Buy Back and BonusesVESTED AWARD
Q1/23 stated that $9.8 million was paid out in performance awards.
What does that mean?
The award of a performance bonus, and the vesting of that bonus are not the same.
OBE has a share price based bonus system. When the share price goes up in a quarter, a bonus is awarded.
In Q1/22, the share price went up a lot. A large bonus was awarded back then. It was also accounted for back then (even though it was not paid - ie it was a non-cash accounting entry)
Payment happens later, when the bonus vests.
I gather that $9.8 million of the Q1/22 bonus vested in Q1/23. This suggests that if the share price drops within a year, the previously awarded bonus is retracted.
When a previously granted bonus award vests in the future, that is when it is paid. It can be paid in stock or cash.
In this case, $9.8 million of the Q1/22 bonus award, was paid in cash during Q1/23. This was accounted for a year ago. It is not an additional bonus earned in Q1/23.
SHARE BUY BACK
OBE has made it clear they want to buy back shares.
They also made it clear they didn't have the cash to do so. (because they have to keep $65 million of their credit line open as a debt covenant).
They also made it clear they were trying to increase their credit line to get access to this cash.
Late in March they announced they had increased their credit line.
It followed that they would be using that new credit to start buying back shares.
Given that expectation, it was disappointing to learn they have not yet bought back any shares.
In the back of my mind, the concern was they were not buying back shares because they still did not have enough cash, despite having increaed their credit line.
ie revenue from lower sales prices, were holding them back.
We knew they would be spending heavily in Q1 on capex. They have a $300 million annual budget, so I assumed they would likely of spent about $100 million in Q1/23
It turns out they spent $115.8 million (107.1m on Capex and 8.7m on decommissioning old wells etc)
They also had to pay the above $9.8 million in year ago vested bonuses.
Combine that will FFO of 94.3 million for Q1/23, and they spent more than they bought in during Q1/23
I've not yet gone through the financials, but in a nut shell, that explains what the extra line of credit was for.
ie, in Q1/23 they investe into the company, rather than into buying back shares.
Paying out last years vested bonus ($9.8 million) is a form of buy back.
That was then, this is now.
Today is Q2/23. Very little will be spent on capex in Q2/23.
They averaged 33,153 boe/day in Q1/23. We don't know what they are producting today, but its probably higher than the Q1/23 average. All of which is getting sold, and cash is flowing in. That cash is reducing debt daily.
As debt reduces, liquidity increases.
Its far to early to predict what their cash inflow will be in Q2/23. Largely because of the present oil price volitility.
We do know that OPEC is cutting materially starting this month. It also sounds like the Fed's interest rate increasing phase has reached the end. We also know that Asian economies (particularly domestic and international flights) are increasing. US employment is strong, and increasing. US Oil refinary maintenance is coming to an end, with refinary capacity increasing this month. US and Global oil inventories are declining. We also know that OPEC doesn't appreciate speculative short sellers. All of which is positive for oil. All of which suggest the average oil price in Q2/23 may be higher than Q1/23.
This suggests FFO in Q2/23 at least equal to Q1/23 - and probably higher. ie $94 million plus
Substract out what little Q2/23 capex there will be, and the rest goes to increasing liquidity - aka paying down debt.
That increased liquidity also means cash available for buy backs.
OBE has been clear on its intention to buy back shares when they can.
So far, they havn't had the cash to do so.
That will probably change this quarter. ie the buy back is coming.