Member Info for Soder

Heyj hej - read my posts (story thread) and others on the shorts. No one is buying their shorts back. They will be filled by shares issued to them in the merger/restructuring.

Arcm, whitebox etc all own tons of bank loans and will be allocated stock in March which will fill those short positions. They will NOT be buying the shares back in the market.

Cant really keep saying it any more. You can take a horse to water....blah blah blah

Either way, the shorts are irrelevant. On a pure valuation perspective this will said past 30 after the deal closes on fundamentals alone. Just read the last rns and presentations and merger prospects. Production, hedging, opex, costs, capex, divi policy, lock ups....all the info is there. All you need to do is make an oil px assumption to work on ebitda, cashflow etc.

My orig reply was deleted so apologies for choice language. Was just in jest. I’m not on Reddit unfortunately :0

To say I am super high conviction on PMO would be a mild understatement. I like these complex trades which perhaps people may shy away from as they can be tricky to understand. All things being equal there is no way this will stay under 30p after the deal closes. And I mean NO way!

Final post from me. Putting it all together. A highly conservative 2.1bn ebitdax with a highly conservative 6x ev multiple gets you to a share price of 38p. It will naturally trade at a discount to that fair value until you get dividends announced but either way you are looking min 30p out the box at the end of March. I’ll take 50 percent to start and then we wait for oil recovery and the harbour cash machine to kick in for 2022.

Buzzthomas. It is my understanding that the deal needs Mexican competition clearance that’s all. That’s a formality, just like U.K.needed to given competition approval. There are no Issues here at all as the biz is too small and chrysaor has no Mexican operations. It’s a reverse merger so no change to fact it’s pmo owning zama stake. Just that pmo is now called harbour and has diff shareholders. There is no issue with Mexico at all.

2021 ebitdax model. All data is $ and lifted from various presentations or the prospectus.
Assumptions:
Production: 210k boe per day - half is oil and half gas
Hedging (from December pres)
Oil- 16m boe at $60 bbl
Gas - 22m boe at 43p per therm
Spot oil price average for rest of year: $ 57
Spot gas price average for rest of year: 40p per therm
Opex bbl: $15bbl
Fixed costs: it’s $91m combined for first half 20 as per prospectus so assume $182m for FY.
Synergies: none. I’m being conservative.

Revenues:
Total annual production is 360 days x 210k boe day = 75.6m boe. Half is oil and half is gas.
Hedged oil sales: 16m boe x $60 = 960m
Hedged gas sales: 1 therm is 0.172 boe so 1 boe is 58.14 therms. The hedged price price per therm is 43p which using tax 1.36 is $0,58 per therm or $34 per boe. Hence, hedged gas sales are $34 x 22m = 748m
Unhedged oil sales are $57 x (37.8m -16m) = $1.242bn
Unhedged gas sales: 40p a therm is $ 31 per boe. So $31 x (37.8m -22m) = 490m

Total revenues = $3.44bn
Operating costs are $15 x 75.6m = $1.134bn
Therefore gross profit is $2.3bn
Less fixed costs of $182m gives....
Ebitdax for 2021 of $2.1bn

But, if you think oil averages $60 for 2021 or goes to $65 for the unhedged portion ebitdax goes to
$60 oil: ebitdax to $2.2bn
$65 oil: ebitdax to $2.3bn
$70 oil: ebitdax to $2.6bn

The important thing to remember that tax will be nil, cost of debt is under 5% so call it 180m per year interest. Capex 1.3bn. So harbour will be a cash machine throwing off free cash flow and a dividend is not just possible it’s highly highly likely. Given this me 5.5x assumption for ev ebitdax is too low. This should trade inline with Norwegian peers eg Aker.

So re the lock ups
Harbour energy will be locked up for min 12 months and then a 12 month orderly market covenant. Chrysaor minority shareholders also have a 6 month lock up and then 12 month orderly market covenant. Between them that’s 66 percent of all shares locked up - they physically can’t sell. Re the creditors the lock up applies to those creditors who will have more than 2.7 percent of the post close shares outstanding. 2.7 percent of 18 510 653 629 is 499 787 654. As a percentage of the total creditor shares to be issued it is exactly and conveniently 15 percent. That means the lockup will apply to any creditor that currently owns 15 percent of the debt. It’s def arcm but maybe also one other who is a bank but owns on distressed desk.

Either way you are talking 70 percent plus of all shares in harbour will have a trading restriction that creates a very interesting technical if you have forced buyers around the June index roll.

One other thing I did not mention is I am looking at the lockup and shareholder agreements. This could be crucial to share price support. Given the size of harbour post close it will be in the ftse 250 from the June index roll date. You then get forced ftse 250 ETF and fund buyers. But if so many shares are locked up with creditors, with harbour and its affiliates (who won’t sell) where do they source these shares from? Existing shareholders only make up 5 percent of the pro forma shares outstanding. There could be a HUGE bun fight for shares around June as etf and index funds are forced buyers. But who is the seller? I’m not. Creditors can’t due to the lock up.

I just read the prospectus and had not realised that there is an option for creditors to take equity warrants. My experience is these are specifically designed for the remaining banks who would prefer not to or can’t take listed shares. Hence will be NO forced bank sellers of the stock either on close.

Just doing some back of the fag packet valuation now to try get a sense of ebitda for 2021 and will post that later. But on a look back basis you can work out a guy 2020 annualised (from h1 20) figure and use the fact they have stated leverage (net debt / ebitdax) will be 1.3x at close based in $3.2bn debt. Hence, 3.2/1.3= ~$2.4bn ebitda annualised from H1 20 data.

What ev multiple will it trade on? Say to be conservative 5.5x. We can then calculate an enterprise value and subtract the net debt of 3.2bn to work out an equity value (mkt cap) in usd. From that flip it to gbp using 1.36 and you can work out a price per share.

So...Putting this together using 5.5x ev ebitda multiple
Net debt $3.2bn
Ebitda $2.4bn
Enterprise value: 5.5 x 2.4bn = $13.2bn
Implied equity value $10bn (13.2 -3.2)
Fx 1.36
Implied equity value or mkt cap in gbp £7.3bn
Max number of shares in issue post deal close 18,510,653,520
So price per share is 39.7p or ~90% higher than where we are now.

But opex bbl is forecast to go up and will be production declines so I need to model a 2021 ebitdax which will prob be lower. they have ~38m boe of production hedged which is approx 5O% of all production. Nice!!!! And obv oil price is currently helping. Either way. This is a NO BRAINER trade.

Also re dividend, look at page 27 of the December presentation. It states “ Expectation to initiate a dividend for full year 2021” wowza. That will massively support market valuation. Will be back.

But, remember those funds pre hedging are not shorting as many shares as they will receive. So net net even the funds who have shorted will be significant harbour shareholders post deal closing. It’s really important for PIs to understand the funds are not shorting to express a negative view and that their shorting is actually a blessing as we can buy stock at s significant discount t to where is will trade post deal closing.

That brings us to today....what is Harbour worth when the deal closes? I will put that together (my views only) and post another time but it’s way way more than 20p.

By 2020, PMO looks to be on the right track although the bank debt is due to mature shortly and must be refinanced. There are no longer a friendly group of relationship banks to negotiate terms with. PMO are now negotiating with hedge funds driven solely by economics and it’s not obvious how PMO will refinance. There is a plan to buy some BP assets, farm out some others, raise some equity and finally sort out the balance sheet. This will enable PMO to grow into its balance sheet and allows the hedge funds to continue to take cashflow as repayment for the debt they purchased at big discounts. Everything looks ok. Then comes corona.....

Oil crashes again, the debt sells off, the share price crashes (the hedge fund short positions against their long debt works to perfection and limits their mark to market loses on the debt) , the plans for an equity raise vanish and we are back to square 1. Is all lost?

No. Chrysaor steps up to propose a reverse merger. Fundamentally, PMO is a good biz with good assets. They have good people, good cost base after meaningfully reducing opex per bbl, and some very good reserves eg Zama... but.... they have a ****ty balance sheet. Chrysaor propose to all the hedge funds holding the bank debt (I think prob 70-80 per cent of all pmo debt is held by hedge funds now) that they take a haircut on their debt to get the merger done and in return take a split of cash and shares to compensate them. The proposal means that all these hedge funds that bought debt at a discount to par will end up cashing out their loans at ~ 60 percent of face value in cash plus be given stock that leaves them as significant shareholders in the merged entity - harbour: a bigger, better, less levered, cleaner, more diversified monster with 200k Boepd production. The opportunity to get a significant stake in Harbour at the low point of the cycle is very attractive and the funds can ride the shares higher post deal completion as oil recovers. The merger timeframe and structure provides an opportunity for debt holders to pre hedge the large amount of shares they would receive as part of the creditor settlement. That is, they can lock in value by continuing to sell short shares in the existing pmo listed entity before being allocated new shares in harbour when the deal closes in late March. The terms of the creditor shares prevent them from immediately selling and the larger funds will be subject to a lock up for and 6 months. As we know, a lot can happen with oil in that time so again for risk management it makes sense for them to have pre sold/shorted shares ahead of the lock up so they can manage their risk around the deal and the lockup period.

Let me take you on a journey...

It’s jan 2016 and the oil price has just **** the bed driven by booming shale production. PMO are 2 years into a 1.6bn development of the catcher oil field for which they have raised significant debt from a group of banks. The FPSO is only half built and first oil is not expected until late 2017. PMO is reliant on operational cash flows and a meaningfully higher oil price to fund the continuing perditions and the remaining committed catcher development capex

By mid year 2016 banks are seeing oil (and oil service, eg rigs) companies with levered balance sheets and high opex per bbl exhibit financial strain. Many are going under or restructuring. Banks look to clean up their own balance sheets and begin to sell loans they made to oil companies to distressed debt funds who then become the lenders. Billions and billions of loans that sat with banks were sold to funds like arcm, whitebox, DK, oaktree, Apollo, OZ, SVP etc. In the North Sea two of the bigger loans that get sold by many banks are enquest and premier oil. Banks were worried that both these companies had high
Opex per bbl, we’re burning cash and had high capex commitments to achieve first oil from Kraken and Catcher. The oil price meant that these companies may mean they run out of cash and default (or at least require new money to be put in).

Premier oil RCF was trading in blocks of 50-100m at a price as low as half its value. Distressed debt investing is a loan-to-own strategy and hedge funds were buying with a view that oil prices would recover eventually but if not they could wipe out the equity and take control of PMO. After all it’s a good business, it just had too much debt at the wrong time.

In late 2017 catcher achieves first oil. At this point PMO debt is now trading in the 80s. The oil price recovers and PMO start to pay down this debt from cash flows. PMO is still a highly levered company though and will need to spend money to maintain production and generate cash flows (either by acquiring producing assets or drilling).

Over the period, 2016-2020 more and more banks sold to brit loans. As hedge funds got bigger exposure to the debt, some (not many) shorted shares to hedge their long in hugely illiquid debt - eg arcm, whitebox. If things go bad in distressed debt you are left holding the baby. There is no escape!! The rationale for shorting liquid shares against a long on illiquid debt was that if for any reason PMO failed or oil crashed, the share price would sell off more than the debt and you can risk management your loses (this is exactly what happened in 2020).

You need to do some reading about the deal. Quite frankly it’s scary you are invested here if you dont know what is going on with the merger and the dynamics around the creditors.

In short, creditors are agreeing a haircut on their debt holdings in exchange for cash and some equity. It’s if the creditors are hedge funds who bought the bank debt at discounts of up to 50 per cent of par over the last 4 years. To hedge some of the equity exposure they will re will e as part of the deal they are shorting in advance of the deal closing. For example, arcm probably own 300m of debt. They will receive cash and shares in return for them agreeing the the debt haircut and the merger. As a made up number as I don’t know the exact, but say they receive 100m worth of shares in the deal they have shorted 50m to hedge half their exposure. But will be left long 50m of exposure after it closes. All they are doing is risk management. They will be left a huge shareholder after but are locking in some gains. The bank debt traded as low as 50% of or and even in December traded at 80 %.

Pipe down and listen up. Come March your shares will be worth more than they are now. MEANINGFULLY more. Also the shifters have more skin in the game then me and you could dream of and will be huge equity holders after. They are NOT shorting as they believe the equity price goes down.

I can tell you know that on that shirt holders list, they ALL own debt. They will ALL receive shares. They will ALL be left long the stock on deal closing.

Also if they were not shorting this would be much higher. Think if it as as gift from them to us that lets us buy at a min 70 percent discount to fundamental value.

The people shorting pmo want oil higher. Post the merger their shorts will be filled and then some. As such, arcm, whitebox etc will all be left long stock and significant shareholders. They want oil up as much as we do!! Shorting is just risk management to lock in their gains from buying the bank debt from 50-80c over the last four years.

Kraken it’s just a short term technical around the merger. All you have to do is wait till late March.

I posted some stuff on this earlier today. It’s increased by 10k tests a day since jan and increases every day. Why is that? Something continues to rolled out in the nhs. I wonder what? Even if number of tests does not go up the number of machines that can do them is. Hmmmmm. Dots. Connecting.

The last presentation from the company said leverage will be 1.3x and net debt of $3.2bn at close. That implies ebitda of $2.4bn or in Sterling £ 1.8bn.

Putting everything into gbp....
Net debt £2.3bn
RForbes mkt cap estimate £2.7bn
Enterprise value£5bn
Ebitda £1800m
Ev ebitda multiple 2.8x

RForbes please do share how you think a company that is highly FCF positive, may pay a dividend, has a very strong balance sheet is worth 2.8x ev ebitda. I would lay good money that you can’t find a single peer or relevant comp to back up your analysis. That’s because you are talking BS. Next.....

I do remember that wbafc. Aggghhh. I also have the painful memory of a few weeks ago :) Hopefully ncyt gives you some cheer this year as agent sam takes you down. If you own 100k of ncyt and it values to what it’s worth you will be able to buy most of Sandwell with your gains. Lord Nova of Sandwell. just kidding ;)

I am big in ncyt but also have a decent sized position in Savannah which is at the start of the interview. If you not looked at that and can get your head around Nigeria that’s a v interesting company. Gas supply agreements supported by bank guarantees and Niger discoveries thrown in for free. Highly cash generative and management doing all the right things. That could double and more v v easily.

If wbafc stands for West Bromwich Albion I am calling bull****. There is no way a baggie has that much cash never mind spare cash.

Up the wolves :0