Anyone else very very confused by this announcement
There are so many oddities that make it really stink to me.
I will explain the issues that I see.
The company says it received offers for a material price above current market cap for undisclosed assets. We don't know what those assets are, but they seem happy to tell us about the earnings ratios of 2.5-3.5x earnings as a price metric. It makes me think its the Blackspur business that was up for negotiation given it is the only business producing earnings. It's kind of convenient they refer to earnings ratios which are excluding the intense capital requirements to maintain production rates (which according to my estimates wipe out all "earnings" at current oil prices, more on that later). So it seems to me that the bidders entered on the basis of the extremely discounted "earnings ratios" but became disinterested when reviewing capex requirements (an effect of high declines which I spoke about before). This makes the most sense to me, so I conclude it is the most probable.
They also fail to tell us why the negotiations were cancelled other than volatility of the oil price. However, oil prices have remained rather stable from when negotiations appear to have commenced. In fact, moreso than they have been for the last two years. In such circumstances it is likely the bidder would have a lever price adjustment for oil price assumptions given they've stabilised at these levels, which lead me to believe that the true reason for the negotiations failing are not volatility of the price, but rather where prices have settled as of now. It is likely in my opinion the revised prices on negotiation have settled at an amount that is unappealing to the market. So the statement that suggests to me that management were sitting on an offer materially above current market cap (for SOME assets mind you, not all of CE1 assets) until negotiations were terminated, really doesn't make sense. Like the point I raise above, this is based on speculation, but it's based on my logic.
The announcement talks about "free cashflow" of $7.5m and paying shareholders of $3m as a distribution. This stinks really bad when I actually run the numbers. The company seems to diverge from its own definition of "free cashflow" here. Pay very close attention to the lettering and capitalisation. I think what they're talking about is "cash from operations", because it referred in the bullet points above at the start of the announcement the same $7.5m. In fact, check out the March quarter where oil prices were slightly higher, $8.5m for cash flow from operations, so it's sure does look like this. Now, check out the definitions at the bottom of the announcement. "Free Cash Flow (FCF)" is defined. "free cashflow" on the other hand is no where to be seen. It's not defined. This is important.
The real FCF takes into account regular occurring capex, and in the case of management guidance, and real world estimates based on historical quarterlies, it likely takes between $25m-$35m (avg $30m) to maintain current production rates of circa 4,100 boepd. So if they need to spend circa $30m pa for capex, and generate only $7.5m in operating cash flow per quarter, that really leaves nothing for actual profits at current oil prices. So why do shareholders get a "distribution". Distribution of what?
This announcement stinks to me. More will be revealed in the webinar, and I hope there are tough questions asked tomorrow. No doubt management are reading this forum and getting prepared with their responses.
These are just my opinions and guesses, please do your own research !
Expand
(20min delay)