Linc Energy

[Boon]

How are Linc’s assets being carried on its Balance Sheet (BS) ?

Total Reportable Segment Assets (30-June-2014) = AUD 942.971 million = BV = Book Value
Consisting:
1) Oil & Gas (Conventional) = AUD 593.680 million (Proven reserves only)
2) Coal (Conventional) = AUD 43.986 million
3) Clean Energy (UCG) = AUD 96.714 million
4) Shale Oil (Sapex) = AUD 136.907 million
5) Corporate/Unallocated = AUD 71.684 million

Based on BV,
Total Equity (net of liabilities) = AUD 267.189 million or NAV = SGD 0.50 per share = BV

Market Value (MV) of Linc’s assets are above its BV : Possible Additions ABOVE BV:
1) Oil & Gas (Conventional) = 2P (PV 10) of Alaska (Umiat) = USD 2,465 million, if reserve could be proven up from 2P to 1P
2) Coal (Conventional) = Potential Sale Price – AUD 43.986 million
3) Clean Energy = ? The Directors’ believe that the recoverable amount of goodwill exceeds the carrying value.
4) Shale Oil (Sapex) = possible billion, depending on de-risking process or validation ?
5) Corporate Assets = AUD 155 million (Carmichael Royalty) – AUD 71.684 million

Carmichael Royalty (under corporate assets) had been sold for AUD 155 million or AUD 83.316 million above BV or SGD 0.157 per share above BV.

Assuming Linc’s conventional coal assets could be sold for another AUD 155 million or AUD 111.014 million above BV or SGD 0.208 per share above BV

NAV(1+3+4) + RNAV (2+5) = SGD ( 0.50 + 0.157 + 0.208 ) = SGD 0.865 per share (pretty close to current share price)

RNAV (1+3+4) potentially could be worth a lot more - pure speculation - part & parcel of E&P sector.

If 20% of 2P (PV10) of Alaska (Umiat) asset could be proven up to 1P reserve, it translates to 0.20 x USD 2,465 million or about SGD 1.00 per share　

What is RNAV(4) & RNAV (3) ? Who knows ?

(vested)

Hi Boon, I just did some research on 1P and 2P valuations. I found out the current market valuation of 1P oil assets is around USD 3 / barrel while 2P is USD 0.5 / Barrel. Are you using this rate in your valuation?

Hi "propertyinvestor",

I am not aware that such rate exist in the market that you are talking about - it needs to be asset specific as cost of production could vary greatly between assets.

If you are talking about EV/1P or EV/2P multiples, it needs to be company specific.

(vested)

I am referring to conventional oil & gas assets. Not referring to the EV but the valuation price of reserves in terms of barrel. Not taking into account the cost of production. Just the raw valuation in assessing the value of the oil and gas asset

Hi propertyinvestor,

By using the “raw” valuation rate you are proposing to value Linc’s 1P & 2P reserves (conventional O&G assets), this is what you get

Value of 1P reserve of Gulf Coast is worth = 11.6 mmboe x USD 1.00 / barrel = USD 11.6 million
Value of 2P reserve of Alaska (Umiat) is worth = 154.6 mmbbl x USD 0.50 /barrel = USD 77.3 million

Total value = USD 88.9 million

Linc managed to raised two tranches of Senior Notes of USD 265 million + USD 125 million = USD 390 million, which are secured by the Company’s oil and gas assets in the United States – non-recourse to Linc’s other assets

If the USA asset is worth only USD 88.9 million, how could it be used to secure USD 390 million worth of credit? Besides, those institutional creditors who subscribed to the notes do require comfortable degree of MOS - LTV compliance.

USD 88.9 million is way too conservative.

Putting reputation risks aside, the worst scenario that could happen to Linc’s conventional O&G asset in the USA is to assume : assets – liabilities = zero (i.e. Linc defaulted on its USD 390 million loan obligations and let the creditors seize the assets)

Under the above scenario, Linc would be left with
1) Shale Oil asset (Sapex)
2) Clean Energy asset (UCG)
3) Conventional Coal asset
4) AUD 155 million (USD 145 million) – proceed from Carmichael royalty
5) Debt of USD 200 million (convertible notes)

If Linc could divest its conventional coal assets for another AUD 155 million, it would have enough cash to redeem the USD 200 million convertible notes and be debt free.

That said, my take is Linc's conventional O&G assets in the USA is worth more than its liabilities.

(vested)

[propertyinvestor]

How are Linc’s assets being carried on its Balance Sheet (BS) ?

Total Reportable Segment Assets (30-June-2014) = AUD 942.971 million = BV = Book Value
Consisting:
1) Oil & Gas (Conventional) = AUD 593.680 million (Proven reserves only)
2) Coal (Conventional) = AUD 43.986 million
3) Clean Energy (UCG) = AUD 96.714 million
4) Shale Oil (Sapex) = AUD 136.907 million
5) Corporate/Unallocated = AUD 71.684 million

Based on BV,
Total Equity (net of liabilities) = AUD 267.189 million or NAV = SGD 0.50 per share = BV

Market Value (MV) of Linc’s assets are above its BV : Possible Additions ABOVE BV:
1) Oil & Gas (Conventional) = 2P (PV 10) of Alaska (Umiat) = USD 2,465 million, if reserve could be proven up from 2P to 1P
2) Coal (Conventional) = Potential Sale Price – AUD 43.986 million
3) Clean Energy = ? The Directors’ believe that the recoverable amount of goodwill exceeds the carrying value.
4) Shale Oil (Sapex) = possible billion, depending on de-risking process or validation ?
5) Corporate Assets = AUD 155 million (Carmichael Royalty) – AUD 71.684 million

Carmichael Royalty (under corporate assets) had been sold for AUD 155 million or AUD 83.316 million above BV or SGD 0.157 per share above BV.

Assuming Linc’s conventional coal assets could be sold for another AUD 155 million or AUD 111.014 million above BV or SGD 0.208 per share above BV

NAV(1+3+4) + RNAV (2+5) = SGD ( 0.50 + 0.157 + 0.208 ) = SGD 0.865 per share (pretty close to current share price)

RNAV (1+3+4) potentially could be worth a lot more - pure speculation - part & parcel of E&P sector.

If 20% of 2P (PV10) of Alaska (Umiat) asset could be proven up to 1P reserve, it translates to 0.20 x USD 2,465 million or about SGD 1.00 per share　

What is RNAV(4) & RNAV (3) ? Who knows ?

(vested)

Hi Boon, I just did some research on 1P and 2P valuations. I found out the current market valuation of 1P oil assets is around USD 3 / barrel while 2P is USD 0.5 / Barrel. Are you using this rate in your valuation?

Hi "propertyinvestor",

I am not aware that such rate exist in the market that you are talking about - it needs to be asset specific as cost of production could vary greatly between assets.

If you are talking about EV/1P or EV/2P multiples, it needs to be company specific.

(vested)

I am referring to conventional oil & gas assets. Not referring to the EV but the valuation price of reserves in terms of barrel. Not taking into account the cost of production. Just the raw valuation in assessing the value of the oil and gas asset

Hi propertyinvestor,

By using the “raw” valuation rate you are proposing to value Linc’s 1P & 2P reserves (conventional O&G assets), this is what you get

Value of 1P reserve of Gulf Coast is worth = 11.6 mmboe x USD 1.00 / barrel = USD 11.6 million
Value of 2P reserve of Alaska (Umiat) is worth = 154.6 mmbbl x USD 0.50 /barrel = USD 77.3 million

Total value = USD 88.9 million

Linc managed to raised two tranches of Senior Notes of USD 265 million + USD 125 million = USD 390 million, which are secured by the Company’s oil and gas assets in the United States – non-recourse to Linc’s other assets

If the USA asset is worth only USD 88.9 million, how could it be used to secure USD 390 million worth of credit? Besides, those institutional creditors who subscribed to the notes do require comfortable degree of MOS - LTV compliance.

USD 88.9 million is way too conservative.

Putting reputation risks aside, the worst scenario that could happen to Linc’s conventional O&G asset in the USA is to assume : assets – liabilities = zero (i.e. Linc defaulted on its USD 390 million loan obligations and let the creditors seize the assets)

Under the above scenario, Linc would be left with
1) Shale Oil asset (Sapex)
2) Clean Energy asset (UCG)
3) Conventional Coal asset
4) AUD 155 million (USD 145 million) – proceed from Carmichael royalty
5) Debt of USD 200 million (convertible notes)

If Linc could divest its conventional coal assets for another AUD 155 million, it would have enough cash to redeem the USD 200 million convertible notes and be debt free.

That said, my take is Linc's conventional O&G assets in the USA is worth more than its liabilities.

(vested)

Hi Thanks for your input. Just to ask, is the conventional coal assets you are talking about referring to New Emerald Coal? Under this press release it says the valuation for NEC is around 440M. Does that mean your valuation is around 310M for the whole coal division inclusive of the Carmichael royalty?

[greengiraffe]

Any impact on Linc?

NSW government cancel three more coal seam gas explorer licences
THE AUSTRALIAN OCTOBER 14, 2014 3:21PM

Mark Coultan

State Political Correspondent
Sydney
More coal seam gas licences cancelled
The NSW government has been cracking down on licence holders who did not have the expertise to exploit their resources. Source: WeeklyTimesNow
THE NSW government has cancelled another three exploration licences of coal seam gas for failure to properly consult the community.

The NSW government renewed Leichhardt Resources’ three exploration licences last year for five years, but with conditions about community consultation and specifying a set work schedule.

The exploration licences near Nowra, Rylstone and Moree cover 5,500 square metres.

The NSW Minister for Resources Anthony Roberts said it was critical that exploration licence holders abide by their work programs “to ensure they adequately explore for the State’s resources and to provide certainty for the community.

“On 7 August 2014 the company was issued a Show Cause Notice in relation to the proposed cancellation of the licences. The allegation of not complying with the requirement for community engagement was raised in relation to all three licences.”

“The allegation of not complying with its work program obligations was also raised in relation to PEL 470 [its licence near Moree].”

Leichhardt Resources is a $100 company — run by lawyer Simon Tolhurst in his spare time — which has held the exploration licences since 2009. He said today he was considering his response to the cancellation.

The NSW government has been cracking down on holders of exploration licences who did not have the technical or financial expertise to exploit the resources they are sitting on.

Earlier this year the NSW government cancelled the licence of a company Grainger Energy which had lodged an exploration licence for 43,100 square kilometres of southern NSW.

It also suspended the drilling operations of Metgasco for allegedly failing to conduct sufficient community consultation over its drilling program near Bentley in Northern NSW. Metgasco has taken legal action against the government.

In March, Mr Roberts announced a crackdown on minor coal seam gas explorers.

“The Government takes compliance with licence conditions seriously,” he said.

“The NSW Government, in line with the NSW Chief Scientist & Engineer’s recommendations, is supportive of a safe, sustainable gas industry that adheres to best practice standards within a regime of strong regulation, compliance and enforcement.”

Despite its tough attitude to minor explorers, the NSW Government has been supportive of the only two CSG projects which are proceeding, at Narrabri and Gloucester, operated by Santos and AGL.

[Boon]

Hi Thanks for your input. Just to ask, is the conventional coal assets you are talking about referring to New Emerald Coal? Under this press release it says the valuation for NEC is around 440M. Does that mean your valuation is around 310M for the whole coal division inclusive of the Carmichael royalty?

Linc classified Carmichael Royalty under Corporate Assets - not under conventional coal asset.

Valuation for NEC is around AUD 440 million - I do not know how much Linc could sell it for under current weak coal market - AUD 155 million is just my guess for NEC.

So yes, NEC + Carmichael Royalty = AUD 310 million is my valuation

(vested)

[Boon]

Adani's Galilee Basin project 'not commercially viable'

September 5, 2014

............................................It is worth asking why Linc boss Peter Bond would sell a royalty of $2 billion over 20 years – perhaps worth $600 million today – for just $155 million.

http://www.smh.com.au/business/adanis-ga...0cyc3.html

(vested)

[greengiraffe]

US banks baulk at Abbot Point coal port expansion
DOW JONES OCTOBER 28, 2014 7:17AM

The Abbot Point coal port. Source: News Corp Australia
INDIAN conglomerate Adani Enterprises has hired Morgan Stanley to sell part of its stake in the controversial Abbot Point coal port in Queensland, even as the bank has expressed concerns about the environmental impact of the port’s proposed expansion.

Adani plans to build a new terminal at Abbot Point to handle coal from its proposed Carmichael coal project, potentially one of the world’s biggest new coal mines. An expansion of the port, however, would likely lead to more ships navigating the sea lanes near the World Heritage-listed Great Barrier Reef at a time when the United Nations and green groups have warned about the long-term health of the reef.

Adani disclosed Morgan Stanley’s role after the bank sent a letter dated October 20 to US-based environmental group Rainforest Action Network saying it doesn’t knowingly finance extractive activities in World Heritage sites. “Morgan Stanley will not lend to or invest in the expansion of Abbot Point,” it said. The letter was viewed by The Wall Street Journal.

Adani said in a statement to the Journal that funds raised from the sale of the existing terminal would be used to finance the expansion.

“Morgan Stanley Australia are Adani’s advisers on the potential partial sale of Adani’s existing terminal (T1) at Abbot Point,” Adani said. “Any partial sale of Adani’s current holdings at the port would — far from a withdrawal from the port — in fact be used to deliver the port’s expansion.”

A Morgan Stanley spokesman in Australia said the bank is involved only in the existing terminal and said the bank was “not in the business of providing greenfield project financing in Australia.”

“Therefore, as we have stated, we will not lend to, or invest in, these projects,” the spokesman said. ”We take environmental issues very seriously and in financing any project we always examine the potential environmental impacts.”

The disclosure of Morgan Stanley’s involvement came as three other large US banks distanced themselves from Abbot Point, joining a growing roster of international lenders expressing worries about the project’s potential environmental impact.

JPMorgan Chase, Citigroup and Goldman Sachs have signalled they wouldn’t support new investment at Abbot Point, Australia’s most northerly coal port, potentially complicating the search for funding by Adani and India’s GVK, who want to export coal from planned mines nearby.

The United Nations Educational, Scientific and Cultural Organization, or UNESCO, has voiced concerns about the health of the World Heritage-listed reef, which would see a sharp increase in ships navigating its shallows to fetch coal for export to Asia. The reef — a 344,000-square-kilometre marine park and the only living organism visible from space — is already under threat from rising sea temperatures, water pollution and coastal development.

The possible expansion of Abbot Point has proved more contentious than other port projects in Australia. State and federal government leaders have broadly supported the expansion as they look to rekindle mining investment and boost the economy, even as the coal industry has been hit by price declines to multi-year lows. Coal is Australia’s second-largest export after iron ore, and much of it is shipped through ports on its eastern coast to Asia. Prime Minister Tony Abbott recently said “coal is good for humanity”.

Citi’s director of corporate sustainability, Valerie Smith, said in a letter to environmental activists that the bank was “not involved and does not plan to be involved in any financing for the Abbot Point expansion.” Internal Citi rules generally prevent finance for “new mining projects within the boundaries of a World Heritage Site,” she said. An Australia-based spokesman for Citi confirmed the letter.

In separate correspondence, Goldman Sachs and JPMorgan cited internal environmental risk principles when asked by environmental group Rainforest Action Network whether they would be prepared to help finance Abbot Point’s expansion.

An expanded Abbot Point, which is located near the town of Bowen and on the fringe of the Barrier Reef in tropical Queensland state, would handle as much as 60 million tonnes of coal from the Carmichael mine. It would also handle coal from a proposed mine by GVK and partner Hancock Prospecting, owned by Gina Rinehart, Australia’s richest person.

Josh Euler, speaking on behalf of GVK and Hancock, said the proposed expansion had been through a comprehensive environmental assessment overseen by state and national governments, and work to develop the terminal would “meet all obligations relating to responsible environmental and social management practices.”

Adani said the terminal was not in a World Heritage Area and the environmental approval was “among the most rigorous and stringent ever applied in Australia, the US or the rest of the world.” No funding had even been sought from Citibank, Goldman Sachs, or JPMorgan Chase, it added.

Still, the banks’ letters add fuel to a burning debate in Australia over investment in major resource projects that opponents say run the risk of fuelling climate change by supplying coal-fired power stations and steel mills overseas, often in countries with weak emissions controls, such as China and India. The Australian National University triggered a political storm this month after divesting its investment portfolio of shares in several large energy and resource companies, citing climate change risks.

In May, Deutsche Bank said it wouldn’t offer funding for Abbot Point after UNESCO condemned a government plan — since reversed — to allow mud and rock dredged from the sea floor during any expansion of the port to be dumped in waters near the reef. US banks join a group that also includes HSBC, Barclays and Royal Bank of Scotland in expressing an unwillingness to get involved if asked.

The Galilee Basin could see Australia surpass neighbouring Indonesia as the world’s top coal exporter. Mr Abbott said this month that coal would remain the world’s main energy source for decades when opening a new $3.9 billion coal mining venture in the Bowen Basin, south of Abbot Point.

Dow Jones

[greengiraffe]

Galilee project years off, says Aurizon

Jenny Wiggins
485 words
28 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Aurizon chief executive Lance Hockridge has warned the company's planned expansion into Queensland's Galilee Basin will not start for several years due to weak thermal coal prices.

"The reality is the go-ahead for the Galilee will be some years down the track," Mr Hockridge said at an investor briefing that outlined more than $2 billion in capital spending to boost returns over the next few years.

Although Aurizon remained "bullish" on the long-term fundamentals of the thermal coal market, the company did not believe the current pricing environment was "going to be a trigger" for its Galilee project with Indian group GVK Hancock, Mr Hockridge said.

Australian thermal coal prices have halved from about $US140 a tonne in early 2011 to less than $US75 a tonne.

Although Aurizon and GVK Hancock have signed a tentative agreement to develop rail and port infrastructure to support GVK's Galilee coalmines, a final agreement has been delayed as the Indian group tries to secure funding.

With rival Indian group Adani moving ahead with its $16.5 billion ­Carmichael coalmine in the Galilee, and also planning to build rail links to the coast, significant delays by Aurizon and GVK may mean they end up using Adani's lines. Coalminers believe that it is not cost-effective to have two rail lines from the Galilee to the coast and that the first company to build a line will end up providing access to competitors.

Aurizon's other big expansion project, providing infrastructure for Western Australia's West Pilbara Iron Ore Project, was "a sound and exciting opportunity," Mr Hockridge said.

But he cautioned Aurizon would not "attempt to defy gravity" and would only proceed with the West Pilbara project after extensive analysis.

Aurizon does not expect to make a final investment decision on the Pilbara project until late 2015 or early 2016.

Aurizon will meet with the Fair Work Commission next week after requesting the commission to cancel its existing enterprise agreements in Queensland. Aurizon has been unable to negotiate a new agreement with blue collar workers as it tries to develop what Mr Hockridge described as a "high performance" culture.

Aurizon was not worried by the possibility of an arbitration because it had done all it could to negotiate new agreements, Mr Hockridge said. "The objective here is to raise the temperature under the unions," he said.

Aurizon reaffirmed its existing coal and iron ore haulage guidance for 2015 as September-quarter coal volumes rose 1 per cent to 54.2 million tonnes.

Coalmine closures and expiring contracts hampered growth during the quarter. Aurizon's iron ore-haulage volumes fell 6 per cent from the year-earlier period to 6.8 million tonnes.

Pat Zito, an independent non-executive director who joined Aurizon's board in December, has resigned for "personal reasons", Aurizon said.


Fairfax Media Management Pty Limited

Document AFNR000020141027eaas0002b

Adani's Galilee Basin project 'not commercially viable'

September 5, 2014

............................................It is worth asking why Linc boss Peter Bond would sell a royalty of $2 billion over 20 years – perhaps worth $600 million today – for just $155 million.

http://www.smh.com.au/business/adanis-ga...0cyc3.html

(vested)

[Boon]

So, it looks like Genting remains convinced as it bought another 5,905,000 shares at SGD 1.01 a piece, bringing its total stake to 106,405,000 share (18.02%).

http://infopub.sgx.com/FileOpen/_Form%20...eID=323557

(vested)

[greengiraffe]

Genting is a strategic investor plus they are constantly looking for overseas investments to stash their RM cashflow away from home base...

GG

So, it looks like Genting remains convinced as it bought another 5,905,000 shares at SGD 1.01 a piece, bringing its total stake to 106,405,000 share (18.02%).

http://infopub.sgx.com/FileOpen/_Form%20...eID=323557

(vested)

[greengiraffe]

http://infopub.sgx.com/FileOpen/Linc%20E...eID=324934

EBITDAX fell by almost 1/3

Bottomline boosted by sale of royalty that IIRC was lower than expected as well...

Not Vested
GG