• In Brief:
o Genel Energy (LON:GENL– 63p) – TaqTaq and Bond Buyback Interlinked
o Mayan Energy (LON:MYN– 0.005p) – What Value Shoats Creek?
o Seplat (LON: SEPL – 70p/NGN390) – Moving Nicely, But Gas Piques Our Interest
• Genel Energy (LON:GENL – 63p) – TaqTaq and Bond Buyback Interlinked: While the obligations associated with the issuance of public bonds are onerous, it does have its advantages, especially when they trade below par. In essence, the market has spoken, and it believes that the Company's risk profile suggests that there is an increased likelihood of default, hence the reason they trade below par. What a company in these circumstances need to do, and Genel more so in the wake of its disastrous TaqTaq downgrade, is assess the cash flow impact of buying back a bond below par today, against the obligation to pay back the bond at par at maturity and the associated interest payments. We suggest that the downgrade of TaqTaq and this programme are interlinked, and to our mind, this suggests that Management sees a potentially disastrous cash shortfall because of it, hence the reason to act now. The question should now becomes one of just how tight the cash flows will become, especially 2 – 3 years out when TaqTaq’s shortfall will be more keenly felt.
• Mayan Energy (LON:MYN– 0.005p) – What Value Shoats Creek?: In the past year, we have often asked, and been much maligned for asking, questions and clarifications on the value of Shoats Creek, as it has been difficult to get any consistent touchpoints. This has been made less and less clear with each successive announcement regarding the asset’s work programme, or the implied gross value arising from transactions associated with it. This increasingly at odds with the central role that Shoats Creek has appeared to assume in Management's discussions regarding the Company. We are increasingly concerned that the value attached to the asset in the past has been higher risk than suggested, a fact that is supported today by the use of the language like “will prove,” and that the current work programme is catching up with that risk. At the risk of sounding like a stuck record, we do not understand the breakdown to the valuation that management has assigned to this asset, and how it fits in with the repositioning of the Company as a participant in the deregulating Mexican energy sector. There probably needs to be a clearly articulated cleansing public statement of the value of the asset, its potential and an honest assessment of where the risks to the valorisation of Shoats Creek lie. By understanding that, we believe that the market will be better placed to understand the valuation of the Company, Shoats Creek’s position on amongst its wider asset base, and then assess the scale and obstacles of the work programme that they are undertaking elsewhere in the context of its current and future available cash flow.
• Seplat (LON:SEPL – 70p/NGN390) – Moving Nicely, But Gas Piques Our Interest: The Company's results today are a vignette of oil and gas in Nigeria generally: there is much good work undertaken, a palpable sense of frustration at delays, but an overall feeling that no matter how good the progress to date (and the Company's progress has been a significant positive), that there is always a significant amount of further opportunity yet to come. In this vein our interest has been piqued by the volume of verbiage dedicated to the gas potential within its portfolio, or rather the myriad of suspended, mismanaged or forgotten opportunities in country (outside of Seplat’s control). Those familiar with Nigeria will also be familiar with the "Gas Master Plan," which was one of the central tenets of the Petroleum Industry Bill (“PIB”), which has been mooted for at least 15 years now. In particular, we are interested in the opportunity in Sapele, as there has been a significant uptick in demand for power generation to elevated up the political agenda. In many ways, the power plant at Sapele is a posterchild for what is wrong in Nigeria currently and how companies such as Seplat can make a difference. Sapele has been in private hands for more than four years with the most recent attempt at fundraising initiated in 2014/15, when the owners were looking for ~$500mm to upgrade the facility and bring gas powered generating capacity up towards 1.4GW. We believe that this project is not only essential for Nigeria, to improve the standard of life, but provides Seplat with an excellent opportunity to develop its own market. We believe that this says more about the management’s drive to maximise on the opportunities that they have in front of them and create value for shareholders.