Cheers Ant. I think they did confirm that on the call as well regarding the north sea sales proceeds. But the completion is going to be q4 so by then for all we know Waldorf is going to get the asset free of cost with just contingent payment outstanding(although minus the reserves that have been produced since)? I think Cne did mention that end of 2021 cne would be due another $75mn if oil prices stay as today as the contingent payment on these assets? Might as well would have retained these assets and drive them down into decline at such prices with minimal capex through to 2025?
Did you check why Egypt acquisition adjustment hasn't been any close to what north sale amount has been for, even adjusting for oil vs gas assets? Egypt should have produced at least $70mn cash flow in first half given their average cash flow per year of $140 mn from 2017-2019 as shown in the Egypt circular?
My rough Calc for year end cash before divi is;
$mn
340 mn at June
-100mn capex
+ 120mn cash flow from north sea asset (assume same as first half)
+60mn (balance payment from Waldorf?)
+ 70mn due contingent payment for 2021
-120 cash for Egypt (debt is separate as the remaining cash can be leveraged)
+360mn cash left over post divi buyback
So $730mn cash post divi or before divi gross cash value $1430 cash and $180 mn debt.
Plus Unaccounted cash inflow from Egypt assets for 2H or 4Q ownership?
So with $700 mn war chest for next acquisition - if cne put $500mn for an acquisition can easily get a sizable $1bn+ asset for another 500mn debt financed deal and will still have $200 mn cash left over
Just rough numbers imo. Any other views?
Sell on the news brigade from yesterdays spike and flushing out of leveraged traders in a weak market? Plus MMs would need to start collecting cheap shares for the upcoming buyback, what better way than shaking weak traders/holders off especially those who are in profit since the recent rise.
After the recent rise, consolidation is always good to form a new base to rise from especially when weak holders can be shaken out.
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"The hefty upcoming dividend for investors makes it more appealing, but we're still not sure what a long-term shareholder would be getting. Hold. "
https://www.investorschronicle.co.uk/news/2021/09/07/cairn-energy-s-theseus-year/
IMO there is a discount being applied to cne due to Egypt acquisition as it's not a jurisdiction where assets trade at fair or premium values due to the above ground political risks. And I'd imagine a lot of IIs don't like being invested in such jurisdictions. There is also debt of over $200 mn for these assets which kind of reduces our net cash position. Until cash flows can be shown from these assets to be flowing in, in droves, it's hard for it to be priced fairly into cne sp. Although in yesterdays webcast the COO mentioned that the growth from 35kboepd to 50kboepd would focus more on liquids and oil rich drilling which might boost cash flows as oil prices are high and the returns would be much higher compared to silly fixed regional gas prices.
More importantly CNE needs to pivot the next acquisition story to a lot more stable jurisdiction like north sea or USA which might offset the negative effects of Egypt acquisition. Of course if cne can pivot to a regular dividend paying company from its cash flows that would attract more IIs into the shareholder base.
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Thunder - well put. These bbs are filled with armchair CEOs and experts who think they know better than 40 years + experienced industry career professionals who are at exec levels for a reason.
The experts who quote $1.7 bn entitlement to award don't know the difference between $1.06 bn today vs $1.4bn (post tax) years from now. They just non stop whine about their rights as shareholders to the full value of the $1.7bn award when majority of these posters might have been in cne for less than a year, who joined after the 7 year process of getting to the award.
Getting the Paris properties seized which were worth $30mn took a good 4 months. Extrapolate that for the $1bn thats being refunded and you will see the seizing and recovery of the first $1bn of the award would be in at least 3-4 years. Best to ignore such non value adding/whining posts.
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The CEO has already said that once the cash refund is received after that the cases would be dropped in a few days post refund. So wait for the rupees refund to be received in CNEs India account and then another couple of days to repatriate it to uk and then kick off the award withdrawing process?
The rupees would need to be converted to US dollars.
On a related note - why is cne planning to convert the rupees to dollars, when $700mn equivalent would have to be converted again into gbp? That's double currency conversion charges? Surely they can convert the rupees directly into gbp for the divi and buyback equivalent amount? Surely cne wouldn't be converting it twice?
The news is out just today. It will take some time for wider market to notice especially once the brokers increase price targets. Just like when the news about the tax amendment was out last month market was slow to catch on and then slowly build it up to the news of half year results. So again it might build up slowly in the following weeks in anticipation of the cash refund news?
Either way it's kind of a guaranteed 50% + return for todays buyers in coming month or two. If it goes down with wider market take opportunity and build up the position imo.
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"The offer to return money seized to enforce retrospective tax demand in lieu of dropping all litigations against the government "is acceptable to us," Cairn CEO Simon Thomson told PTI in an interview from London.
Cairn will drop cases to seize diplomatic apartments in Paris and Air India airplanes in the US in "a matter of a couple of days" after the refund, he said adding Cairn's shareholders are in agreement with accepting the offer and moving on.
"Some of our core shareholders likes BlackRock and Franklin Templeton agree (to this). Our view is supported by our core shareholders (that) on balance it is better to accept and move on and be pragmatic. Rather than continue with something negative for all parties which could last for many years," he said
"Once we get to final resolution, part of that resolution is us dropping everything in terms of litigation. We can do that within a very short period of time, just a matter of a couple of days or something," Thomson said. "So we are preparing on the basis of getting this resolution quickly, all these cases being dropped, and putting all this behind."
"Everything will be dropped. There will be no more litigation, that will be it. It will clear the matter up," he said.
"We were pleased when the Government of India made what we thought was a pretty bold move, in terms of enactment of the legislation," he said. "The intention of the government, we are obviously aligned with it, is to get this resolved as quickly as possible. Hopefully, that means within the next few weeks. It is good not only for us and our shareholders but also importantly for India."
"It will mean we will forego interest and penalty in terms of the original arbitration award. The important thing for us is it returns the value that was taken from us. From our perspective it is the right thing to do, be pragmatic, put this behind us, move on," he said adding this would help wipe away a factor negatively impacting investment for many years to come.
https://m.economictimes.com/industry/energy/oil-gas/cairn-accepts-1-billion-refund-offer-to-drop-cases-against-india-within-days-says-ceo/amp_articleshow/86003171.cms?__twitter_impression=true
Cne confirmed on the call that the full refund would take place in a few weeks. And divi and buyback mix is because for some IIs buybacks are more tax efficient than divi. With $200mn cne could buy back at least 70mn shares assuming a fixed price of £2.00 per share or at least 50mn shares at £2.50 per share.
Year end Cash position might be close to $800 million (after paying out $700mn) assuming $200mn receipt of k+c assets and retaining $360 million from the refund along with current cash of $300 mn? Cne seem to have mistakenly mentioned on the slide retaining $300 mn of the refund amount instead of $360mn as it's $1060 mn?
"Payment of the tax refund would enable a proposed return to shareholders of up to US$700m, via a special dividend of US$500m and a share buyback programme of up to US$200m. "
Cne wouldn't plan this capital return detail and mention it in the Half year results, unless cne has made up its mind to settle this issue fully once and for all.
Agree, especially given that the settlement rules have been out just last week. So it might take some time to get it wrapped up.
Market is pricing anyways lower risk than what it was post the award and consolidation day 1 sp of £2.10. Previously the law itself had added all the risk of ever seeing the $1bn + amount , but now given that the law has been eradicated, the risk isn't there anymore regarding the value return. It's just getting it sorted "swiftly" as CNE puts it from todays sp. Even a sp of £3 puts cne market cap at £1.5bn which should put in perspective the expected refund value of $1bn, and existing businesses and current cash.
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"Cairn’s senior executive met Tarun Bajaj, Revenue Secretary, on Monday. When contacted, a Cairn Energy spokesperson told BusinessLine: “We have an ongoing open and transparent, amicable and constructive discussions with the Government of India to find a resolution under the new legislation.”
Sources aware of the development said the company will continue to keep the legal option open until a settlement with the Indian government is reached."
https://www.thehindubusinessline.com/companies/cairn-pushes-for-seizing-air-indias-assets/article36324939.ece
Cairn ups ante in US court in its fight against India on tax
“Discussions are progressing well, and a settlement should happen sooner than later," a Cairn executive said on the condition of anonymity, declining to comment why the company had toughened its stance in the court.
A spokesperson for Cairn Energy, too, echoed this sentiment. “Any legal activity on this matter does not preclude ongoing amicable discussions between Cairn and the government of India regarding the new legislation to progress and resolve this matter swiftly," said a spokesperson for Cairn Energy"
https://www.livemint.com/companies/news/cairn-ups-ante-in-us-court-in-its-fight-against-india-on-tax-11630862722405.html
Interesting comment on the other board on this ; if cne does force the airline to put up security equivalent to the award then essentially post the appeal hearing, which if it goes in favor of cne, the security amount would be transfered to cne bypassing the whole seizing and selling aircrafts hassle, etc?
I guess cne has to file counter responses until settlement is completed just as gov and the airline had to file their responses last week to the cne case, even after withdrawing the tax amendment. So I suppose it's the way to keep holding the leverage until the settlement agreement is finalized.
"This comes a week after the government enacted legislation to scrap a tax rule that gave the tax department power to go 50 years back and slap capital gains levies wherever ownership had changed hands overseas, but business assets were in India. That rule had been used to levy a cumulative of Rs 1.10 lakh crore of tax on 17 entities, including Rs 10,247 crore on Cairn.
Officials said rules for withdrawal of such tax demands are in the process of being framed.
"One of the requirements for the dropping of the retrospective tax demands is that the parties concerned have to give an undertaking for withdrawal all cases against the government/tax department. So, while all this is in process, the government is obligated to respond in any legal matter where there is a time bar for doing so," an official explained.
Officials said the government couldn't have waited for the tax dispute to be closed in line with the new law and had to file a motion, failing which an adverse court order would have led to more embarrassment."
https://wap.business-standard.com/article/companies/india-asks-us-court-to-reject-cairn-energy-s-1-2-billion-suit-121081700956_1.html
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It's possible that cne would just say that they are in discussions with the gov and would update the market if and when there is an agreement on the full settlement amount and timeline of the refund. Cne wouldn't want to give a lot of details on their discussions especially after gov said this week in one of the local news articles that they are open to accommodating companys requests regarding the closing of the issues for full settlement and withdrawal of arbitration award demands. So cne might wait until the cash lands post full settlement agreement, before updating the market which might take a month or two imo.
Apart from the usual update - would be interesting to also see the status of the Egypt acquisition, payments and cash flow from it and whether it's close to completion yet. Any other new acquisition news possible?
Also the status of cash flow from K+C disposal and current cash position which in Mar '21 was c. $300 mn? And new exploration plans for Suriname, Mauritania, Mexico and North Sea?
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North sea is one of the best fiscal regions for o&g investors. Cambo and other Talking points are just that. If the current high gas prices hit the newspapers, suddenly it would be expected of North Sea o&g to step in and save the population from high imported energy prices. The value of fields in North sea is all about nearby infrastructure led value enhancement. I think Cne has never developed fully any offshore field - CNE is good at exploring and monetizing not full fledged operator /development leader. After the award settlement it will be a question of what next for cne so wouldn't be surprised if cne is looking for a big acquisition to leverage it's strong balance sheet and springboard onto a new story.
And the £2.60 equates to £1.3 bn market cap. If cne has £1.2bn cash value as you put it, your margin of safety in cne is a lot bigger than any other E&P company that's London listed. Look at any of them, even the likes of Serica (sqz) which has half the market cap of CNE for marginal revenue or value generation capacity vs cne. With cne it's not about the sp it will be with regards to the dividend or absolute capital return. Dividend will not necessarily be reflected fully in the sp as you say. Even the Senegal dividend in Jan right before ex divi date the yield at cne was of 15%. Of course consolidation makes the math different but still you can't expect the full cash value to be reflected in the market value via sp. Hence capital return via divi is more efficient as opposed to letting market value that cash on the sp.
If £1.2bn is the cash value as you put it and if cne choose to return half of it I.e. £600mn via special divi that will be an absolute return of £1.20 per share. If you take that £1.20 off your £2.30 "sp"target value you are left with £1.1 or £550 mn market cap with ex divi which is again less than the residual cash value of £600mn. So you need to add at least 50p more to get to a sensible level which is what hsbc and some other brokers seem to have set the target price as I.e. 275p after the recent tax amendment news. Of course it's just rough but you get the math. Berenberg gave a conservative target price of just 235p recently and they called likes of gkp very well. Gkp is probably the only company in uk listed space which is a cash cow but with a wipe out RNS risk due to the political risk of the region especially after recent genl psc cancelation news.
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Ant- I think aegon was selling down a lot more than 1%, that's what caused the price to breakdown from its £1.60-£1.70 range the last few months. Seeing that weakness that's when cobas loaded up above the 3% threshold. Aegon chose a low volume summer period to reduce their stake causing more volatility than is expected from a low volatility share like cne.
We must also not forget that there is a lot less shares in issue than Jan of this year post consolidation. Post consolidation the share price was at £2.10 which would be representative starting point after sale and divi in Jan. Of course that included just Kraken and catcher stakes which we have cashed in now but still do have oil price exposure to it. Then the EGY acq which market obviously hasn't priced in well until cne can show itself to be deriving value from it, as say Apache have done imo. Until heavy cash, flows in from EGY, it's being valued at asset level by brokers, one broker I think recently valued just the EGY assets net to cne at 66p per share. Of course 66p per share is a lot more than value attributed to EGY acq by market or PIs currently. Jury is still out on EGY value proposition to cne.
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And draft rules seem to suggest that it's just a matter of signing over a few undertaking documents and get the $1.08 bn back and then withdraw cases and close it all?
" What Do The Draft Rules Say
A taxpayer looking to settle such retrospective claims is required to file undertakings to ‘irrevocably withdraw, discontinue and not to pursue’ any appeal, litigation, arbitration or any other proceeding before any court or authority, including any enforcement proceedings.
Any dispute with respect to the prescribed forms or orders under these rules would be governed by Indian laws, and Indian courts would have exclusive jurisdiction to decide such disputes.
The taxpayer will indemnify the government against any claims made by a separate interested party, such as direct or indirect shareholders, or any other beneficial owner of the taxpayer in whose case these proceedings are ongoing or concluded.
The taxpayer would have 45 days from when the rules are notified to file the required forms and the tax authorities would respond within 15 days on acceptance or rejection of the forms, after an opportunity of being heard is provided."
https://www.bloombergquint.com/law-and-policy/government-releases-draft-retro-tax-amendment-rules
If anyone missed this article which confirms CNEs intention to settle rather than pursue further.
"Cairn Energy has sought several clarifications from the government on settling the dispute over retrospective tax. This includes when and how the levies collected will be refunded if the company accepts the settlement under the terms of the amendments approved by parliament.
Company executives who met finance ministry officials on Wednesday also sought details of the procedures involved, said people aware of the development. The executives indicated that the company may withdraw legal proceedings if it was assured of a quick and smooth refund of the amount due to Cairn.
“Cairn is not rejecting the proposal being offered by the government, but certain aspects such as how quickly can the refund take place, where and what needs to be done et al, has to be laid out clearly,” said one of the persons cited above.
Another person said, “Whether this amount will be paid in India or overseas, will it be done in one go or will be staggered… the government has to clarify.”
https://economictimes.indiatimes.com/news/economy/finance/cairn-execs-meet-finmin-officials-seek-clarifications-on-settlement/articleshow/85258564.cms
Market is already pricing that cne will be looking to settle soon. So not sure where the " going after full award along with interest amount" idea is coming from.
Maybe posters should read this article and understand the situation a bit better. Non stop Whining about wanting the full award will not change anything, cne and big IIs want to settle asap and thats what market is saying. Full award receipt is never going to happen without enforcement over years, draining more time and resources. The word settlement means neither party gets all they want - a compromise. And Cne had already proposed to the gov the option of just paying the principal amount.
This is what the article says when cne execs met the gov few weeks ago ;
"However, the dispute is likely to be settled as Cairn Energy executives and finance ministry officials meet. The meeting could be held as early as Wednesday, reported The Economic Times after speaking to people familiar with the matter.
One of the people quoted in the ET report said Cairn would just want the Indian government to refund the principal amount and the company is willing to let go of the remaining part of the arbitration award.
The report also indicated that Cairn had earlier proposed the offer to the government, but it was not entertained. The company hopes to end the dispute as soon as possible."
https://www.indiatoday.in/business/story/cairn-energy-executives-to-meet-govt-officials-resolve-retrospective-tax-dispute-issue-1839575-2021-08-11
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