erg acquisition, page-11

Thanks Tinwins. Most of it stays as is, although on a second read of the release and another days sleep, I think I should correct part of it.

When they said the borrowing base was initially set at $130m, I assumed that was to satisfy a staged payment for the ERG asset. I missed the line in the release that says the credit facility borrowing base will be revised semi-annually.

My revised read of how this will pan out is that LNC will have to provide around A$127m cash to cover the US$261m purchase price for ERG. As they drill and expand production, the borrowing base will rise with the increase in receivables, inventory and capital.

To put the flows into context, sales should currently be around $100m pa based on ERG and Rancher production. Interest on the $130m should be around $4m p.a.

Thought I better correct my initial post rather than mislead anyone. Yell out if anyone understands it differently. I’m just putting in my 2c worth as I see it.

Now assuming the above is the case, re-consider this cut from a recent post by Jonathan:
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Oct. 13 (Bloomberg) -- Linc Energy Ltd., an Australian company that bought oilfields in Texas from ERG Resources LLC, said it is studying two or three more deals in the Gulf coast region and may spend about $500 million on a single transaction. … The company… has narrowed the discussions to sell its Teresa coal project in Queensland to two bidders, Bond said, declining to be more specific. Linc is seeking to reach an agreement on the sale within the “next few weeks,” he said.
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If Bond wants to make further sizeable acquisitions and to finance them on a similar basis as the ERG deal, then he will have to sell Teresa. I think things are setting up for Mr Bond to be a bit more keen as a seller assuming he wants to pursue expansion plans any time soon. It is easy on past experience to doubt Bond's claims that Teresa will be sold shortly. I'm not sure I would bet against him this time.

I also started to think about the point raised by Lory that LNC might get re-rated as an oil producer as compared to a miner following the ERG deal. I've been doing some numbers and they are working out way to favourably, which leads me to suspect I'm missing something. If I figure it out, I'll post them.