Member Info for Stevo12

Ovets

Almost all forecasts are for relatively stable fossil fuels demand until 2035 and then a very gradual decline. However with rising global energy demands, fossil fuels will contribute a reducing % to global energy needs. A focussed Oil and Gas business like harbour can do very well without diversifying into green energy. They will be using old wells for carbon capture which could be a nice sideline.

My big question is if FI is so critical to the world order, why did the U.K. Government not support and facilitate PMO’s development of FI oil. Oil could have been pumping now with FI government committed to paying defence bill with oil revenues, the U.K. treasury would have been £100m pa better off.

However the reality is that PMO did not receive any real political or commercial support.

Dbno

Still confident on 20p today.

Godders

I concur. While it is helpful to remind ourselves of all the positives about FI oil and the military importance of a south Atlantic outpost for NATO given Chinese expansionism in Argentina and wider South America, the fact is that MR Market has concluded that there is a very low possibility of Harbour developing Sealion.

We are all betting that Mr Market is wrong but more often than not he is proven correct. Yes 10:1 shots do come in occasionally as this weekends Grand National demonstrated, but not very often. The bookie is normally the winner.

The debate on this board has very much helped inform my thinking. I believe we will hear the results of arbitration before we know the fate of Sealion and that the Arbitration has got a reasonable probability (more than 50%) of being successful. Accordingly I am staying in until arbitration award.

Surfit

Sealion phase 1 costs to first oil $1.8b for 250m barrels ($7.2 pb). Uganda $5.1b for 1 billion barrels ($5.1 pb). Accordingly Sealion $2.1per barrel more expensive or 40%.

As you note we are really comparing apples and pears with onshore and offshore production and distribution.

In terms of how sales works from FPSO it is normal sale on loading to tankers. The buyers will effectively discount the price offered by the transport costs to get oil to refinery.

Actually FI development costs are about 40% more expensive per barrel. Also OPEX and DECOM will be far lower for onshore in Uganda than FI. Then there is the shipping costs to get oil from FI to friendly port.

Tax rates will be higher in Uganda and government will also be providing some of the funding through the development bank.

Personally I would not invest in Africa but majors seem to be happy to take on the political risk.

Harbour have consent to purchase approx 50m shares or 0.25% of shares in issue. This will probably be increased at AGM in June 21 but shares should have risen substantially by then. Accordingly their hands are tied and will not be able to pick up many cheap shares for next 3 months.

Pearls

You really need to do your research before making such statements. Companies can not buy back their shares without shareholder approval through an EGM or more conventionally the company seeks consent from shareholder at AGM for authority to purchase a maximum number of shares during next 12 months.

Mrlol

Unfortunately you are incorrect. Harbour has taken our hedges as opposed to put options. Hedges are low cost but require harbour to settle the hedge of pay the difference between the hedge price and the market price at date of settlement. Put options are expensive but give you the option to take the put if prices fall below the put price, but to not exercise the put if prices rise.

Harbour are approx 50% hedged at a price which generates significant cash flows. Having this security for a couple of years until oil demand fully returns is a smart move.

Thanks J

Just working out how many additional top up shares I was allocated. I applied for 200k and was allocated 25,000 - 12.5%.

Is this consistent with others?

Pearls

I don’t think you fully understand the nature and behaviour of distressed debt investors and the incredible deal they got from Harbour. Many cannot and others wont hold equity except for very short periods.

They will be very happy to exit at anywhere between 20-25p.. However their core objective is to move into their next victim. They will not want their capital tied up in Harbour.

We are only seeing the on-market transactions and there will likely be off-market sales. The creditor shares might have flushed through by end of month, but I think it might take a couple more weeks. If we expect mid to end of May for market stabilisation, any sooner will be a bonus.

Blades

Noble has been a long term investor in Chrysaor. They are at least a real company and not a distressed debt investor like ARCM. Also they can not sell until 1 October 2021.

I think I will be selling my harbour shares over the summer before lock ins expire.

I had an old Ford escort that leaked more oil than Navitas currently produce! Although they have an interesting opportunity in Shenandoah (where they are operator with a 53% working interest), there is a multi-billion spend to move it to production.
Their current revenues of about $60m per year are largely derived from a 7.5% working interest in Buckskin north.

Navitas are a pretty small but very ambitious outfit who have raised about $100m to date from investors. They focus on investing following discovery but before FID.

I am struggling to see how they be able to materially contribute significant funds to Sealion. They are struggling to raise finance for Shenandoah with FID delayed. In a presentation to its investors in October last year, Navitas disclosed that the majority of Sealion development costs will be funded by UK government guarantee.

If Harbour decide to progress Sealion, I believe they will drop Navitas and bring in other investors (possibly from EIG). Navitas have got got very little to add to this project operationally or financially and were a desperation move by Premier.

Don’t get too excited guys. We will be getting a stream of shareholding notifications related to the 77% (14 billion) shares allocated to the EIG and Chrysaor investors. The majority of these are US investors and are not actual share purchases.

These

If Sealion does not get developed then there will no further exploration in then Falklands. Think of it logically, if a large fully appraised and FID ready project on which the partners have already spent over $1 billion can’t achieve FID, why would someone else spend another $1b on Rhea to get to the same stage as Sealion.

If an investor had the money and appetite, they would just take over Sealion when the licence is relinquished or join the current consortium.

SK

I don’t think we will see 40p until August. We first need to see strong interim results, dividends declared and FTSE 100 entry confirmed. I do think we will return to 30p once creditor share overhang is largely cleared by June.

SK. Absolutely and creditor share overhang is the principal driver of price today.

You can forget underlying value when 3 billion shares need to change hands. The price will be held low (not by some dark force) but by the simple laws of supply and demand. The Lower the price the more Equity funds will be buying. For the creditors (distressed debt investors) 20p is a good price for the shares they were given as part of the debt exchange and they are realising huge profits on their investment (300% in 9 months). Harbour offered the creditors a cash alternative of 8p per share. Unsurprisingly most creditors turned this offer down and took shares which they are now selling for 20p (2.5 times more than harbour offered).

Good analysis Poodles. Only real prospect is if Harbour goes full out to develop FI as a new oil basin and Argos can piggy back on a rig at some point. Given Harbour will first be drilling Sealion production wells before they go exploring again, this will be many years off. I am guessing 2026 at the earliest.

Gains.

The most comparable organisation is Aker BP. Very similar production and reserves in Norwegian North Sea (200k bpd) and almost identical debt. Their market cap is currently £7.5b and accordingly valued approximately double Harbour. I would say that their producing assets are slightly earlier life than Harbour, but Norwegian tax regime takes over 80% of profit at high oil prices but pays oil companies money back when oil price falls below $40 pb.

With tax losses and lower U.K. tax rate, Harbour should be valued higher than AkerBP when oil prices are at or above $70pb.

Aker BP are a well established business paying a healthy dividend and their CFO joins Harbour next week as our new CFO. I also have looked at Lundin as another comparable business. Accordingly Harbour needs to move to 40p to close the arbitrage.

This will not happen until creditor share overhang is cleared. This will take a couple of months.

Not even a possibility Pearls. EIG and associates control 77% of the share capital and can block any offer. Also they are prevented from selling due to lock ins.

Most importantly they will not sell until value (as measured compared to peers) is realised. It is increasingly looking like an oil and gas supply crunch in 2022/23 which will drive up oil price and oil producers share prices. I am sure they will have a 2-3 year exit plan, like all PE investors, and cannot see them selling much below 50p. There may be some sales when lock in periods end in September 21 and April 22 if share price has equalised with peers (about 40p).