ORC.B - Orca Exploration Group

[Sergio8]

NCIB conditions on the TSX are quite restrictive. They can't buy as much as they want and their prices have to be limited (for instance, they couldn't bid above 6 in the last 2 days where there has been no shares exchanged).

[Mitch07]

Yes the NCIB are restrictive, and since the company can go days without any trades it does not help. Any whispers of Swala bringing back a new offer. I ask only because based on Orca's release they mentioned some shareholders were aware of the previous offer. 

[Sergio8]

I don't invest based on insider / non-public information so I am not aware of any new offer from Swala (which is subject to funding anyway, so I wouldn't count on it coming quickly), but what I can tell for sure is that the current management team updates investors more often and is really trying to attract more investors.

Improvements in cash-flows and capital returns are the story for now. At some point, there could be other news like the renewal of their license or a new offer, but all of this would be the icing on the cake.

[Mitch07]

I hear you.

While we've had many positives as of late (Dividend, recent GSA, strong Q results, Tanesco payments, offering from Swala, among other things) The problem we have is that we've trading at pretty much cash for as long as I can remember. All these positives have not changed that fact therefor I can't help but wonder what it will take to get this trading at a more appropriate valuation.

 

[Sergio8]

Well, in fact it becomes even cheaper over time based on fundamentals, which is surprising when considering the very positive developments of the company.

I believe better fundamentals, better capital allocation / shareholder returns, aligned insider interests and more active shareholders' involvement may help the valuation over time.

[Sergio8]

The company has posted an update on its operations which confirms the increasing sales volumes and the commissioning of a new power plant in H2 2019: https://web.tmxmoney.com/article.php?newsid=6248643230617667&qm_symbol=ORC.B

[Mitch07]

They are putting themselves out there. Now any takers?

 

https://www.globenewswire.com/news-release/2019/07/25/1888447/0/en/Orca-Exploration-Announces-Review-of-Strategic-Alternatives.html

 

[Gregmal]

Congrats on what has so far(since the initial post) been a complete homerun(in a sector of complete dogshit as well). Nice work here.

[constala]

Gregmal it is not a homerun, just the warm-up bit! Orca's valuation is double digit.

 

the strategic review will either see a revized Swala bid, an alternative bidder emerging, or at minimum a massive share tender which should bring the price closer to CAD 9  I reckon.

 

[Mitch07]

Swala's revised offer dated June 15th still far apart as to what I assume The Lyons Family Trust would accept.

http://swalaoilandgas.com/documents/Revised-Proposal-For-Orca-Exploration-Group-Inc.pdf

 

With that said it's a slight increase and with Orca's release yesterday it clearly put others on notice that they are for sale.

 

All positives.

[Sergio8]

We are indeed heading in the right direction.

 

Honestly, I am strongly opposed to the company selling itself to Swala under the aforementioned deal terms. I believe there are much better things to do in order to increase Orca's net asset value per share from its current range of 12-16 CAD to 16-22 CAD without any license extension deal (and much more if such a deal is achieved).

 

I believe that the company really shouldn't sell itself here (it would be a bid mistake IMO), but only put PAET for sale. But we should do well from here anyway (I'm just advocating for the best possible outcome and hope we will reach it).

[Mitch07]

Swala: "The Revised Proposal was made following extensive discussions with a number of major shareholders of Orca owning in aggregate over 50% of the outstanding Class B Subordinated Voting Shares."

 

Skeptical of this statement.

[Sergio8]

Dear fellow shareholders,

 

Orca is currently putting together a comprehensive list of shareholders (as much as is possible). However, most are registered through trading houses so they don’t know the identity and quantity of shareholdings for many shareholders.

If you are willing to share this information (name and quantity of shares owned) with the company, it would be greatly appreciated.

 

Please feel free to PM the info to me so that I can forward a single file to the company's management.

 

Thank you in advance if you are willing to help the company.

[Mitch07]

Insider buys now showing up as of July 31st. Looks to add to 138,800 shares in total since the activation of the NCIB.

Do you expect a further dividend announcement at the end of the month?

 

[Sergio8]

Orca just published Q2 results: https://web.tmxmoney.com/article.php?newsid=6145656859006118&qm_symbol=ORC.B

 

Increased gas deliveries lead to increased cash-flows, albeit at lower margins because realized prices decrease as volumes increase (because the Tanzanian government gets an additional profit tax).

 

Those results are very good, and this trend can be expected to continue (and perhaps improve) in the future as more gas plants are commissioned in Tanzania.

 

Daily share buybacks are also increasing, which is very good for Net Asset Value per share.

 

I would say that these are very good news overall.

 

Tanesco continues to pay its bills and arrears, cash & investments stand at 147.712 Mil USD, i.e. 5,575 CAD per share, which means that the PAET stake + Tanesco receivables are only valued at $ 29 Mil CAD (less than $ 22 Mil USD) or 0,825 CAD per share, which seems ridiculous to me.

[W51W52]

The gross amount of Tanesco receivable is $55 million, but that should be offset by $36.56 million of TPDC Share of Profit Gas Revenue (embedded in accounts payable0.  So the net amount is $18.44 million.  PV10 of PAET is $294.4 million.  So $22 million USD of value excluding cash and investments / ($294.4 million + $18.44 million) = 7%, which is quite low.  However, it is not completely out-of-line versus the Mkt value / PV10 ratios of U.S. domestic natural gas producers.  Still cheap with good downside protection though.

[Sergio8]

$ 18.44 Mil for Tanesco receivables seems too conservative in my opinion.

 

Per the latest filings, the gross amount of Tanesco receivables is higher than $ 122 Mil USD.

 

Also, if we check the terms of the Swala deal, "the arrears of Tanzania Electric Supply Company Limited and arrears owing by Songas Limited as at the date of the Swala deal were US$125.3 million, less an estimated US$51 million in TPDC Profit Gas payable under the Production Sharing Contract for the Songo Songo field on receipt of net revenues realized from these arrears, which results in a net amount of US$74.3 million." Since then, ~19 million of this amount has been paid and the resulting net amount is thus US$55 million.

 

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In addition to this, what's interesting here compared to US producers is that these guys are making money with low capex and don't depend on commodity prices.

I agree that there are cheaper Oil & Gas producers in Canada and in the US currently on a PV10 basis. A few of them even seem like decent businesses, though I cannot value any of them as easily as Orca. That's why Orca is the Oil & Gas company that I like the most.

[W51W52]

Total TANESCO receivable as of June 30, 2019 is $122.3 million.  $67.3 million of the $122.3 million are "unrecognized amounts not meeting revenue recognition criteria", mostly because they are "invoices for interest on late payments", "contracted for deliveries in excess of actual deliveries", and probably interest on late interest, etc. etc. (the magic of compounding).  Now, I don't really see TANESCO and TPDC as separate and independent entities.  To me, they are both just arms of the Tanzania government.  When extra payments on receivables come in, it is used to reduce the principal amount of "provision for doubtful accounts" (going from $58.498 million to $55.0 million).  Accounting practices in most developed nations usually take excess payments received to reduce interest accruals, but that's not the case here, leading me to believe that management has doubt on the actual ability to collect on the $67.3 million.  Right now, Tanzania government is essentially "paying" itself.  Once the entire $36.56 million is paid off, then we'll see if Orca has any luck collecting on the remainder (purely to to Orca), and then we'll see if they have even more luck to collect interest and difference between contracted deliveries and actual deliveries.  But anyway, investing in the stock is not contingent on the receivable thesis alone.     

[Mitch07]

What to make of the recent news release by Orca?

They changed up the board, hired what looks to be a change that they could be leaning towards moving forward in pushing for the license extension as the new members seem to have a large foot print with business in Africa. They also make mention that a capital cost plan for work associated with drilling etc could be forthcoming. Long term play.

 

On the flip side they have hired RBC Capital Markets, to look at "Strategic Options" which includes the Swala offer among other options. (which Swala was quick to make note of with their own release the following day) Bringing RBC aboard and creating a "special committee" would make it as though the company is more looking at winding things down?

 

[Sergio8]

They are looking at a very broad range of alternatives, including a divestiture of the Tanzanian business, a sale of the whole company and a substantial return of capital to shareholders. I think RBC will be able to present the assets to a wider range of buyers. Basically, they are weighing their options before making a final decision. My own preference would be a substantial share buyback before doing anything else (the anything else depending on the available options for the PAET stake).

 

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At this stage, they have exhausted about half of their share repurchase authorization at the end of august (bought back ~ 500 000 shares). I hope they finish this one quickly and follow with another one.

I also noted that CEO Nigel Friend became a buyer of the stock.

[Mitch07]

Lots of weakness in the stock price. Also a bit 70K chunk available on the sale side.

NCIB should reach is max next week. What happens then?

[constala]

Mitch 07, you seem to be fretting and terrified, commenting every flow and following the NCIB like a fed watcher.

If you can't stand temporary and very mild corrections in what is practically maybe the best performing Canadian Gas company in 2019, it means you are not fit for this investment.

A strategic process is running and many options are considered including outright sale at Swala above 8, and a mammoth share tender. If you are too nervous you can't wait, sell just above cash, it will enable patient investors to accumulate cheaply.

 

 

[Mitch07]

lol. You seem confused. Don't mistake my intention to try and create discussion on a discussion forum to being terrified.

 

Need not to worry if I had any fret I would of moved on from this company many years ago, instead of accumulating.

 

While the company trades on the TSX Venture, it is not a Canadian Gas company.

 

RE: operational update this morning.  Continued increased. Company in talks to develop SSN which could have tremendous impact on a value, couple that with a nice large tender. The per share valuation could reach a nice number.

 

[Sergio8]

The news release (available here: https://web.tmxmoney.com/article.php?newsid=6596107907223711&qm_symbol=ORC.B) implies there are negotiations for license renewal, as capex would be required to develop Songo-Songo North. From my understanding, such a capex outlay would be out of question if the license is not renewed.

 

After the successful NCIB (which went much better than expected according to management), a massive SIB looks warranted here. Management understands capital allocation very well in my opinion: so wait and see!

[constala]

truly remarkable price action, up +6% with carnage pretty much in all corners of the market.

for once, the price reacts, and very positively, to an operational update.

would that indicate that weak hands are fewer to be seen?