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Chess, Alma is on the lines I was thinking.
I seem to recall Sam saying in the days when PMO were calling the shots and they had a similar deal regarding loans and paying back (although I seem to have stuck in my head 15% which must be wrong) but either way, Sam said they could possibly get a better rate some time in the future than pay back at PMO's interest rate.
That is what I imagine RKH would do, it would be quite ridiculous that they would sit back and allow Navitas to take 85% of their revenue, even if most of it is at 0%, although Pre-FID costs are going to be a tidy sum that is going to have interest running at 8%.
No, nearer that time,Post-FID I would expect RKH to do a fund raise or get RBL to pay off Navitas and then some. They SHOULD have a much higher share price so less dilution if they go down the fund raising route, then they have a little war chest to drill Isobel and the like. It would be insane for them to have to give away slices of SL to fund their share of further exploration in the basin.
Regards LTT
I do agree, they will indeed explore/appraise and extend the basin with significant exploration/appraisal campaigns but to suggest this will be done only a few months after production by way of a large capital raise ( bear in mind these wells will be between $60 and $120 million each, just to driil,never mind appraise, is for me, a bridge too far, too soon.
I don't think Navitas will be looking to raise hundreds of $ millions months after production either. It's Fanciful at that early stage.
Opening a new Billion barrel basin in the middle of nowhere in the South Atlantic is challenging enough for a company of Navitas's modest size,without flying off on a few hundred million $ exploration campaign as soon as the first barrels are being pumped from SL.
On production, The focus must surely be on ramping up production and repaying debt and amassing cash, rather than flying off on a half billion $ exploration/ appraisal campaign?
Or maybe it's just me being conservative and lacking the gung ho, cavalier spirit that posters here seem to think Navitas will employ.
The impression I get from Navitas is that they are, unlike Premier, managing the risk prudently and SL will start small , with the absolute minimal capex possible to lessen the risk.
Then when the cash starts coming in, ramp up production and use this cash for further developments so it's effectively pretty much self-funding after the pre-first oil capex.
I just don't see them cavalry charging all over the Falklands basin once production's flowing-searching for the Holy Grail by diluting shareholders, they know Premier spent almost $1Billion doing this and they won't make the same mistake.
Production revenues will fund further developmemt ,exploration and appraisals in the basin.
Chess,
A realistic hypothetical, with POO at perhaps $80 and life of field costs $25/bbl
50,000bbls x $55 = $2.75M revenue per day, $1Billion a year
Royalty 9%, Corp Tax 26% = $652M profit
Rock 35% = $228m profit net to Rock per year
If Navitas get a finance for $950m leaving $250m cash required. After the maths of Navitas loan etc, Rock would need to find $29m. On $1.2B costs, rock on the hook for $420m, mostly covered by Navitas loan and debt finance.
Rock still have to find circa $30m in cash leaving $390m owing to get to first oil.
As above, first year profit of $200m+
Two points.
One, Rocks SP could be well north of £1 by then meaning equity to fund a drilling campaign, if there was one, would be minimal.
Getting debt when long term yearly profits are $200m+, should not be a stretch.
A Well Presented Post SH.
That's what a discussion board is all about.
Myself, Alma & yourself, have all presented realistic & relevant viewpoints on the matter.
No name calling, accusations of ramping, deramping, just respect for each others viewpoint . No one's right and no one is wrong until we hear otherwise so thanks to both yourself & Alma for offering a realistic viewpoint to my own.
It's not about who's right or wrong, it's about sharing our collective thoughts to better understand and thus potentially ascertain the likelihood of future events.
Chess,
Where did you get your numbers from to drill in the Falklands costing $60 and $120 million per well? Are these current costings? I realise rig rates are heading up from when we appraised Sea Lion way back when, but I seem to recall we could get a rig and crew all in for $500k per day and from spud to target depth averaging 30 days give or take. That’s a cost of $15-$20m per well.
Maybe rigs are more expensive these days and crew costs too but cannot see it being 4 to 8 times more 🤔
I think as you say, the jury is out on which way it will go, but with Shenandoah coming online from
2nd half of 2025, Navitas will be awash with cash, they might just be tempted to put some into the next big thing.
Interesting thread though all the same.
LTT
Space
Good post on the figures though not sure that I would be paying corporation tax on the lot, reinvesting it as a cost and it’s no longer profit and guessing no tax… that’s £260m of tax that could be used to develop between the two parties if they spend the lot
Also expect the Hon knob consumption to skyrocket to help eradicate the Tax bill
Not sure
GLA Boboil
Chess
No name calling, accusations of ramping, deramping, just respect for each others viewpoint . No one's right and no one is wrong until we hear otherwise so thanks to both yourself & Alma for offering a realistic viewpoint to my own.
Remember the”Hillbilly “ name calling maybe Buffit lives there and can remember it
Boboil
@SH, yeay? Good to re.inf folk of this. Would add that the $8 per barrel cap ex has gone before forst oil (or is abandonment costs etc) so cash flow in your scenario is $63 per barrel. Also capital costs are a cost, inuding for tax purposes, so something like no tax till cap costs written off. Reckon cash flow to Rock in the scenario would be something like $350 million for a year of full production - though might usually say not quite 100% of production days and also there are rkh's office costs.
When calculating the cash inflow to RKH after first oil, the calculation runs like this:
Production: 55kbpd
Price of Brent: $85, and assuming oil sells at the price of Brent (a premium is more likely than a discount given the quality)
Total JV gross revenue per day: $4.7mn
Rockhopper's share of gross revenue per day = $1.64mn
Costs: here we subtract only the opex, not the life of field costs because the capex costs are paid for at the beginning (with the $1.2bn investment)
opex cost per barrel: $17
Other misc. costs per barrel: $3
Total cost per barrel: $20
Royalty: 9%, which comes out to $8 per barrel at $85 Brent price
Corporate tax: Nil - this is important. RKH has a huge load of losses which it will carry forward and therewore won't need to pay taxes till that is squared off
So, total costs (everything included, opex, misc expenses, royalty, tax) = $28 per barrel
Let's round total costs to $30
Total net to the JV after all costs (of $30/bbl) = $55/bbl
JV net profit= $3mn per day
RKH net profit = $1mn per day
RKH will need to borrow approximately $350mn from RKH, so it will take just about a year for RKH to fully pay back Navitas at $85 Brent price.
If oil price goes up, to say $130, then it will take 7months for RKH to fully pay back Navitas.
Loans:
After FID, RKH will be eligible for Reserve Based Lending (RBL) loans. But there are issues with Argentina and lenders will be extra cautious, so let's say they will be eligible for RBL loans after first oil (lowers risk for the lenders). Given $1bn or more of revenues for the JV per year, it should not be difficult to get RBL loans after first oil.
I think it's highly unlikely for RKH to go for a capital raise after first oil for more exploration. I think the chances for that are NIL. A more likely possibility is funding further exploration/appraisal with RBL loans or barring that, waiting to meet the expenses from cash flow from the first phase of the project.
Nice to wake up to some good posts today with figures. To add another figure which I omitted in my post.
"7. Navitas/Rock have $700m of tax to set against taxable income"
Which as has been said below, means an awful lot of pil needs to be produced before Rock/Navitas start paying tax.
I suppose what we have to weigh up in our own minds (Navitas and RKH also) is after first oil and the drilling of a further 6 wells, would they let the rig go and sit out the next 2 or 3 years until the next drilling campaign just letting the cash roll! 🤔
I seem to recall Sam saying there were enough prospects to have a drilling rig on site for 5 years once Sea Lion was up and running , kept more than busy doing exploration and development drilling. Let’s face it, with the North Sea heading for death by a thousand cuts, who wouldn’t want to do a deal to have a rig continuously drilling in the Falklands for the next 5 years or so. Everyone is doing harsh environment ultra deep water drilling off Guyana, Brazil and Africa, and rig rates are high, but our relatively benign basin requires a 3rd Gen Semi-sub which should be considerably cheaper.
If Navitas are serious about getting the basin up to 200k per day, they will have to drill baby drill, not take a breather and sit back on their laurels, particularly if it comes to pass that oil stays in the $80-$90 range for the foreseeable.
Anyway it’s great to read some though provoking discussion that isn’t ramping or de-ramping, it’s what these BB’s are all about.
Also, is Navitas 1st Q results due soon? Past 2 years they have been published mid May towards the end of May, but never this late! 🤔
LTT
Ancientarcher,
You highlighted something I had not considered, that going forward we subtract the $17/bbl Opex and not $8/bbl Capex from our productions costs. That said, the RNS does say
'Per barrel cost life of field US$25'
So when doing life of field calculations, it is accurate to use $25/bbl, however when doing post first oil calculations, I must remember to just use the Opex number of $17/bbl. Thank you, I like my maths to be corrected !
2025. 15p
2026. 25p
2027. 75p
Panic about supply is yet to set in.
Patience
Informative posts from AA 👍 Respect !
AA, I wouldn’t bet on the next government doing something like putting up corporate tax for overseas oil companies only. After all the windfall tax was on energy companies, but what about oil and gas trading companies whom made billions out of the volatility, didn’t read about a windfall tax on their profits!
LTT
Many thanks TCM
I have a substantial chunk of my personal net worth in the stock, so I try to look at things from an unbiased pov
I believe the potential is immense. We just need to get to FID and then first oil. I will be delighted beyond words when the time comes for Rocky to pay taxes!!
I agree Ancientarcher. I’ve had a significant investment in the Falklands for 15 years now and have been mercilessly ridiculed for my investment by friends, some in the oil industry, so I would love to have the chance to gloat through the room on first oil!!
Silverfoil, I have been in the stock since 2016, not as long as you but a long time without much to show for it.
Since 2014, energy has been out of favour. Not just oil & gas, all kinds of energy and energy infrastructure - transmission, nuclear (uranium), coal, oil&gas, you name it.. if it's energy related, it has been out of favour. Out of favour with the markets, with the govts and with ordinary citizens. Society as a whole has been energy blind - blind to the role that energy plays in our lives and its importance. Consequently, wrong policy choices have been made by the govts and the markets have disincentivised energy production, and as I said, not just in oil & gas.
Payback time will arrive and arrive soon! Just hold on and ride when the energy train comes along and don't let go..