Member Info for StarBright

Rodders74, your explanation neglects to address the critical factor - a placing can be dilute, accretive or neutral depending upon the price paid by the subscribers for the new shares. It is only dilutive if the shares are issued at a discount.

And to be clear, downward movement in SP prompted by a placing is not dilution.

This isn't an intuitive topic and it is not widely understood here or elsewhere. When I worked in m&a I spent a surprising amount of time explaining it to people (including CFO's and CEO's of quoted companies...) who you might have expected to understand it well.

Agreed JK. My illustration was somewhat simplified to give the OP a fighting chance of understanding it....

ifonly1....

https://m.youtube.com/watch?v=wg66kwRnOpw

Dilution occurs when more shares are issued and subscribed for at a level below the market price. A holder then owns a lower % of the company than they did before. Their number of shares is unchanged, but the % of the company represented by those shares is diminished,

Imagine you own half of the shares in a company whose only asset is £100 in cash. There are 100 shares in issue, so you own 50 valued at £1 each, Your holding is worth £50. The company then decides to print 100 more shares and give them to someone else for free. You now own 50/200 shares and the company is still worth £100, so your shares are worth £25. You have been diluted by 50%.

However, if the company requires the new subscriber to pay £1 each for their 100 new shares then you will own 50/200 shares in a company with assets worth £200. So your holding will still be worth £50. In this case you have not been diluted,

More shares does not equal dilution. It is the discount that matters. If there is no discount, there is no dilution.

Although UKOG has issued shares through placings, the last few have been at relatively low discounts. From memory the dilution impact of the last placing for a holder of 1m shares was £28.

To say that this topic isn’t widely understood by posters here would be an understatement....

Question doesn’t make sense. Dilution doesn’t change the number of shares you own.

lejjb - I think you are spot on. Credibility of both the investment case and company management are on the line here. Time will be taken to get this right.

I think that's possible, but I wouldn't want to rely on a timely disclosure. It is more likely that we'll only see confirmation when their annual report is produced as I expect they provide a breakdown of investments that they hold. That might be some time away though.

The question to ask is - "What would they have to gain from a voluntary disclosure?"

If HH is a roaring success and it transpires that they sold their shares at a significant undervalue then they'll want to bury that fact for as long as possible.

If HH is a disaster and getting their stake out against a valuation of £30m proves to have been a good deal then I expect we'll hear all about it pretty quickly..!

A sentiment spike driven by skilled rampers, unlikely to be repeated now that the company is more widely understood..?

I don't think so EotP. If they'd retained (say) 20% they would have funded the associated cash calls through the sale of the UKOG shares they took for the other 80%.

Tanker sightings are the new “Big buy” posts. We’ve had about 30 sightings; the 31st isn’t going to make any difference is it..? The game has moved on...

*sell the lot! Bl**dy autocorrect...

I fully expect Solo to see the lot. Swapping their HHDL shares for UKOG had two immediate effects. First they were off the hook for future cash/funding calls from HH and secondly their exposure to HH was diluted to about 20% (I posted a calculation iillustrating this when the transaction was announced) relative to when they held directly. If they had wanted to retain a lower exposure - at the level they have now via UKOG - they could just have retained the required proportion of their HHDL holding. That they didn’t tells me they - and the the other minnows - decided that £30m was a good valuation for HHDL; a valuation at which they would cash out their holdings and move on. Why was the transaction settled in UKOG equity? Simply because UKOG can print shares, but can’t print hard cash. The market is liquid enough to absorb the 328m shares issued in the placing over a reasonable period without cratering the price - as we are seeing. So my firm view is that all three - Solo, Gunsynd and Primorus - will sell all of the UKOG shares they took.

To be clear, I see no problems adding together the reservoir/connected volume figures (once these are known!) but am intrigued as to how flow rates should be combined.

That’s not my experience. The quote displayed (in their equity product not the spread bets) is precisely in line with what I can see on L2. If you trade you may well get a message saying “Price improved by ...” a few points inside the spread. IG (and all brokers) are subject to regulation prohibiting what I suspect you are worried about. FWIW, I think they (IG) are pretty good as far as equity platforms go. Better than CSD, which I find good for funds but not for direct equities.

A question for the professional oilers on this board:

Can the production figures for the various layers in one well be added together in the way Atomicrain suggests?

Thank you Idespair. It says "Production costs estimated @ ~ £17/bbl or $21/bbl".

I have seen somewhere else a figure of $25 described as operating cost. Perhaps the $4/barrel difference is capex related..? Anyway, I think it is better going forward to use the £17/bbl ($22 at current FX) figure and to assume that this covers production costs only as per UKOG's own wording.

Interestingly the presentation references a Cenkos research note from April 2017. Does anyone have a copy of this? I would be very interested if so. It says:

"KL Multi-well pad: Gross NPV10 $138 MM; source Cenkos: Initiation Note April 2017

The NPV10 figure given there is based presumably on initial production of 2000bopd referenced elsewhere on the same page. My model shows a slightly lower figure of $127m for that production level, but that's comfortably in the ball-park. If I use the latest assumptions embedded in the far more recent scoping document (notably initial production of 3500bopd) along with todays oil price and fx rates etc then my estimate of NPV10 is $209m. This remember is for a single multi-well pad, not for the company as a whole.

On reflection I would like to question one component of my earlier (08:42) post.

We frequently see costs/barrel for HH of $25 (or thereabouts) quoted on this site. I have used this number myself. But despite searching I haven’t been able to find the source of this figure. It may have been used initially when HH was first being tested. I understand that single figure estimates are commonplace in the early stages of projects, and am well aware of their limitations. But I’d like to see exactly what was said, in its full context. In particular I would like to see whether it is possible to better understand the broad categories of expenditure the single figure was intended to encompass.

If anyone could direct me toward the source of this cost per barrel, I’d be most grateful. Thank you in advance.

That would depend on how you are defining profit. There’s no chance that £370k will have covered the total investment to date! What we have seen in the photos from the eyes - rigs, drilling, pumps, BOP’s, perforation, security etc etc is seriously expensive.

If the project is declared uncommercial, all of these accumulated costs will have to be written off in one big hit. Ouch.

If it is declared commercial they’ll be amortised over the working life of the well, as long as 20 years according to the scoping application.

That’s one reason why the commerciality declaration topic attracts such attention.

My working assumption is that the naked ramping here is performance art of some form. It is beyond parody.

There’s no need to adjust for the $25/barrel estimated operating cost when calculating this. That $25 isn’t an amount that’s paid to anyone, rather it is a per barrel estimate of total costs including capex over the production life of the well. It’s useful for understanding the life cycle economics of the well, but not short term cash flows.

To understand the financial impact of production during the EWT, I don’t think it is necessary to adjust for UKOG’s share either as I believe that all sale proceeds are being used to defray the EWT costs.

It is therefore more meaningful to calculate the “contribution to EWT costs” eg the gross revenues from the tankers, with perhaps a small deduction for haulage costs. Is there someone here who knows what the cost of a tanker round trip is? I’ve used £1k below.

(30 tankers * 214 barrels * $81 / 1.3) - (30 * £1k) = £370k contribution to EWT costs, or £12.3k per tanker.