IMO it was a bad call for Troy not to hedge production. Tap is not big enough and not diversified enough to think they don't have to hedge their production cash flow. BNP probably did think it was a safe bet and no need to enforce a hedge - but then there are covenants and they are the senior secured lender - so asset backed. I don't see the value in not have risk management.
Nonetheless we have what we have.
From Jun 2014 Qtrly - bolding is mine.
"To facilitate Tap’s return to a mid-tier producer, Tap announced during the quarter it had refinanced the Commonwealth Bank of Australia’s (CBA) debt facilities with a borrowing base facility with BNP Paribas (BNP) for up to US$90 million. The BNP facility provides Tap with enhanced liquidity and balance sheet capacity, and a more flexible funding solution to meet its requirements ahead of the commencement of Manora production. The terms of the BNP facility reflects the stability of expected cashflows for Manora, and to this end, Tap expects to repay the four-year term facility within the first 36 months of commencement of production. With the new debt facility, Tap remains fully funded for its share of the Manora Oil Development."
Well now you see how stable those expected cashflows are when you are a price taker and not a price maker without some form of risk management (hedging).
Now on 12th Nov TAP released Manaora production commence announcement, which included this statement (bolding mine):
"...The development drilling program calls for drilling and completion of up to 15 wells (10 producers and 5 injectors), with the program expected to take until the end of Q1 2015. The Operator estimates that the joint venture will have invested approximately US$300 million in the development by this time."
This was reaffirmed on 12th Jan and noted that BB was US$68.5M drawn
The finance and corporate page of this Qtrly notes $65.4M drawn and front page notes $68.5 is the full amount available.
As I look at it - TAP has just seen US$21.5M of liquidity (maybe more) taken away from it - by means of BB no longer being $US90M. That in of itself may not have been a big deal but for the statement that JV will have invest US$300M by end of Q1. Well TAP's 30% comes to a magical US$90M.
I believe we are short a few dollars then aren't we (even account for the cash flow from Manora - using midpoint of $35M @$50/Bbl gives $US8.75M/Qtr plus AUD$7.5M/Qtr from Gas contract which are gross) if we have to come up with $US21.5M.
The number we really need to know is how much Capex spend is left on Manora. Anybody know (for sure)?
Looks like they are trying hard to defer unnecessary Capex for Manora given the statement about the JV thinking they don't need all 10 wells to maintain peak production.
TAP Price at posting:
36.5¢ Sentiment: Hold Disclosure: Held
