Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
"Senior lender is unwilling to further amend or waive the terms of its Senior Credit Facility"
these revised terms being as set out in the very generous $17m liquidity funding package agreed Oct 6th RNS:
"The Company is excited by the high degree of support and mutual alignment it has achieved amongst its leading capital providers and stakeholders enabling this pivotal financing and restructuring package:"
" A waiver from its 'Senior Lender' and Swap Provider on interest payments from October to the end of January 2024, leading to a cash saving to the company during that period of $3.5 million;"
"COPL's Senior Credit Facility Lender has agreed to accumulate all interest arising between October 2023 and 31 January 2024 on a PIK basis. In addition, they agreed to waive the quarterly covenant tests as at September 30, 2023 and to reduce the minimum liquidity covenant from $2.5 million to $1.5 million from October to December 2023."
So it seems that COPL has defaulted on minimum funds on account of $1.5m and /or PIK interest payments? Perhaps the JV falling though ended Sl patience, or toehr machinations, but COPL need around $2m on account ...soe BH to ensure they get their main loan back, or
just raise the money at this bargain basement SP - far better than going under.
JVP ends discussions - SL calls in loans to gain the asset - COPL Directors gain nothing and have to fire sale to pay them off - BH also then loses all their investment
Potentially what could have happened? - JVP talking with SL - they pull out of JV and agreed SL call in loans - fire sale to SL in Jan - then they develop the discovery together without COPL, SH or BH.
For the BH they either walk and accept the loss of Millions - or counter
They step up, cover the SL debt - COPL roll with them for discovery development - the BH must believe in the asset to have spent so much to date, so its down to if they have the will
and if so, can raise the funds in the time themselves - or - by partnering with HNW.
As this is playing out - by design - over Christmas it may need a HNW to make a call to support Anavio in this scenario, as corporate route may well be too slow.
I liked the asset for sure - its potential is huge - that meant as a SH supporting COPL stewardship by default, which has been abysmal.
Good luck to the honest SH in what ever you decide - im staying to see what plays out as far to much loss to sell.
COPL have a billion barrel discovery, 3rd party RS verified and by implication also by the JVP over the last 15 months, reasonable to assume they valued the Discovery, but financial offer not made/accepted.
Approaching 2000 bpd breakeven in the BFU cash cow field which allows them to fully fund COPL America in 2024 - enabling COPL to go it alone if needs be, at least for year one and a few wells operating, then the price to JV goes up substantially from this solid base, but so does the confidence in investing for a Major.
Given this context, COPL are focused on these aspects - not SP movements in the period when neither a partner is secured, the prod is not yet at 2000, there is no correlation with actual reserves value, debt is not 100% serviced pending breakeven.
The COPL board obviously view the current SH as ants, irrelevant until they achieve progression to solid financials - perhaps then a new SH base forms they may value, USA listed? - until then this SP action is "designed" to make PI sell.
There will be no attempt at support by update until they have solid news imo - if they need Dec prod then we wait until Jan for update - they know the trend right now, am hoping they feel the need to wait as long as possible for an unequivocal success case for GGS prod trajectory north.
I read RNS as TXP expected the finance deal to be complete by now, have minimal doubts it will be gained, went ahead with the worked up plans text in this RNS anyway as are optimistic - A mistake perhaps of overconfidence, they should know the market needs 100% confirmed.
They have gained funds consistently for their ongoing revolver facility with the same provider, have further reserves to leverage, so their confidence has basis:
"The Company is in advanced discussions with its existing lender to increase its current debt capacity .....Although we are confident of reaching agreement, currently there is no firm commitment"
The board has approved the drill plans, assuming the funds gained:
"For 2024, Touchstone's Board of Directors has approved an initial capital budget of $33 million to drill, complete and tie-in six wells, resulting in estimated annualized average daily production between 9,100 boe/d and 9,700 boe/d "
Equally, pay for drills with debt then pay back is the standard model, they are not doing anything different, should end the year with greater production and managed debt:
"Touchstone is forecasting to exit 2024 with a net debt of $25 million, resulting in a net debt to annual funds flow from operations ratio of 0.78 times."
Confirm the funds, gain momentum on fieldwork and on they go.
If the oil wasnt in place to the scale claimed by COPL, the JV discussions would have ended after weeks, not following many months of JVP evaluation.
My conclusion is the Discovery is real and to scale claimed by COPL, RS validated, does have value and will eventually be monetised.
This high latent value makes the various moves to secure the most value/best position the most convoluted possible, as witnessed.
Potential outcomes may include
1 - JVP not interested for whatever reason and no further dialogue, literally as per RNS -
COPL then have to go it alone with SL/BH funding for drills (as they are as locked in as PI to regain their capital)
2 - JVP walking was a negotiating ploy - COPL suspending talks a counter - further JVP offers may be considered
3 - COPL open a data room - Another Major(s) makes an offer
4 - COPL wind it all down, fire sale, it gets taken private
5- Takeover offer made
4 our of 5 chances of some roi
Uund, indeed - hence the qualifications made
In any scenario, as outlined - they of course need the 2000 bpd
Key however, the GGS and NGL is paid for already, they are unhedged lower debt payments and cash on account reqs etc
It worked in 2021 with plastic pipes to 2700 bpd - its going to work a lot better with steel.
"Going concern" fears was addressed substantially with the $17m funding package - with no other stimuli it should have rebounded back - not to the 16p it was end Jan, as they have not achieved breakeven yet plus dilution since, but 10p perhaps not totally unreasonable -
This is still way south of the BFU asset value.
The JV or its potential was never priced in at all, crashed sentiment even further, then domino effect selling and MM encouragement caused todays SP impact - but its not an all or nothing duster result - the discovery is still there waiting to be monetised, either with another partner or by COPL.
Production rises to 2000 bpd (fully funded to get to his point)
Debt managed and profit territory reached
RBL finally possible - leverage the Cole Creek recompletions aswell as BFU reserves
Retire SL facility
Drill two H wells - gain c2000 bpd and its reserves delineated. which adds further RBL for more drills plus revenue, scale over time.
Its far slower than JV but all working interest is retained.
Then they can re assess partnering after year one.
Perhaps JVP walked as their low ball offer was rejected by AM - the asset is compelling after all, safe juro/carbon capture options, biggest find onshore US in decades in the hot Powder River with multiple M&A occurring - it just does not make any sense to walk after a year in this context.
Reading the recent funding package RNS again:
"The increased equity financing and debt and hedge restructuring provide COPL's group with more than $17 million in investment support from its largest financial stakeholders. This financing package is designed to ensure the Company is fully financed through Q1-2024, at current production levels of approximately 1,200 bbl/d, providing focus on the key strategic priority of increasing oil production to allow COPL America to become fully funded through 2024."
Knowing whats happened now with JV - this now may read as COPL planned this funding scale assuming that the JV did not happen - that they had to do it alone with COPL America - as with JV lead what funds do COPLA need realistically?
The JVP would be at point deciding all delineation drills number, scale of laterals, sequencing, using their equipment, staff, materials and fronting the cost.
They would seek to gain early discovery working interest % as a contribution to offset this cost - any COPL contributory funds to this programme would be equivalent to supplying the tea break biscuits - COPL value in any JV is the technical knowledge of the field, the BFU EOR approach applicable to the discovery, being operator and fronting the permitting and WOGCC interface - not cash up front for drills saved over time as the BFU eventually produces over 2000 bpd.
Then consider what other offers may be in the wings, for takeover or alternate JV, with Atlas buying 50m - I just cant see this being a happenstance coincidence and they just bought two days before massive news and associated SP fall by poor timing- its possible but not probable given whats at stake.
Overall this seems to be a further positioning move - perhaps with new players, but the asset will be developed.
We will never know what happened.
Fact remains, RS confirmed one billion barrels, the JVP spent over a year evaluating but walked for whatever reason, they must have been intrigued to have spent so much time and to have signed the LOI in the first place.
Equally:
"The company that has entered into the LOI with us is the best partner we could have of the ones we have considered"
The one they considered - indicating a number of Companies showing interest, an other could step into the breach.
In any case, COPL have the liquidity to drill their own H wells at $4m a shot - the SL and BH are locked in now, for them to get their money back and ROI they need to support COPL going alone for a while, for COPL to develop the field, flow the Frontier, then see what JV deal may be considered with this evidence base.
Perhaps AM wanted this outcome so he is at point on this.
Once they get some momentum then all is still possible, 2000 bpd is without doubt approaching as its proven tech - this milestone allows them to manage debt and fund COPL America, whose only role is to develop the discovery.
This is not over, not by a long margin - Cowan needs to step up and confirm the plan.
It went to 5p on the prospect of GGS working.
Once Cowan announces 2000 bpd then all is possible.
They could be there soon, will be in Q1 based on previous response rate to gas flood.
Onwards.
COPL have never been solvent, producing enough oil to service debt and allow field progression.
So all the Sp suppression, going concern, vested interest BH moves etc have been with this reality firmly in place.
I dont think any side can call what will happen once the 2000 bpd is reached, how quickly it will rise/to what level, what investors may be attracted onced debt id finally managed and they move into profit territory.
Interim prod milestones wont do it, it has to be that - then we shall see what this can do.
It then begs the question, okf, so are there any reasons they may no achieve this, what my stop them?
1 - Funds - GGS paid for and leveraged $17m liquidity to end Q1 2024
2 - Field response not as expected to gas flood - proven benchmarked performance - its established tech and 2700 achieved with plastic pipes
3 - Winter slowdown - roads repaired/well heads winterised
I cant think of any other cogent reasons , the macro is ok at the moment and has State support.
So invite to the BB - any more reasons that have any basis to stop them achieving 2000 bpd in due course?
Challenge on this position stated for the current GGS operation :
"So far it has not been working anything like as well as the old one "
What specific period are you comparing to in term of previous plastic pipes GGS operation to state this assumption?
The peak of its production at 2700 bpd before the gas pressures forced COPL to turn off the taps and design the new system?
Sure - the new steel pipes (much better pressure management, by design) GGS has not yet reached that level of prod that we know of, but that does not mean it will not - its a new system being bedded in, needs steady evaluation to ensure safe operation, standard practise.
As to the timeframe on when it may reach previous highs, this will be once SWP are satisfied they have a safe and sustainable operation, then increase the NGL rate of injection in stages when appropriate to do so.
Shouston outlined the previous delay of 4-6 weeks for stimulation to show an increase in production, there is no technical reason to question that benchmarked timeframe - it just is.
i thought this quote i read apt regarding the naysayers on this bb:
"arguing with idiots is like playing chess with a pigeon. no matter how good you are, the bird is going to **** on the board and strut around like it won anyway.”
― shannon l. alder
1 - Why is the JV taking so long?
As Majors move at their own timeframe, with LOI in place they can afford to take their time to get the optimum position on the deal - its not in COPL control.
The lack of JV yet doesnt mean its in doubt/they have decided not to progress, just the opposite given scale of find, the carbon capture potential.
Its been evaluated by COPL, Ryder Scott and the JVP team - after all this the evaluation the LOI was signed - why bother if not convinced?
2 - Why is BFU Production growth taking so much time? - As its not straightforward, far from it. Read the constraints encountered and overcome in the field in the prospectus, then decide.
They have installed the GGS, ceased flaring and are increasing the MF rate, have funds to do so - the prod will rise in due course.
3 - What recovery rate for the Discovery?
Multiple current producing benchmarks can be sourced to understand that Frontier, with EOR does reach up to 50% rates of recovery in PRB.
Also refer to current recovery rate from Cole Creek vertical wells without EOR producing from Frontier 2:
https://www.canoverseas.com/wp-content/uploads/2023/10/COPL_FCA_Prospectus-final-version-1-1.pdf
Page 268 of the pdf, Ryder Scott report section:
"During 2022, reservoir simulation work was updated by International Reservoir Technologies Inc. (IRT), a 3rd party with expertise in miscible gas flooding, the “IRT Simulation Study”. This work built on previous work they completed since 2018, and took into account the WOGCC approval of the BFU SSRU, as well as pressure and production data acquired during through mid-2022. The IRT Simulation Study assessed an approximate 55% recovery factor of OOIP within the Gas Flood Area"
p276
"Many analogous pools developed in the Dakota and/or Frontier 2 formations in the Powder River Basin of Wyoming have been optimized to date with horizontal drilling, resulting in significant production increases, and improved recovery factors."
SP held in range imo as no one wants to buy this whilst no prod rise news = debt managed=going concern fears addressed, with an overlay of BH impact
Unlock prod and SP will move up, moved form 1.5p to 4.5p previously this August just on prospect of this prod profile being established following GGS installation confirmed.
So a few months on, flaring has halted - massive , as shows pressures are being managed by the GGS, they have started the NGL injectant ramp up, profile of stimulation to increase was around 6 weeks previously so COPL know already how tis is working, no doubt waiting for it to stabilise and establish the profile they feel confidant in reporting - it not about doing this as fast as possible for PI sentiment ( however welcome this would be) but steady and safe operations and building the foundation - all serves this outcome.
Past PI projections, expectations or hopes/criticisms are irrelevant - company news on this prod rise when issued is all that matters, then trajectory to mid cap is established.
They have $17m capital liquidity enabled to make this so.
I do not assign any intelligence to Lint....least of all an ability to form a coherent technical argument with evidence base presented - have not been proven wrong on this...ever .
Option 1 - Lease snow ploughs to keep roads open to transport all production (as have winterised the well heads repaired roads and access already for Winter in preperation)
Option 2 - Do not lease snow ploughs, cap production at low levels and do not gain associated $Millions is revenue over winter.