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I should add that I have just topped up my holding, which now represents about 5% of my portfolio.
About the Author
AnonymousUser858
12 comments
marben100
Hi T,
Sorry I wasn't able to join you this morning, as I've had other priorities to attend to today.
I'm currently out of DEO, as I''m increasingly concerned about their ability to raise substantial funds without shareholders suffering heavy dilution (in the light of the tax changes). Of course the "Tom Cross factor" could help - but I don't feel comfortable about relying on that.
What are your thoughts about the issue of fund raising, which I guess was a significant part of your discussion? ;0)
Best,
Mark
AnonymousUser858
They will need to raise about £100 million during 2012-13 to pay their share of the costs to bring Perth Core on-stream.
Analysts make the assumption that this will be raised in equal portions from debt and equity, so that implies £50 million of new equity.
Market Cap is about £20 million today, so that means that if the share price does not move in the meantime there will be a tripling of the equity base. Which I guess you would term significant dilution.
Point is, nobody expects a £20 million company to be bringing assets into production do they? They obviously need to bulk up. So that's hardly unexpected. That's what happens to early stage E&P's.
That order of magnitude dilution is, I think, fully factored into the various valuations done by the analysts, which come in at 80p plus based on current circs but adjusted for dilution.
IMHO the submission/acceptance of the FDP and the resolution of the export route (tartan tie-back vs FPSO) should logically see the share price recover back to the IPO level and beyond. I'd be very surprised if the existing shareholder base wanted to issue new dilutive stock at the current rather depressed price.
More anon.
doverbeach
I am looking forward to your DEO write up as I haven't followed it before. Although with so many other E&Ps looking like good value at the moment, I have to be pretty convinced to invest in another.
Meanwhile I will make a small OT comment. You wrote
"As always there were a few minutes of establishing links and bona fides - mine not his. Turns out that in previous lives we both worked for Lasmo and subsequently at Hess. We have a number of mutual acquaintances in both companies and elsewhere in the industry. Small world.
I mention this because some people express scepticism about the idea of talking to management and the benefits obtained. In my experience it is absolutely invaluable. But you need to present as a credible person and not an AGM nutter."
I have to say I have no E&P background with which to impress directors at an AGM. And I usually turn up in jeans, T-short and trainers. But if you ask sensible questions, preferably open ones, not aggressive ones, you can normally get useful information. Of course some boards are hopeless - anyone ever got anything from a Dragon or Afren AGM? But this sort of cultural problam aside, if an AIM company has directors that treat me like a nutter, they are off my investment list.
db
AnonymousUser858
Hi DB
I guess I expressed myself badly - apologies.I certainly didn't mean to say that only people with working experience of the O&G industry can get useful responses from management.
I meant to express a sentiment along the lines of that encapsulated so elegantly in your response, to the effect that a serious and intelligent approach usually elicits a positive response. In my case I use what small advantages I have by trading on my prior industry experience as an ice breaker. In your case your patently insightful questions act as their own credentials. In either case, once the ice is broken, the exchange that follows is typically fruitful.
T
I
AnonymousUser858
Marben
just spent a pleasant 20 minutes playing with the valuation as provided by edison and factoring in the results of the expected fund raising and generally playing around
not ready to share the calculations yet - need to spend considerably longer on them to make sure they are robust
but tentative/provisional conclusion is that dilution does not appear to be a problem - the projected valuation still comes out very positive under a range of scenarios
basically, the COS attributed by TRACS is only 60% and the value per bbl being proposed by Edison is only $5 or $6 which soaks up the cost of development. By the time dilution occurs both the COS and the $/bbl should be higher which will offset dilution.
Additionally the baseline recovery factor used by TRACS is only 11% - which is pretty conservative. And as stated previously only the core area plus one other small adjacent area are included in the calcs. There's a list of other areas which would be unlocked by the Perth development. Throw all the above in together and the valuation comes out pretty solid IMHO
More anon.
emptyend
I have to say I have no E&P background with which to impress directors at an AGM. And I usually turn up in jeans, T-short and trainers. But if you ask sensible questions, preferably open ones, not aggressive ones, you can normally get useful information.
aaahhh yes - but you are also polite and intelligent, which goes a very long way. Plus, if you happen to be stood next to Darron, you may also be looking comparatively well-dressed...... ;-)))
AGM attendees come in all shapes and sizes......and some will always be more welcome than others. At least I haven't seen any reports this year of some of the windbag-types that tournesolf has previously complained about at DNX, who monopolise questioning with utter irrelevancies.
If AGMs are attended by sensible people asking sensible questions then the outcome should be highly constructive for everyone. It is not, however, the place for a rant - or for heaping vomit-inducing praise on the board (not that there will have been much of that anywhere in recent years).
In an ideal world an AGM would be a bit like a large board meeting, in which there is frank, open and constructive discussion about the major issues facing the company.
Anyway...rant over ;-)
cheers
ee
thegreatgeraldo
I have to say I have no E&P background with which to impress directors at an AGM. And I usually turn up in jeans, T-short and trainers.
.......If I can engage directors.... ;-#))))
emptyend
.......If I can engage directors.... ;-#))))
aaahhh yes - very good point. Though in your case it may be down to the attractions of the flowing locks and fluttering eyelashes ;-)
cheers
ee
thegreatgeraldo
Not so sure about fluttering eyeleashes, but most of the directors I've spoken to at AGMs/Oilbarrels love talking about their company, all you have to do to get their interest is show you've done some homework on the company & have some idea what you're talking about...... unless of course the company is some rampy piece of dog's wotsit, in which case that's a major disadvantage ;-#))
djpreston
. Plus, if you happen to be stood next to Darron, you may also be looking comparatively well-dressed...... ;-)))
Oi !
Well, it wont be hard to be better dressed than me. I just make up for impact in terms of physical presence. Orson and I do tend to make a fairly intimidating couple.
emptyend
I just make up for impact in terms of physical presence. Orson and I do tend to make a fairly intimidating couple
...mmmm....I can attest to that. I remember standing between you two once at a FOGL presentation - haven't felt that vulnerable since I was about 6 ;-)
