Member Info for Slift

Having followed this company for a while.. Bought a small holding here with my end of month salary today :)

Don't be silly.
Unlikely to be an RNS tomorrow regarding CEO.

CEO is already confirmed and appointed on 21st April 2020.

They don't.

Impairments is due to downgrades in assets as a result of market oil value or other means. In this case, impairments will be due to market oil value/projections and the impact on the assets value vs 2019 values.

Shell is taking a $22b impairment hit.
I'd imagine all oil and gas companies to take a massive hit from impairments this year on their balance sheet, unless oil really recovers to 60$/barrel by YE20.

All IMO.

Worth a read.https://uk.finance.yahoo.com/news/factors-move-elementis-share-price-081837218.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAAgLJg9mqK-F-90peYzFkh6QI_Qfxltaxa86uXkEx4AzP4APmT_YyUekdNGGh86XwS2I8XRls4NhBxNF7gxZhvqLideNNx1vA0_XZ8-TE_gkHNbIjrUudNdajIwDo9lJouR-37kvCo_kbZBFsJjr6z9yVOqG8UxIr_NjHbXWJ2qe

Any rumours or RNS to support offers for any asset or company.. will make this share spike.

Actually thinking about topping up with cash i'm willing to lose on just that.
Will see how it performs this week before I make a decision.

GLA.

Fair enough Canarywharfy.

Good luck to you.

Hi Tornadotony,

The world bank is forecasting $42/barrel for 2021 and the EIA is forecasting $48/barrel for 2021.
Tullow will make free cashflow at these levels, but likely to only drill once in 2021 due to Tullow's strategy going forwards. The strategy (as noted in the Circular) is to focus on Ghana and improve production in 2021, so majority of the CAPEX will be spent here.

I'm not convinced that the Guyana will be drilled in 2021, but we will see.

In the current state where the company's credit and finances are vulnerable, it is not worth hoping to hit big from a drill. This strategy is high risk and failed drills have significant impact.
Sure an oil find might be good, but to develop the site would take years before Tullow can produce from there, and definitely not before 2022. I think following this years sale of assets, any future oil finds will be developed by Tullow and not sold.

Debt is usually never a problem as long as it is manageable. Following Uganda sale and the company's second quarter results, it is likely that the credit ratings will be reviewed and upgraded by Moodys/S&P. Tullow will probably aim for another upgrade by December or March 2021. At this point, Tullow will likely restructure the debts (e.g. borrow to pay off $650m loan maturing in 2022 when they have good credit ratings).

DEBT IS ONLY A PROBLEM WHEN IT'S DUE, or when the interest payments can't be met.
I'd imagine net debt to be around $1.5-2b until 2023.

ALL IMO.

2 years is when the senior note is due.

Unfortunately, Petra at the current rate will not last 2 years.. More like 2-5 months if lenders give up hope or if COVID gets worse and they're forced to shut mines again.

ALL IMO

By putting the company and/or assets up for sale:

Rise:
- Offers for assets, company can weather this storm with liquidity raised
- If company sold, debt no-longer an issue, shareholders will get returns based on sale price
- Company looking to maximise returns for stakeholders

Fall:
- By putting the company up for sale, the board has essentially said they're willing to step down
- Current market conditions not favourable for selling assets
- No offers have been received as of yet, and no guarantee any offers will be made

Thanks for answering. I only asked because of your comment on another forum (another statement with nothing behind it to back it up):
"They needed an offer north of 650 million for us to get anything, who on earth is going to buy us in this environment? Easy NO ONE"

Yes, breakeven is $35/barrel.
That's breakeven cashflow for this year.

Let's assume that Decommissioning, CAPEX and General and Administration costs stay same as this year for 2021.
CAPEX - $300m
Decommissioning spend - $65m
G&A spend - $85m
Tullow also has $300m bond to pay in 2021.
That totals: $750m

This year, free cashflow is likely to be between $300-400m if you take into account hedges.
The uganda sale is $486m.
In total, the company is likely to earn $750-$850m this year.

Whilst this is "enough" to pass liquidity test in September (to show lenders that the company has enough cash for all financial commitments in 2021), Tullow will be limiting CAPEX spend and other costs..
Tullow's average CAPEX is around $500m, which imo is required in 2021 for growth, whether that's improving production or exploration.

2021 isn't a problem for Tullow (assuming Uganda sale passes and there are no significant unforeseen costs)..
But take a minute to think about 2022.

Tullow has a $650m senior note to pay in 2022.
Assuming the above CAPEX, G+A and decommissioning costs for 2022 again ($750m)
Tullow is required to show that it can pass the liquidity test for 2022 in a years time (September 2021)
In total, that is $1400m.

I don't think Tullow is "well financed" going forward. But they CAN BE following restructuring of debt.
Any money Tullow makes for the next 2+ years will not be provided to shareholders and instead be used to service debt and used for CAPEX.

On an accounting sense, Tullow will make a loss this year.

ALL IMO.

Hi icecat,
I'm sure petra will get some offers, for company and for assets.

A offer of maybe $25-30m is required for a buyout of Petra. But obviously this would also come with the debt and the buyer will have to deal with the debt. Whether they refinance that debt, or pay it off, or just manage to keep it going until 2022 when the Senior Note is due is up to them.

For the mines (without the debt and the company), values posted earlier.
In administration, likely to get significantly less than true value. But that would be up to the administrators. I don't see assets being sold for less than 50% of their true value at the time of administratiion.

ALL IMO.

Hi darren,

How is Tullow making money and how is it well financed?
Just want to hear your thoughts.

Hi Regbob,

"and so management should return shareholder value...after all it was because of shareholders, the opportunity for growth was allowed"
Totally agree, but you'd be surprised how many other companies do this in the situation Petra is in. In the event of administration, bondholders and lenders will get paid before shareholders.

"We also should have time on our side."
The covenant ratio for 12 months to June 2020 set by Petra's banking facilities was 3.5 Consolidated Net Debt to Consolidated EBITDA.
We all know Petra has breached this covenant and would have been under administration.. had it not been for management to negotiate with lenders etc.
This is essentially the "time on our sides" created by management.

I am also a holder, albeit a small holding gamble. I do feel bad for long term holders, but the risks to this business was provided back in 2019, when positive cashflow was offset and when the SP tanked..

I hope we all can gain SOMETHING back from this sale.

GLA.

Hi GreenKitty,

I understand that you're frustrated and upset about the performance of this company. But I don't think this is managements fault. I think Richard Duffy has done a great job from negotiating with lenders, to trying to turn this business around with Project 2022.

It's just unfortunate that coronavirus hit when the diamond prices were already under stress. Even now, management is trying to return SOME shareholder value by trying to sell the company and/or assets...

I think Petra was in trouble of administration when it first breached the covenant ratio with the lenders. So kudos to Richard Duffy for keeping the company afloat and trying to return some shareholder value.

All IMO.

Hi Colonel,

I agree that going forwards that the assets will be valued on the present and the future markets. However, I think Petra will be taken advantage of in the current situation, both on a covid19 and the debt basis.
It's also highly unlikely that many diamond producers will pay it's "true value" when every company is trying to be liquid to weather this storm of Covid19.

I agree that Williamson might fetch $50m, but I think $550 for Cullinan and $250m for Finsch is optimistic. Whilst i'm no expert at valuations, i'd take a guess and say that Finsch will probably go for $200-210m and Cullinan for $475-500m.

Rio may be interested in Williamson considering that their pink diamond mine (Argyle) is set to close this year.

Would be interesting to see what offers Petra gets in the coming months for these assets as well as the company as a whole.

GLA.

I honestly don't know how shareholders will react to this news on Monday. Personally, I think this COULD be good news but the fact that noone has made any bids as of yet at £18m market cap is concerning.

Net debt at circa. $630m as at 31st March 2020.

Value of assets as at June 2019:
Cullinan - $573m
Finsch - $288.6m
Koffiefontein - $13.3m
Williamson - $88.6m

Since June 2019, the value of diamond has significantly deterioated by roughly 25-30% i'd guess.
The value in assets will also have slumped in line with the diamond prices.
Furthermore, in the current market conditions, i'd imagine lowball offers be made for these assets.

If Petra does manage to get a bid for one or two smaller assets, share price will likely rise as selling assets gives Petra a chance to survive admin and pay off debt. Though if Petra sells Cullinan, the whole lot needs to be sold and shareholders will then be left with the scraps after paying off debt.

At 2p and £18m market cap, I think Petra is already priced in to fail, so any takeover offers for the company will be around 20% premium to share price at time of bid IMO.

The questions now is..
How long does Petra have to get a bid before they are forced into administration?
Who's willing to make an offer in today's market of depressed diamond prices?
I have no doubt that Petra's assets will be in demand by other diamond miners, but will they make an offer or wait until administration to buy these assets for cheap?

GLA to all here.

Hi spinng,

Absolutely not!
Imo, any company is valued on assets as well as growth. E.g. you don't have to make a profit if you can show that the company can grow in the future.

The negative "net assets" may look bad on paper, but Tullow can grow from this along with the market conditions.
E.g. if oil goes up in value --> growth in assets. Or if Tullow finds new assets or additional oil reserves --> growth in assets.

The main reason why "net assets" will most likely be negative by year end is due to impairments in non-current assets (property, plant and equipment).
In 2019, Tullow suffered net impairments charge of $781m. This was due to a downgrade in the Enrenya field (reduction in oil reserves and hence value) as well as downgrade in long-term oil price assumption (from $75/barrel to $65/barrel).
Likewise, this year, there'll probably be another downgrade in the long-term oil price assumption due to COVID19 and the impacts it has had in the oil industry.

But obviously, this is just a number on paper. When oil price does increases, the value of the non-current assets (plant, property and equipment) will adjust itself upwards.

Hi Longish,

"The worst case scenario only happens in B movies"
Yeah. The worst case scenario provided in the circular isn't possible unless Tullow loses over 56% production. But that doesn't change the total borrowings provided at 3255m.

The net debt with the uganda sale (486m cash on completion) will then be $2325m. Also, if you include FCF from Q3 and Q4 (assuming $45/barrel), you can expect net debt for YE 2020 to be approx $2.1b.
The values stated in the circular is using values from YE 2019 (very outdated).

"Assuming we get Kenya too, and why not, well, we must be looking at 80p net assets by year end"
I don't think so.. The value of Kenya assets as at 31st December was $679m. This has probably been downgraded in line with oil prices and market conditions. Selling Kenya would make the balance sheet worse (if sold in a fire sale like Uganda).
Net assets is more than likely to be negative by YE due to impairments (e.g. value downgrade on assets due to oil prices).

"If all the boxes have been ticked and oil back above $50 and CEO explains 2021 and beyond outlook, we must be well over £1?"
I think the biggest challenge for Tullow in 2021 is debt restructuring (as well as oil prices). If Tullow achieves this, then huge returns can be expected.
$300m bond repayment due in July 2021, $650m senior notes due 2022.
Tullow will also have to reduce debt facility by $420m by year end 2021 (Current facility at $2.2b with $1500m utilised). If Tullow doesn't withdrawn from now --> 2021, facility headroom will be circa $300m by YE 2021.

ALL IMO.

Okay, so correct me here if you think it's wrong.

RBL facility (total including undrawn) as at 31st December 2019: $2.4b, undrawn facilities of $1055m
RBL facility (total including undrawn) as at 31st March 2020: $2.2b (following voluntary reductions), undrawn facilities at $700m

Tullow withdrew (from undrawn RBL facility) $148m.
Total borrowings as at 31st May 2020 confirms this withdrawal, with total borrowings at $3255m.
RBL facility borrowings at $1505m out of $2.2b available (leaving undrawn headroom of circ.$700m)

So Tullow has increased RBL borrowings in Q1 through widrawing from facility.

So as at 31st May 2020:
Cash in bank = (YE2019 + FCF Q1 - unforeseen costs), <$364m

Net debt at end of Q2 2020 (After FCF from Q1 and Q2): Approx. $2811m
The above is assuming that Tullow has spent the $148m it has withdrew.

Net Assets YE 2019: $963.4m
Net Assets Q2 2020 (including cash $561.8m Uganda Sale and assuming Tullow spent the withdrawn amount of $148m): $350m
Net Assets YE 2020: Likely $0 to -$200m due to impairments.

DYOR.