The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
With Sound there is always a good chance of another placing. Just when you think they can't dilute any more, they seem to prove me wrong. If I didn't know better I'd think they are nothing more than a bunch of Homeopaths in disguise.
Does anyone think this share is ever going to recover back to 10p+? Or even 15p+? I realise that question is a little bit like asking what time you plan on visiting the loo a week next Friday - impossible to answer until nearer the time once you've got more information upon which to decide. There are still challenges for Sound with no guarantees they'll be overcome. But nonetheless, I'd be interested to hear reasoned opinions about why my instincts about the future of this company are completely wrong.
Usually whenever I feel most pessimistic, a fleeting bit of good news tends to land. So in at least one sense, it's likely that something positive will be landing shortly because at the moment I'm about as pessimistic as it is possible to get. No point selling at these levels. Might as well see if GL's plan is implemented. What would you say is the best reason to be optimistic?
Strangest thing is that the asset is actually very valuable. All the other factors considered, namely the high gas price environment, 10 year tax holiday, onshore, close to existing infrastructure etc. should under any normal circumstances mean that this share would attract a great deal of interest and investment. It's only due to sheer incompetence, dishonesty, extreme hyperbole, and greed on behalf of the former management that all shareholders now stand a realistic chance of losing their investment. It is difficult to think of a way in which the former management could have done more to first create false hope, then ensure all trust, positivity, and hope could be utterly destroyed. Under any moral legal system those responsible would be facing severe prison terms.
Thanks Utilityone1. I wish you the best too. The problem with conspiracy theories is that there is no (or at least nowhere near sufficient) evidence. If there was plenty of hard evidence then it would just be a crime/obvious wrongdoing and not a conspiracy. The fact there is no concrete evidence in the public domain is not confirmation that nothing fishy is going on. Obviously I hope I'm completely wrong and all this gets smoothed over rather quickly. I still think it is in the Moroccan authority's best interests to do everything above board and be supportive of Sound. Last thing any country should ever want to do is chase away genuine foreign investment.
My issue is that on the face of it Sound should be valued at 'many, many multiples' (to take a phrase from JP) of the current sp. How former management were able to squander such favourable circumstances so comprehensively remains a justifiable grievance. Nonetheless I think GL's leadership is reason for cautious optimism, providing this tax issue is resolved (obviously not GL's fault if it can't be).
You may also be pleased to know that while I have invested a 'considerable' portion of my savings in Sound it is not an amount from which I cannot recover (and I am still relatively young - this isn't my pension or anything). Indeed I am fortunate to have a relatively low average compared to most LTHs and firmly believe I will make a modest profit so long as the LNG plan materialises and the tax bill issue is well managed/resolved. GLA
Not sure how it works in Morocco, but HMRC tend to be quite flexible with repayment schedules in the UK. What they care about is recouping any owed monies and are usually prepared to wait/restructure payments so long as those monies will eventually be paid.
The question is whether or not the Moroccan authorities are serious about the tax liability charge. If they are, if they expect it to be paid, then it is in their interests to be reasonable and allow payment/installments once Sound produces income via the LNG plan. If they are not serious and don't expect the monies to be paid - then we are in serious trouble because to me that would indicate the charges are simply designed to crush Sound out of existence.
Should we be surprised by this potential tax liability? Since TE6 and TE7 it's as if the 'powers that be' have done everything possible to destroy all value in Sound. If you were trying to orchestrate the destruction of all value for a company with a very valuable asset, while allowing people with highly questionable moral standings in key positions (JP/JJ/BM) to escape with extremely generous compensation packages, all the while giving 'just enough pipeline plans' in order to keep the promise of future success/potential alive (and therefore PI money coming in), you'd do well to find a better approach than that taken by Sound over the years.
As soon as GL provides a credible path to recovery with grounded optimism, the 'powers that be' come up with historical tax liabilities which could easily be enough to finish Sound off for good. So the plan was to get PI's to fund exploration, if any valuable assets are found the key management figures can be paid large (but relatively small fees in the grand scheme of things) fees to make a series of expensive blunders ensuring the company eventually goes bust. The valuable asset they discovered can then be exploited to its full potential from a position of rock bottom entry point for a new entity taking the project forward. If any credible signs of recovery emerge during the destruction of that value, hit them with a huge tax bill. Even if the tax bill is a load of made up nonsense, it can be dragged through the courts for an extremely long and expensive duration. One way or another, they are determined to get Tendrara for themselves at the expense of PIs.
Maybe all this lockdown stuff has turned me into a conspiracy theorist, but that's how I feel at the moment.
That's what I thought up until GL's most recent conference call. There is still a chance we are doomed, but I'd say there is a better chance Sound can be salvaged (not back to the £1 sp days or anywhere close, but anywhere between 10-25p is possible within the next couple years in my opinion). No point selling at these levels anyway for LTHs like me.
Sorry to be so pessimistic folks, but I'm really struggling to see how Sound can be saved at this point. We're already diluted up to our eyeballs, more recent further dilution has only raised insignificant funds compared to the amounts required for actual development, never mind dealing with debts/liabilities. Where is there to go from here? From what I can see the only possible routes to avoid total collapse are either to get a farm in partner or sell the licence to the highest bidder. As Trellis has pointed out, the obstacles in front of us ahead of first gas with the LNG plan from a finance side may just be insurmountable in my opinion. But without revenue from any gas/LNG sales there is no funding for any further development.
Hindsight is a wonderful thing but apparently the reason for not pursuing early monetisation via LNG (or other small scale production) after the TE6/7 drills was because that would have triggered the start of the 10 year tax holiday off the back of relatively small production considering the 'super-giant potential'. At the time JP was able to raise funds far easier for further exploration - and if the tax holiday had started long before an eventual sale - any potential future buyer would have factored that into their offer as 'time lost' against the tax savings.
Fast forward to 2020 and we have minimal funds remaining which is not enough for any meaningful action in terms of producing gas. Without gas we'll have no more funds to do anything at all, not even office related 'action'. So why not just sell the company right now to the highest bidder or do whatever is the best deal on offer for farm in? Even if those deals are offered at a huge discount to the 'real' value of the asset - I don't see what other choice we have. If such a deal is at a huge discount, there should be no shortage of interested willing parties to do a deal.
I really hope I'm missing something here. Can anybody give me a good reason to be more optimistic? Before you ask, no, I'm not selling. No point as it's not worth much now anyway. Given the fact I've been completely wrong (or misled by JP) about everything so far......who knows, I might just be wrong again. Certainly hope so.
Indeep71 been frequenting these boards for almost as long as I've been invested in Sound, but only signed up to post/give my opinions on things during the 'pause' JP had for marketing purposes. I was convinced at that point that no matter what I stood to make profit with my relatively low average coupled with the inherent value of the horst. The scenario I did not foresee was a deal being agreed with an anonymous bidder with no money while also abandoning the 3rd well commitment. Many people have posted over the years, people with whom I've strongly disagreed such as mickytentoes among others. When he predicted single a digit value (think we were 25p+ at the time) I thought he was either crazy, had a deramping agenda, or was just plain stupid. Yet less than a year later we were sat at sub 1p. He may have just been lucky, or he might just have far better insight than me. But this is what I mean, the ultra negative posters have been annoyingly correct. The more positive posters only fleetingly so.
But having said all that I am optimistic that I'll make a decent/modest profit in the end. I like the new management set up and the plan they have decided to pursue. The strongest possible indicator that now is a great time to buy is that for the first time in about 8 years I have no spare money available due to moving house. Therefore it is a virtual certainty that now is the optimal time for newcomers to invest or holders to average down.
Being a share holder in this company for about 10 years has taught me a valuable lesson - the ultra negative posters on this board have an annoying habit of being correct more times than they are wrong. I'm hoping for a significant recovery as much as anyone on here, I think there is a decent chance we'll get back above 15p eventually. But I'd say it's a bad idea to dismiss those voicing concerns out of hand based on speculation about their positive contributions at social gatherings.
Joe I should have added - my equal most potent source of misery and regret is the fact that I encouraged so many of my family and friends to invest off the back of my own euphoria, telling them what JP was telling us - "£10 just won't cut it" etc. At least none of my family and friends invested anywhere near as much as I have. Their losses are a kick in the teeth but not devastating in the grand scheme of things. But while I have a low average and will make the money back, maybe even with a half decent profit if I'm lucky, my friends and family will never get the 50-90p share price they need to break even. JP has made me look a right mug. Made mugs of us all while pocketing millions for himself.
GL says LNG operation likely to be up and running 'back end' of 2021. So only about another 12-18 months. Let's just hope we're not talking about the kind of 12-18 month period as JP conceived the time frame. Otherwise we'll still be hoping for something to eventually happen around 2024, only for the plans to change once again for implementation during 2025/Q1 2026.
Don't want to be harsh or critical towards GL, at least he comes across with a 'realist' tone rather than the 'persistent optimist' tone (which largely turned out to be utter nonsense) spouted by JP. No mention of 'super giant' fields from GL, but at least a genuine sounding recognition/appreciation that the asset holds significant value once unlocked. I think the worst advice I've ever listened to during my lifetime was in 2016 (I think, maybe 2017) when JP said "whatever you do, sit on your hands and keep hold of your golden tickets." By sitting on my hands and resisting the strong temptation to sell at close to £1 is my most potent source of deepest regret and misery. I try not to think too much about it because I just end up getting depressed.
I really hope GL can pull something out of the bag and pleasantly surprise us all. I was pleased to hear his tone when he was talking about the company being a penny stock these days, echoing the disbelief with which so many of us long suffering holders are all too familiar. Unfortunately I don't think there will be much significant movement in the right direction any time soon.
I am generally quite positive about regaining the majority of my losses over the long term or even a half decent profit as I am fortunate to have a low average (11p). I say low average while needing a 7x mulitbag to break even, so I guess it would be more accurate to say I have a low average compared to most other holders.
But I've been invested in Sound long enough to know one thing for certain - if I try to average down further at these levels the price will plummet to previously unthinkable levels (that has happened every time I've averaged down), while if I decide against averaging down, the price will increase to what would have been a break even point (or more) had I chosen to average down, yet that rise will still be an unacceptably low price sub 11p if in the end I chose not to average down. Therefore keeping me tied to this share for another decade. If I didn't know better I'd think it was all a big conspiracy.
Unfortunately we don't have enough information. We don't know who is behind the 'deal' nor do we know what any of the other bids entailed. This is the biggest problem with this share right now. Nobody knows what the heck is going on, the share price has lost almost all value, despite a large volume of onshore gas in a high demand/price environment which should hold plenty of value.
I've been thinking, most likely, is that Parsons/the BoD have privately acknowledged that they've screwed up big time. Of course that will never be acknowledged publicly. I think that our Tendrara licence holds a certain value which other potential bidders (even possibly Shell/Repsol) are/were prepared to pay. This will very likely be significantly above the current share price but nowhere near previous highs/entry point for most holders. I suspect other bidders were completely unwilling to allow Sound to retain a % in a non operational capacity - i.e wanted a clean purchase, and valued the potential further exploration at close to zero. But the BoD/Parsons genuinely believed there is still plenty gas out there and to sell at such a low price (given their value of potential) would be the wrong option when this 'deal' allowed for significant future uplifts in value.
I can see logic in both positions but I personally would have just preferred a clean sale and I hope that another bidder comes along/rekindles their interest and puts an end to this whole sorry saga. I'll happily take 15p+ which would get me a modest profit, unfortunately nothing like what we all thought was possible back in 2016/2017 during the peak hype BS.
It has also crossed my mind that there is a big conspiracy going on where the BoD are deliberately trying to destroy all value in this share. I don't have any evidence for this other than the fact that the share price has been totally destroyed despite the company owning 47.5% of a very valuable asset. What would you do if you wanted to destroy the value of the company, under pressure from the Moroccan authorities (who have promised you personally come out this very well while they get a very valuable asset for next to nothing)? You'd probably act exactly how Sound have acted over the past few years. Make sure nobody knows what the heck is going on.
Concerns have been raised about debts owed to Marco. Fair enough, the £30m or so he is due from the company is a significant repayment. If you were Chairman of Sound, with a huge shareholding (currently worth a fraction of what you paid), with a deal on the table the company is working towards finalising in a couple weeks – would you act in a way that could effectively ruin the company?
Would be a completely idiotic strategy if you ask me. Would it be better to get the deal over the line, receive a substantial cash injection, a free carry on further exploration, not to mention every possibility to recover significant value back into all those shares you own?
Worst case scenario, the deal is delayed, or doesn't materialise for whatever reason. The debt to Marco is due. Does he simply extend the period over which the loan may be repaid and try to get another deal with substantial uplift to all his shares? Or does he say 'sorry lads, I'm effectively closing the company down by insisting all debts are repaid even though the company is not able to do so, therefore I don't actually get my money back'.
Which is more likely? The man with the most power will do everything in his power to increase the value of the company, or he will cut his losses and take out a fraction of his input, while a billion or so quid worth of gas sits in the ground doing nothing?
Jez, are you suggesting that we should all sell while Sound is at pretty much its lowest value? You think once the deal goes through, rather than seeing if there is any further upside potential from a free carry and benefiting from the future gas sales, Marco will simply de-list the company as soon as he breaks even? How will he get 'his money back' - assuming he'll have to sell his (considerable amount of) shares at a certain value without depressing the price, while still retaining control having sold those shares to then de-list the company?
Have I got your comments wrong? Not following your logic on this one.
Just wondering, since there has been so much (mostly justifiable) criticism of JP since the deal was announced, is anyone still judging whether or not to buy/sell/average down/cut losses based on how JP has previously behaved? I mean, I get it, I'm not particularly pleased in hindsight with all the ramping or with the proposed deal. I wanted a clean sale and was optimistic of around 25-30p price (or a tad lower with contingencies). Been invested here almost 10 years (fortunate to have a low average) and the thought of no returns until first gas, years away, is pretty painful (although I am also fortunate to be younger than most on here <40 so can afford to wait longer however unappealing the prospect).
But now that JP is gone, are his biggest critics not more optimistic? If JP is the boogeyman, the cause of all problems, surely his absence in future would be a good thing? Personally I think the company is worth a lot more than the current market cap, the risk of the company folding completely is extremely remote. Surely the only way is up from here?
Sentiment appears to be at an all time low for Sound Energy. Before the deal was announced we sat at around 7p, or £85m market cap. Post deal, where 51% of the licence is set to be transferred to the mystery buyer, we have a share price sitting about 51% of 7p. Yep, many of us are looking on in disbelief as the share price sits at 3.5p.
This essentially translates to the market valuing the deal as costing the company around £40m in terms of market cap. So we've effectively paid £40m to the mystery buyer to take half the licence off our hands. Equivalent to just giving half of it away for free.
I don't particularly like the proposed deal. I've been invested for almost a decade and wanted a clean cash buy out. I thought worst case scenario, we'd get about 25-30p per share, still an acceptable profit for me as I'm fortunate to have a low average. But as much as my patience with this company is running out, even if the proposed deal I don't particularly like goes through, surely this share has been oversold?
JP has understandably become a pariah among posters on here, but on the bright side, he's gone! (or at least very close to the door). I think ericnat17 was correct to highlight that Marco our new (acting) Chairman has about 300m reasons to get the share price moving north asap.
How much is 188bcf + free carry worth? More than £40m?
PNE79 I agree. Since TE8 I've had reservations about Parsons, the whole 'Paleozoic in Play' spin when no actual details of volumes/flow rates etc were released. Further reservations have emerged over the years for various other reasons, you'll have heard them all on here 100s of times. But nonetheless I've held onto my shares because I thought no matter what happened in terms of another failed drill or so, the TE5 horst underpinned the value of the company. OK, it's high risk exploration, but a baseline value has been established with the TE6+TE7 successes which 'banked' 377bcf - not to be sniffed at.
Unfortunately the one thing which I thought would retain value and ensure a decent sale price (at least for me with a relatively low average compared to most), come what may, has now been 'monetised' by giving half of it away to an anonymous buyer with substantial risk attached to contingencies which may not materialise. Even if we drill 'another TE5' and prove up a similar volume, wouldn't we just be back to where we started? In other words, we would have an interest in that new discovery but it would probably not be worth more than what has just been given away? Maybe I'm reading this deal all wrong, hope so. Because it seems to me that the only thing we had which still held value turns out to be worth not all that much. Very disappointed.