WTI $61.56 +59c, Brent $64.98 +41c, Diff -$3.42 -18c, NG $2.59 +3c, UKNG 46.75p -0.55p
By Malcolm Graham-Wood
Oil was up a bit yesterday for no particular reason but a report from Reuters has suggested that the Saudi’s are planning to hold production for another couple of months at the upcoming Opec+ meeting.
Retail gasoline prices appear to have peaked, as we head to the Easter break and the oil price stays at these levels more driving may push those up and stock levels in products are going to be crucial in the next week or two.
The Archegos scandal continues but answer me this, how come major league banks like Nomura and Credit Suisse got involved with a bloke with form and to be frank would find it harder to get a job at MacDonald’s than running $30bn….
Sound has today published a ‘Consent Solicitation Memorandum containing details of its proposal in respect of a restructuring of the Company’s Luxembourg listed EUR 28.8m 5.0% senior secured notes due 2021 (the “Notes”) and that a meeting of the holders of the Notes (the “Noteholders”) has been convened to consider the Proposal for 10:00 a.m. on Wednesday 14 April 2021 (the “Noteholder Meeting”)’.
Pursuant to the Proposal, the Company is seeking the consent of the Noteholders to: Amend the maturity date of the Notes from 21 June 2021 to 21 December 2027; Partially amortize the outstanding principal amount of the Notes, at a rate of 5% every six months, commencing on 21 December 2023; Convert of EUR 3,479,999 of the Notes, pro rata across Noteholders, into a total of 141,176,448 new ordinary shares in the Company, issued at a conversion price of 2.125 pence per new ordinary share, half of these conversion shares to be subject to three month lock-in and half to a six month lock-in;
Amend the interest rate payment structure that the Notes shall bear until maturity from 5% per annum to 2% cash paid per annum (the “Cash Interest”) and 3% deferred interest per annum to be paid at redemption (the “Deferred Interest”) for the period commencing on 21 June 2021; and in addition to the Company’s existing redemption rights, provide the Company with the right, at any time until 21 December 2024, to redeem the Notes in full for 70% of the principal value then outstanding together with any Cash Interest accrued and 100% of the Deferred Interest then accrued at the date of redemption.
As part of the Proposal, the Company is also proposing to issue to the Noteholders 99,999,936 warrants to subscribe for new ordinary shares in the Company at an exercise price of 2.75 pence per ordinary share (the “Warrants”). The Warrants will be exercisable from the date of issuance until 21 December 2027. The Warrants will be listed and admitted for trading on the Luxembourg Stock Exchange.
So, the long awaited Bond restructuring proposal has now been announced and we can see that a sensible approach has been taken that balances the demands of bond holders with those of shareholders. Notable is that the bond redemption date has moved well into the future allowing Sounds projects to deliver several years of cash flow in advance of the December 2027 redemption date.
A small yearly amortisation from the end of 2023 should be readily manageable from Sounds micro LNG cash flows, and perhaps more importantly, cash interest rates are reduced and the deferred element conserves short term cash. There is an early redemption option with a handsome discount for Sound should they wish to remove or refinance the debt over the next three years.
The partial equitisation is also a reasonable result for those shareholders who had concerns that a full bond equitisation was going to occur. Also the partial conversion of around 12 % of the bond to equity is undertaken at a significant premium to yesterday closing share price, the warrants associated with this transaction are issued at an even higher price and would seem to indicate that bondholders have confidence in an appreciating share price.
Last week SOU seemed bounced into making an announcement to counter market gossip from the engineering contractor’s leaky local financial adviser in Morocco, it caught me on the hop and missed Friday’s blog. However it does show that significant progress is being made on all fronts of the contractual documentation.
Gas sales contracts, engineering and operations contracts and all the various partner approvals importantly need to come together, and simultaneously. Whilst Sound announced that formal exclusivity ends on March 31st with the LNG buyer and the engineering supplier it seems all continues and that the Sound team are now tying up all the loose ends, the Bond restructuring is a large part of that.
Now with engineers at the helm I expect Sound have a detailed execution plan. The bond restructuring has always been one of the key steps leading to Final Investment Decision (FID) and construction commencing, perhaps this is the first of several announcements as various elements are indeed ticked off to FID.
This would be a really important step in the recent history of Sound, with Graham Lyon as a genuine Executive Chairman and operational management on the ground important at that level and of course with Covid making those positions increasingly important.
A deal like this is never going to make everyone happy but Sound appear to have done a remarkable job in appeasing all the parties while keeping upside for shareholders given the proximity of the FID. They can expect plenty of , now operational, announcements and I am increasingly confident that the process is falling into place.
Union Jack Oil/Reabold Resources
Union Jack and Reabold today update in respect of the future planned test programmes at West Newton. The highlights are, a Draft Environmental Agency permit received for completion, well clean-up and Extended Well Test at WNB-1Z and additional wells at the West Newton B site.
First phase of evaluation, including Cased Hole Logging Programme and Vertical Seismic Profiling, of WNB-1Z to commence in April 2021 also processing and interpretation of data which is expected to take two weeks and will inform completion, well clean-up and EWT operations for WNB-1Z well. Also and very importantly, the partners are making preparations for an updated CPR which is in progress.
The Operator of PEDL183, Rathlin Energy (UK) Limited applied to vary the West Newton B Wellsite permit and has received a draft of the varied permit from the Environmental Agency (“EA”) that will accommodate completion, well clean-up and EWT operations. This permit includes the WNB-1Z discovery well and any additional wells planned for the West Newton B site and all it needs is signing…
An EA permit is already in place at the West Newton A site, that includes further clean-up and EWT operations on the WNA-2 well. Now it is worth taking a look at these technical notes in the RNS, for me they show just how close the companies are to the most important operational activities on site.
The first phase of the evaluation programme on the WNB-1Z discovery well is planned to commence in April 2021 and will initially be comprised of a customised CHLP including a cement bond log, a Weatherford Raptor evaluation tool to log the Kirkham Abbey formation and a VSP.
The Raptor tool is a pulsed neutron wireline logging device that provides a quantification and advanced analysis of oil, gas and water saturations and potential fluid contacts in a cased wellbore.
This cased hole logging activity will be followed by a VSP survey that will provide a high-resolution calibration of the existing 3D seismic data and is considered to be a more accurate method of calibrating previously interpreted formation tops and previously calculated time-estimated formation depths.
Following completion of the CHLP and VSP survey, the processing and interpretation of the data acquired is expected to take approximately two weeks and will help inform the completion, well clean-up and EWT operations on the Kirkham Abbey formation for the WNB-1Z well.
The market has for way too long not, for whatever reasons, understood quite how substantial WN really is, these activities and in particular the potential of a new, updated CPR across the licence should for once and for all end that and revalue the shares of UJO and RBD. Get this party started….
Pharos has announced that it has received provisional approval from the Egyptian General Petroleum Corporation’s (EGPC) Main Board to an amendment of the fiscal terms of its El Fayum Concession, which is now subject to the approval of the Egyptian Government.
Under the new terms, the Cost Recovery Petroleum percentage (i.e. the share of gross revenues that is available for the Contractor to recover its costs) will be increased from 30% to 40%, allowing Pharos a significantly faster recovery of all its past and future investments. In return, Pharos has agreed to (i) waive its rights to recover a portion of the past costs pool ($115 million) and (ii) reduce its share of Excess Cost Recovery Petroleum from 15% to 7.5%.
Ed Story, President and Chief Executive Officer, commented:
“I am very pleased with the outcome following our constructive negotiations with EGPC/ MOP concerning potential improvements in the Concession Agreement terms in order to support a return to operational investment. We have arrived at an agreement that mutually benefits both Pharos and EGPC. The improved cost recovery terms mean past and future investments in El Fayum can be recovered thanks to a significant increase in Pharos’ total share of gross revenues. Together these new fiscal terms mean an improvement of up to $5.7/bbl in the breakeven price. We appreciate the cooperation and commitment of the leadership team at EGPC and the support that we have received from the Egyptian Ministry of Petroleum and Mineral Resources, we look forward to working with them to realise the significant mutual benefits of these new arrangements”.
There are a number of plusses here not least the comment above about the improvement in the breakeven price to the company. In addition the company has a farm-out process going on at present and it seems that the company has already received a number of very ‘attractive’ offers for a part of its asset base in Egypt. Once these negotiations have taken place the work in-country can be accelerated thus improving substantially the value of Pharos.
Note that Sterling Energy has appointed Jeffrey MacDonald as Chairman and Gavin Wilson as NED. Both these appointments seem to be bang in line with what I think is going to happen at SEY i.e. a good deal. They are both well known to me and Sterling looks set very well indeed.
At Scirocco I have just noticed a broker report from WH Ireland which is well worth a look at as it gives a useful overview of the company, the board and its current strategic objectives.
Also worth noting that SAVE has a new website which has plenty of in-depth on the company, maybe worth looking at it, the company is stacked with value.
And finally Cairn has announced that the Indian Government has petitioned the Dutch Court of Appeal to set aside the arbitration awarded to the company on 21st December. This comes into the category of ‘you couldn’t make it up’….
(The opinions expressed here are those of the author, a columnist for Share Talk.)
Website Link www.malcysblog.com
Disclaimer: Malcy’s Blog is provided for general information about the international oil and gas industry and the companies that operate within it. It does not constitute investment advice and Malcy does not buy or sell shares, warrants or bonds in any company written about within the blog. Information is taken from publicly available sources and any comment is that of the author who does not take any third party comment in the blog
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