Oil price, PetroTal, BPC/CERP, Reabold, Angus, Redcliff Energy Advisors…And finally…
WTI $36.34 -$3.26, Brent $38.55 -$3.18, Diff -$2.21 +8c, NG $1.81 +3c
There was no surprise to see oil boil over yesterday in tandem with international markets which panicked after a combination of increased COVID-19 cases that threatened a second wave and a knock-on effect for economies and demand. Economic stats showed 2Q GDP disasters almost across the board which shouldnt have come as a surprise unlike last week’s US jobs data which proved every story everyone has ever heard about economists.
No, the only economic stats that weren’t disappointing were from China and that has showed a huge spike for demand of oil, again not a surprise but oil imports have showed substantial even record numbers as China piled into the market to buy oil for its strategic reserves throughout the spring. Indeed oil is up this morning, a modest 20c against the recent fall is only a drop in the ocean after yesterday I admit but it had gone a bit far.
PetroTal Corp (LON:PTAL)
PetroTal’s recent problems have been well documented but the news this morning that they have a new 3 year deal with Petroperu has changed the landscape overnight and owes a huge amount to the relationships that CEO Manolo Zuniga has at both the Energy Ministry and at the highest levels of Government. Along with an $18m raise, significantly oversubscribed and massively supported by major investor Meridian Capital International Fund, PTAL is now very much back on an even keel.
The deal minimises the impact of the recent oil price fall and gives PetroTal potential benefits of any future price increases, coming as it does with an extension from 1 to 3 years of the Oil Sales Contract with Petroperu. The deal includes lower pipeline tariffs and fees and with the Bretana field likely to re-open in early July, provides a blueprint for a firmly based recovery for the company.
The nuts and bolts are a recognition of the contingent liability which was $43m at the end of May but will already have reduced significantly, with the oil price rally it is possibly nearer $27m now. Indeed, if the price were to be back to $60 in six months time theoretically the liability might have evaporated but that is not what it is all about.
The bottom line is that in actualité the company is merely acknowledging a liability for when the oil is sold some six months later for better or worse. It is important to be aware that this deal also establishes a degree of hedge protection to avoid such losses in the future thus creating a belt and braces insurance policy valuable to both sides.
Getting this deal over the line as I have already alluded to owes a great deal to the experience and connections at the highest level of CEO Manolo Zuniga whom I have immense respect for, indeed I suspect that the success of the raise would only have been possible with this Government support.
As for the raise, the company have realised some $18m through a ‘significantly oversubscribed’ placing of 141.2m units which comprise 1 ordinary share and half a warrant each. This is a real coup for the relatively new energy sector advisory business at Auctus Advisors who acted as sole bookrunners to the placing and have certainly delivered the goods here. The funds are to be used to invest in the ongoing development of the Bretana field and also for working capital, it will strengthen the balance sheet and facilitate the hedging facility already mentioned.
Whilst the last few months may have created some concern amongst investors, this combination of addressing the liability to Petroperu, the setting up a hedging facility and the raising of some $18m to strengthen the balance sheet should assuage any of those worries and I remain confident that PTAL is very much back on the rails with a great deal of upside from here.
This was a deal that few would have thought of up until recently, BPC paying for each CERP share 0.803 in new BPC shares valuing CERP at 2.67p or £25.1m flies in the face of all those positive missives via RNS or video. BPC shareholders will own some 76% of the ‘merged’ business with CERP owning 24%, a thought that Columbus supporters would have only envisaged in their deepest, darkest nightmares.
For BPC the rationale is indisputable, they have been for many years a one geography, one structure, one well player and until the recent acquisition of a licence in Uruguay might have seen it all come and go with the spinning of just one drillbit. They must have thought that all their Christmases had come together when it dawned upon them that they could take CERP for a handful of new shares and add a number of strings to their bow.
From being a one trick pony BPC now has production and exploration, it has upscale-able low cost producing fields in Trinidad with what only this week was described as a discovery at Saffron that might transform its owners especially as it was potentially so large that the drilling company involved paid to carry CERP for the second well. In addition it has added a potentially very exciting onshore licence in Suriname another asset that Columbus chased for a long time.
Having said all that it does seem that despite huge cost-cutting and potential upside within the portfolio CERP has been really struggling to grow, most fund-raising avenues appeared closed to them and markets appeared closed. It would be interesting to see if this was the first approach that they had received, either way it looks like an interesting move by BPC and its team who have woken up this morning with a full cycle, debt free, significantly potentially accretive portfolio with production and exploration upside.
In this context it is worth noting that the team over at Gneiss Energy have been incredibly busy this week, not just advising Bahamas here but also earlier in the week where they advised on the Humber/Union Jack deal at Wressle, do they never sleep over there?
The confirmation that this is a takeover not a merger is best proved when looking at the management of the new company ‘Following implementation of the Merger, the existing Board and management team of BPC will remain unchanged’. Apart from Leo Koot the Columbus Chairman who becomes a Non-Exec director of BPC and the country MD, not a board position, everyone else goes, even the highly regarded CFO Gordon Stein doesnt make the cut.
The BPC management do have a great deal of experience in similar territories with a lot of producing experience from Arrow and Dart and elsewhere so they feel they have the opportunity to increase production and eliminate overheads. With the substantial driving force of Eytan Uliel, Chief Commercial Officer and very tough negotiator to back up Simon Potter there is little doubt that BPC now have management in abundance.
So, for Columbus the bottom line is that they genuinely believe that this is a good deal for their shareholders for a number of reasons. The recent COVID-19 virus together with the oil price fall has made life very tough for companies especially if raising money in these markets is difficult, in those circumstances there are few ways of driving their exciting projects forward, this deal is best for shareholders and you can only ask this from management, the call on whether this is right is up to the investors. You really have to go with the board on this but with no IR advice and no specialist investment bank on board they went with their and their broker’s instincts, they might well be right….
For BPC the rationale is straightforward, they could no longer be a one trick pony with little ability to raise money and everything reliant on one well. This ‘moves them up the street’ and certainly will open a few more doors when the broker fixes the next roadshow, also whilst the farm-out continues, with the well paid for and de-risked company wise any entrant is now likely to come in at the appraisal stage, if there is one.
Recently I wrote that with Trinidad firing on a lot of cylinders it would be possible to see a bit more M&A in the region, I must admit I wasn’t thinking of this particular deal but looking at it how it hangs it seems like it is very much one to watch, Eytan Uliel is very much a man on a mission…
Reabold produced results yesterday and they are so much history it adds very little, they made significant progress in raising money, success at West Newton Danube and in California.
Now they are preparing to drill the B-1 well at West Newton and have made an additional discovery at the West Brentwood licence in California where they have 0.98m boe valued at $19.3m of NPV10 not forgetting discoveries at the Monroe Swell. Meantime they increased their stake in Danube and of course recently acquired from Humber O&G an additional 16.65% of West Newton making 56.4%, a handy stake indeed.
Angus Energy (AIM:ANGS)
Angus announces that prior approval has been obtained for the installation of processing facilities at the Saltfleetby ‘B’ site. This is one of two planning applications required to reconnect the Saltfleetby gas field to the National Gris and recommence production. Further good news for the team at Angus and with more to come.
Published at Fri, 12 Jun 2020 15:15:00 +0000-Malcy’s Blog – Bahamas Petroleum and more ,,,