Well, Ive had plenty of Petroneft questions & debate from readers in this post (see comments) & others! Now weve had a fund-raising & a 50% farm-out of Licence 61 to Oil India (OINL:IN) and possibly reached an inflection point - an updated valuations clearly warranted:
As of June 25th, total net outstanding debt was $24.9 million (from Arawak & Macquarie Bank). Which looks about right, as year-end debt was $30 M & cash was fairly minimal the subsequent debt reduction was essentially funded by the net 4.8 M raised from the March placing. To this we can add the upfront farm-out payment of 35 M to be received from Oil India. Unfortunately, this is offset by a substantial dilution in asset value, with Licence 61/67 reserves reduced to 11.3 M of 1P & 72.2 M of 2P barrels of oil which well value at my usual in-the-ground $10 & $5 per proved & probable boe of reserves:
($35 M Farm-Out Cash 24.9 M Net Debt + 11.3 M boe Proved * $10 + 61 M boe Probable * $5) / 1.7107 GBP/USD / 707 M Shares = GBP 35.3p
So, Petroneft continues to look massively under-valued..!? OK, I know somebodys dying to talk about Russian political risk, domestic Russian oil prices, the implied value of the Oil India deal, etc. Lets skip that debate note the farm-out was a totally distressed deal, my in-the-ground values are 100% valid in a global context (and I believe in the long-term power of convergence, smuggling, arbitrage, call it what you will), and (most importantly) my valuation incorporates a mere 20% of the companys post-deal 3P reserves & exploration resources.
Theres also the cash situation as PTR investors have painfully learned, cash (or lack thereof) is often far more relevant to market valuation & sentiment than underlying asset values. But whats been overlooked in the past couple of years is Petronefts generation of 8 M of operating cash (on average) a year. Which actually translated into 3.6 M of free cash flow before interest expense (and 0.9 M after interest expense) in 2013! Now, we should see a reduction in operating cash flow (at least initially, due to PTRs reduced stake in Licence 61), but the elimination of 3 M odd of annual interest expense should provide a decent offset. And Petroneft now has another 45 M on tap from Oil India for Licence 61 exploration & development expenditure (which doesnt feature in my valuation).
If management exercises some prudence, its reasonable to assume the company can remain cash flow positive & debt free going forward, while Oil India funds a steady increase in production & (ideally) reserves. [NB: Plus we still have an activist, Natlata Partners, on the register with a chunky 14.75% stake - hopefully, they're in for the long haul & will continue to hold management's feet to the fire]. On the other hand, the share price still seems to be painting a very different picture..! But when a chart looks like this, the market will often hate a company & its share price long past what seems like an obvious inflection point:
After enduring such a decline, many investors (new & old) cant even stomach the thought of buying til the shares rally at least 100% then gradually excitement, conviction, greed & momentum all start kicking in! My own portfolio holding in PTR was never very large (fortunately), and now amounts to a mere 0.6% Ive yet to decide if a value investing perspectives at all useful in determining whether I should add to this position
Well researched article. 10p will only be the start, these were 70 + a few years ago. Potential is still there although I still have concerns about the Board. They allowed the debt situation to almost bankrupt the company. The new technical expertise and Natlata pressure should keep them (relatively) honest. Given the new financial landscape, exploiting proven reserves will lead to significant 're-rating. Good times ahead imo! GLA
Early June apparently then you will see fireworks once all the debt has gone wouldn't be surprised to see Natlatla then bid for the lot keep India oil in (they just oil) and we could see 15p in quick time.
Seeking to dismiss FIVE bod members could mean there are cover ups and irregularities in the running of PTR. Resolving any internal issues could take time and the sp could be further sent falling.
Beware of the hidden evils among us......
Trouble is there are not many AIM stocks left that can be reasonably trustworthy in as much that shorters will not take the sp down for good. I happen to believe this is happening on PTR to some extent. Remember, ANY BAD NEWS (or good news, either way) is a tool for shorters to work on. No stock is safe any more?
CAMPAIGN TO BAN SHORT SELLING
I'll tender my opinion as a HOLD on good news to follow...but be careful. The evil that is among us........
Are we also in the grips of shorters?
Most AIM stocks are these days !
The best of them all could be the next to fall victim to this lot of scUmbags......
Most AIM stocks are now shorted in some form, in many cases AGGRESSIVELY. The result is th sp goes down. OK for those looking to buy cheap but long term holders that researched early and got in years ago don't want a bunch of short-selling raiders 'talking' the stock down' after many long years of waiting. It's unfair that your preferred investment could be halted in its tracks in this unscrupulous fashion?
Vote if you think it will make a difference, easy to do, takes only a minute !
Any investor that is concerned that "Short selling raiders" could aggressively attack your investment should seriously consider signing this petition. Let's make it work, post the link on, so we can get universal support ?
Until reality hits hard as it did with Blinkx and QPP investors, these campaigns only get modest support. Many argue that there is nothing wrong with 'shorting' and the City needs shorting to derisk their hedge funds? Go tell that to the thousands of investors that watch their life savings go down the drain. The City and its 'band of brothers' will gleefully take any action to profit at YOUR loss. It's about time the small investor got a better deal,,,otherwise, if this practice of short selling by organised groups doesn't stop, pi's will pull out of AIM altogether?
IN JUST 17 days THE CAMPAIGN HAS GAINED an EXTRA * 2,530 signatures since the QPP libelous fiasco put out by Gotham City Research and backed by the (very) questionable Simon Cawkwell (Evil Knievel), Questor and Tom W.....who.......?
Before, the campaign had stood at about 200 votes? Shows how investors are getting wise to these charlatans.....they mean to eradicate this diabolical practice of shorting you out of your life's savings.
ADD the link to your browser and add your own comments if you think it will make a difference?
MW - i'll be there on friday (at least that's the plan) my quantity of shares is sure to hold sway!! anyway - i want gauge sitation for myself thats why going along -nothing new will be shared with anyone but never know what titbits might pick up - I reckon NAtlata started buying since around last oct time - 2/4 p range - nothing to stop them dumping those shares post meeting on friday into any share price strenght - probably drip feeding them away as we speek - so i can't see any significant share price rise here for a long while - hope i'm of absolutely wrong . - will post anything interesting.. if i make it...
good article in Pheonix mag his week -by "moneybags" summary below
two page article on entire situation-
most importantly he suggest that the shares are now grossly undervalued and prospect of share price rally
he has intersting take on all the protagonists
-Maxim Korobov -
willing to keep on gERRY fagan and tom hickey (ex tullow oil finance director)
new ceo tetyakov - 10 year expeience in russian oil and claims particular knowledge on shale type oil paly
other 4 nominee are british Richard thornton (ex british telecom ) Denis sturt 30 years plus oil experince worked for conoco -philliops aND AMERADA HESS WORKED FOR DRAGON OIL all substantial people -
in a nutshell "MONEYBAGS" feels that the best option for us small share holders however is to stick with current regiem and the OIL deal
all debt will be paid off 35 m marq and 16 arawak - company will ahve cash and working capital circa 41 m to develope lic 61 and further development
- he suggests the DF will melt away into the background as he has performed pretty poorly -
finishs by stating only way Korobov can win is too start accumilating share rapidly prior to egm and build on his current 15% hlding to make bid .. he hasn't got much time
davy valuation is for "core" valuation (ie at the minimum), ie since we were paid worth
$62.5m for 50% of licence 61, so another 50% we are still holding will also at minimum worth $62.5m
hence total value = $125m, ie £74.3m
this equates to 74.3/707.25 = about 11p per share
so, farm out has put a minimum to PTR valuation, ie PTR sp should be around 11p min (ie core valuation) now
but of course, PTR itself is producing and the cash generating is much more than $1 per barrel and as such this will only add to further upsides.
Oil India will probably provides technical expertise (regardless who is the operator) which will be useful in ramping up production and mitigating any issues.
eg, OEX which hasnt yet found oil already valued at £30m market cap as they are being valued at their "potentials and upsides" and yet, PTR has nil value for its "potentials" even though we have confirmed oil?
credit to davy and goodbody for below information - somewhere int the middle would do , say 10p in next few weeks - a lot of credibility to be regained here- time will tell- i know i have harped on about the sybeiskkkkaarhkk. field (spelling) before -but at one agm DF was very bullish on its prospects and time will tell -will try an make egm but may have other commitment i can't get out of , will post if i get there- i am sure though this will be a cursary thing vote though motions and everyone leave .... maybe a waste of time attending as don't thing board are going to give natalta any soot..short and sweet .. well done BOD on deal with OIL .
Petroneft has entered into an agreement with Oil India which will acquire a 50% stake in Licence 61 for a capital commitment of $85m. This involves a $35m cash payment to Petroneft, a gross $45m work programme and a final $5m cash bonus due to Petroneft if the large Sibkrayevskoye field is developed. The value transfer to Petroneft is up to $62.5m. The deal is subject to regulatory approval, EGM and rejection of the Natlata proposals.
As a consequence of the deal, all debt in Petroneft will be retired and we estimate that the committed expenditure will be sufficient to meet gross licence expenditure over the coming two years.
Re-starts work programme
Assuming the deal is approved by shareholders, drilling will recommence this July. Up to an additional five wells will be drilled on Arbuzovskoye and drilling will also start on the Tungolskoye field. The latter will include a horizontal leg, the first time it has been attempted on Licence 61. This has potentially important implications for the development, leading to possibly much higher production rates and a reduced well count. Growth in production and output has stalled over the last 18 months with current production at 2,400 barrels per day, well short of earlier expectations (management has constructed an export line from the licence with capacity of up to 20,000 b/d). The availability of capital makes it possible to pursue a much more aggressive production growth profile.
The $62.5m value transfer to Petroneft is equivalent to 5.5p per share for its remaining 50% share in Licence 61. This also values the barrels at just over $1 (50% of 117m attributable to the licence). The value paid equates to our valuation of the two producing fields (Linenoye and Arbuzovskoye) with little for the upside of the Tungolskoye and Sibkrayevskoye fields. However, the group was leveraged and non-producing assets are out of favour at present, so this transaction valuation does not surprise us. We think that the deal will ultimately crystallise value, even with a reduced equity position in Licence 61. Following the deal, we estimate an 11.3p per share core valuation, especially as the group now has the wherewithal to achieve it.
PetroNeft's announcement on April 17th marks a potential watershed for the company. While
clearly flagged and anticipated, the agreed farm-down of Licence 61, which is subject to both
shareholder and regulatory approval, will not only eliminate debt (estimated at $30.5m as of
December), but provide capital to develop the satellite fields of Arbuzovskoye, Tungolskoye
and Sibkrayevskoye. In total, the agreement with Oil India (OIL) will see PetroNeft cede 50%
of Licence 61 for up to $85m. That investment comprises an upfront cash payment of $35m
to pay all outstanding Macquarie and Arawak loans, a further $45m to develop satellite fields
and a potential payment of $5m contingent on achieving production of 7,500 bopd from
Sibkrayevskoye within five years.
Shareholder approval is to be sought at the EGM requisition by majority shareholder Natlata
(14.7%) on May 9th with regulatory approval expected towards the end of May. The
agreement is subject to a rejection of Natlata proposals to remove the executive
management team, thus placing the 'ball' firmly in the Natlata court.
The transaction values PetroNeft's 50% interest in Licence 61 post farm-down at
7.4p per share. Adding in the derived value for Licence 67 in our model would
suggest a total risked value of 9.0p relative to a current share price of 6.4p.
Narrowing the discount currently applied by the market will require evidence that
management can succeed in raising production and realising the potential in
satellite developments, the initial findings from which are likely to emerge in 2015.
definately going up, albeit slowly. similar to what happened a couple of years ago, slowly going up from 8p to 60p... but wont be too long now.
we should get operational updates soon too perhaps, informing us how much bopd being produced.
see website below (scroll down a bit)
http://w e x boy.wordpress.com/2014/03/04/2014-the-great-irish-share-valuation-project-part-iv/#more-8030
Company: Petroneft Resources
PTR continues to look massively under-valued. If they can actually solve their cash issues, and throw themselves into ramping-up production, I dont doubt this is true investors will surely revalue the shares to a multiple of todays share price. But that kind of valuation step-change usually doesnt happen overnight if youre a cautious investor, and choose to hold off til PTRs cash issue is well & truly sorted, who cares if the price doubles initially on such news?! Despite the higher price, that would still present a far superior risk-reward opportunity.
Of course, an even better outcome here would be an (up-front cash) farm-out of non-proved/probable reserves only (since they dont feature in my valuation at all) but I suspect this probably wont happen. At this point, we should also wonder whether PTRs production difficulties to date might signal a possible re-evaluation of reserves? However, in that scenario, I suspect any reduction in intrinsic value would still offer attractive upside potential so cash is still the real problem here ultimately
excellent news on the farm-out. (see RNS 17 April)
licence 61 alone worth at least 21p (potentially 41p + ).
licence 67 worth $$m
should shale gas/oil being explored, will be worth $$m
Licence 61 (which has 117m bbls per the website)
- 50% of which has been farm out for total value $85m (ie £51m)
- PTR now own 50% of 117m bbls ie 58.5m bbls
After farm out, PTR has no DEBT. Previously, all revenues from production were used to pay off monthly debt payment.
current production around 2400 bopd, and with DEBT free, all revenues now will go straight to PTR cash balance.
(see calculation below)
since wells are producing constant at 2400bopd, PTR is generating revenue after oil tax and opex at USD 7.7m per year
ie total revenue after oil tax and opex in 20 years, attributable to PTR will be 7.7mx20 = USD 154m
this USD 154m (ie GBP 92m) plus the value of farm out (£51m) = 92m+51m = GBP 143m is the value of PTR at the current production rate.
even at 2400 bopd currently, PTR valuation of £143m (around 21p) is several multiple of current market cap of PTR of £45m (at share price 6.4p)
if we are producing 4000bopd, we would be generating total revenue of USD 288m (around 41p worth).
should we able to increase bopd, cash revenue will be much higher than that.see rough calculation below on revenue. its only rough and i have tried to make it as accurate as possible. if not correct, please let me know. also, below only revenue, so still have to take into account overhead and other things. on the flip side, the production will be way much longer than 20 years, depending on the bopd, until the total oil reserves depleted.
I'm quite impressed with the financial side of the deal. We get a good cash sum and with the investment budget we should be able to drill dozens of wells which should boost production and reserves significantly (should easily make up for the 50% we give away).
I have my doubts about the technical part though, we remain operator which we haven't been doing that very well in the past years.Various concerns that Natlata has posted (don't necessarily support them) are not addressed, like:
1. Poor past performance of expected flow rates and actual flow rates. No serious use of horizontals although now Petroneft is planning one on Tungolskoye.
2.Use of a drilling contractor affiliated to one of the directors which apparently has a poor reputation. Can't check this myself but then the results or our drilling and fracking have not been that good.
3. Distance between various leadership roles and the actual business in the organization. I work in an international chemical company and see the effects of a similar situation myself. I share this concern with Natlata
Also, it seems (although I find it hard to find a good list of IOL activities) I'm not getting the feeling that IOL is an expert company with these type of fields/rock/regions. Therefore I have my doubts on how much their technical expertise will help us. An operator already successful in the region would have had my preference.
Altogether I'm mildly positive as at least we will continue serious drilling. Our verticals on Arbuzovskoye haven't been spectacular (I think about 1000 bopd on 6 wells or so now?) but these wells are quite cheap (<$1M according to earlier presentations) so that should be some low hanging fruit we can pick to improve production and hopefully the horizontal well will show good potential.
There's a small matter of $40m of debt to be repaid but let's not quibble
Was waiting for this before casting my vote for the EGM. It'st thumbs down to Natlata. Nice to find a board who deliver a deal on schedule.
PetroNeft Resources plc
("PetroNeft" or the "Group" or the "Company")
Licence 61 Farmout Agreement with Oil India Limited
PetroNeft (AIM: PTR) owner and operator of Licences 61 and 67, Tomsk Oblast, Russian Federation, is pleased to announce that it has entered into a binding agreement in respect of a 50% interest in Licence 61 with Oil India Limited ("OIL") (the "Licence 61 Farmout").
· Total investment by OIL of up to US$ 85 million consisting of:
· US$ 35 million upfront cash payment
· US$ 45 million of exploration and development expenditure on Licence 61
· US$ 5 million performance bonus
· PetroNeft to remain operator of Licence 61
· Subject to regulatory and shareholder approvals with completion expected around end-May 2014
· Up to six well drilling campaign to start on completion of farmout
Licence 61 Farmout
Over the past year, PetroNeft has held discussions with a large number of parties in relation to a potential farmout of up to 50% of Licence 61 and also held discussions with a number of Russian and International banks to refinance the existing debt facilities and put the Company on a sound financial footing for the long-term.
Having considered in detail a number of proposals and offers, PetroNeft is pleased to announce that it has entered into an agreement in respect of a 50% non-operating interest in Licence 61 with OIL.
Under the terms of the Licence 61 Farmout, OIL will acquire a 50% interest in Licence 61 by making a total Investment of up to US$ 85 million consisting of:
· US$ 35 million upfront cash payment,
This will enable PetroNeft to repay in full its existing debts (the Macquarie Debt Facility and the Arawak Loan) and have cash for working capital purposes;
· US$ 45 million of exploration and development expenditure on Licence 61
· US$ 5 million performance bonus, contingent upon average production from the Sibkrayevskoye Field reaching 7,500 bopd within the next 5 years.
The transaction is subject to shareholder vote and regulatory approval. In this regard, an Extraordinary General Meeting of shareholders will be held at 10.30 AM on 9 May 2014 in order for shareholders to grant their approval. A formal notice of this EGM will be circulated to shareholders and placed on the website (www.petroneft.com) in the coming days. Regulatory approval is expected around the end of May. The transaction is also subject to the rejection by shareholders of all resolutions at the requisitioned EGM due to take place at 11:15AM on 9 May 2014.
Upon completion, PetroNeft will repay all of its existing debts (Macquarie and Arawak), have cash for working capital purposes and significant funds available to invest directly in Licence 61 over the coming years.
The Licence 61 Farmout:
· Materially strengthens PetroNeft financially and strategically
· Fully addresses PetroNeft's capital structure and long term investment requirements with all existing debt repaid, cash for working capital and investment and significant funds available to invest directly in Licence 61
· Introduces a strong industry partner seeking to build an oil and gas business and strategic position in Russia
· Positions PetroNeft to fully exploit the potential of its assets and create value for all Shareholders
Evercore acted as Financial Adviser to PetroNeft for the Licence 61 Farmout.
Oil India Limited (BSE: 533106, NSE: OIL) is one of the largest national oil and gas companies in India as measured by total proved plus probable oil and natural gas reserves and production. It is engaged in the business of exploration for oil and gas, production of crude oil, natural gas and LPG and transportation of crude oil, natural gas and petroleum produc
It seems that today, several chunky sells which i suspect might be Natlata playing tactical in feeding small sells to the market so that they can keep sp at low (ie doesnt rise too high). I suspect perhaps they are thinking by doing so, they can argue in egm that sp doesnt rise as in reflection of poor performance by current directors?
However, natlata can only sell a certain amount and Natlata most probably will be buying back just before egm, or soon after farm out, so that they will have the same or higher % holdings so that they can win in the egm voting.
dont forget, current board of directors are not able to buy more shares of PTR as they are in the "closed period". however, as soon as news/details of farm-out is out, i suspect a couple of directors will be buying more PTR shares, so that to have more says in egm, and to show to shareholders that they are committed in PTR. sp will certainly rising very fast as soon as details of farm out is out in RNS
Important message from the Financial Conduct Authority:
Posting inside information that is not public knowledge, or information that is false or misleading, may constitute market abuse.
This could lead to an unlimited fine and up to seven years in prison.
If you have any information, concerns or queries about market abuse, click here.
The content of the messages posted represents the opinions of the author, and does not represent the opinions of Interactive Investor Trading Limited or its affiliates and has not been approved or issued by Interactive Investor Trading Limited.
You should be aware that the other participants of the above discussion group are strangers to you and may make statements which may be misleading, deceptive or wrong.
Please remember that the value of investments or income from them may go down as well as up and that the past performance of an investment is not a guide to its performance in the future.
The discussion boards on this site are intended to be an information sharing forum and is not intended to address your particular requirements.
Whilst information provided on them can help with your investment research you need to consider carefully whether you should make (or refraining from making) investment or other decisions based on what you see without doing further research on investments you are interested in.
Participating in this forum cannot be a substitute for obtaining advice from an appropriate expert independent adviser who takes into account your circumstances and specific investment needs in selected investments that are appropriate for you.