I think this is the most cutting and interesting question, with the strongest implication for what Tenaz looks like in 6-8 months.
So Neptune, the operator of the Dutch assets, is looking to sell, they were in talks to sell to Eni (Italian supermajor) earlier in the year, but they didn’t go anywhere. Then, as of last week, Eni and Neptune are back at the table.
The issue for Neptune, is the Netherlands assets are a huge drag on their portfolio. At 2021 they were a net liability of $378m, and a net liability of $184m at 2022 year end (thanks to higher prices, prices are now, back to 2021 levels) — this is not ideal for Neptune, and especially not ideal for a company like Eni, who is committed to the whole ESG thing.
Neptune has already been in talks to sell their German assets (the other business segment with a negative net asset value), so getting rid of their assets in the Netherlands (a huge drag on the business) would almost certainly make the sales process infinitely easier. Keep in mind, Neptune was a company built to be sold.
So, how could Tenaz make this work, after all, that is a huge deal to work out.
In walks the Vendor Take-Back loan (VTB). We’ve seen in 2022, a number of companies that could perhaps not secure financing through other means (i.e. Journey and Surge) engage in VTB financing with selling parties that are looking to exit an area, and quickly (namely, Enerplus leaving Canada).
For Tenaz to assume full operatorship, they’d have to post a huge decommissioning bond with the Dutch government, but Tenaz would walk away with 18,500boe/d.
If Neptune is to provide a VTB loan in the amount that is, the cash Tenaz would have to post with the government (or a surety bond provider), they would be able to effectively remove the asset (read: technical liability) from their books. It would be an amazing deal for Neptune — they would effectively replace $300m of decommissioning liability on their balance sheet, with a VTB loan (an asset) to Tenaz. Tenaz’ consideration would be the assumption of the decommissioning liability.
Tenaz pro forma balance sheet would look like this — new assets include the PP&E associated with Neptune’s DNS assets, and restricted cash in the amount required to post with the Dutch government. They’d offset the restricted cash with a VTB loan (liability), and offset the PP&E with a decommissioning liability — but it wouldn’t cost them anything, other than a small debt (or equity, probably equity) raise for working capital attributable to their spankin’ new asset.
It’s genius really. Tenaz' cash outlay is nothing, they get to almost 10x production, and it doesn’t cost them a thing. Neptune on the other hand, they are laughing, assuming the VTB loan is pretty sweetheart to Tenaz — their intangible cost is the spread between interest and possible return on the VTB loan amount (I’d assume it’d be around $300m in size) — but they take something that was worth -$184m, and turn it into a VTB asset. Tenaz gets to grow production, increase leverage to TTF prices, and most importantly, do it without a debt or equity raise.
It would get them a crazy story to sell. The Dutch government is already interested in extending field life, and there is a great CCS opportunity.
https://wtirealist.substack.com/p/tenaz-energy-out-of-control