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Example 2 - COPL’s Working Interest 85% (Having acquired CUDA)
Again let's assume that WTI oil price remains constant at $80/boo. Let's also say that production is 6,000 bopd which is midway between the two plateaus given in COPL's Presentation in February.
6,000 bopd is 2.10m bopy as near as makes no difference. That’s 2.10m bopy x 85 = 1.79m bopy to COPL.
Finally let's say pre - debt & tax Netback is $50/boo giving us $30/boo costs and that repayment of the debt principal begins in March 2022 as before.
So we have revenue as 0.39m boo hedged at $56.58/boo and 1.40m boo at $80/boo. Giving us a total revenue of $134.07m.
On the cost side we have operation costs of 1.79m bopy at $30/boo giving us $53.70m and debt costs of 10 x $1.80m(P)+ 12 x $638k(I) giving us $25.66m. Making the cost before tax of $79.36m and a profit before tax of $54.71 m.
As before there should be no tax to pay given the offset of losses on the balance sheet and other allowables so it follows that the $54.71m may be used as “earnings” in an earning metric method of valuing Barron Flats Shannon. Barron Flats Deep,Cole Creek and Nigeria assets have not been considered.
Again with BF running in an optimised and steady state by Christmas 2022 I believe it’s appropriate to use a p/e ratio of 25 and in so doing we get a contribution to COPL’s market cap from BF & CC at that time of $1367.75m. I repeat BFD, CC and Nigeria have not been considered.
So with around 165m shares in issue we get to $8.55 notional share price contribution from just Barron Flats Shannon which is £6.33 by December 2022. That’s well over twenty bags from here.
This example shows how attractive the acquisition of CUDA could prove to be. For a notional $20m in cost COPL would in theory gain over $500m in value in about a year's time when Shannon should be operating in an optimised and steady state.
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Example 2 - COPL’s Working Interest 85% (Having acquired CUDA)
Again let's assume that WTI oil price remains constant at $80/boo. Let's also say that production is 6,000 bopd which is midway between the two plateaus given in COPL's Presentation in February.
6,000 bopd is 2.10m bopy as near as makes no difference. That’s 2.10m bopy x 85 = 1.79m bopy to COPL.
Finally let's say pre - debt & tax Netback is $50/boo giving us $30/boo costs and that repayment of the debt principal begins in March 2022 as before.
So we have revenue as 0.39m boo hedged at $56.58/boo and 1.40m boo at $80/boo. Giving us a total revenue of $134.07m.
On the cost side we have operation costs of 1.79m bopy at $30/boo giving us $53.70m and debt costs of 10 x $1.80m(P)+ 12 x $638k(I) giving us $25.66m. Making the cost before tax of $79.36m and a profit before tax of $54.71 m.
As before there should be no tax to pay given the offset of losses on the balance sheet and other allowables so it follows that the $54.71m may be used as “earnings” in an earning metric method of valuing Barron Flats Shannon. Barron Flats Deep,Cole Creek and Nigeria assets have not been considered.
Again with BF running in an optimised and steady state by Christmas 2022 I believe it’s appropriate to use a p/e ratio of 25 and in so doing we get a contribution to COPL’s market cap from BF & CC at that time of $1367.75m. I repeat BFD, CC and Nigeria have not been considered.
So with around 165m shares in issue we get to $8.55 notional share price contribution from just Barron Flats Shannon which is £6.33 by December 2022. That’s well over twenty bags from here.
This example shows how attractive the acquisition of CUDA could prove to be. For a notional $20m in cost COPL would in theory gain over $500m in value in about a year's time when Shannon should be operating in an optimised and steady state.
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Example 3 - COPL’s Working Interest 100%:-
To take Barron Flats and Cole Creek to it’s optimised and steady state on their known assets I believe we have to be looking at Q2 2025.
By then the senior debt should have been paid and COPL should own 100% of the fields. producing 16,000 bopd at least. 12,000 bopd from Barron Flats and 4,000 bop from Cole Creek. The final tranche of ownership being financed out of work in progress.That’s my vision.
If I’m near right and oil prices stay as they are we could be looking at almost $450m revenue from 5.6m bopy. Costs by then should be no more than $25/boo giving us a profit before tax of $308m. By then I imagine COPL may be paying tax albeit not without some write-downs to offset the liability. I have that at no more than $50m which in turn gives us an earnings figure of $248m.
Using the same p/e ratio as before of 25 that puts Wyomings a Market Cap at $6.2bn. With 165m shares in issue that's a contribution to COPL’s share price of $37.57 or £27.80 from Wyoming which is eerily 100 bags from here! Nigeria is still being excluded.
I’m not saying this stock isn’t without risk. Of course it is. But what I am saying it’s stock which such enormous potential such as this one with and very proportionate risk/reward ratio that makes the opportunity in COPL extremely rare and very attractive in my view
Let’s hope the market stay’s strong and AM get’s there for us guys!
AIMHO.
Yours is an excellent post Tiburn. Thanks for giving us your thoughts. I for one very much appreciate it.
As you rightly pointed out before, if Barron Flats Deep is as exciting as we hope it is then it follows that a “tight-hole” status should have been sought which is exactly what we’re hearing. “Tight-hole” meaning no information is allowed to be sought or released be released as I understand it. Why would you bother doing that if the prospects weren’t looking good?
Unless I hear differently I believe there’s a case running in the courts against CUDA. The costs aren’t fixed the’re accumulating which is why their value has been asked to be assessed on a quantum meruit basis. If I’m right there can be no public discussions or announcements on the case as the matters are likely to be considered sub judice.
Patience will be rewarded here I feel.
AIMHO
Noob67.
Sorry I meant this one:-
On July 26, 2021 Southwestern filed a Claim (the "Claim") in the Eighth Judicial District Court, State of Wyoming as Plaintiff against Cuda, Bridging, and Tallinn as defendants. Southwestern's Claim seeks the following heads of relief: a judicial foreclosure order against the defendants of the Southwestern Liens on Cuda's interest in the Unit; an award of damages for breach of contract by Cuda....
COPL’s acquisition of CUDA may not be just about money and the purchase price guys. There may be other aspects. There may be legalities that we’re not aware of under consideration for instance.
Without doubt there will be legal agreements in place between CUDA and now COPL (formerly Atomic) regarding the ownership and use of the infrastructure at BFU & CC albeit indirectly in COPL’s case. Nevertheless I imagine COPL’s interest as the Parent will be explicit.
If those contracts are not capable of being assigned or novated by CUDA without COPL’s agreement (which I suspect may be the case) it may be quite a problem for CUDA and possibly a huge impediment to other suitors.
Worst case for CUDA and it’s creditors as I see it is that the asset only has a value to COPL and it cannot readily be sold to anyone else. There may be other laws in the US that could be brought into play to unwind the situation, I’m not sure. Laws such as the “natural justice” or “duty to act fairly” as it’s sometimes known here in the UK for example. But I’m guessing CUDA and it’s creditors would much prefer not to go down a route through the courts unless pushed.
Subjudice may also be a consideration in the case that’s now running in the courts against CUDA too. Although I imagine if suitable wording is used it’s not the main reason behind the lack of news.
In my simple minded mind I find it helps to picture situations like this as an archery board. Whilst Directors etc sit in the inner circle all knowing as “insiders' ' under the market rules the knowledge gets dissipated to the outer circle where we as retail investors and “outsiders” sit.
We’re never going to have the information others have in the other circles and that makes it nigh-on impossible to know what's going on. We’re reduced to guesswork and to my mind there’s nothing wrong with that. But with limited knowledge it’s wrong to be standing in judgement of others in public as some seem to be doing on here.
We just need to give it time to play out. Patience is a virtue as they say and having read some of the posts Matthew 7:5 couldn't be more appropriate in my humble opinion.
Fingers crossed we get news and an update soon guys.
AIMHO.
Guys the two most sensitive fundamentals that impact Discounted Cash Flow calculations and Netbacks are a) the realised prices of oil and b) the production rates. They cannot be ignored and they’re the main cause reason why Netbacks appear to be so wide ranging,
Understanding the impact the price of oil is relatively easy. But just by way of example to explain the consequences of production I’ll keep the math simple :-
If operations Netback was say $30/boo on a realisation price of oil at say $60/boo and a production rate of 1500 bopd then it follows that costs must have been $30/boo.
At that point let's also say fixed costs were $20/boo and variable costs were $10/boo making up the total of our $30/boo.
Now if we simply adjust the production rate of 1500 bopd and double it to 3000 bopd the fixed costs become diluted by 50% to $10/boo and the variable costs also remain at $10/boo The Netback must therefore now be $40/boo.
The increase in production is one of the main reasons why ARC is confident to say on slide 14 of its Presentation :-
“Considering the Lender’s requirement for cash sweep, we estimate that at the current oil price COPL can afford between $20-25mm/year of capital expenditures(in addition to the Butane/Propane costs) and still be able to fully amortise the Loan by2025”
So in ARC’s considered opinion COPL should create sufficient Netback to be able to satisfy its borrowings and have a further $20m to & $25 per annum in for any Capex required.
I believe ARC has based it’s comment on a $60/boo price. However at today's WTI oil price the surplus generated for Capex is more likely to be between $35m & $42m per annum.
An acquisition of CUDA at a reasonable cost is likely to improve Netbacks dramatically.
AIMHO
Although I’ve only had a very quick read ARC's Research Note and Appraisal it looks good in as much as it potentially puts a floor under COPL's SP. Their target is currently 80p. It also makes a great read and the details where the devil lives appear to be relatively easy to follow and understand.
However for me from the outset ARC are being far too conservative as most Analysts are. The reasons for them being so are easy to appreciate. Primarily they never want to be seen to be wrong. You only have to look at ARC’s base NPV assessment from which all their other assessments flow to find the evidence. Viz;-
ARC say they have run a NPV10 and in their view the current valuation is $100m including a full allowance for the P2 reserves assigned to the BFU. They go on to say they have disregarded 2P reserves at Cole Creek almost fully. But the 2P reserves at Cole Creek are significantly less than Shannons and more importantly they would only feature in later cashflow years and therefore have no material effect on the NPV if it was done over a short term.
Whichever way you look, ARC's NPV statement is weak and wildly at odds with COPL's. The statement should have told us the WTI oil price they'd assumed. It's a fundamental metric in the NPV calculation and cannot be ignored. From the result I can only imagine that perhaps ARC’s NPV term did’nt run out as far as COPL’s.
Against ARC's assessment of $100m, COPL suggests an NPV10 using just $39 bbl WTI oil price to be in the region of $185m. So to bring it in line with ARC's $100m COPL's is should be more like $250m.
I’ve taken COPL’s from slide 5 of the February's Presentation which tells us "Assumed market capitalization ... $205m" but that too is conservative now given it was based on a lowly $62/bbl WTI. Today it’s near $80.
That's some difference between the two. ARC’s has a far too conservative starting point to be realistic in my view.
Conversely COPL's NPV10 will have done with much better information and checked many times by experts going through their due diligence given its significance.. No doubt the FCA will have crawled all over it too. So I know which of the two I prefer to believe and choose to rely on.
Nevertheless, let's hope we re-rate to at least ARC's 80p soon guys and perhaps it's no bad thing that it's on the cautious side!
AIMHO.
Ginger hippo & Demon_G and others who may be interested I'd like just to add my pennyworth on previous losses if I may.
I happen to think you both have valid points and you're both right to a degree. The previous losses in Atomic do affect the valuation. However they have an attraction to investors too.
When COPL ran it's NPV & NAV calculations to value the acquisition all metrics would have been counted. Including Atomics balance sheet position which in turn included Atomics previous losses. That's how NPV's & NAV’s work.
So the NPV firstly gave valuations at two points P1 & P2. Both of those values would have allowed for previous losses on Atomics balance sheet. It follows therefore that so would the price COPL paid for Atomic by default.
When it comes to cash the previous losses aren't a liability so no payments need ever be made against them They're a value count not a debt.
They simply sit on the balance sheet and get adjusted periodically when accounts are produced until they either reduce to zero or they expire over a given statutory term.( normally about seven years I think.)
So when it comes to profit and loss the figures investors will be interested in is the "notional profit/loss" before the previous losses are or other taxable write-downs are counted as well as the reportable net profit/loss. In that way they can see their ROI based on the notional figures,
Any notional profit then gets written down by previos losses and if there's still a negative balance then no tax is payable. This is likely to be the case for several years given the losses brought forward.
And that's why the losses are attractive on the balance sheet. Simply because they can be used to reduce or negate the need to pay tax. They're a tax benefit in effect.
AIMHO
Yes thank you.
It'll be an interesting read I'm.
Professional Analysts always seem to me to be overly conservative for obvious reasons. I've an open mind but I doubt Tennyson will be any different.
Without looking too hard Tennyson's future target MC & SP is about half of what COPL's Presentation gave us as a starting position. So that's not a great start! Ha ha.
Guys while we’re waiting for this long running cycle to break I thought I’d share theselonger term personal thoughts with those of you that may be interested:-
I believe we could see COPL’s WI in Wyoming at 100% and Barron Flats & Cole Creek combined producing 5m boopy in no more than four years from now.
In that vision I see Barron Flats Shanon producing 5,000 bopd. Barron Flats Deep also producing 5,000 bopd and Cole Creek producing 4,000 bopd to make the total 14,000 bopd combined. That's approximately 5m bopy in total.
5m bopy then at say $100 boo WTI oil price would give both fields combined an annual revenue of $500m. With a final netback of $30/boo (£20/boo) that’s $150m (£100m) net profit or earnings.
By then given were looking at a life of fields of 40 years and running in a fully optimised and steady state I believe using an earnings method to value both fields would be appropriate.
So let’s say there’s 200m shares in issue by then and use a p/e of 25 we get to a notional Market Cap of $ 3.75bn (£2.5bn) giving us a SP of £12.50. (5m boopy x £20/boo x 27 p/e ÷ 200m shares).
I've assumed the additional equity will be needed to fully acquire the fields and to provide sufficient Capex to upgrade the infrastructure etc.
Finally in a Discounted Cash Flow calculation using the 50% to 60% ROI metric from slide 5 in COPL’s February Presentation I get to a MC of £400m and a SP of around £2.50 within the next six months or so. That fit’s well I think. The potential from there is to five bag again within four years.
COPL’s current debt has little to no effect in the calculation. It’s simply an intermediate term cash issue given repayments should be able to be met from positive cashflows .
I’ve also excluded all other opportunities outside the two fields in Wyoming from the appraisal.
I think it largely depends on the WTI oil price running up to $100/boo and Barron Flats Deep producing 5,000 bopd. I believe neither of those are far fetched!
AIMHO.
COPL called the acquisition of Atomic “gamechanging” and experts came to the following values which were then given on slide 5 of COPL’s Presentation in February. Viz:-
Net Asset Valuation at $39/bbl. WTI • $148 million.
Assumed market capitalization post completion: $109 million (£75 million)
Net Asset Valuation at $62/bbl. WTI • $246 million
Assumed market capitalization post completion: $205 million (£146 million)
Extrapolated using today's metrics we now get a Net Asset Valuation at $75/bbl. WTI of $320 million like for like.
With an assumed Market Cap post completion of $260 million (£192 million)
Fully diluted with164.27m shares we get to an approximate SP of 117p. Not where we are today at 29p!
COPL also owns 100% of key infrastructure assets with additional unrealized value of $10 million.
Barron Flats Deep and any other opportunities outside the Atomic acquisition have also been excluded.
To me the current SP feels like a coiled spring under a 4x compression.
I’m anticipating a rapid rise to normality and reasonable valuations once the merry-go round stops and the compression is removed.
It’s only a question of time in my view and I’m hoping it’s any day now.
AIMHO
For me I think it's because of the situation with CUDA.
AM won't be wanting to disclose any operational information that may compromise his position.
We just need to be patient as the churning continues I think.
AIMHO
The Atomic Group Acquisition was funded in the most part with debt through a loan agreement dated March 16, 2021 between a US based Global Investment Firm and COPL repayable within a 4 year term.
To fund the Atomic Group Acquisition, the COPL drew an initial principal loan amount of $45 million.
The Senior Credit Facility agreement is subject to an interest rate of LIBOR (with a floor of 2%) plus 10.5% per annum with such interest to be paid monthly.
From the first anniversary of the Senior Credit Facility which is March 2022 the outstanding loan principal will also be repaid monthly by COPL.
During the three and six months ended June 30, 2021 COPL paid interest on this loan in the amount of $1.42 million and $1.66 million, respectively.
The Senior Credit Facility has an accordion feature whereby COPL may draw upon up to a further $20 million for future development. As at June 30, 2021, the accordion feature was not drawn down.
If the accordion feature remains unused (I’m thinking of CUDA) then I make the interest payable to be about $470k/month until March 2022. Thereafter the Principal becomes payable too over the remaining term.
As of the end of June COPL held $15m in cash and cash equivalents in reserve. If that cash remains unused I it should be more than $21m by December even taking into account paying the interest falling due and the hedging that’s in place. I make break even to be around 1,400 bopd at the current WTI price. I believe the field could well be be producing more than 3,200 bopd now and our WI could be between 1,800 and 2,000 bopd.
I’m guessing but I imagine given the date the Letters of Intent on the CUDA sale were required to be in place that by the time any payment falls due we could have around $35m as a collective facility without needing a call for equity release. That’s cash in the bank and the accordion feature in the credit facility.
In addition CUDA is indebted to COPL by a considerable sum. That debt would have been accounted for in any acquisition offer made by COPL thereby reducing any further cash needed to complete the transaction. COPL are in a very strong cash and cash equivalent position at the moment in my view.