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The opposition party (PLP) are predicted to win the election. The PM Dr Minnis has already given a thank-you concession speech. (source http://www.tribune242.com/news/2021/sep/16/general-election-results-live/ )
His party is anti-drilling and from reading between the lines over how they dealt with CEG's alleged license fees owed, using the media, somewhat difficult to negotiate with. I hope the incoming government who will take office after parliament opens on October 6, will be more friendly.
The above is good news for CEG.
Subject to the Percy-1 autopsy being OK, any Major Oil-Co potentially interested in visiting GNEISS' data room are probably more inclined to do so today, compared to yesterday.
DYOR and GLA.
I’m supposed to be semi-retired but my companies are progressing some large biz development opportunities which is taking a lot my bandwidth. Hence the radio silence. I’m still a shareholder and haven’t de-risked any CEG shares, nor plan to do so.
All: Many thanks for the positive feedback to my previous post on 9/9.
GG: You made my day on 9/9
Buster_Pila re your extremely rude 9/9 post telling me to ‘STFU’, coincidently I did for a week. Without causing offence, in that post you appear to have shown the cerebral capacity of Blackadder’s Baldrick. ( watch 2 mins https://www.youtube.com/watch?v=tGxAYeeyoIc Warning: bad language and the use of a slur word used to describe Germans in the 1910s)… But GL anyway.
DYOR and GLA.
Please bombard shareholders with RNSs on the following 20 topics:
1. 2020 financials and a recent production & cash update
2. Funding plans
3. If the $7m alleged ‘legacy debt’ is close to being resolved. If not, a simple statement will suffice, such as ….’CEG believes the disputed remaining $xxx, can be resolved by year end and at a discount. Payment if any will either be by issuing shares at a premium price and/or a payment schedule which CEG believes can be adequately serviced from future cashflow.’
4. Confirmation ALL non-disputed Bahamas bills have been paid (excl point 5)
5. Status of licenses and the process to resolve amounts allegedly due to the State
6. Percy-1 autopsy and what the findings mean in simple language. Perhaps Proactive can interview expert Dr Zac Phillips or someone of his ilk.
7. Farm in update. Is a major planning to visit Gneiss’ data room?
8. Are there plans to sue those involved in the attempted injunction which forced BPC to get punitive financing and cost holders $$$ because they couldn’t de-risk part of their holdings prior to the result?
9. Is S2 still producing 80boed+? How’s the upper cruse doing?
10. Farm-in update for Saffron 3++
11. Are there engineering solutions for lower cruise? What do the best engineers in the region think? I’m no expert but could shale oil engineers have some innovative solutions as they deal with large chunks of debris all the time?
12. PRD CO2 JV update
13. Updated CPR based on S2 results?
14. Well automation update
15. Work-over statistics
16. Plans to eventually ‘acquire’ other wells via JVs, leveraging CEG’s know how, automation tech and STOW certification.
17. How will CEG’s STOW accreditation in other areas potentially earn $$$ or save $$$?
18. Will the EWT be brought forward using local contractors under remote CEG supervision, with 1 fully vaccinated senior CEG engineer onsite?
19. General update
20. Could a % of this asset be leveraged to get a Bahamas farm-in?
Note: for topics 5 – 7, due to the election on 16/9, CEG will possibly wait until formal government handover. This takes place the day after Parliament opens on Oct 6. This is irrelevant if the current party gets re-elected.
All: I would normally email a CEG exec, but there’s nothing confidential or controversial, hence today’s open post. Have I forgotten something?
Jono44: I post opinion and commentary based on researched evidence and facts. I openly share the sources. And never knowingly mislead.
Antha: I’m a troll? How sad. I’m in my 7th decade of life and never been accused of that before. You appear to be an embittered ex-holder or shorting CEG without disclosing it. I respectfully suggest you move on with your life.
Bohemia: I’m not sure what our ‘argument’ is about. Your calcs are based on the OO RNS, mine were based on both the OO RNS and Trading update. It showed $10.7m cash on 31/5. We came to the same conclusion of a +/- $2m deficit. Where we differ is you believe it is something to worry about, but I do not. Here’s why:
1. A $2m deficit includes an assumption on your part the alleged legacy debt cannot or will not be scheduled for future payment.
2. It may not be payable if CEG insists the full DISPUTED $7m be wiped off……. ‘Sue CEG, let’s meet in court so you can explain in public how a piece of metal fell down the hole, delayed the drill and this clear act of negligence may have resulted in a disaster….’
3. I doubt it will be litigated. CEG and the supplier in dispute (we assume it’s Stena), will likely do a deal for +/- half the disputed $7m.
4. I agree $3.5m if paid in cash may create a $2m deficit, however CEG’s final offer could be……’CEG totally disputes $7m is due but to close the matter we’ll pay you $3.5m over 3 yrs, (or…. we’ll pay you $3.5m/£2.5m next week by issuing 32m CEG shares @ 8p. If the SP doesn’t reach 9p by Sep 2024, we’ll pay you the difference in cash. Take it or sue us…’
5. Incidentally, the above shares scenario is possibly why CEG rejected the Bizzell deal. A Stena deal does not attract £300k/yr interest nor security.
Key point: A +/- $2m deficit may not apply and even if it does, solutions are available.
Jono44: ‘Please provide your address, as I have issued an invoice for $2.9m because I find your posts ANNOYING. PAY IT in 7 days’ …Would you pay it? No. Is it due? No. Why? Because you will dispute it.
So how would you feel if tomorrow I posted…. ‘Jono44 owes $2.9m (theoretically true), but can’t pay it or won’t pay it…..’ implying you are either broke or at fault? So why do you, in your constant anti-CEG posts as an angry ex-holder?
Yesterday you tried to prove CEG owes $2.9m to the Gov citing a newspaper article. It cannot be disputed the Gov believes CEG owes $2.9m for license fees until June 2022. But CEG disputes this and believes it should be zero. Several RNSs from 2020 implied it, with words such as ‘if any’ re license fees due. However, if you refer to the 23/4/21 EGM/OO RNS you will note it is implied CEG made provisions for $500k. Although ambiguously written, xref Funding Requirements point H with Funding Sources point E. ‘H’ states $4m for LOL. ‘E’ states $4.5m including licenses (Source https://polaris.brighterir.com/public/challenger_energy_group/news/rns/story/xzm547w )
CEG probably sent a $500k cheque, but it was declined. They are now waiting for the election to conclude matters.
Key point: Disputed amounts due are NOT necessarily legally or contractually due. Similarly to my $2.9m hypothetical Jono44 invoice.
Ps..Pay CASH and I’ll knock off the VAT. Win win.
A few shrewd investors have collectively pushed the SP up 50%+. Furthermore, few traders who bought in at 1.10-1.50p do not appear to have cashed out and remain on a roll for now. IMO, the reasons include:
• A change of sentiment
• Realisation the S2 result was actually quite good. (For the first time in 100 years, LC oil from the SWP flowed to the surface and the MC alone is considered commercial)
• Shorters closing their positions who will probably continue to do so in case they are hurt.
• The impact of a future S3+ farm-out RNS
• If farmed out, CEG will unlikely seek exotic financing. Less risk, share dilution or CLNs. Traders hate a large chunk of new shares being issued. Not because of dilution (which affects LTHs) but overhangs can last for weeks and puts the brakes on short term gains.
• Less nervousness that the imminent financials will be dire (I did a deep dive in 2 posts over the weekend)
• The impact of a Suriname using a local operator (Auctus stated additional c3.5p SP on de-risking)
• The MCap is severely under-valued based on $10m/yr gross and potential for more
And to a degree, yesterday’s STOW RNS. I do not claim to be the sharpest knife in the kitchen drawer, but if I figured this out within 30 minutes of the RNS, so have traders:
1. Firstly, refer to what a STOW is http://stowtt.info/index.php?categoryid=13 and why it was worthy of an RNS. Had half CEG’s staff passed a first-aid course it may have deserved a tweet, not an RNS.
2. Having a STOW opens the door to partnering with, or providing services to, Heritage
3. It adds a valuable USP when offering S3+ farm-outs, IF it involves a PRD/FRAM type of arrangement where CEG undertakes the actual drilling using the farmee’s capex for mutual tax benefit.
4. But more importantly…..
DPP: combining farm-ins/franchising
• Saffron is a small field with 7 future targets. BUT there are 9 Saffron lookalikes in the SWP.
• Because CEG is a regulated AIM company it cannot directly tout for USA investors. Neither can GNEISS, however CEG could appoint a USA broker to find investors under DPP. (Example: https://www.dwenergygroup.com/direct-participation-programs/ )
• USP: Americans tend to be suspicious of foreign investment offers, however CEG is AIM listed and regulated similar to the USA’s SEC. It is not a small local mom and pop operator.
• USP: ‘Invest $1m in one of our wells. Share in the risk/reward and CEG’s trained STOW certified staff will do the drilling.’
Jono44: I’ve already covered both your questions addressed to me. (a) Lombard’s undisputed $4m was due in June and I made provisions for this in my deep dive financial projections at the weekend. (b) For the Bahamas License refer to my 2/9 04:42am post. You appear to allege CEG owes $2.9m to the Gov and can’t afford to pay it. Where’s your EVIDENCE? PROVE IT!
[I wish the company didn’t interrupt my daily posts with RNSs. How irritating. Anyway, I’ll probably comment on the STOW-TT certificate tomorrow. It’s great CEG has this accreditation when dealing with potential farm-in partners and Heritage.]
Changing the subject: the lowest BPC/CEG’s MCap has ever been was £6.8m on 8 Dec 2017. On that day, the SP closed @4.509p (adjusted) when there were 1,510,479,096 shares on issue. (Source https://finance.yahoo.com/quote/CEG.L/history?p=CEG.L )
Four months previously on 14/7/17 a placing for 280m shares @10p (adjusted) had taken place. (Source https://polaris.brighterir.com/public/challenger_energy_group/news/rns/story/w6e48kr )
Clearly anyone that took part in the 2017 placing were not particularly enamoured, and as frustrated as those that took part in the recent OO/Placing at 3.5p including me.
Those new holders in 2017 who kept their shares for another 12 months would have been ecstatic had they sold at the peak of 62.743p (adjusted) on 9/8/2018 when a major was in the data room. On that day, BPC’s MCap hit >£100m and that was without CERP assets. They would have got a 15x bagger. Even those that held into 2020, when the SP hovered between 11p – 45p (adjusted), would have made a profit, perhaps even a substantial one dependant on when they sold prior to the Percy-1 result.
I’m quite comfortable with my several million CEG shares despite an average of just over 5p having bought several million since the placing. I still believe in what I posted prior to the OO/Placing when the SP was at c0.5p (5p adjusted) that IMO the SP had little scope to PERMANENTLY fall below that level. I have put my money where my mouth is and continue to believe this to be the case. I have not been proven wrong yet on a permanent sub 5p. But I'm not suggesting you should agree with me nor in any way proposing CEG is a superb investment for widows and orphans.
I have not marked CEG buy or strong buy since April. If the financials are as I envision in my recent posts and/or a Trinidad farm-in is announced for at least S3 and possibly S4-S5, I will mark CEG strong buy again, based on the potential risk-free ROI. My recent posts attempted to number crunch the potential.
A lot of news is expected in the next 3 weeks.
End of pep talk to real shareholders.
GLA. DYOR. Have a great day.
Ps Pikestaff: I thank you and feel honoured by your comment…’ I'd like to express my thanks and appreciation for the contributions of two of the board's heavyweights, in the red corner Bohemia and in the blue, Starchild’…… and the complements that followed. Unfortunately, my wife read your post and since yesterday evening immediately placed me on daily strict diet of salad and a tiny piece of cheese. I feel like a rabbit/mouse hybrid mutation. And hungry.
For context refer to my previous post where I put forward the case CEG’s imminent financial update is (IMO) not as bad as anti-CEG shorters and angry ex-holders predict or I should say…… they hope for.
Now refer to recent 2/9/21 RNS https://polaris.brighterir.com/public/challenger_energy_group/news/rns/story/rmnvd2w and note para....
‘……[CEG] has previously advised of £3m drawn under its Conditional Convertible Note facility, of which £2.5m was subsequently converted to equity with £0.5m outstanding (repayable in April 2023 if not converted prior). A further £2m of Convertible Notes became available to the Company on an unconditional basis on 14 June 2021. Pending the results of the Saffron-2 well the Company elected not to avail of this funding and has managed working capital needs and reduced overhead costs materially so to avoid the costs associated with draw-down under this facility (and given that, if drawn, funds would be senior secured and thus would in any case need to be immediately repaid in the event of any other funding being secured). In the absence of imminent Saffron development drilling, and in view of other funding alternatives currently being considered, the Company does not at this time expect to issue any further Convertible Notes under this facility, which otherwise expired in July 2021…..’
1. CEG only has £0.5m of ‘debt’ due April 2023, unless CLN converted.
2. This costs CEG £60k @ 12%/yr, (Source 16/2/21 RNS)
3. So why didn’t CEG draw down the unconditional £2m @ 8p, at a rate >5 times current SP?
• Interest would have increased to £300k/yr
• It would have involved making the increased CLN as senior security and thus hindered alternative future funding for expansion. Eg, a future RBL would be hampered with this CEG sword of Damocles.
• It would have been like getting a £10k car loan secured on the family home.
• A potential Trinidad Saffron 3-5 farm-in is being sought. (refer to my 28/8 post for farmee ROI potential)
• Most importantly, it’s because CEG’s financials are not as bad as some make them out to be. If this is NOT the case, CEG would have bitten Bizzell’s hand off to get £2m for survival and at any price. For example last week’s RNS would have stated ‘CEG has drawn on the facility, but the 8p is now 2p’.
If you believe my opinions on CEG’s financials today and yesterday are generally correct: Buy. If you believe a Trinidad farm-in will happen: Strong buy. If neither: don’t.
DYOR and GLA
Ps: missing word in PS to my previous post was… ‘daft’
PPS: Fatalcharm, I invite you to invest £9 for 1 mth so you can private message me. (https://www.lse.co.uk/members/ ) Happy to swap contact details. See it as a CLN, as you will be repaid £9 + £1 coupon interest (£10 total) in the form of alcoholic tipples when we eventually meet up on my UK return in +/- 2022. GL
In 4 days, CEG’s SP is 40%+ up. Anti-CEG persons who post constant negativity imply it’s a dead cat bounce. I believe it’s due to the SP being seriously under-valued. 3 months ago, the 3.5p placing/OO was seen to be at discount otherwise it would have failed. And, CEG is producing c$10m/yr gross with lots of potential upside. My recent posts provided evidence and opinion to counter many negative arguments.
The market doesn’t like uncertainty, especially with low cap AIM companies where the SP can fluctuate enormously based on news and sentiment. A lot of negative posts relate to CEG’s finances and concerns how any shortfall will be addressed.
My financial analysis:
1. Percy-1 costs went $14m over budget of which $7m was/is disputed.
2. The key reason for the dispute was an object falling down the well, resulting in drilling suspension.
3. The OO/Placing was a corporate reset to move forward. It raised c$10m
4. We know on 31/5/21 CEG had $10.7m in the bank
5. We know Lombard were due $4m in June
6. We know S2 costs were c$3m including contingencies.
7. As of today, CEG has paid $4m to LOL and has or will pay $3m for S2.
8. Assuming a worst-case scenario that CEG has not made a surplus from production, nor cut 20-30% G&A yet, leaves a balance of $10.7 less $7m = $3.7m to pay $7m-$14m drilling debt.
OK, so far so good. Or I should say so bad. However, ….
9. It is totally inconceivable to me that between Feb 8 (end of drilling) and May 31, CEG had not paid anyone for some legacy costs, such as charter planes, hotels, helicopters, materials, Halliburton etc etc. Some were probably paid on the day of service or in advance. Shell can charter a plane with 30-day terms. CEG cannot.
10. Now refer to 16/2/21 RNS ‘….Close-out of remaining costs associated with the drilling (a number of which will not be finalised and become payable for 30-60 days post-well completion) is also ongoing….’ 60 days equals 8/4/21.
11. X-Ref with 24/3/21 RNS. Clearly most of the remaining invoices had been received as $10m ($7m disputed) was stated. But by 23/4 RNS the figure was $14m ($7m disputed) and the OO/placing announced.
12. Key assumption: by 31/5/21 CEG had paid most of the UNDISPUTED $7m (and LOL), leaving it with +/- $3.7m today, INCLUDING provisions for $3m for S2.
13. Arena did not fall about laughing after the initial due dili. The term sheet @4.2p was for expansion NOT legacy costs.
14. Refer to 23/4 RNS, ‘Funding. Point H’. CEG expected 20-30% discount to the $14m.
Bottom line: if CEG gets all the $7m wiped off, IMO we have spare cash. If 25%+ discount, CEG has or nearly has the cash. My maths is OK, but don’t rely on my assumptions written in good faith to buy, so DYOR.
We await financials.
Correction to PS yesterday: LLL: NO. I’m not CEG’s nomad [OR] Camarco. How d
Yesterday’s RNS was not spectacular, but IMO it was a big thumbs up. Key points: S2 has so far proven commercial viability without any production from the LC. Furthermore, the well offtake ‘continues to be optimised’ as the well cleans up. UC may be a bonus. Most importantly CEG has a roadmap, rather than a rabbit staring at headlights on a road.
CEG has some key decisions to make:
1. ‘Can we produce +/- 100 boed long-term just from the middle/upper cruse? If so, shallower cheaper wells are viable for Saffron and eventually a SWP roll out’.
2. ‘Can we, or our partners, using the best engineering brains in the region (or the world), find tech solutions to exploit the LC? If so, it can be a game changer based on 200-300boed x 30 wells and the potential 200mboe+ SWP’.
3. ‘If not, and there is no feasible LC production using current tech, can substantial cashflow still be made at $60 PoO+? ‘
4. ‘Can we fund capex? But more importantly SHOULD WE? Why take the risk with RBL or punitive finance involving share dilution to do it ourselves when there are many small operators some of whom may want some of the action?’
5. ‘Can we make a biz case to get local partners on board? The USP: CEG offers 2 options. Invest <$1m and likely get an ROI quickly from the MC. Or spend $3m with the chance of winning the jackpot with an ROI from the MC anyway.’
KFC, Burger King, and hundreds of high street stores collectively make billions for their franchisees and themselves by sharing the risks/rewards. Why can’t CEG make millions a year from its viable Trinidad operations in free cash with similar arrangements which the energy industry defines as farm-outs?
Comparison: Drive through Texas you will see thousands of nodding donkey type wells. They still make money. Anyone that owns 1000 wells makes a LOT of money. Size doesn’t matter. Lots of littles = big $$$ ROI.
If early next year there was a Trinidad conference involving every AIM company including majors in the region, CEG may be looked down upon in a comparative snobbish type of way. ‘We are Shell’. ‘We are TRIN’. ‘We are TXP’. ‘Who are you again?’…. ‘We are CEG. In 2021 we were cash challenged, so we farmed out 3 wells to save capex and obliterate risk. One is already producing 300boed and subject to production for a few more weeks at those levels, CEG will undertake the next 5 wells without farm-outs, followed by the saturation of wells in the whole of our exclusive SWP acreage. Some with partners, some without. By 1H 2023 we estimate 3000boed net, which is more than many at this conference’.
BTW, I hope CEG selects a local firm for the Suriname EWT ASAP. Even if it costs $1m vs £700k.
DYOR and GLA
SB_1964: I appreciate the feedback.
LLL: NO. I’m not CEG’s nomad Camarco. And in case the next bizarre allegation (to add to the list), is I’m a successful retired adult movie star, that too is false.
Today RNS: My thumbs up because…..
See https://polaris.brighterir.com/public/challenger_energy_group/news/rns/story/rmnvd2w quotes below with my commentary and opinions, some sarcastic in [.... ]:
The Saffron-2 well production offtake continues to be optimised as the well cleans up over a range of reservoir zones. [...good]
With Saffron-2 having proved the presence of moveable hydrocarbons in the Lower Cruse reservoirs, the Company considers that these reservoirs can ultimately contribute toward production. [.....If engineering solutions can be found, LC will be a mega bonus]
Based on current production rates from Safffon-2, the Company considers a development of the Saffron field can be justified economically - even without assuming production contribution from the Lower Cruse (and noting that development wells targeting only the shallower reservoirs will be more cost effective and quicker to drill than that experienced to date across the Saffron field). [....Good. Useful production rates if no engineering solution can be found for LC]
The Company and Arena Investors LP continue to discuss funding options for a Saffron field development, with those discussions to be further advanced once the revised development plan for the Saffron field is finalised. [....'Dear Arena, don’t’ call us we’ll call you. In 2029 perhaps?’]
In parallel, based on the outcomes of Saffron-2, the Company has begun investigating options for a farm-out of the Saffron project, which, if achieved, would present a fundamentally different approach and risk profile for development of the project than has been considered to-date. [........THIS MADE MY DAY. Refer to my recent posts about farm-in ROI]
the Company elected not to avail of [a new £2m CLN] funding….. the Company does not at this time expect to issue any further Convertible Notes under this facility, which otherwise expired in July 2021. [.....Good lads!]
The Company further notes that it will be issuing 2,270,522 new ordinary shares in aggregate (representing less than 0.025% of the total shares in issues), to certain advisors of the Company in settlement of fees owing as well as to some legacy creditors in Trinidad in full settlement of amounts owing (the "New Shares"), with 1.2 million unlisted warrants issued alongside. [ .......de-rampers will say, ‘oh my G+D, there will be an overhang!’]
DYOR and GLA
My post yesterday listed 12 key points or events, which IMO the market sees either negatively or awaits news on, hence CEG’s absurdly low MCap today. This morning, I have expanded on Bahamas and Suriname using the same ref-numbers.
What the market probably thinks…….‘CEG will lose its currently de-facto ‘suspended’ Bahamas licenses due to a dispute over fees and if it does, the $150m spent can never be monetised…..’
What I believe:
(a) the IP is worth ‘something’ and potentially of interest for a Major to at least visit the data room, subject to the Percy-1 autopsy being ‘OK’ and secure licenses.
(b) Re the Gov allegation license fees remain outstanding (currently under admin dispute), refer to page 101 of BPC’s admission doc from exactly 13 years ago https://d1ssu070pg2v9i.cloudfront.net/pex/bahamas/2008/09/01180256/2008-09-02-bpc_-_admission_document_2008.pdf Note…. ‘The extension of the obligation to drill or to commence drilling a well was granted because the Government ACCEPTS responsibility for causing the BPC Group’s delay in fully complying with the provisions of the Licences….’
I am not a lawyer, but IMO CEG has four arguments for reduced fees using the above precedent:
• How could BPC drill for oil prior to the petroleum act (2016) and before the grant of EA in Feb 2020?
• BPC repeatedly stated its intent was to attract a farm-in partner. It’s even in the admission doc above. Although Majors expressed interest and one paid to have exclusivity to the data room in 2018, even if they wanted to drill, how could they prior to EA approval?
• The license was suspended in 2010 due to enviro concerns (see https://polaris.brighterir.com/public/challenger_energy_group/news/rns/story/w6ee9lr )
• The 2020 force majeure
…these then beg the question, why should CEG pay license fees for leases that could not be fully complied with or exploited? Call me cheeky, but I would argue the State owes CEG money. At least a partial refund of fees paid since 2008. Or just ‘call it quits’ until June 2024.
What the market probably thinks…’CEG’s Suriname asset is an irrelevance. Even if <$1m capex for the EWT is available, it’s a side show….’
What I believe: refer to the Auctus 26/8/21…. ‘Following the well result at Saffron, we estimate the value of the company based on the low risk discovered resources in Trinidad (with only 1 mmbbl for Saffron) at 2.20 p per share. Derisking Suriname would add ~3.50 p per share…..’
What I hope: that CEG gets quotes ASAP ASAP ASAP from the 3 most experienced drilling companies in Suriname; awards one of them the EWS contract; with remote CEG supervision and one fully vaccinated senior CEG engineer onsite. I am certainly not suggesting drill-for-equity for the sake of a $700k EWS.
Refer to yesterday’s 06:53 post for context.
DYOR and GLA
PS: happy lucky(?) 13th ‘birthday’.
BurrenBoy: I feel honoured by your comment,…’I would suggest that they put Starchild in charge, he has a plan and is very clever. I'm not joking, he is very very clued up on how to succeed here…..’
Thank you for the compliment, but I would rather have all my teeth extracted without anaesthetic than be appointed on the BoD of CEG or any other public company.
CEG’s MCap is £8.7m. The market appears to assume a number of default assumptions:
1. A Bahamas farm-in will never happen
2. In 17 days, the anti-CEG, anti-drilling gov will be re-elected
3. CEG will lose its currently de-facto ‘suspended’ Bahamas licenses due to a dispute over fees and if it does, the $150m spent can never be monetised, not even for $1. [I disagree this IP is worth zero]
4. The Percy-1 autopsy will not excite the market. It will be a ‘so what?’
5. S2 was a total failure [It was not]
6. S2 will not increase production from $81b/d, and over time production will deplete
7. CEG does not have access to expert engineers to make S3 in the LC a success
8. Even if it did, it does not have the capex to spud S3
9. CEG’s SWP exclusive license probably has huge reserves of 200m+ boe but CEG doesn’t have the capex or skills to exploit it.
10. CEG’s Suriname asset is an irrelevance. Even if <$1m capex for the EWT is available, it’s a side show. [Recent Auctus report proposes a major SP uplift on success]
11. The y/e 2020 and post financial figures will be bad. [I will be content with +/- $2m deficit including a Stena settlement but excluding disputed Bahamas licenses]
12. Current net revenue for 400-500boed @$60 PoO+ just about pays the bills
13. The only solution to the above is a massive placing or death spiral CLN, which makes the arena term sheet @4.2p border-lining on philanthropy.
14. And anyway, Venezuela may invade Trinidad as they probably covet CEG’s SWP oil riches.
IMHO, CEG will find solutions to the above, with the most urgent being 13. They had several months to war game S2 eventualities. In the hypothetical scenario I was in charge, I would be doing the following:
Plan A: Offer a JV for at least S3, possibly S4-S5. Even if the larger players (TXP, TRIN, etc) are not interested, smaller players have been and may be. For the latter, I would give them a list of friendly finance providers, who would potentially help fund some capex. A JV would increase the SP and, in a few months, potentially leverage a settlement with Stena, to conserve CEG cash. I would also subcontract Suriname EWT NOW, TODAY, to locals.
Plan B: If Suriname failed and no interest in Bahamas data room, outsource all production to 3rd parties and slash G&A / opex.
Bottom line: If you believe there is no hope, strong sell. If there are solutions: hold or buy. If Plan A will happen AND financials as stated in point 11, strong buy.
DYOR and GLA
The actual full quote made during the June 2020 TRIN presentation QA session referred to yesterday ………..
'Was CERP of no interest to Trin? '
‘…..In short, no it was not but we wish them every success for the future. Our focus is on delivering not just growth in headline numbers but true sustainable growth. Reserves are great but only really add value if they can be monetised effectively (you may note that we produce a much higher % of our booked 2P reserves than CERP). Adding potentially overvalued reserves to a more efficient portfolio has the potential to dilute shareholder value. The complex geology and overpressure in the SW peninsular makes much of CERPs upside risky both technically and commercially. So please be reassured that we are aware of our peer environment but will only make moves we deem to be in shareholders best interests…..’
It's an interesting quote as it implies some interim discussions to a CERP marriage were proposed by CERP direct or via 3rd parties such as GNEISS. It was bang in the middle of the pandemic when PoO was c$40/b, or less had discussions taken place earlier. BPC then came along and merged for c£24m. Had it not, we’d be totally doomed unless a Bahamas farm-out happened quickly. BPC undertook due diligence and believed they had the skills to make CERP a success. I would argue S2 is a partial one.
When making asset purchase decisions, TRIN and any oil company such as Shell ascertain the ROI and cost of money before buying an asset, farming-out or farming-in. TRIN decided they didn’t want to risk a CERP merger at that time. It is all based on ROI modelling. If they had spare cash of say $6m, do they risk it on exploration, paying more for assets guaranteed to produce, or paying less for more risky plays such as CERP’s SWP. In hindsight, had S2 been a total success of 200-300boed, I believe TRIN would have regretted not merging with CERP. What is a fact, is they recently paid $3.5m for a well producing 83boed. Would they have done so in June 2020? I doubt it.
In all probability S2’s well costs and opex will be recouped in 3 -4 years if PoO remains at current prices and production maintained or improved. Based on the odds of heads we win big, tales we probably still make a profit, I still believe a local player may be interested as was the case after S1 when a 25-75-25 split was offered and declined by BPC.
DYOR and GLA
Today is a normal working day where I normally live and not a public holiday, so a few recommendations in a quick post:
• Report any post to LSE that is abusive, libellous or disruptive. For example goading.
• Report proof of pump/dump/pump/dump and LSE WILL take action. If it is shown this is in collaboration with more than one individual, the matter becomes more serious.
• Report any post to CEG that is false, via email. CEG has the right to make a complaint to LSE, to deal with it. LSE does not have the manpower or appetite to act as referees on accuracy of posts.
• It is pointless entering into a direct debate with certain anti-CEG commentators, other than in exceptional circumstances such as evidence based alternative opinions. They will usually spin your answer to create more anti-CEG commentary for their trading objectives.
Couple of observations
1. A recent post, …..‘What do [I] make of TRIN commenting in June 2020 that “The complex geology and overpressure in the SW peninsula makes much of CERP’s upside risky both technically and commercially.” ‘…Answer: perhaps this commentator can provide h/er source. I see no evidence on the TRN website, or Google for this quote, other that it has been stated before on LSE and ADVFN forums.
2. Another recent post, …. ‘ CEG do not hold the SWP license, it is OPEN as per Ministry of energy website, and TXP could simply (out)bid CEG for it (..if they wanted it, which they don't)..’. This observation is contrary to CEG’s stated position….’ Challenger Energy holds a significant and dominant acreage position in the South West Peninsula (SWP) of Trinidad….’ (source https://www.cegplc.com/operations/trinidad/ )
Polite respectful debate is welcome. This is not: https://www.youtube.com/watch?v=1RFwflbMo2c (Blackadder 1min sketch, some may find not very PC in the 2020s compared to 30 years ago)
Have a nice day.
DYOR and GLA
Micktrick: At 10:34 Sunday you implied CEG owes PRD money with the inference it can’t pay or won’t pay. I am pleased you clarified this allegation with your last sentence at 16:34. Refer to my deep dive post this morning on the PRD forum.
All: Refer to my Saturday post 28/8, ‘How to sell a Saffron farm-in NOW.’ One of the USPs I listed in the hypothetical conversation between CEG and TXP (or any other regional player) was,….. CEG. ’We’ll throw in a goodie. CEG has c$100m in T+T tax credits. Let’s structure the contract to mutually benefit.’
This is how the CERP (now CEG), FRAM JV was structured. CEG’s Trinidad Tax credits are advantageous if the farmee ‘lends’ capex/opex to develop Saffron subject to a CPR, due dili and solution to the engineering challenges of the lower cruse.
What shareholders want news on ASAP ASAP ASAP
1. The 2020 financials. These will possibly show a physical cash surplus because on 31/12/20 BPC had unspent reserves pending Percy-1 invoices due 1st qtr 2021. However, this will not be the case if those future invoices are shown as provisions falling due in the 2021 accounting period.
2. More importantly, a post year-end cash update warts and all. IMHO, I expect this to very bad but workable. If it is shown at between minus $2m and zero, (including provisions for legacy Bahamas debt), I will be content because an incentive based payment schedule can be executed with the major creditor such as Stena. I exclude Bahamas licensing obligations in this potential $2m deficit, whether disputed with the Gov or not. This is on the assumption the license cannot be terminated, merely de-facto suspended. If the latter is the case, there is absolutely no point in making payments unless a farm-in happens otherwise it’s wasting money for no reason. IMO CEG has plausible arguments why a substantial chunk should be wiped off. One of these is BPC/CEG could not spud Percy-1 until Feb 2020 when EA approval was granted.
3. How S3+ and other developments will be funded. In the last week I have attempted to make a case how and why a farm-in for Saffron/SWP can be negotiated and of mutual benefit. (With a very low $3m capex risk to the farmee)
4. An updated CPR based on S2 findings.
5. And with less urgency how the CO2 JV with PRD is progressing.
DYOR and GLA
PrivateTesla: I thank you for clarifying the position, re the FRAM (CEG)/PRD 'debt'. I subsequently checked PRD's 2020 annual report. For quick data reference I did a find for 'fram' in the PDF and although it picked up other words such as 'framework', it had several reverences to the JV.
The original 2017 deal with FRAM/CERP involved PRD lending equipment and cash (or equivalent) to develop the asset. It has subsequently evolved under FRAM/BPC (now CEG).
There are various ways to do a JV:
1. Farm-out/farm-in where the new partner spends its capex and opex to develop an asset.
2. Buy or sell a percentage of an asset. Eg, an oil well or oil field. (common between majors)
3. For the new partner to lend expertise, capex, equipment and/or opex to the asset’s owner for development. In the PRD JV, this probably included CO2 deliveries.
In FRAM’s case, CERP (now CEG) was sitting on $83m Trinidad tax losses (although ring fenced worth c$25m net) in 12/2019. It made perfect sense to structure the deal so that both PRD and CEG will pay lower taxes out of the ROI on success. By leveraging CERP, now CEG’s tax credits, it benefits PRD. Hence, they did option 3 above.
1. CEG cannot sell PRD equipment as that would be theft. It would be the same as lending a tractor to a farmer, to share in the $$$ efficiencies gained at harvest. The farmer could not sell the tractor, otherwise he would end up in jail.
2. If CEG did not honour revenue apportioning, PRD would give notice.
3. PRD can give notice to exit the deal at anytime and for any reason.
4. To date PRD has not. This implies all is OK and CEG is honouring its PRD contractual obligations and has not embezzled PRD equipment.
As for the comment by someone that CEG owes millions to the Bahamas Gov for license obligations, the fact is CEG offered a settlement and the final agreed payment is under an admin dispute mechanism, with an election in 2 weeks. If any company purportedly owes money, it does not mean it is payable unless contractually obligated, or true. Similarly to someone posting on the CEG BB yesterday, the allegation CEG owes money to PRD for FRAM. This may be true, but the inference it can’t or won’t pay what’s due is FALSE, unless proven otherwise.
I hope the JV is a success, with further CEG/PRD ventures in future. You folks have an advantage at having an almost total monopoly on CO2!
PrivateTesla: you deserve promotion to at least Captain level based on your assistance. I wish you and PRD well.
All IMHO, DYOR, GLA
FTR, My family and I own approx. 1% of CEG, hence the clarification. To own a large chunk of CEG is hardly a boast based on its YTD performance. I wish the 1% was in Apple or Amazon. Alas it is not.
There were allegations on this BB Friday and on the CEG BB today, that CEG (formally BPC) owes PRD $400,000. Could anyone elaborate, or was it just a rumour by shorters?
Thanks. I wish PRD investors well.
Bohemia: thanks for your response. In your comment, I believe you were referencing the CERP 27/4/20 RNS https://www.londonstockexchange.com/news-article/CERP/saffron-discoveries-lower-cruse-and-middle-cruse/14516801
IMO, there’s a difference to S1 and S2 as publicly stated by 2 CEOs at different times:
1. CERP's RNS statement that Oil from LC ‘recovered to the surface’ is not the same as Eytan’s quote in the VOX interview, … ‘it flowed naturally to surface. This did not happen with S1, nor has it ever happened in the SWP before’
2. CERP further stated, ‘Middle Cruse oil processed on location and first 340 bbls oil sold through existing infrastructure’ . It did not state the oil came from the lower cruise, because there probably was only a tiny amount ‘stuck’ to the drill (or artificially pumped up in a mini gusher), to analyse it!
3. Leo then stated, ‘We have found what we were looking for - the Saffron well has discovered oil in both the Lower Cruse and Middle Cruse formations.’ He did not state ‘which flowed naturally to the surface.’ Example is Percy-1. BPC/CEG stated a WPS had been found and presence of HCs. It did not state, ‘…..and we got a temporary mini-gusher flowing naturally to the surface and with engineering skills we can figure out how to make it commercial.’
As an important side point, to add to my belief @60 PoO, a farm-in can be done subject to a new CPR, due dili and engineering know-how, note the CERP RNS para…..
‘…..I am particularly pleased to share with our investors and the market that, in order to fast track the appraisal/development of the Lower Cruse, we have signed a Term Sheet with a third party drilling contractor to drill a second well in the Lower Cruse, the same contractor who drilled the Saffron well. It is expected that the well will be drilled in Q3 2020, subject to a stabilised oil price (above US$35 for a sustained period) and operating environment. The well will be fully funded by that third party in return for a share of the production from Saffron 2……’
Due to the CERP/BPC merger, the above JV did not happen, and CEG decided to go it alone. I cannot comment on whether anyone has mis-represented anything. Nor to cast doubt on anyone’s integrity.
Thanks for your other points about shorting. I’ll deal with this another day as I have family stuff to do.
All: this is what a share discussion BB is for. To respectfully give alternative opinions as part of DYOR, not to troll or insult people. I enjoyed this morning's mini-exchange with Bohemia, which was neither a hard-ramp nor de-ramp by either of us.
Bohemia: Firstly, I appreciate that despite openly admitting to shorting CEG your posts have substance, are respectful and not just negative one-liners trolling other persons or the company.
Yesterday you gave a contrary opinion to my previous post which gave $$$ ROI modelling and key justifications and USPs to develop Saffron with farm-in partners.
You wrote…’TXP have 8 development wells to drill, they don’t need to find work for the rig. They don’t really have a lot of free cash either…….. No one is going to fund further MC wells on an assumption they’ll produce a flat 80b/d for four years….’
Please listen to Eytan’s VOX interview. Key tweaked points and commentary below in [ ]:
• ‘during testing, we produced very high quality 48 API oil from the lower cruse’
• ‘it flowed naturally to surface. This did not happen with S1, nor has it ever happened in the SWP before.’ [S1 proved oil, but not flow]
• ‘it’s actually quite a big deal’
• ‘we’ve proved the presence of moveable HCs in the lower cruse’
• ‘[technical challenges due to blockages and shale etc] could not sustain production but this is not a fatal error’.
• ‘It can be remedied but could have taken weeks, perhaps months [of engineering time and cost], so the decision was made to plug and test the upper levels.
• ‘current S1 production is only from the upper cruse and for S2 there’s another 11 feet of testing to go’
I agree TXP would not buy an 80 boed well for $3.5m (similar to TRN's recent purchase) unless production had been proven for 6+ months, but I disagree TXP or other regional players can’t or won’t scrape together $3m Capex for Saffron 3. It’s a low-cost JV, low risk (4-year ROI if same result as S2), big reward (if 200-300boed in lower cruise) with an ROI in <15 mths.
Simply put, for the first time in 100 years of Trinidad’s oil drilling history, CEG proved its acreage in the SWP had moveable HCs in the lower cruise. IMO ‘this is quite a big deal’ and will generate substantive interest.
I concur you may be right that no one will ultimately sign an S3+ farm-in, however do you accept the possibility exists that there could be one, subject to a certified CPR, due dili of the well data, and proposed engineering solutions to produce from the lower cruise?
Off topic: based on your obvious experience and analytical skills, do you accept the possibility that since the OO/Placing and until the S2 RNS, some traders may have ‘played’ the stock down during very low trading volumes physically buying/selling at daily losses, to earn mega profits shorting CEG using CFDs/derivatives?
Instead of exotic CLNs, a farm-in will generate cash with NO risk to CEG or further share dilution. The only dilutive effect would be a virtual 25% sale of (say) 3 Saffrons. Key assumption: a revenue split 75% to farmee until capex repaid, then reverting to 25% as offered to Leo. Pre-reqs: S2 tech analysis and a CPR done.
ROI example 1 (approx maths)
If only middle and upper cruse is successful and 100 boed produced x 3 wells, gross cash generated for 300 boed @ $60 PoO x 360 days = $6.6m/yr. Let’s halve this due to royalties and opex. Result: $3.3m free cash/yr.
• 2022 CEG 25% $800k; farmee $2.5m
• 2023 CEG 25% $800k; farmee $2.5m
• 2024 CEG 25% $800k; farmee $2.5m
• 2025 CEG 25% $800k; farmee $2.5m (by 2025 all $9m Capex costs recouped)
• 2026 onwards: CEG 75% $2.5m/yr; farmee $800k during the life of the wells
ROI example 2
If lower cruse is also successful and 300 boed produced x 3 wells, gross cash for 900 boed is $20m/yr. Let’s halve this as above. Result: $10m free cash/yr.
• 2022 CEG 25% $2.5m; farmee $7.5m
• 2023 CEG 25% $6m; farmee $4m (by 1st qtr 2023 ALL farmee’s $9m capex recouped)
• 2024 onwards: CEG 75% $7.5m/yr; farmee $2.5m during the life of the wells
Summary: If oil is found in lower cruise @300 boed, CEG would have cash to drill Saffrons 6 - 8 in < 2 years.
Script for CEG to use on TXP, TRN, PRD, and others including the company that offered a JV in 2019/20:
CEG, ‘Hello TXP. Would you like a 3 well farm in? ‘
CEG, ‘Because Starchild told us to’
CEG, ‘See his two ROI examples above, and the recent certified CPR. Note the CPR estimate for middle/upper cruse only. We’re offering a 25-75-25 split. Worst case is you get your capex back in a few years. Best case, you’ll make it like bandits especially if PoO is $70+.’
TXP, ‘What about production declines in middle cruse if oil from lower cruse can’t be produced?’
CEG, ‘You’ll still get your capex back eventually. Trinity just paid $3.5m for a well producing 83 boed. They’re clearly not worried about major well depletion’. (https://polaris.brighterir.com/public/trinity_exploration/news/rns/story/xlqz67w )
CEG, ’We’ll throw in a goodie. CEG has c$100m in T+T tax credits. Let’s structure the contract to mutually benefit.’
TXP, ‘OK, but only for 1 well’
CEG, ‘OK, but you must spud by 31/12/21 and give us $500k up front’
TXP, ‘it’s a deal’
Alternative endings to the script
1. TXP, ‘let’s discuss a farm-out for all Saffrons’ Or, ….
2. TXP, ‘let’s merge in a friendly T/O.’ Or,….
3. TXP, ‘no thank you. Bye bye’ (Back in the TXP office, ‘OK lads, let’s launch a hostile bid’)
Bottom line: A Saffron farm-in would mean: NO exotic funding. NO RBL. NO CLN. NO extra shares. And NO risk to CEG.
DYOR and GLA
PS: Must dash. I have a CEG RNS to write. I just wanted to tease my grumpy shareholders.