Linc Energy

[greengiraffe]

http://infopub.sgx.com/FileOpen/Linc%20E...eID=313035

losing like crazy...

[Boon]

Wow, I was indeed surprised by the low sale price (AUD 155 million) of the Carmichael Royalty interest – the market didn’t seem to like it either.

That said, the risk that the Carmichael mine project might not be materialized at all always exist, in which case it would become a “stranded” asset to Adani, and the Royalty interest would be worthless to Linc - even if it could be materialized but at too distant future away, the PV of the royalty stream could also end up being less than AUD 155 million.

Perhaps, Peter Bond thinks that 30% is the appropriate “discount rate” under the present market “reality” and uncertainties - and he has decided to take the money now.

Was this the right call by Bond? Only time will tell.

On a positive note, the company is in the process of divesting its non-core assets (conventional coal assets) to reduce debt and strengthen its cash on balance sheet - at least one more asset sale is expected prior to year end.

If non-core assets are fully divested, Linc would be left with 3 main asset category, namely:
1) Conventional O&G (USA assets)
2) Non-conventional O&G (Sapex shale)
3) UCG

As to : Are other great assets that Linc is keeping could also be worth significantly lesser than what we make it out to be? My take is it could be significantly “lesser” or “more” depending on the outcome of “de-risking process”.

As I have mentioned before, it is not an easy feat for investors in ascribing value to different parts of Linc’s business - as there are too many assets with high degree of uncertainties and risks – after all, the E&P of the energy sector is founded on risk - many of Linc’s assets require extremely time- and cost-intensive programs to validate – “the de-risking process”.

1P (PV-10) reserve of Gulf Coast = USD 489 million
2P (PV-10) reserve of UMIAT = USD 2,465.3 million
Conservatively, applying 80% discount to 2P (PV-10), one still gets USD 493 million for the UMIAT asset.

If more than 20% of 2P UMIAT reserve could be proven up to 1P, it would be worth more than USD 493 million.

I think the conventional O&G asset alone is enough to support Linc’s current market cap, without taking into consideration of its shale and UCG assets, which potentially could be worth a lot or a little depending on the outcome of the “de-risking process”.

One would have hope that Linc could get better pricing for its non-core assets, but unfortunately, it could not amid currently weak coal market condition.

Nevertheless, strategically, IMO, cashing up on divestment of non-core assets and focusing on development of core assets is a step in the right direction for Linc.

(vested)

[greengiraffe]

If they can't convinced ASX investors, I think they are trying very hard to convince SGX investors...

Not Vested
GG

[Boon]

http://infopub.sgx.com/FileOpen/Linc%20E...eID=313035

losing like crazy...

Yes，total comprehensive loss for FY2014 (ending 30-June-2014) amounted to AUD 234 million – sounds crazy – but if one zooms in on the CF statement, net cash outflow from operating activities amounted to only AUD 32.577 million – which is not big deal really for an E&P company - lots of non-cash items in the P&L statement.

(vested)

[Boon]

If they can't convinced ASX investors, I think they are trying very hard to convince SGX investors...

Not Vested
GG

Linc is listed on the OTCQX (USA) market as well.

I think regardless of where the listing platforms are, there bound to be convinced investors if the price is "right".

At current share price, I do not know how many convinced SGX investors there are but at least there are two - Genting Strategic Investment as a SSH and me as a MSH (ha-ha!)

I am pretty convinced that based on the valuation of its convention O&G business segment alone, Linc is trading at lower EV/2P ratio ( i.e. cheaper) than many other conventional O&G counters listed on the SGX - without having taking into consideration or ascribing any value to its OTHER assets - including the Carmichael royalty, UCG assets, Sapex shale asset and non-core assets (conventional coal assets).

IMO, the value of its conventional O&G assets alone is more than enough to support its current market cap.

If Linc could divest away its remaining conventional coal assets for another AUD 155 million (valued at AUD 400 plus million), that would bring the total (including the Carmichael Royalty) proceed from non-core asset divestment to AUD 310 million - which equates to another 50% of current market cap or SGD 0.62 per share.

(vested)

[Boon]

Where does Linc Energy stands on the basis of “EV/2P” valuation?

http://www.financeasia.com/News/388925,s...e-ipo.aspx

In the above report on the “Samudra Energy” IPO, “EV/2P” has been adopted as the key metric for value comparison.

Here is the “EV/2P” multiples of various E&P companies quoted in the report
EV/2P (Samudra Energy) = USD 11.3/boe to 12.4/boe
EV/2P (Kris Energy) = USD 17.5/boe
EV/2P (RH Petrogas) = USD 45/boe
EV/2P (PT Medco) = USD 5.3/boe
EV/2P (Europe’s North Sea average-Junior E&P companies) = USD 16/boe.

EV/2P (Linc Energy) = ????????

Linc Energy ：
Assume USD/AUD = 1.07
Assume USD/SGD = 1.24
Share Price = SGD 1.14
Number of shares issued = 587,820,177
Debt = AUD 534.721 million，including Convertible Notes of USD197.144 million as at 30-June-2014
Cash = AUD 48.716 (as at 30-Jun--2014)
2P Reserve (conventional O&G business segment )= 11.6 mmboe (1P at Gulf Coast) + 154.6 mmbbl (2P at Alaska) = 166.2 mmboe

EV (including Convertible Note as Debt) = Market Cap + Debt – Cash = (587.820 x 1.14 / 1.24) + (534.7 – 48.7)/1.07 = USD 995 million

EV/2P (of Linc Energy conventional O&G business segment) = 995/166.2 = USD 6.0/boe

Linc Energy’s conventional O&G business segment is trading at MUCH LOWER “EV/2P” multiples than all of the above companies except PT Medco.

Conclusion:
On EV/2P basis, Linc Energy’s conventional O&G business segment ALONE is trading at DEEP discount to the market average, even if the Convertible Notes of USD 197.144 million is included as debt to this business segment.

This is BEFORE factoring in the values of the following OTHER assets which are worth AUD 155 million (minimum) to a maximum of potentially who knows how much?

1) Proprietary technology underground coal gasification (“UCG”) business
2) Shale oil & gas (SAPEX - Arckaringa Basin of South Australia)
3) Carmichael Royalty – worth AUD 155 million
4) Coal Asset (Conventional Coal): Blair Athol thermal coal mine and Teresa thermal / PCI coal project.

(vested)

[Boon]

Genting has acquired another 5,844,000 shares (at around SGD 1.20 per share) and now owns a total of 100,500,000 shares ( 17.03%) in Linc.

Genting’s total average cost per share is at around SGD 1.27 – seems to be a convinced investor at around these prices.

From 0% to 17.03% ownership in less than 9 months - wondering what is its "target" ?

http://infopub.sgx.com/Apps?A=COW_CorpAn...ec22b65395

(vested)

[learner88]

Hi Boon,

as if they acted on your orders: http://infopub.sgx.com/FileOpen/2014.%20...eID=313502

[Boon]

Hi Boon,

as if they acted on your orders: http://infopub.sgx.com/FileOpen/2014.%20...eID=313502

Hi Learner88,

Ha-ha! “as if” but it is not………………..

Genting was convinced and vested before I did.

Genting is in the O&G business as well and I believe they certainly understand the business better than many of us.

Meanwhile, Linc has just announced that it has received unsolicited expressions of interest for both its Umiat and Wyoming conventional oil assets in the United States of America

This is interesting……………., at what price should Linc sell these assets ?

http://infopub.sgx.com/Apps?A=COW_CorpAn...e4b1a5d1b6

(vested)

[learner88]

Hi Boon

I wasn't so much talking about Genting's purchase but more on the unsolicited offer. Maybe the trigger was the CNBC interview. Or somebody saw your numbers on the relative valuations.

We will never know. Good luck to all