focusIR May 2024 Investor Webinar: Blue Whale, Kavango, Taseko Mines & CQS Natural Resources. Catch up with the webinar here.
Pilot - we are talking cash flow,
the net incoming revenue and net costs are the numbers to look at - page 3 table
they had $5m on account end June aswell - so even if warrants included they are breakeven in Q3 and into profit Q4 as prod is rising, we should find out in 2 weeks the trend
its semantics in any case as they are fully funded:
"$8.5 million of liquidity ensures the Company is fully financed in to the first quarter of 2024 with the intention of reaching possible third party strategic Joint Venture (as defined below) agreement"
Yes Pilot - the hedge removal measure does make them profitable
https://www.canoverseas.com/wp-content/uploads/2023/08/COPL-Q2-2023-FS-_Aug14-FINAL.pdf
page 3 summary table Q2 financials
Total revenue from oil sales in Q2 = $6,344,000
Total expenses in Q2 = $8,163,000
Comprehensive (loss) = -$2,123,000
So with hedge removed, COPL expect $5m revenue in period Sep to Jan as per RBS, or $1m a month given WTI rise
= $3m per Q offsets the $2.1m loss for Q, plus O&A reductions.
Making them profitable due to this measure.
Equally, it appears no payment of the capital in Q2 back to SL
page 5
Cash Flow From (Used In) Financing Activities:
Repayment of senior credit facility -
it appears only interest paid :
Interest paid on senior credit facility = $1,659,000
Morning Unnd
I was going on the financials for Q2
https://www.canoverseas.com/wp-content/uploads/2023/08/COPL-Q2-2023-FS-_Aug14-FINAL.pdf
table at bottom of page 5
Cash Flow From (Used In) Investing Activities
Property and equipment expenditures = $3,972,000
Which I took to be the GGS payments upfront, as they started work in April
with GGS costing $4.5m - so about right for cash flow as they finished work in early July on time and on budget, so no need to tap the BH for GGS now, as the kit is online and paid for.
I cant see the steel supplier waiting on payment this long given COPL financial journey, so if you accept that then the hedge restructure $5m saved, $3.5m BH and cash on account comes to around $10m in Q4 - nice round number - with JV expected in Jan - may be a JVP requirement to pay for a share of initial drills.
Seems the SL and BH are content to support COPL until JV lands, adds some stability as prod rises , WTI increases and hedge removed - all at the perfect time for COPL.
"Restructure 100% of the WTI hedges from Sep23 to Jan24, freeing up c. $5.0 million of near-term cash flow"
They expect $5m cash saved Sep23 to Jan24 - $1m per month pays for the SL capital repayment in full per month - this measure alone makes them profitable already.
End June COPL had $5m on account - no major capex July - to date mentioned in RNS - GGS was paid for previously, O&A is reducing, WTI price increases.
add
"$3.5 million equity injection at 4p per share from Anavio
cash flow /on account Sep- Jan perhaps c $10m scale (JVP requirement?)
More than enough for known outgoings / BFU field development in period/contingency
Equally :
"allow the reallocation of significant COPL expenses to the COPL America Inc. operating entity."
which is only related to the Frontier and JV - there is no revenue coming into this subsidiary yet.
Significant expenses being ? new drills imo.
Once the BFU field stabilises with the increased butane injection rate, we should get a new modelled production growth graph update, with revised production plateau.
It was up to 7000 bpd and taking 18 months to get there previously as modelled in 2021 - on website investors page:
"COPL is a fast growing US-focused oil producer. It holds operated stakes in two adjacent oil fields in Wyoming, including Barron Flats where production is set to triple to a peak of ~7 kbopd (3.2 kbopd net to COPL) within 18 months. “(Tennyson Securities forecast, 19 August 2021)”
But that was with MF rate around rate half of that planned now the GGS steel pipework has replaced the plastic, allowing higher pressures to be handled and so greater production.
Very interesting post by Eazy on Shannon H well by adjacent operator - step change in production possible.
Combination of factors in play now:
GGS phased completion over time
Increased rate of gas flood possible
Drilling possible with revenue gained
Horizontal well potential, maximises extraction
De waxing of pipes
Winter well head kit installed to maintain operations
Cole Creek well recompletion programme
All adds to production curve and total expected in 2021.
Once the revenue starts coming, its cumulative, reinvestment in the field adds more wells, higher production enabled, more revenue and on it goes.
There is also the Dakota formation, not mentioned in the JV, that COPL America may develop using the BFU profits - leaving the Frontier for the JVP to focus on.
1 - production rise into profit 100% confirmed - end Sept or Oct prod update may confirm
2 - Debt Managed - $8m on account, RBL possible once proof of concept and reserves valuable for on sale and leverage - at any time following proof of concept
3 - Joint Venture with a large Oil Company - LOI 2 months - usually sign that broad agreement reached and final legals being confirmed - at any time
SP is held until confirmation of above - as market does not assign potential to COPL valuation - but once confirmed .....
Costs from last Quarter financials:
c $500k - $1m per month SL capital repayment - was at $37m end June - constant
$400k p/m SL interest - reducing as capital paid off
$400k p/m O&A - reducing
$300k p/m butane/condensate - increasing
$400k p/m - field work/maintenance/parts/consultants etc - variable/to suit
c $2.4m breakeven - with the additive gas flood increasing production over time
Agree with Bob, think Cowan is an interim - no sign of him yet so no great revolutionary arrival, outline of his plans as you would normally expect within days - certainly no more than a week for a CEO appointment in most industry - the few sentence quotes in a huge RNA just do not cover this.
SWP are doing well on the field work - could be capitalised on by marketing, drone flight of the field with updated tech commentary of current position useful, as previously by AM daughter.
She could be the next CEO once JV settled, her presentation skills at the flaring hearing were very good indeed, she is trained and capable so not just nepotism, AM isnt going to hand this operation over to anyone - Cowan may retire , appoint her as replacement as last action, looks less obvious this way - this is still AM business in real terms imo.
AM loaned the company money on the past, expect he would have done so again if it had really been a going concern risk, no way would he have let the discovery development be jeopardised for him and his daughter' legacy - as then do what?
"Certainly I see Production rise as key to any route to RBL ie : Secure your current balance sheet"
But RBL banks do not, they secure the loan using the reserves as collateral - the balance sheet is just a result of the proof of concept, abilty to make the field pay - as stated, the capital and interest payback is offset for as long as COPL determine , so the initial production is not pertinent, nor is my guess of what the prod may be by Jan - these are your self imposed milestones, so if not hit you can claim some sort of righteous justification - the prod will be what it will be, the key aspect is that is is growing.
Can you try and remember this conversation? as we have had same 3 times now - it doesnt change the RBL position, but I wanted to put you right - again - as some false beliefs need challenge - re your first retort : "We ain’t getting no RBL "
He didnt get RBL before as the prod didnt rise due to pressures, so the reserves he had could not be better leveraged than the SL deal
funds he had serviced debt, CUDA , maybe 2 H wells - not GGS when it was needed
but that was then, now is different due to GGS working and revenue will rise, concept proven, so RBL is viable
The RBL on BFU is independent of the JV - they are on different timelines and without dependency - if JV gained first then better by association with a Major for COPL to gain RBL perhaps.
You said why not lend for the discovery work - it doesnt work like that - as no reserves yet in the discovery for Banks to leverage as collateral - they only leverage reserves, not production revenue as its is the on sale value thats important should the lender default.
Also the payback is offset - only interest and even that can be offset aswell until prod rises then pay back occurs, these are normal revolver RBL terms.
So rather than state no way RBL coming, it is viable and could come any day - neither of us know timing but it cant be discounted.
" Why would they lend it to us when they could lend it to the JV partner whom I hasten to add would not have defaulted and has all the expertise and track record ?"
COPL are getting the RBL - as the criteria for this type of revolver lending agreement is approaching - proof that the BFU field works with its new GGS kit , that the reserves (including CUDA, BFU and CC ) are therefore valuable and can be sold on, so leveraged - its why its called reserve based lending, clues in the name.
The RBL is not for the discovery delineation, the JVP already have their own lending agreements and funds in place - its not an either/ or Bank lending decision , that vacuous argument holds zero water.
SL debt = $37m from end June
Even with pressures capped production to date - this debt capital and interest has been serviced, penalty's paid when difficult to comply.
With production scale up and proof of concept its not a large debt to carry in real terms for the scale of profit thats going to be coming per month, unhedged rising prod towards the 5000 bpd plateau - the prod at end of Sept indicative of the trajectory towards that.
As soon as viable and coming soon, RBL will pay the SL off , debt becomes the far more manageable revolver as is industry standard - vast majority of mid caps and Majors retain RBL agreements for debt to pay for works/acquisitions which is then paid back over time.
E.g - last M & A news as Stas posted -
"The deal will be funded with cash on hand and borrowings under Western Midstream’s revolving credit facility. "
Debt when managed is a useful tool and standard approach, when its not managed it becomes toxic, death spiral finance the only recourse for a temporary respite- but COPL are through that period now, with BH assistance - revenue is going to increase substantially.
JV signing fee for a % of Working interest may well be coming, it has been the case for similar deals completed between minnows and Majors. If COPL managed to drill the two confidential H wells noted in permitting on WOGCC with their own funds then adds considerable value and opportunity for an early deal stage lump sum - if not then in time probable as WI is sold as the field is delineated in stages.
Debt has to be evaluated in context, opportunity to manage and repay identified and understood.
As soon as the JV signed the naysayers should move on - as by then the JVP will determine news flow, all COPL need do is bank the prod revenue from each delineation well brought on line, 150 are required to fully exploit the field at 1000-3000 bpd each well viable with full tertiary recovery - which is planned from the offset.
The top three players in PRB each drilled over 50 wells last year.
Exxon were not one of them via their subsidiary XTO, but have capacity and the appetite to do so based on their positioning in the PRB, Denbury acquisition , Co2 storage infrastructure.
Thanks Stas
All the M&A shows Wyoming PRB is the place to be - for drilling permit authorisation, constantly low tax reassurance, reasonable enviro regs, good local relations and pro HC legislature = Governor and Senator support and Federal oversite managed through lobbying by Majors, protects and encourages their long investment, with a carbon capture theme to offset and gain further tax breaks throughout.
The COPL discovery ticks every single box, biggest onshore USA find in decades, with the 10 mile long Cole creek anticline for co2 storage, topside, infrastructure and wind farm in place.
Its a new description just from April 3rd onwards - not that old
They would have had the two confidential H drill results by then.
I cannot recall seeing this mentioned as an asset previously in any finals - if so however what is its scale?
this was their sign off as of January 2023
"COPL is an international oil and gas exploration, development and production company actively pursuing opportunities in the United States with operations in Converse and Natrona Counties Wyoming, and in sub-Saharan Africa through its ShoreCan joint venture company in Nigeria, and independently in other countries."
the first new description was in April 3rd RNA
"COPL is an international oil and gas exploration, development and production company actively pursuing opportunities in the United States with operations in Wyoming.
The Company operates three Units: Cole Creek 100% WI, Barron Flats Shannon (Miscible) 85% WI and the Barron Flats Federal (Deep) 85% WI in addition to non-unitized lands 100% WI."
LM
Agreed, seems strange, but fact remains there is an LOI in place and with COPL favourite partner as maintained.
Plural third parties could be bringing in CNOOC - 15% of Fed Deep formalised drill cost sharing in an enhanced agreement between them and COPL - if JVP pays for drilling, CNOOC have to pay their WI proportion via COPL presumably.
If 50 drills at c$5m each then $38m to them, peanuts to a Major - but agreement/legals still needed.
Equally, statement at the end:
"The Company operates the Cole Creek Unit 100% WI, Barron Flats Shannon (Miscible) Unit 85% WI and holds Barron Flats Federal (Deep) 85% WI in addition to non-unitized lands 100% WI."
so whats the non-unitized lands 100% WI. asset as not seen this before - new lease hold bought based on their tech evaluation? perhaps also being marketed - all drill results NDA covers them for well interpretation by others, better ID of analogous plays in the area.
Richardson
"The Company now has a focussed executive team and Board aligned in their focus on delivering value for all stakeholders. We are delighted with the belief and wholly aligned support of our two most significant capital providers in the changes we are effecting."
Anavio are one capital provider, who is the other one ?
Cowan
"....ensuring that if the interest being shown by certain third parties in joint venturing with us matches our own views on value, we will seek to further scale through partnership."
third parties plural - either more than one JV deal being considered for the assets, or multiple bidders for Cole Creek/FD?
Tuvok
a promotion, heady stuff
on the fundamentals ,absolutely , on business approach, not at all
Yep im pretty frustrated as are we all, have banged on about poor comms in the past, such as easy fix - just employ someone conversant with modern marketing and presentations skills within the company to replace Cathy and let them get on with it, $70k would do it by pay cut from the CEO/CFO on their exorbitant salary.
Not sure on how to read the reshuffle overall, RBM may well be right and its JVP instruct, or AM suggested it to them and they agreed, as he does need to focus on the JV and its delineation now BFU seems to be working well and on track - we just need confirmation of prod rise following increased MF rate, perhaps in 3 weeks an update may be coming.