a once in a generation oil price cycle. Still think Cne should change the board composition post India resolution. Imagine what a CEO like AA from KIST/RRE fame could do with CNEs cash and debt capacity to generate share value growth?
All IMO dyor
* Today's interview with FM.
Link
https://www.hindustantimes.com/business/happy-to-see-economic-recovery-fm-nirmala-sitharaman-101632160568076.html
You recently scrapped the controversial retrospective tax and also offered a resolution for companies slapped with this tax. What has been the response, especially from companies such as Cairn and Vodafone?
It’s been positive. We have had a round of discussions and haven’t heard any voices of discord. One of them had paid, and the government will have to pay them back but that should close the chapter, we shall not pay interest, etc. And they should end all litigation. Those details are being worked out.