The Company will raise gross proceeds of £14.1 million pursuant to the Placing. The Placing will result in the issue of a total of 141,203,891 new Common Shares and 70,601,945 Warrants. The Placing Shares will represent approximately 17.3 per cent. of the Enlarged Share Capital.
source: https://ceo.ca/@newsfile/proposed-placing-to-raise-141-million
17.3%! As a long term investor, I hate dilutions, especially when it’s below my cost basis.
But thinking harder about this, this is probably for the greater good of company. Covid19 pretty much decimated the oil industry, destroying crude demand. Many companies were caught with their pants down, PTAL was one of them.
Thoughts
- Raise not ideal, but best case scenario for a terrible market
- Money raised will accelerate growth and bring value back quickly
- Oil Sales Contract positive
- I hate being diluted so I hope PTAL learned from their lessons
No debt, but a ton of liabilities
PTAL claims they have no debt but they do have liabilities owing to suppliers and PetroPeru
- The contingent liability at the end of May is estimated to be approximately $43 million;
- The Company has obligations to its suppliers of approximately $49 million, excluding the contingent liability to Petroperu.
source: https://ceo.ca/@newsfile/petrotal-announces-three-year-arrangement-with-petroperu
This is 92 million dollars of “debt”. This sounds pretty bad. However, management was able to pull off a repayment plan for both liabilities.
PetroPeru
The contingent liability announced on May 7, 2020 has been structured into a three-year payment arrangement (“Arrangement”) with Petroperu at an interest rate of 6.5% ;
3 year repayment plan is nice.
For reference, based on the average Brent oil price of approximately $40/bbl for June to date, the contingent liability is approximately $26 million.
So this liability is reduced nicely. Overall, I think the amount owed will be approximately $75 million.
Reduced OPEX
At current Brent oil price levels with minimum production of 9,000 barrels of oil per day monthly average, the combined fees are expected to drop from $11.00 per barrel to $8.67 per barrel;
On top of repayment plan, amendments were made sales contract to improve netback.
PTAL Lessons learned
- hedge hedge hedge, you can’t predict oil prices…
- have enough money for a rainy day
Onto the Future
Now with $18 million USD raised, I anticipate PTAL will use the funds to restart production, and further increase production. If oil prices remain at around $40/bbl USD, PTAL should be in a very good for the upcoming years.
The upside is trimmed due to the raise, but nonetheless still a very good investment case.
I’m not particular content with the raise, but it is what it is in the brutal market and PTAL management did what they could