Restricted Cash
Drill, I appreciate your study on this issue. I believe it is important for shareholders to understand that in all cases, HRT will continue.
I find it interesting that when Polvo was announced and HRT advised shareholders that they have CS financing on Polvo that HRT did not also indicate that it had insured the deal would close by placing the purchase price in escrow. Frankly, I was a little confused at the idea that HRT could close on the property in the 4th quarter but receive all the net profits for 2013. In reality, it looks like they closed subject to regulatory approval. Good move by management.
I really appreciate the information on the $150M (R) loan from CS. I did not see that in the earlier releases – I only saw the commitment to make a loan. Assuming a 2.5 year payback on Polvo purchase price, Polvo will generate $124M (R) annually [$135M (US) /2.5 (Years) /0.4336 (Exchange Rate)]. On that basis, HRT cash reduction with a yearend close is only about $37M (R).
On Transocean, I recall from a MM presentation or prior CC that the Transocean money had been set aside, but I was not sure how that worked. Was it shown as restricted cash or not? Assuming “not”, cash would actually increase. Assuming it was restricted, it would seem that only the GALP money would increase cash. In either case, if the $155M (R) is still in escrow, the funds unused at the conclusion of the drilling campaign are available. Since $155M (R) is only about $67M (US) and HRT pays part of the deep water well, I would like to better understand how much, if any, will be returned to HRT. Do you have any thoughts?
As a final item, we know they achieved a reduction in cash flow burn to $1.8M (R)/day. We also know that the Rosneft did not kick in money for Brazil operations, which was listed at $0.7M (R)/day. Does this mean that if the Russians pay what they owe the burn rate falls to $1.1M (R), were continued operations eligible for reimbursement ended, or was payment factored into the calculations? Additionally, while CC slide 28 clearly shows the Rosneft default, the balance sheet receivables on the 2nd Qtr. release (pg15) lists receivables at only $1.78M (R). What happened on the default? Normally, bad things would happen to Rosneft on default, and in any case, someone should have explained what happened. Was this an HRT performance default, and Rosneft no longer owes the money? Since the default was over $60M (US), management should have disclosed any performance based default.
Based on your amplification, HRT post-Polvo closing will cut its burn rate to around $1.6M (R)/day [$1.6M (R)/day – Polvo free cash flow/day (as adjusted to amortize CS loan over 3 years)]. Whether HRT still has to pay for the 3rd drill or not, available cash supply still lasts until the 1st or 2nd Qtr. of 2015. At a blended sale price of $33M (US) for the Air Amazonia sale, this adds another month or two. Secondary austerity probably takes the cash on hand and Polvo to 2016 (all assuming a CS note term of three years). All of this happens without a gas deal or any farm-outs. Who knows what secondarydrilling will do to enhance cash flow.
GLTA,
Bob
