Old interview on Transeuro website today Transeuro Energy Interview Transcript with David Worrall - Chief Executive Officer President
8:44 am
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Jeremy Naylor: Hello, this is Jeremy Naylor for Proactive Investors. Welcome to another Proactive audio interview. Today is the 21st of May 2012, and I have the pleasure of talking now, to David Worrall, Chief Executive of Transeuro Energy, a junior oil and gas company, exploration and development specialist pursuing opportunities in Canada and Ukraine. It’s listed on the Toronto Venture Exchange in the energy sector. The stock ticker is TSU; share price is 10 cents Canadian, giving a market capitalisation of 31.7 million Canadian dollars. Web address is transeuroenergy.com, Transeuro Energy is also listed on the Oslo Axess Exchange.
David Worrall, thanks for joining us here on this Proactive audio interview.
David Worrall: Good afternoon, Jeremy.
Jeremy: Transeuro Energy has just concluded the second and third tranches of a financing deal, giving the company 33 million Canadian dollars to invest. Explain the highlights.
David: We’ve actually concluded three separate agreements. One is for a 10 million dollar senior convertible bond, out of Norway. In addition to that we’ve worked with an alternative investment company called Yorkville Associates, through their London office, to conclude a five million dollar loan facility, which can be drawn in instalments of a million dollars over the next couple of years. And also a 17 million dollar share purchase agreement, which effectively, at our choice, Yorkville will purchase shares from Transeuro at a 5% discount to the market price over 40 days.
So what we’ve tried to do is gain access to cash now, but also give ourselves guaranteed access to cash in the future through the share purchase agreement, hopefully at a much higher price to today’s valuation. Which gives us access to cash to cover off on contingencies for work programmes. It allows us to access cash if a good acquisition or farm-in opportunity comes along. But it means we don’t actually have to issue any shares just now. We can wait until the most appropriate time in the future, and hopefully, as I say, raise the cash at a much higher share price valuation.
Jeremy: How would you best explain the financial agreements to shareholders; especially this share purchase agreement?
David: Yes, we’ve had a lot of people concerned that we might issue a lot of shares and dilute the company, and that really pushed us into using these three agreements. The idea, as I mentioned, is that we need cash so we can commit to a summer programme in Canada, and also to build the gas plant in Ukraine to tie in the three wells that we have there.
So for example, we could have gone out and taken a much larger convertible loan, but that then means tying up a large dilution at a fixed price going forward. So we decided to take a fairly modest amount on the convertible. Through Yorkville we’re also able to access a straight loan at a very favourable interest rate of 10%, which increases the loan side of the facility to 15 million. But then we wanted to secure access to additional funds, so on top of that we have the share purchase agreement, which is an equity agreement, but we wouldn’t envisage using it until towards the end of the year, having got access to the 15 million dollars of debt.
And so hopefully all the work that we do over the next six months will increase the share price, so that if and when we actually come to access the equity portion of the facilities, we won’t incur anywhere near the same dilution, compared to, say, taking an equity or a private placement at this point in time.
Jeremy: You mentioned, briefly, the two areas in which you’re working; Ukraine and Canada. Give us some more detail as to exactly what this money will allow you to do.
David: Well, as most of our shareholders are aware, we’ve got a well in Ukraine that we’re in the process of mobilising equipment for a big hydraulic frack. It’s going to be one of the largest multi-stage frack that’s been done in Eastern Europe. And certainly it’s somewhere in the order of ten times the size of anything that’s ever been done in Ukraine before. We installed all the equipment in the well a month ago, and we’ll be mobilising this week to bring in about 26 trucks, I think it is, from outside Ukraine; from Romania and Europe into Ukraine. And hopefully we’ll be doing that frack in a couple of weeks’ time.
Now, the well flowed gas when we tested it a year ago, so we’re quite confident that there is a commercial well coming. Obviously we need to do the frack; have it go ahead without any incidents or any difficulties, and then we should have a commercial well in Ukraine. We’ve got two other small wells ready to tie in on an adjacent field, so the funds will be used in the second half of this year to build a gas plant and tie it into the adjacent export line, and get those three wells on production.
And then in Canada, we are 100% an operator on a field called Beaver River in northeast British Columbia, and we’ve identified four wells to work on there. Two will be predominantly conventional targets, where we want to do some acid stimulation, and two are more shale gas targets, where we need to do some big hydraulic fracks.
And again, as most people are aware, the gas price in North America is a concern at the moment. In the first half of April it sort of dipped down to its lowest point, which was well below two dollars, although it has recovered over the last three or four weeks; now it’s back over two dollars for us. So we’re just monitoring the gas price, weighing up the options we have for a summer programme, and a follow-on winter programme in Canada. And we’ll be making some announcements fairly soon on what we’re going to settle down to do.
Jeremy: Meanwhile, gas prices in Europe are still relatively high. Do you see this situation continuing?
David: I think so. You know, gas prices are relatively high in the middle of the biggest recession/depression we’ve seen in a hundred years. Certainly medium-term, as Europe sorts itself out and gets back to growth, I think we can see the gas price certainly staying where it is or strengthening.
In Ukraine, in particular, I think that same situation applies. They were very badly hit at the start of the financial crisis. The country’s bounced back pretty strongly over the last year, year and a half. Particularly for the macro situation in Ukraine, as most people are aware, Russia pumps a lot of its gas to Europe through Ukraine. But the Russians and Gazprom are now currently building three pipelines around Ukraine so that they don’t have to use the Ukrainian gas transit network. And in three or four years’ time, once they’ve built and commissioned the lines, and they’re flowing gas, they no longer need to use Ukraine as a transit route. And that’s a potential threat for the gas suppliers Ukraine.
So I don’t see it pushing the gas price domestically in Ukraine down in any scenario. In fact it should be very good for us, because being one of the few foreign companies working in Ukraine, we’re getting a lot of support, now, from the government, to increase our investment; get domestic gas production increasing in Ukraine.
Jeremy: You mentioned earlier in the interview that you’ve hired Schlumberger to carry out the fracking work on the Karlavskoye field. How receptive are the Ukrainian authorities to the use of foreign companies?
David: It varies. They’re quite protective about their established industry for basic services. But certainly the attitude has evolved over the last 12 months, that I think they recognise now that, in certain cases, they need more modern technologies; more modern services, to unlock the potential of some of the fields. And they’re very receptive to the idea of bringing in the latest technologies.
And certainly when we presented the idea of doing the first multi-stage frack in Ukraine; doing quite a big frack, bringing in the best technology and expertise that we use in Canada – that is commonplace in North America – bringing that into Ukraine, and then bringing someone like Schlumberger to make it all work; they were very receptive to the whole plan.
Jeremy: And finally, how much of any of this money you’re sourcing will extend to acquisitions and new ventures? And if so, what sort of deals are you looking for?
David: Well, I guess, as most people can imagine, the market at the moment, with gas prices being low in areas and high in others, has created quite an active market for acquisitions and farm-ins and we have looked at quite a number of fairly attractive opportunities for us. That, in many ways, is the strategic idea of using the share purchase agreement. We’ve got some interesting opportunities with us now, and we’re expecting more opportunities to come over the next year or so. And the share purchase agreement gives us a very realistic way of evaluating those, and doing the technical work up-front to look at them, and then potentially to execute something as well.
But I think it’s quite possible, certainly on the back of success in the hydraulic frack in Ukraine, that we’ll be looking to pick up some new venture opportunities this year. But these will be projects, typically, that will take a couple of years to get to a drill stage. So they’ll all be much longer-term projects to complement the other two fields that we’re working on at the moment.
Jeremy: Okay David; thank you.
David Worrall there, Chief Executive Officer of Transeuro Energy.
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