FiGambler

Author: figambler

Frontera Energy’s Guyana Prospect

Posted on by figambler

FEC’s Guyana prospect

I actually like FEC’s Guyana prospect a lot. FEC has 81.3% Economic Interest two blocks in Guyana: Corentyne and Demerara! FEC has 72.41% interest in CGX Energy and 33% stake in each block. I believe Guyana is still a hot spot for offshore drilling.

Corentyne block

Given that Carapa-1 hit oil, I believe there is a high likelihood that Corentyne will also hit oil; though it will depend on FEC’s execution.

Corentyne’s cretaceous layer may be just like Carapa-1 and contain high quality light oil.

Demerara block

Given that Joe-1 and Jethro-1 from EOG had oil discoveries in the tertiary layers; I’d expect Demerara to have similar results. I’m not particularly interested in high sulphur heavy oil as heavy oil will be more expensive to process than light oil.

source: http://www.fronteraenergy.ca/content/uploads/2020/08/August-2020-Corporate-Presentation.pdf

EOG‘s Joe and Jethro prospect.

source: https://www.ecooilandgas.com/wp-content/uploads/2020/03/ECO_Corporate-Presentation_FOR-WEBSITE_March-2020.pdf

FEC currently valued at ~293M CAD and CGX Energy is valued at ~160M CAD today 8/12/20. This means FEC’s equity stake is worth 112M CAD and everything else FEC owns is worth 181M CAD today.

This gets me thinking – is everything else FEC owns worth only 181M CAD?

Life in Tech and Silicon Valley

Posted on by figambler

I currently work in one of the top tier tech companies in Silicon Valley and it’s definitely a rewarding experience. I get to work on the greatest and latest products used by a majority of the population on this planet. I get to work with one of the greatest minds in the world ( and one of the most difficult minds as well) All in all, I get paid generously, and am proud to work at this company.

However, recently I feel something isn’t right anymore. What I realize is Big tech companies are no different from big companies in terms of culture, structure and politics. Like traditional big companies, big tech companies have this burdening hierarchy, and politics, which I find a bit discouraging.

I live in between QA, and Engineering, and I see that QA have more politics because they are less technical, so politics is their way to climb the ‘corporate ladder’.

I’m looking for a way to get out of this mess.

PTAL Dilution, the obvious bad, and the hidden good

Posted on by figambler

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

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Frontera Energy, deal or no deal?

Posted on Modified on by figambler

My notes

  • Cash > Debt by $10MM USD
  • Cashflow from Oil and Mid Stream
  • Cost of oil approximately $25/bbl USD
  • Midstream Infrastructure is a little bit messy to me
    • Book Value of Infrastructure investment = ~260MM USD
    • attack risks
    • commitments to finance infrastructure
    • note: I want to discount all infrastructure value until I get more clarity
  • 15MM USD Dividend Policy Quarterly when Brent >$60/bbl

Oil

2P Reserves 2019

158 MMBOE

Cost of Production and Transportation

~$25/bbl USD

Hedged

2020 Q1 Netback

Dividends

Debt

Infrastructure

Tax Loss

The savings made by FEC virtually all
flow straight through to cash flow because of the large tax loss position in excess
of US$3bn.

source: Hannam & Partners Equity Research 7/9/2019

Risks

Emerged from Bankruptcy

The company is just starting to reap the rewards from intense
restructuring after bankruptcy in 2016.

source: Hannam & Partners Equity Research 7/9/2019

Pacific Rubiales bankruptcy

Pipeline Liabilities

Pipeline Attacks: numerous attacks on pipelines

source: https://www.reuters.com/article/us-colombia-pipelines/ecopetrol-unit-condemns-attacks-against-oil-pipelines-in-colombia-idUSKBN22H2NX

BIC appears to be a liability, but is resolved.

UOG: Jamaica, the wild cat upside ( downside)

Posted on Modified on by figambler

Thoughts

Jamaica is a wild cat prospect, definitely high risk but that’s what will take UOG to the next level. I have some notes on the risks and thoughts on what might happen.

20% Chance of Success

I personally think there is higher than 20% chance of success in Jamaica but UOG has a 20% estimate

Final processing of the 2,250km2 3D seismic data that was acquired in 2018 was completed in 2019. A CPR completed on this new data increased the gross unrisked mean-case recoverable Prospective Resources to 229 MMstb, and improved the chance of success to 20%

source: https://www.uogplc.com/wp-content/uploads/2020/05/UOG-Plc-Group-Financial-Statements-2019.pdf

Input from others

Oil analysts say that 100 per cent of Jamaica’s estimated oil and gas reserves are easily recoverable.

source: https://www.oilandgasvisionjobs.com/news-item/norris-mcdonald-tullow-and-jamaica-why-the-silence-over-the-big-oil-and-gas-find

Tullow also outlined that there has been oil or gas shows in 10 of the 11 onshore and offshore wells drilled in Jamaica to date.

source: http://jamaica-gleaner.com/article/business/20200527/united-wants-continue-oil-project-jamaica

Risks

No farm-in partners

“The PCJ can advise that we have been informed by Tullow and United Oil and Gas, that the farm-down process (equity reduction) has been unsuccessful so far; however, the companies have indicated that they are still looking for partners,” the agency told the Financial Gleaner.

Tullow giving up

“Markets will be aware that the licence operator, Tullow Oil plc, has written down the value of the Walton-Morant licence in their most recent preliminary results schedule,” stated United in its latest filings.

source: http://jamaica-gleaner.com/article/business/20200527/united-wants-continue-oil-project-jamaica

Negotiations with Jamaican government

However, due to the uncertainty in respect of the current exploration phase there is an indication of possible future impairment should the extension of the exploration period not be granted.

source: https://www.uogplc.com/wp-content/uploads/2020/05/UOG-Plc-Group-Financial-Statements-2019.pdf

Options to Proceed

In order to proceed with Jamaica, UOG needs to be diligent on how they should negotiate with the Jamaican government and how they can finance this. I have some speculations on what UOG will do.

Option 1: UOG negotiates with Jamaican government to take over 100% of Walton-Morant licence

This means UOG will take over all of Walton-Morant licence, start drilling while seeking for farm-in partners. In the mean time, UOG can opt to pay the Jamaican government over X years and/or pay when UOG finds a farm-in partner.

Option 2: UOG negotiates with Jamaican government for an extension to drill until a farm in partner is found

Straight forward enough, but this means everything will continue to be delayed.

Option 3: UOG obtains a loan or raise to pursue Walton-Morant licence

This is very similar to option 1 except this means UOG will have to pay a hefty interest for loans or share dilution for raise.

Option 4: Give up Walton-Morant licence

This is the worst case scenario which Jamaican government will not negotiate any further and UOG doesn’t have the money to drill. This means UOG have to write off any investments it spent on Jamaica.

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