focusIR May 2024 Investor Webinar: Blue Whale, Kavango, Taseko Mines & CQS Natural Resources. Catch up with the webinar here.
A video of the AGM is available online if anyone is interested. Link below:
https://www.youtube.com/watch?v=9R6dxdqQhpo
I would love to know the full detail of discussions between the various parties and the existing contracts that are in place. Unfortunately, small private investors are rarely in such a privileged position. We’re often left with reading in between the lines.
There are some judgement calls we can make:
1. There was no mention NNPC’s first right of call to make a bid for the assets, which may imply that NNPC have agreed not to pursue that route, if an agreement can be reached? This would be very positive for us.
2. All parties will act in their self-interest. Going by the various press releases all would like a speedy closure. The government has shown its hand to the oil majors and Herminator, as you’ve rightfully mentioned, the ball is in their court, they have a starting point which they can further negotiate with respect to legal elements, time frames for any payment and even negotiate liabilities.
3. As more than one major oil company is involved, they may propose to collectively set up a fund to address the issues rather than individually suffer reputational damage and get caught up in legal wranglings.
4. The oil majors will be mindful of setting any negative precedence for liabilities, both locally and internationally.
5. In the current environment, the oil majors will want to guard their reputation with respect to environment and exploitation of local communities. This limits their options and makes a high level solution more probable.
6. The government is focusing on ensuring companies that acquire the assets have appropriate capabilities. This is a major plus for Seplat as the leading local company, this should provide greater opportunities for further acquisitions.
7. As the government and the regulator are actively involved, there is increased potential for kickbacks for the oil majors for their remaining assets. An additional catalyst and negotiating tool.
Most of this will favor an early high level resolution, not necessarily within two weeks but soon. GLA and hopefully start of another long bull run.
Some further clarifications
https://www.reuters.com/world/africa/oil-majors-offered-faster-nigerian-exit-if-they-pay-cleanup-2024-05-03/
Big day today. Will they or wont they agree? Fit for a Nollywood blockbuster!
Seems the regulator wants money to be set aside for various legal requirements. I wonder who will fit the bill? Who needs this deal the most?
THISDAY is reporting that the parties have two mutually exclusive options, a full audit or accept provisions required for decomm, communities and environment. As these are mature fields, most of this cost should fall on Exxon.
In Seplat’s last update, the discussions were described as being constructive, I assume this means the discussions have been beneficial for Seplat?
Exxon needs to demonstrate that it’s making progress to realign its portfolio and would be keen to get closure. Otherwise, it risks getting bogged down for many years to come and may still be no better off.
SeaTank, thank you for the clarification, wrong choice of a word on my part. Should have read "some" and not "most". I guess, what's important is that the company has managed its naira risks very well, however small. Look forward to the update tomorrow and hopefully have a different conversation tomorrow.
MEM, Seplat's Naira income closely matches its Naira expenditure, so small risk on that front. The main risk to the company is that it sells most of its products within Nigeria and therefore, there is a receivables and credit linkage risk. A falling currency can result in the downgrade of a country’s credit rating which can then affect the credit rating of a company that receives income from the country, be it in dollars. This actually happened in February 2023! Luckily, it has reversed since then.
The Nigerian Naira has become the world’s best performing currency in recent weeks and may explain the recent price spike. Another tick in the box. Anticipate further analyst upgrades on the back of this and rising oil price.
https://abokifx.com/news/nigeria-s-naira-rebounds-sharply-after-bumper-interest-rate-rises-ft?type=market
Not expecting any significant news on MPNU on Monday but any update would be a bonus. GLA!
The environment in Nigeria now appears to be conducive for growth. Reading the annual report, it appears that the company is at least thinking, if not planning, further acquisitions and bidding for new offshore licenses. Below are extracts from pages 28 and 29:
“To address the shift of international oil companies (IOCs) from onshore and shallow water investments to deepwater, an important initiative was announced in December 2022. This initiative involves an upcoming bid round for seven new offshore blocks, covering a significant area in water depths ranging from 1,150 to 3,100 meters. It aims to attract experienced local and international offshore exploration and production investors, promote energy security, generate substantial revenue, and foster partnerships within a fair and well-defined legal and regulatory framework”.
“Seplat’s reputation as a reliable partner makes it a preferred choice for incumbent asset owners seeking to engage in various Nigerian oil and gas transactions. Their strategic positioning positions them well to capitalise on future opportunities, including asset divestments from the IOCs, participation in upcoming licensing rounds, and farm-in prospects”.
SeaTank,
I agree with you, it’s undervalued on many fronts, even if we ignore the MPNU acquisition. There’s so much potential ahead for the company. Roger Brown has a number of times made the following statement:
“I think this year will be truly transformational for us, as we bring the ANOH gas project onstream and, I hope, complete the MPNU transaction and develop the four blocks that are in much need of investment to realise their full potential in both liquids and developing a very significant gas resource”.
Roger’s past performance shows he has credibility.
Some interesting points in the video:
• All issues relating to the acquisition have been resolved (at least that is what I heard).
• Nigeria will encourage other companies to emulate Seplat. Seems that Nigeria has accepted divestments are inevitable and that local companies will need to make further acquisitions. This is good news for Seplat for future acquisitions.
• Seplat will be a flagship for future investment and production, and will be assisted by the government.
• Nigeria is looking to access funds from capital markets for O&G investments. To attract such funds, stakes owned by national companies will need to be limited. NNPC already owns 60% in the MPNU related assets and therefore, unlikely to be awarded any additional ownership but let’s see what happens. For now, just speculation on my part.
• Seplat will likely benefit from being first mover in the race to make acquisition(s) and increase production.
Aucuba, you are right that the acquisitions were a while back. However, companies tend to allow projects to come to a practical end before completing any consolidation, partly due to contractual commitments with ongoing long term clients. Below is an extract from their last update which states that the strategic review has been on-going for a year:
“We are now one year into our strategic growth journey and our results
continue to show clear progress. We have delivered strong revenue and EBITDA
growth, improved our underlying cash generation, grown our order book, and
continue to see an acceleration in the proportion of sustainable solutions
within our pipeline.”
It also states:
“We are confident that our actions, business model and strategy are delivering
and look forward to giving a further update in March.”
As you’ve said, these are overhead/support positions. This makes sense as senior managers often partly book to overheads and have separate department budgets. They need to be consolidated. Also, I’m glad that they’re only looking at overhead positions and not technical roles. The latter would a bearish sign.
Combining the Sky news story with earlier company update, in my opinion only, it’s bullish for the share price. Hopefully, this will be confirmed next week. Good luck!
The company consists of a number of legacy acquisitions which need to be consolidated into efficient units. This probably requires a number of senior roles and offices to be merged and hence, a small number of job cuts and potential consolidation of buildings. This news alone may even be a positive when looking at profitability metrics.
SW, it’s falling on thin volumes and most likely investors are looking to book profits before the end of the tax year. Any falls make it a compelling buy with a forward dividend yield of ~10%. Further falls? Yes, please!!!
The share price movement is most likely down to the macroeconomic picture rather than anything company specific. In particular, the outlook for interest rates and investors becoming nervous. As the old saying goes “markets climb a wall of worry”.
Analyst forecasts should always be taken with a pinch of salt. In 1998/9, when the oil price was around $8/bbl, analysts were forecasting an oil price of $4/bbl for the long term, only to see the oil price reach $140, and interestingly the rise started in 1998/9!!!
Results are expected around 26th Feb, three weeks to go! It should be very interesting reading. As a minimum, I would expect a confirmation that the acquisition is almost formalized/locally approved with minor formalities remaining.
There are also other catalysts here which should bode well, such as a stable currency as SeaTank mentioned below, ANOH plant and third party pipeline start-ups. One thing that I think will add a lot of hidden value here will be the Exxon staff that will get transferred over as part of the acquisition. Exxon has a history of recruiting the very best. Fingers crossed!
Looks like we're almost there, only days away!
"The $1.3 billion sale divestment of ExxonMobil asset to Seplat is also 98 per cent completed, and would be finalised in the coming days, the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has said."
guardian.ng/news/1-3b-exxonmobil-seplat-divestment-98-completed/
The main technology for CCS is absorption of CO2 using a solvent such as an amine. BASF have licensed amine processes which they licence to many industries around the world and I doubt that these licences would have been part of the original deal. The costs of these licences is negligible in the overall scheme of things but makes interesting headlines in the press.
There are a number of catalysts which will eventually bode well for the company. These include:
• Receipt of delayed payments from the Egyptian government.
• The company has been using water injection in Egypt to enhance recovery and should increase production within a year or so, if done correctly. Any increase will have a material impact due to the low current production rate.
• The big catalyst is any drilling in block 125 in Vietnam. This is a deep water field where drilling is expensive. That’s why Pharos is looking for a major partner to share the burden as well as potentially using a well slot on third party facilities (low cost option). If the latter results in large flows it will make it easier to attract a farm in partner and should be very positive for the share price. This may happen this year, at least the agreement.
• One thing that gets overlooked here is that Pharos is listed on the main market which may be attractive to a major producer looking to sell mature assets, in line with current industry trends.
• Bradley Radoff, an American investor, has been building a large stake in the company and will likely start taking an active role soon, most likely once third party discussions on block 125 have concluded.
The shares offer good potential if you’re looking to hold for more than 2 years. The shares are good value based on the balance sheet but not necessarily production, which is likely to fall in the short term. Hope this helps and good luck!
I believe it's mainly payments from Egypt that are being delayed. It may persist for another year or so. Egypt is undergoing financial difficulties which are are probably being made worse by the current mid east crisis. Pharos should get paid eventually and should add another 30% or so to market cap. The big downside is that it's money that Pharos could use to explore block 125 in Vietnam which is believed to hold very large reserves and could transform the company.
When dealing with developing countries it's fairly common for payments to be delayed but do eventually get paid, sometimes through the courts. It's part and parcel of the risks within the industry.
Nitro, I think the market volatility will continue for the next year or two, with economic uncertainties, timing of rate cuts, mid east conflict and a potential energy crunch in 2025 being forecast by some banks. HBR has a high operating leverage and FCF will change very rapidly if any of the external factors become slightly more favorable. I think the share price will drift upwards with some volatility till the merger is completed. Good luck!