RE:RE:no reason to make hasteScottie99 wrote: Buddy, there is no need to stress yourself, it is your money and expect you to do your due diligence. No, it wasn't an unanimous decision by the shareholders though majority voted for it under duress, if I recall the tactics used by LRE management go get everyone on board with the deal! If they are convinced the shareholders support this deal, let them put it to a vote again and see how many shareholders would support this deal, knowing what they know now! What they did was cajoled shareholders to vote for the deal, thereby ramming it down their throat, which to me is duress!
I would concede I am in the minority shareholders that opposed the deal and there is what is called after-the fact information. That is why it has to go through Investment Canada before it can be approved. So the fact that majority shareholders voted for the deal does not mean a lot if Investment Canada determines the deal is not of net benefit to Canada, so your bringing democratic principles to this discussion is naive. Companies get sold, like Suncor buying COS through share conversion. Noticed the way COS management opposed the deal, claiming the sky would fall if Suncor takeover goes through. The COS management fought Suncor over the brutal takeover and it fell on the shareholders to make the decision. Initially, the shareholders felt Suncor did not offer a good deal and pretty much said so! Suncor improved the offer and got the deal sealed, the rest they say is history!
Now tell me, did anyone hear from the COS CEO that went on air to say the shareholders were better off if the company remained independent? Do you for one second believe their opposition to Suncor takeover was for the benefit of the shareholders? Did Suncor keep the COS management that opposed their takeover? The CEO was trying to keep his job at COS and he knows if Suncor takes over the company, he is gone and that was exactly what happened. Now compare and contrast the above scenario with LRE and tell me this stinky deal is not about retaining their jobs under their proposed new company owners even if the shareholders are going to have to take a haircut on their stake!
So you can get all the green light you want on funding, if Investment Canada don't approve this deal, the sellout would be massive and it seems the stock momentum is already decreasing as June ending approaches!
Be Careful What You Wish For
Long Run; A Going Concern ? Somehow I think not!
First a bit of history; Long Run got into this mess due to what turned out to be some very poorly timed acquisitions financed with debt. They weren’t alone.
When the wheels started to fall off and the Lenders began rattling the cage we were told that the “Plan” was to reduce the debt with “excess cash flow” (didn’t materialise) and “asset sales” (didn’t happen).
Then came along the first $200m PP offer from Maple Marathon. The offer was based on the assumption that the Commodity Prices would stabilize, improve and it would be viable for all concerned. The bottom fell out of the Commodity prices and from Maple Marathons perspective the offer was far from viable. The Chinese like to gamble, it’s in their DNA. That said they aren’t stupid and when the odds are stacked against them they walk.
The consequence of the above was the revised $100m Maple Marathon PP which was at best a “Band-Aid” solution, not good for anybody and doomed to fail which it did.
Then came along the Pending offer for the entire company by Sinoenergy.
Some have suggested that Long Runs managements goal has been to preserve their jobs. There is probably some truth to that but as has been pointed out if this Sinoenergy offer is successful they will simply be the “Hired Help” and replaceable.
The Bigger Truth is that through this entire process there has never been a viable “Plan B”. The only option that they have ever had without a successful transaction was to aggressively liquidate assets at “Fire Sale” prices.
Now some facts; In fiscal 2015 Long Run’s Revenue / FFO fell in every quarter with the exception of Q2 and Production consistently fell every quarter!
Q1/2016 is probably the worst quarter that they have ever had. Negative FFO and production continues to fall.
The Oil price is obviously a big part of the problem and the current WTI price of abt. $50 is definitely an improvement and will help. The reality is that $50 WTI isn’t actually all that exciting. It does allow the Oil Weighted Companies with pristine balance sheets to survive and in some cases actually grow production and make decent money. Long Run IS NOT in that small group! What isn’t known is that if the current WTI rally has any legs or if it will fizzle like last years Q2 WTI rally did.
Oil is a big part of LREs problem but NG may actually be a bigger problem.
60% of LRE’s BOE production is NG and 15% is NGL
The Western Canadian NG market is in the toilet and there is no relief in sight!
The substantial loss of demand due to the Oil Sands shutdowns is temporary and will gradually return. While this is sorting out the only place for the temporary surplus to the existing glut to go is into storage….
Prices for NGLs are also under pressure.
The bottom-line is that for Long Run price improvement in the Oil part of their production (abt. 25% of the total) will be offset by price weakness in their NG and NGL production. Without any money available for Capex the production will continue to fall.
The Elephant In The Room; The DEBT As of March 31 the Lenders are owed $584.2m (total debt abt. $659.2m)
We don’t know the details of the agreement between the Lenders and Sinoenergy other than the $100m Escrow amount and that Sinoenergy has agreed to pay the Lenders in full by 6 months following the closing of the transaction if it does.
We do know the renegotiated terms between Long Run and the Lenders announced on Nov 30 / 2015 when LRE hoped to be a “Going Concern”;
CALGARY, ALBERTA--(Marketwired - Nov. 30, 2015) - Long Run Exploration Ltd. ("Long Run" or the "Company") (TSX:LRE) announces amendments to our bank credit facilities. Long Run has completed the semi-annual review of our credit facilities with our bank syndicate. The Company's total credit facilities have been amended to $650 million, consisting of a $270 million revolving syndicated facility, a $30 million operating facility and a $350 million non-revolving syndicated facility. The reduction of total credit facilities from $695 million to $650 million reflects the Company's voluntary repayment of $20 million in October 2015 and liquidity generated from our 2015 funds flow from operations exceeding our capital expenditures. The revolving syndicated facility and the operating facility, which comprise the Company's borrowing base facilities, are reviewed semi-annually and terminate on May 31, 2017. The maturity dates of our $350 million non-revolving syndicated facility have been staggered to align with the Company's proposed private placement with Maple Marathon Investments Limited ("Maple Marathon") and the strategic asset rationalization process. The proceeds from the proposed private placement will be used to repay the $100 million due January 31, 2016. Long Run expects to use the proceeds from the strategic asset rationalization process to repay the $125 million due May 29, 2016. The remaining $125 million is due November 30, 2016 with the method of repayment to be determined based on 2016 market conditions. Methods could include proceeds from the exercise of warrants issued to Maple Marathon, asset dispositions and debt restructuring. The existing terms of the credit agreement have been amended to include events of default which relate to the time of closing of the proposed private placement with Maple Marathon. Additionally, the $270 million revolving syndicated facility will be held at $255 million until closing of the private placement. Since then the only things that have changed is that Long Run is in serious DEFAULT of the Non revolving ($350m) part of the Credit Facility, the Revolving part has been reduced, is basically fully drawn and the Debenture Interest payment has been suspended which itself is an “Event of Default”. The Lenders have agreed on a least 2 occasions to temporally Waive the Events of Default to give Long Run a chance to get a transaction done.
If the pending transaction with Sinoenergy fails it will just be one more in a long list of Failures by Long Run to get anything done.
If that happens I suspect that the Lenders will have run out of patience and pull the trigger. Some have suggested that all Long Run has to do is renegotiate with the Lenders. If you were the Lenders given Long Run’s history of consistent failure what would you do?
At March 31 the stated “Net Book Value” of Long Run’s Oil and NG assets was $1.096b
In the current market in a Forced Liquidation based on what assets have been selling for they would be lucky to realize 60% of that.
In a Partial Liquidation to raise enough Cash to get into compliance with the Lenders
($225m past due, a further $125m due Nov 30 + abt. $234m on the Revolver) and Debenture holders
(abt. $4m accrued interest to date increasing daily) how much of Long Run would be left?
In a Total Liquation the Lenders actually stand a good chance to recover most if not all that they are owed. There could possibly be some left for the Debenture holders. In the best possible case scenario there would be little if anything for the Shareholders.
**Long Run’s Book Value was $0.374 on Dec31 /2015 and has fallen to $0.163 at March 31 / 2016. How does that compare to the $0.52 offered by Sinoenergy?
I prefer to base my opinions and decisions on Verifiable Facts and Reality; Not Wishful Thinking and Fantasy..
**98% of the Shares voted were in favour of the Sinoenergy offer.
**More than 95% of the Debentures voted were in favour of the Sinoenergy offer.
As Always; Do Your Own Due Diligence; It’s Your Money !! PS; As I have said I am not a fan of Long Runs Management and BOD. With the benefit of hindsight, it’s not difficult to find fault with their performance. Although it’s true that if this transaction closes Management may keep their jobs for awhile. It’s also true that they are suffering exactly the same haircut on the Securities they own as everybody else and their Options are worthless and will be cancelled. They didn’t cause the Commodity Price Collapse; they have done a terrible job dealing with it! I don’t see any “Skulduggery” just “Bad Judgement and Decisions”. If this deal gets done, they may actually be due a bit of credit for selling the company at a Premium to it’s Book Value and salvaging something for the Share and Debenture holders.