As a paid commentator who has ramped way too many dogs in recent years, I don't have much time for Malcy anymore. He might be better off taking up directorships, like the one he's taken over at AST. If his cheques from AEX stop coming in, he'll stop commenting on us.
An LSE listed vehicle with access to London capital, is a valuable asset, even for a billionaire family like the Zubairs. They won't give that up to go private, at least anytime soon. From what I've seen so far they seem like good partners, and will give them benefit of the doubt.
If Bell/Beale stepped down bc the Zubairs wouldn't pay that outlandish options proposal, good for the Zubairs. If the Zubairs have a different strategy in mind, let's hear it. If they simply didn't like each other, move on. The best we can hope for is that the company is ridding itself of (expensive) dead weight before moving upwards.
We need cash for a share buyback. Typically only done when a company has excess cash, limited reinvestment options, and an undervalued sp. We're so far away from that state let's not even pretend it's an option.
In the s/t, more likely a share consolidation (e.g. 1:10) to tighten up the registry and start to look and trade like a real LSE company.
I agree, it’s a meaningless statement he’s repeated many times before. FID has a actually slowed on his watch.
Also, wouldn’t read too much into Air Oman. At last check Zubairs fly private, not charter.
There's been no shortage of opportunities for Zubair Co to have squeezed our assets from us, and would have happened by now if that was their strategy. I fault TZ gov't for dragging its feet, and fault mgmt for not being effective enough to secure the approval.
The Zubairs, however, have been remarkably patient and good-faith partners so far.
Don’t get me wrong, I like it as an investment. A nice long term play with huge upside. SOLO are just in a bit of a pickle since no one’s buying gas assets right now yet they don’t have the facilities to see it through to completion. Even a $20m sale would give m/c transformational and would give them flexibility to implement their new strategy. I just don’t expect them to get much more — though I hope I’m wrong!
The valuation is difficult due to the complexity of the development and the time it’ll take to get to a return.
If the buyer spends $40m (USD) to buy the asset, and another $35m to build, that’s -$75m out of pocket before a single dollar comes in. That will eliminate many buyers for a frontier market asset (including WEN, btw).
Receiving CF from 140mmscf/d production will take time. Any M&A team will model it better, but assumptions will include:
- Volumes based on a multi-well development, with several more drills needed. Est time for that?
- Infrastructure/pipelines will take 18-24 months post drilling. An EPS will mitigate a bit, though we don’t know flow rates
- TPDC will surely then take up their 20% of revenues (as is their legal right), reducing the buyer’s holding from 25% to 20%
- With natural gas prices plummeting, and an aggressive govt approach to IOCs, there's not guarantee we'll continue to get $3/mmscf going forward
- Infrastructure, if built by TPDC, will get charged back to us. If on us, who knows the costs.
In short, it’s $75m out the door in the near term. Who knows how long to start getting it back. Add the country risk, and the multiples go down fast.
It’s an awkward size – too small for the majors, and too big for the runts on AIM. It’ll take a Zubair Corp, or perhaps a Private Equity shop with no short-term demands from shareholders, to be interesting. Either way, we won’t get anything close to FV.
The real value here is 5+ years out, when we can enjoy a nice annuity over the next 25 years at minimal cost plus new exploration opportunities. Only IMO of course.
It's a great reference point, and a ****tonne of dough. Of course, this latest group won't care what previous mgmt burned through, but important nonetheless.
I'd be surprised to see that much cash flow our way upon a sale, at least not before completing CH1 drill (which would add another GBP5-7m to our bill). That multiple vs. expected future cash flow from the field don't add up.
BD, I recall you did an interesting back of envelope calculation of what SOLO has spent on Ruvuma so far. I think it's nearing about $15m or so. Now they're proposing chucking more cash at the project, with possibly no end in sight. It'll be interesting to keep an eye on those numbers to see just how above or below water this investment ends up.
Can't bare to consider returns from a 'risk weighted' perspective.
Thanks BD and CP for taking the time to push these issues with the board and sharing back with us.
If anyone from the company or PR teams are paying attention here, it would be preferable in future to get ahead of these messages by engaging more openly with owners of the company. Big promises two years ago were made on this exact point, and here we are with no comms, confusion over strategy, a delayed AGM and no annual accounts.
CEOs of both aex and wen and already suggested this is happening, like it or not.
If solo sells their stake to newco they could take a mix of cash and shares (to benefit from drilling upside). It’s straight out of the Gneiss playbook.
AEX is years away from cash flow (even with KS1) and are desperate for it. WEN has no growth, and the operator of Mnazi Bay has confirmed no appetite for near term exploration. No one is going to pay cash for anything in this market.
Where that leaves SOLO is interesting bc their holding could be sold to AEXWEN ‘newco’. The $35m credit line could still be applied to costs, just used up more quickly. Mnazi Bay cf to cover the rest in due course.
I doubt WEN are looking at solo’s stake. $15-20m cash payout plus the cost development (another $20-30m) would be too rich for them. See a non-cash merger with AEX more likely.