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Canadian Overseas - Zac sticks the knife in (again) - "financing folly"

By Tom Winnifrith | Monday 13 November 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

The announcement of a change of strategy today from Canadian Overseas (COPL) has not been welcomed by the City's No 1 oil analyst Zac "the Knife" Phillips of SP Angel who slams what is proposed as "financing folly". The great man opines:

Canadian Overseas Change of Heart & Financing Folly.

Today’s announcement is anodyne in its content, save for the fact that the Company has had a change of heart with respect to its participation in the LB-13 exploration permit (Liberia) and the financing plans for the ShoreCan JV, which holds its interest in the OPL229 licence in Nigeria. On the former, it isn’t that they have exited LB-13, it’s the timing, as to our mind it raises questions as to what the Management team is actually thinking about its asset base. This is further exacerbated by the fact that the Company is seeking structured finance to fund its appraisal programme.

We believe that the Company is better served to drill the first appraisal well using equity, hopefully delivering sufficient cash flow from the test to cover the well costs, and go some way to meeting the costs of the 3 other appraisal wells that are mooted as part of this plan.

Once that is complete, it is at that point that the JV should seek development funding, which will include structured credit. While this could arguably be a statement of Management’s confidence in the asset, to raise any credit against the first appraisal well arguably exposes shareholders to excessive risk, as if it fails to deliver as anticipated, the funds would be withdrawn and the asset being taken as security.

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