Agree with everything you've said about disclosure. It's usually quite difficult to get details on any loan covenants on ASX companies....but OEL was particularly bad. As you've highlighted with Australis O & G, their terms were more visible. Central Petroleums even more so. OEL didn't disclose nearly the same extent of information.
C'mon: "But the "structure" of credit agreements are fairly standard in the language they use .... but not necessarily the bars they set. the MLA has become more common in E&P (especially after oil price decline) but I still wouldn't say its the majority. The credit agreement would set it out clearly. If its there I've seen it as (a) Flat amount ... e.g. $10M ... meaning $10M in Cash or Cash Equivalents available at all times for the Term of Facility (b) % of Debt Facility ... e.g. 20% of Total Facility (not amount drawn) ... so if $55M was the Debt Facility $11M is MLA for the duration of the term of the facility (c) Variable based on the Leverage Ratio (likely Debt/EBITDAX). So if leverage ratio was say <2 MLA might be $0. Greater than 4 it might be 30% of Debt and so on. Is is just co-incidence that $17.5 is 50% of the Total Trance A debt (A1 $25 + A2 $10)"
I really don't believe it is any of the three above. How could it be with the capex we have due? We would instantly breach again and the end of this quarter?
(a) It can't be a flat amount of $17.5m as OEL certainly won't be able to self fund it's expected $6m of capex this quarter (per the letter to shareholders). The capital raise doesn't provide enough of a buffer. (b) % of debt facility which is essentially the same as above. It would be a flat amount for OEL at this point in time. (c) Variable based on leverage ratio. That would be extremely risky given the volatility in oil prices with the committed capex we have scheduled for this quarter.
It has to be based on scheduled development capex. I.e. The scheduled development capex is c$7m this quarter and the MLA will decrease from $17.5m at 31 March to $10.5m at 30 June. But it's slightly worse than that as we also need to make $2.5m of repayments back this quarter, so it really is a decrease from $17.5m to $15m.
The other financial coverage ratios of NPV x 1.X of PDP reserves and current ratio appears standard on MQ credit facilities. 1. NPV of PDP reserves feels quite safe if they haven't breached this yet - SM71 production being reduced to hedged rates (can't get any worse!) and Lightning has such low gas prices, it also can't get much worse?! I did ask the question if Otto were looking to hedge Lightning gas given the contango in the market and the answer was "yes". I expect we could see something come around here soon. 2. Current ratio - again, luckily we are hedged here. It will exclude any loan payable but luckily includes the hedged amounts. I don't see how this can get any worse either....as long as we stick to our capex plan and don't have any black swan events. I.e. Trump shutting down the whole GoM.
I'll ask OEL what the covenants are or at least provide detail to the market in the next presentation to get everything out to the market. It's an easy way to win back some confidence.
On the bright side, the retail entitlement is likely to be substantially under subscribed resulting in less dilution. If OEL survives and you've managed to buy at 0.4 cents or 0.5 cents...you've just beaten the smart money who are underwriting and paying 0.6 cents.
Disc: I will not be participating in the capital raise. Even if the share price spiked to 1 cent I would not sell and give management more money to squander.
