Caza Oil & Gas Share Discussion Threads

[cashandcard] 29/7/2015 07:53

Folks,


PA does make some reasonable arguments, but they work in an oil price environment of $60/bbl+. I would say, it is time they frontload the debt into equity and move on, either on the drilling front or via corporate action. The headwinds for oil, be it majors or minnows, are not good.


Cash

[pavey ark] 29/7/2015 07:02

PA ... It's there for all to see .. You are a dreamer and people should be very aware of your "knowledge and experience"

I have read my post again and it is reasonable, reasoned and balanced.

Obviously the deal in Texas can be ignored but the rest is very logical and accurate.

In your second post you express concerns about the oil price, which has always been my concern but you expressed "concerns" about Caza in the past and THEN invested in other small oil companies !! .That has always puzzled me.

Are you now saying that you fear for the price of oil and are on here late at night specifically warning Caza holders.I take it that every other oil company is not affected.

You have no shares in Caza,I have, but you are adding long, time consuming post,late at night.
You have become obsessed with this and would appear to be losing it.

eyesclosed, believe it if you like but it is true.
Given the experience you have I am sure if you look back at company statements you will agree when you see the details all laid out.
Sorry about the tone , it was late and you had simply misread the accounts which is obviously no excuse on my part.

GKP If this were a popularity contest I'd be worried.
There is another thread ,I personally don't look at it but it is there, feel free.

Weather much better so off to the golf.

[gkp heros] 28/7/2015 22:30

I remember your above post, I just wish I exited after you. Good luck with your future investments!

[1628386] 28/7/2015 22:26

This is where I first raised the possibility of a debt for equity swap.... which was (by the way) ridiculed by PA....

1628386 - 01 Apr 2015 - 22:04:02 - 5470 of 6075
I've really thought long and hard about CAZA today. Let's be really honest, at 3.5p there must be investors thinking .... Is this worth a punt?

To share my thinking, I revisited one of the biggest lessons I ever learnt in the world of investing, that was that "market forces can change the fundamentals on which market prices were based"

I learnt this 20 years ago and it goes without saying, it was painful.

I see that playing out here....

People might think that the POO is the 'market force' bit it's only part of it. What is happening with CAZA is that the POO triggered the fear/concerns and investors selling pushed the share price lower. This is when the real market forces kicked in (investor sentiment).

Once the share price falls ever lower, the options for the CAZA management become more limited.

Those that remain invested cling on to the asset value being the fundamental rock underpinning the SP, but it doesn't work that way. Market forces become dislocated and the fundamentals change.

To avoid the risk of administration, there is realistically only one option that management can pursue and that is a full refinance (whether POO increases or not a refinance is required) The snag is a full refinance of the $50m debt (Apollo + YA) is not enough as that leaves no cash for drilling - who would want to bail out Apollo + YA and leave themselves in their boots? What's really needed is a minimum $80m+ refinance to allow for a drilling plan.

With a MCAP of $13m, someone would have to lend approx 6 x MCAP cap (or 100% of P1 value) ... That's becoming ever more unlikely - almost impossible for CAZA management. Even if POO rebounds, lenders appetite will not as they won't trust the rebound .. They will ask themselves the killer question ... "What if the rebound is short lived - can it be trusted?" It will take a long time before lenders confidence returns.

So, 'market forces have changed the fundamentals on which the market was priced' has now kicked in. As the share price falls lower, the (feared) inevitable becomes reality (self reinforcing)

A possible scenario which could play out is CAZA putting itself up for sale (fire sale) but I personally don't think anyone would pay enough to leave anything for shareholders so it leaves what I think is the most likely outcome and that is Apollo agreeing a 'Debt for Equity swap'.

This would hand control of the company to Apollo and very little (if anything) would be left for shareholders.

This scenario was very common during the banking crises which led to banks owning businesses which they had lent to and ultimately paved way for an orderly sale (rather than a distressed sale) the problem is this tends to protect the bank and not shareholders as they get wiped out with the debt for equity swap.

Call me doomsday but I am using my judgement to call it here as a very likely outcome.

[1628386] 28/7/2015 21:49

PA:

This is the way you dismissed my concerns in November and used your usual style to dismiss an alternative view whilst pretending to have superior knowledge of the company. Below are copies of the posts we exchanged in November. Tell me .. with hindsight, which one seems logical and which one is rose tinted and blinded.......

1628386 14 Nov'14 - 22:03 - 3800 of 6073
I have some concerns today based upon the information released. I have always said I will be honest with my opinion despite holding shares in the company. The more opinions we share the better off we will all be.

Firstly, the results demonstrate yet again that we need a robust drill programme yielding great results to continue growing production. We can see that the drill programme has been pared back once more to Feb 2015 and I feel this is not guaranteed; more of a postpone until commodity prices become clearer.

The problem being that Q4 is almost certainly going to be a decline on Q3 production and momentum appears to have stalled.

With regard to the hedging programme, I also have concerns that whilst it may appear we are in good shape and well covered, the company has a 75% hedging policy in place as part of the Apollo deal. The current hedges are tapered in that they decline on a month by month basis so therefore we will need to take new hedges in order to replace expiring current hedges. These will be at current prices so therefore we become locked into lower prices going forward. This will limit our earning capacity going forward and is placing some real unpredictability into the finances of the company.

Taking this into account, I personally believe the forward drilling programme has been pushed back hoping things become clearer but if things deteriorate, expect another delay in the drill programme.

I have to say, this is actually prudent management from the company but it will come at a cost.

The big finance deal would be irresponsible at this stage and so we are becoming more and more tied to the movement in short term commodity prices to determine our near term future.

A big concern for me is if we see further downward pressure on commodity pricing and it persists for say six months. That would surely impact in three ways:

1) New hedges would have to be taken (at lower prices) in accordance with the covenants of the Apollo deal

2) Non operated wells such as MR could be postponed (why drill your best wells at lower commodity pricing) Especially as these are bigger players that can afford not to rush. We have already seen evidence of this with the second Broadcaster well (originally due late Q4 but now March 2015)

3) Production momentum is lost and it will take a big capex commitment to regain momentum and growth. The idea was to become self financing as soon as possible in order to limit debt and grow the company.

Based on all of this, I reduced my exposure today (even despite adding on Wednesday). I personally operate a very strict risk management policy and have reduced my risk today.

That being said, I am still a holder here and believe in the long term prospects but in the short term, I feel the destiny is less within the management control and more correlated to external factors. On that basis it's a bit more random and, like the company have pushed back the drill programme until things become clearer ... I'll do the same with a portion of my investment ... That is wait until things become a little clearer

PA Reply:

Pavey Ark 15 Nov'14 - 08:59 - 3806 of 6072

The oil price was almost certainly a factor in Caza getting what looks like a very good deal with CWEI and the fact that Seeking Alpha had reservations about the deal from a CWEI perspective would suggest that it was a good deal for Caza.

The Caza management have stated in fairly unequivocal terms that they are in a strong position regarding profitability/oil price and a much stronger position than other producers.

Predicting the short term oil price is plain silly but given that Caza are in a much better position than most they can still make money at low oil prices and as world production falls,by the simple laws of economics,the oil price then rises.

I can understand people being concerned about the oil price but I am rather bemused when these concerns are focused on Caza.

I have no problem with anyone taking the legitimate view that oil price volatility is a risk they don't want to take but I would expect that to result in them selling ALL their oil company shares.

One final point.
Caza has three wells that are about to come on stream and they have said they will drill five more in the next five months (operated non operated). The CWEI well alone could cost almost $7m.
A great deal of management time and effort will go into the first CWEI well which probably will be their first Wolfcamp, long lateral.
(management have their eyes on a long lateral Wolfcamp at Forehand as they have the space from section 22 and 27)
In addition to this they will (hopefully) have proven up MRE.
These two wells alone will have added massively to their asset value (if good).
Given all that is going on with the oil price and the market in general I am disappointed (though perhaps not surprised) that we now get "loss of momentum", "reduced drilling programme" etc.
Lets get the results from two more MR wells, two MRE wells, a second Broadcaster,Gramma 4, and the first Texas Wolfcamp and then lets talk of reduced momentum, reduced drilling programme and risk.

Back to today 28/7/15....

We only had one MR, one MRE, no second broadcaster and no Gramma 4 and no Texas wolfcamp with CWEI as CAZA could not afford it and cancelled the deal.

So yes ... In your own words "lets talk of reduced momentum, reduced drilling programme and risk."

PA ... It's there for all to see .. You are a dreamer and people should be very aware of your "knowledge and experience"

[eyesclosed] 28/7/2015 21:12

Pavey - thanks for the reply, although I really didn't need the patronising tone.
I'm a qualified chartered accountant who worked in audit for 20 years, and I'm not sure at all about your belief that auditors would move the balance from due in more than one year to less than one year for the reasons you give, AND then would qualify the audit report. It really doesn't make sense to me at all.
But good luck - you have stood firm here for a long time - I hope your investment repays you.

[1628386] 28/7/2015 20:23

PA

I could not believe my eyes when I read this from you:

"Before you post again I must make clear to you that you carried out a campaign of ridiculous,needless and at time inaccurate comments about Caza which resulted in my opinion of your character."

Ridiculous?? Inaccurate?? Wow .. you are so blinded. I was warning CAZA had trouble ahead in November 2014 on this very thread at 15p and you belittled me.

I kept on warning that they would postpone drilling and production would reduce and you belittled me.

I said the Apollo refinance would become a problem and you belittled me.

I suggested people should consider managing their risk and you belittled me.

I forecast a debt for equity and you are belittling me today .. we shall see what happens.

You seem to forget that corporate finance was my career for 35+ years!

All the posting history is there for everyone to read. Please do not accuse me of posting inaccurate information.. The only person guilty of that is YOU !!

[pavey ark] 28/7/2015 18:43

"For a retired man with 'years of experience' you don't have a good judge of character."
Somewhat fractured but I think I know what you mean.
Before you give people the impression I'm in my dotage I must point out that after graduation I left my science degree behind and went off to make money,I went part time at forty four and retired completely at fifty five,job done!!
I do feel rather inadequate in one respect in that I don't seem to have your knack/ability to buy at the right time and sell and tuck away a 40% profit each time, usually in a very short timescale
I have three Aim investments and the other two ,like Caza, are fairly long term.
I don't post much on the other two although they are reasonably large investments but I have found myself drawn into this strange world of AIM small oil companies.
I started this thread to get away from the sheer madness, bile and stupidity that abounded on the previous board.

Before you post again I must make clear to you that you carried out a campaign of ridiculous,needless and at time inaccurate comments about Caza which resulted in my opinion of your character.
Even today you suggested that massive dilution was just round the corner in the form of a debt for equity swap.
Dilution may come in the form of the YA loan but it will be staggered and well signposted so steps can be taken.

[eyesclosed] 28/7/2015 17:57

Hi all

Just wanted to remark on one comment from PA:

"If you look at the Consolidated balance sheet in the accounts you will see that when all Caza's liabilities and assets are added up you have $31m dollars left over."

I'm afraid that is a very simplistic way of looking at things. Current assets (i.e. money you can get your hands on quickly) amount to £13.77m, whereas current assets (that are due for payment in the short term i.e. less than 12 months from 31 Dec 2014.. so in the next 5 months) amount to £64.11m - so, there is a huge shortfall of £50 million.

The total value of assets is fairly irrelevant in this except that the company could sell them. But it wouldn't get anywhere near the full value of £77 million... and would then have less land to mine.

Hence the drop in price - from the financial statements alone it appears time is running out.

Good luck to all holders however - I really hope the company finds a way out.

[1628386] 28/7/2015 16:15

PA

For a retired man with 'years of experience' you don't have a good judge of character.

I am certainly no trader I generally buy and hold, however that doesn't necessarily work with AIM. Especially AIM O&G in this POO bear market.

I have had to keep very up to date (as I know you do here) but I also make tough decisions when fundamentals change, irrelevant of of whether I like the management etc. Some things are outside of their control.

AIM are small companies that generally don't have the financial buffers to weather a storm as their bigger peers, and so things can change very quickly.

I seem to remember you saying CAZA was your only AIM investment? Maybe you have applied your long term buy and hold strategy (that worked well for a FTSE 100 company) to an AIM company and that's why you've cling on in the face of worsening internal and external factors.

As for me, I will re-invest in AIM companies where I see value, and I'm sure I will invest in another AIM O&G when fundamentals change.

You come across as stubborn and very arrogant and I think you bring out that side of me which I don't like.

I still post here mainly because I have an opinion on where the company is heading, however if things change for the positive I would like to invest simply because the OPS team is strong.

The weaker side of the company is the finance team. I think it was DT that agreed with me here. The Ops team have been great but the finance team have dragged their heels and missed opportunities.

That's the box that needs to be the strongest at the moment and unfortunately that's CAZAs weak point.

Let's see what the future holds but believe me, I do not like to see anyone losing money (even you) so I hope it comes good in the end.

[ih_458808] 28/7/2015 14:26

Thanks.
That’s my point. There is a difference between book value and market value.
But as a rough figure would you suggest that the debt is greater that 33% of the overall business or less??

[pavey ark] 28/7/2015 14:19

ih_458808, If you look at the Consolidated balance sheet in the accounts you will see that when all Caza's liabilities and assets are added up you have $31m dollars left over .
(this ONLY included the gold platted 1P assets)
The Apollo debt is $43m and YA loan is $3.5m.

This is shareholders equity and works out about 8p/share using shares in issue.

If all the 1P assets were realised and all the proven and possible assets (C. $75m) were ignored and you then paid off all the debt you would get 8p/ share to distribute to shareholders.
(I await correction from my new friend who looks after these things for me)

The current market cap is easy to find but dividing the debt by the market cap is rather pointless as does not include all the other assets and liabilities.

[parveen1] 28/7/2015 14:12

thanks for you input Pavey

[pavey ark] 28/7/2015 14:07

There I thought you were an oil expert but you are just trader that explains a lot.
Don't get me wrong if you make a few bob here and there good luck to you and I suppose I'm rather envious, not my style and my long term approach has paid off many times in the past.
Now you have no oil shares to worry about you can continue to fret over my investment, now I really get you and I must say I'm impressed.

parveen1, It's all down to the $43m outstanding on the Apollo loan.
Even simpler, the loan contained a clause that Caza should continue to increase production (Apollo had lent a small oil company a possible $50m with the option of a further $50m so the conditions were tight)
Caza like everyone else was hit by the price crash and knew that if they waited drilling costs would come down.
They suspended drilling,Apollo said OK we'll give you six months grace and then review the situation.
Then the big one. The auditors said "ah wait a minute you're in breach of your loan agreement this loan must be classed as current debt and not long term debt and you must say that the company may not be a going concern"
You could imagine the pant filling that ensued.
The answer for Caza would simply be to resume drilling and I suspect they could do this from cash as they have some very good low cost wells that could be drilled cheaply but they want to get out of the Apollo deal and secure cheaper funding and it looks like that is what they are doing at the moment.

As far as going burst, it is highly unlikely they could not satisfy the Apollo terms quite easily and secure the loan for two more years. Being well hedged and having reasonable production which could be efficiently and cheaply increased the next two years look very secure.
So in my considered opinion there are many ,many oil companies that will fail before Caza.

Beyond the next two years, who knows ?

Two years is a long time and it certainly allows companies like Caza to wait things out and I think you would get most "experts" to assume a higher oil price in two years.

[ih_458808] 28/7/2015 13:52

Please could somebody tell me what the equity to debt ratio is? I dont have the details for caza's grand scheme and so i cant make an educated guess. Please could somebody help?

[fitton] 28/7/2015 13:37

Nervous or inexperienced investors will panic. More experienced investors will maybe understand the mechanics of the world of investing in shares a little more. Whilst I would always try to predict the best time to buy or sell, most of the time I get it wrong.This time I chose to repurchase a fair quantity at over 4p.I have also chosen to hold rather than sell, at the moment this is a mistake but I am also looking to buy at these lower levels.I don't expect to make a fortune in the short term but I do expect the share price to recover to at least 3p or more in the near term.Those that are predicting liquidation may not have all the correct information available about the company. "In breach of covenant" is not the end of the world. I would guess a fair majority of US shale companies are or will be in breach of a covenant or two.Don't get me wrong,I'm less than happy about sitting on a large loss but I am still looking to buy at the right price.

[parveen1] 28/7/2015 12:52

im trying to understand , on what basis Caza would go bust in the very near future

[fitton] 28/7/2015 12:31

I don't think for one minute Caza will be going bust.Everyone is nervous.More sellers than buyers, hence the downward cycle.Caza is a well run company with lots of nervous investors.The debt in relation to market cap is not great but $50m in debt is not that worrying in the general scheme of things. As I have mentioned before, I expect a resolution to the debt issue and a stabilising of the share price fairly soon.

[pavey ark] 28/7/2015 12:21

Parveen1, the capital is due for repayment in a little under two years but I strongly suspect that the loan will not run as long as that.
Either the loan is replaced by alternative finance in the next three months or some time next year.
I always felt that management had a timescale for sale of the company and the oil price will have changed that but I would have thought a sale is still likely before the loan period.
As i said before there is always the possibility of a loan extension but on better terms to account for the security of the asset backing.

[pavey ark] 28/7/2015 12:12

You are suggesting that rather than sell some assets in the permian basin with almost 1.5m barrels of PDP reserves and a further 4.5m barrels of proven reserves,not to mention large probable reserves, they would be forced into a massively dilutive debt for equity swap.
I take it that you are ignoring the current production, cash generation of $5m a year ($6m last year),and if the worst came to the worst, the YA money.

Given the fact that Caza has $47m in debt and almost $80m in 1P assets then even without any big,game changing deal I would imagine that preference share could easily be issued ( say $5m/$10m ) that would rank behind Apollo but be easily covered by sound asset backing.

Such is the strength of Caza's current drilling prospects that even at $48/bo I calculate that they could achieve a 50% RoR so the preference shares could pay a healthy dividend and Caza would still be making an excellent return.(they could throw in a little conversion deal to move things along)

Again: the only thing Caza has to do is drill and then the Apollo loan is secure.
I did point out before that Apollo own some part of the assets and it would never be in their interests to initiate a fire sale.
Caza have told me that they are working closely with Apollo,they have a good working relationship with them and Apollo are happy with the way that Caza are handling things.

I would suggest you look to your own very poorly performing oil investments and hopefully you will apply a little bit more thought to them.