Corporate Collateral And Capital Structure - ADX Energy Limited Essay.

Equity and cash flow analysis

Discuss about the Corporate Collateral and Capital Structure.

ADX Energy Limited is one of the prominent oil and gas exploration companies in Australia. The company is listed in the “Australian Stock Exchange”. The vision of the company is to achieve maximum shareholder’s return through the company’s better investment choices by supporting the high quality management and the state of the art technology (Adx-energy.com 2016). By constantly striving to meet exponential growth depending on their strategy this energy company is all to looking for the high impact exploration opportunities in proven oil and gas basins.

With the company’s framework and using the corporate information regarding ADX Energy Limited, this report mainly explores the existing investments and cash flows of the company. The objective of the report is to identify the competitive strengths and unique advantages which could help maximize the earnings. By assessing the firm’s current financial structures, the best financial choices will be investigated in the later sections of the report. The company is expecting that the assets can be purchased at relatively low costs because they are not material enough for larger companies. Most of the assets are previously managed poorly and have inadequate suitable investment.  All these uphold the opportunities for ADX for providing meaningful cash flow and the additional reserve for the company.

ADX Energy Limited believes in operatorship through the exploration and appraisal phase of the asset cycle for ensuring the effectiveness to maintain the core skills and gain greater access to new investment opportunities.  The company is currently focusing on the energy appraisal activities in the areas like onshore Romania, Italy and Tunisia (Ioachim, Ionela and Florin 2016). With the access of good infrastructure, stable government, effective energy market situations and attractive fiscal terms, ADX has shifted their focus towards achieving lower risks appraisal and development assets. The company has many potential assets under the existing portfolio which can deliver the value of the shareholder at low oil prices. For instance, the discarded Nilde Oil Field, along the surrounding discoveries of offshore Italy offers a fantastic opportunity for ADX for increasing the material resources along with additional near field discoveries. It is indeed a unique competitiveness that the resource is situated in a highly productivity reservoir located in a comparatively shallow water at the drill of shallow depths which enhanced the economic conditions of the company by encouraging “fiscal terms”.

In the year of 2015, ADX successfully negotiated with the government of authorities of Tunisian for the extension of the Kerkouane license (Adx-energy.com 2016). Here the company did not follow any requirement to take on additional commitments. In short, the company has secured their position by delivering the low cost control of substantial, under-recognized well-defined resources of oil.  In a nutshell, the company has the potential resource which has ensured low unit costs, strong margins and the high efficient production even at low oil prices. Positively, ADX can add considerable value to the assets of Nilde-area with the modest pay out for reservoir studies for the period of three to six months. By performing diverse activities related to the oil and gas exploration, the performance of the ADX has been bolstered by the full support of the company’s experienced management. 

Company’s financial choices

Despite the company’s competitive position in the marker of energy, ADX faces several risks and should appeal exclusively to risk-driven investors. The limited funding options and a material failure related to the data reconciliation for providing the basis for a viable project are the main investment risks of the company. In this adverse condition, the company has not provided adequate return to their shareholders in the present year. Currently, the total equity of the company has also been reduced ascompared to the previous year. For instance, ADX’s total equity $947694 has been decreased by $902679 in the half yearly report of the company as on 30^tth June 2016 (Adx-energy.com 2016). However the company at present has a good liquid position as both the current ratio and quick ratio are above 4 percent. This  indicates that ADX can manage their short term obligations in the upcoming years. Unfortunately, the company’s profitable condition does not sustain the growth opportunity because the net loss of the company as on 30^th June 2015 was $1023801. However, the positive part is that the figure of the net loss has been recovered as on 30^th June 2016, in addition to reflecting the loss of $790427 (Adx-energy.com 2016). Therefore, the ratios clearly have indicated that ADX Energy Limited has been struggling with the negative moves in prices of oil as well as the sentiment related to the energy investors. Furthermore the company has been facing inability to the development finance to commercialization due to strict operating issues and accelerated development costs.

Interestingly, ADX Energy holds 26.7 million shares in ASX listed Riedel Resource Limited, a renowned gold and metal base exporter. In the director’s report of ADX Energy Limited, this has been found that the company is currently concentrating on increasing the potentiality by making available production assets onshore in Romania. Though the company’s current earnings per share is -.0021 but the company is expecting future growth on the ground in Romania with efficient local contractor and designated relationships.

Primarily, ADX Energy Limited is facing stiff competition from the rival energy service providers in the Australian market such as Alice Queen Limited, Algae Tec and Alligator energy. All the companies operate under the same energy sector of the company, but focus on different market opportunities. Alice Queen Limited is associated with the development process of gold and copper exploration along with exploring the mining opportunities. On the other hand, Alligator energy provides uranium exploration activities and explores the shareholders strategic exposure by adding Alligator’s high leveled uranium resource base. On the contrary, the vision of Algae Tec is to develop renewable and sustainable food and energy solution. On the competitive perspective, all the companies are listed their shares in ASX with the different market capitalization rates. ADX Energy limited’s current market cap is 4 million which is the current value of the market at the current year of financial. On the other hand, Algae Tec Limited’s market capitalization rate is 19.4 million whereas Alligator Energy Limited is having 5.0 million. This indicates that ADX Energy Limited has the lowest market capitalization rate compare to its rival companies. However, the common factor that all the companies are suffering is slow application of the developmental changes in operating or fiscal rules (Teske et al. 2016). Furthermore, the negative moves in the industry oil prices are also considered to be the biggest threat for all the energy companies in the Australian market.

Conclusion

On the sustainable perspective, ADX Energy Limited has been recovering their position by achieving by one year the 100 percent owned Offshore Tunisian Kerkouane permit. By getting 50 percent equity interest in the area of Onshore Western Romania, ADX can expect opportunities in production at favorable cost while oil prices remain depressed. However, the company needs to manage market risks such as lower commodity prices, failure in exploration and evaluation programs and inability for obtaining the appropriate project equity/debt finance (Foster 2016). For better shareholder’s return, the company needs to continue its exploration program on its existing permits and further to acquire appropriate permits for exploration and the development of the company.

The current equity of ADX Energy Limited is $64161036. The total equity of the company consists with equity capital and reserves (Foster 2016). In the year of 2015, the total reserve of the company is $5960243. However, the company has a huge accumulated loss of $69173585. Based on the current financial structure, the company has raised their fund only issuing the ordinary shares to their shareholders. The shareholders are getting dividend if the company earns profits. Unfortunately, the business is running at a loss and thus, no dividend has been paid to the shareholders of ADX Energy Limited (Rampini and Viswanathan 2016).

Currently, the company does borrow money neither using bank loan nor corporate bonds. Although the company is carrying out with losses in the present fiscal year, therefore the debt would not be the right choice for raising funds into the business. With the raising debt, the company will face more burdens of losses in the upcoming fiscal years, if the company could not recover its existing losses in the due course.

Conclusion:

The above discussion mainly discussed two perspective of the chosen business. In the first section, the details of current earnings and cash flows have been discussed. By assessing the competitive strength of ADX Energy limited, the report highlights the potential returns and additional economic values of the business. In the second part, the current financing of the company has been discussed and analyzed. The alternative choice of finance has also been considered in this section.

References:

Adx-energy.com. (2016). ADX Energy - Oil, Gas and Base Metal Exploration - Australia, Italy and Tunisia - Home. [online] Available at: https://adx-energy.com [Accessed 18 Sep. 2016].

Foster, J., 2016. The Australian growth miracle: an evolutionary macroeconomic explanation. Cambridge Journal of Economics, 40(3), pp.871-894.

Ioachim, M.V.C., Ionela, F.E. and Florin, B.C., 2016. Financial Resources Management And The Impact On The Financial Position Of The Entities In The Romanian Energy Sector. Annals-Economy Series, 3, pp.306-311.

Rampini, A.A. and Viswanathan, S., 2016. Collateral and capital structure.Journal of Financial Economics, 109(2), pp.466-492.

Teske, S., Dominish, E., Ison, N. and Maras, K., 2016. 100% Renewable energy for Australia-Decarbonising Australia's energy sector within one generation. Report prepared by ISF for GetUp.