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They might get a phone call from the police after they discovered Neil sleeping rogue in the life-boats.
I was thinking about Seapulse also.
FPSO Enquest Producer, 5 years old, one careless owner, Enquest Blue with go faster stripe, 625,000 bbl capacity, sleeps 97, available for deployment H2 2020. Floats, Produces, Stores and Offloads better than a diahorretic squirrel on a life raft. This FPSO will make you attractive to the opposite sex. £500 million ono.
I might get an email from Enq marketing when they read this.
Hi E - I'm not being gung-ho because there is a glimmer of light it's more a case of the opportunities and collapses that will happen in the next few months. In fact we could almost be in a unique position. TLW and PMO will be saved by an increase in oil but for now are restructuring. Spirit has a for sale sign whilst Chrysaor need to digest recent purchases. RKH and HUR will be open to offers but seem to have the dreaded AVOID on their prospects. I expect the majors to continue to divest in the NS. It is too "bitty" for them. I think AB and his team will not have to go looking. Build the best mouse trap and the world will beat a path to your door. In the vanguard will be the smooth-talking teams from M&A who bring ideas and solutions when pitching. We have a window where we are sitting pretty compared to others. Remember, every company in the industry has taken a hit. We stand out because by luck or judgement we were in a good position among mid sized oil companies when the world changed. Let's not waste it.
The alternative of sitting on our hands is also attractive but I invested in this company for growth. Why stop when you're winning. If we were quoted in the US I doubt we'd even be having this discussion as they look for opportunities at times like this. Of course I'm also betting that Covid from now on will be seen as a paper tiger.
Playing devils advocate here - what happens to Enquest when its three main assets start producing less crude - does the company just simply fade away?
An unexploited asset like Hurricane might be just what AB needs and if the price is right.
Also Enquest Explorer could be deployed to another part of the field to bump up production.
Cheers, R. That's good to know. When Brent rallies into the 40s/50s soon enough, that's when options will be many for Enquest. I strongly believe that Enquest will focus on debt reduction first and foremost, before considering any additional acquisitions and the coming rally in Brent should give us the push to get debt down to 'de-risked' levels. Opinions are dime a dozen regarding taking on more debt and making acquisitions, but I'll go by what AB/JS said in the AGM last year and that's to get debt down to manageable levels and for me, that's another $400 mill lower from here. I doubt that the debt market will be willing to open its wallet to Enquest with Brent at these levels, and hence cost and debt reduction is the near term name of the game.
Thanks for sharing romaron. Cant believe and wont believe They Will simply scratch it. Keep on thinking of that start up that enquest was partnering with - seapulse. Maybe it could be deployed somewhere.
Thanks for posting your reply from IR.
I agree with you - " Surely It has to be worth more as a FPSO than as Scrap".
Something I keep telling my wife !
All the best
I received a reply from IR.
"We are looking at both of those options (sale/use in another field and scrap) for the vessel. The final decision will be based on maximising value as far as possible.
Hope this helps"
Well not really but TBH it was the answer I expected. With the world's attention on Covid everything was in stasis. We might start getting a dribble of news from now on as the world starts turning again. Surely it has to be worth more as a FPSO than as scrap.
Excellent posts. The situation though is that with the 2 share calls many here have a larger amount of shares than intended initially but at a feasible level. We don't need 80-90p to be back in profit which for many was as recently as February this year. L7 you write as though you are in at 80p.
We are a pretty big company now and in a stronger position than many of our "peers". If you're looking for perfection then you'll not find it here. What you do have is a financially sound company ready for the return of demand. Those pictures of Southend at the weekend convinced me that people have chosen to accept the low risk level of Covid and lost ground will be made up; maybe not all of it but production cuts will mitigate and I think much of shale has been dealt a mortal blow. EnQuest has already proven how creative it can be and is now in a strong position. I fully expect AB and his team to take advantage. If the deals and support are available we should lever up as HMH says. In fact, without outside encouragement and support we won't be able to do it so it'll be a stamp of approval from the credit markets if we do.
Build it and they willcome.
There are many assumptions in your calculations, and there was also the assumption of $90 oil when Kraken was sanctioned.
Sure, investors got crushed. Buying into an oil company with weak production and massive costs at the end of a commodity cycle is unlucky, and the company not going bankrupt is an achievement in itself.
I'd argue that we're in a different place right now on the macro level - comming up on the next commodity cycle. We also got a solid production profile with very large cash generation going forward, and we still need to grow.
One might think that there are alot of Magnuses and PM8/Seligis out there. Looking at the North Sea and Malaysia I'd argue that there are not. Enquest is not the only company looking for bargains, and in order to add anything significant to our 65kboepd old scrap don't cut it. I dont necessarily want the company to open up new fields assuming all the risk - but borrowing $1bn and taking a smaller non-operated stake in a great asset is another way to go in order to capitalize on this oil market situation and adding production instantly.
We didn't have a lot of options looking back, but with our current portfolio we have a backdrop and one need to bet big when the cards are stacked in your favour. Now is the time to lever up.
There appears to be a divergence between AB and the direction he outlines for Enquest, and an alternative direction many posters here would like him to take. Junk v Cherry
Should AB change tack or should some posters here look for other investments more suited to their position?
The current debate on ENQ growth opportunities revolves around develop a cherry or take on junk. I think the term ‘junk’ in relation to say Magnus is a bit harsh. I prefer ‘cash in the attic’. To infer that Kraken falls into the cherry camp is well, taking the biscuit.
In reviewing two paths ENQ has taken I took some time to review the numbers associated with Kraken and Magnus. I went into some detail but I’ll only post the headlines here. I’m happy to re-examine or expand on any component if asked.
The Kraken Cherry
Headline cost, $2.1B (gross) reduced from $3.3B at sanction. 70.5% working interest.
Adding Kraken CapEx (ENQ) 2013 – 2019 comes to $1,616m. Equivalent to $2,030m (end 2019) with 7% interest on the staged payments.
I calculated FCF and interest charges from first oil to Feb 2020. Current cash account cost of Kraken 2030-495-69-485-34 = $947m.
We know that today's oil price isn’t helping but to make an ‘if only’ assessment I’ve used a forward oil price of $65 and applied the forecast Kraken production profile (CMD 2015), delayed by one year (first oil one year behind schedule) so -24% in 2021. Applying FCF to reducing debt with 7% interest on the net debt, the returns are:
After another 6 years the account debt is paid off with a $78m surplus.
In 2027, 15 years after sanction, ENQ has Kraken (without debt) producing 5.2 Kbopd (net) and generating $101m FCF in 2027. The decline rate is c10%.
The North Sea cherry represents “a model in which producers rely heavily on borrowed money while delivering meagre returns causing investor patience to wear thin.” – borrowed from today’s FT.
I produced a list of caveats, but that’s the gist of it. The cherry has developed a very sour taste for an investor in from the start – 20% Kraken acquired 9/1/12 with ENQ shares priced @ 92p. Since then, management have received good salaries and bonus’, workers had well paid careers, a supply sector flourished and even the bond holders have their heads above water. Equity holders have been crushed. Enquest has no form in the successful development of cherries. Very few North Sea companies do, but occasionally one gets lucky.
Investors buying into Kraken today are buying yesterday's crushed cherry, funded by ENQ investors in 2012 at 92p. It now sits in the 'cash in the attic' camp alongside Magus. A good pair of assets, for today's ENQ investor.
Please, no more cherries.
Therapist can probably elaborate on the "pounding",
But I've seen FPSOs with an expected lifetime of 40-50 years. They're primarily in Africa and South America, but 20 years is nothing and Kraken should push that number.
Basically, we've got a 4 year old oil rig (ship is old but installations are new) ready for some action. There are 10 more good years in the haul easily.
I've emailed IR. I think it's a fair enough question. Is the FPSO destined for the scrapyard or can it be used on another field after the requisite engineering? I'll report back if i get a reply.
The chances are that it is headed for the knackers yard and that is in the price. However, if it can be re-used then that is a bonus. I haven't come across anything that suggests it will be re-used. Aircraft carriers seem to have a life of 30-40 years but they probably don't take the pounding that a FPSO gets.
Like you say, the bad parts was replaced on the FPSO and the third party was paid back. Now we've got a good FPSO on a bad field.
A good FPSO is a $500m+ investment, and the Producer are on out books at 0 value as it's part of the Alma/Galia asset.
Put it on a good field with the current crew, and it will work wonders and increase the companies assets significantly while generating meaningful cashflow over an extended period.
I’ve never read anything good about the Enquest Producer , and gaffs .. reliant on higher oil prices to mask faults on board , let alone the massive gaff with the underwater pumps that needed replacements at say $50m , plus it was financed with a farm in from a third party that was given a money back guarantee on the loan , so sooner it’s gone the better . A bad decision made by AB and JS in the early days when they were wearing their Miami Vice suits walking down Regent Street and Enquest was probably worth near $1b . The old business plan of taking on older assets and assuming a higher oil price is dead . Best thing now is what they are doing ... focus on core assets only and sit on hands . Deleverage as fast as possible to save interest charges . Maybe the sp will rise quite a bit more than expected as Brent approaches $50 as we are no longer wasting money on bad assets .
Apologies in advance - I've just had a large negroni and I'm feeling rich at the moment because with the garden at its best and the sun out I don't need to be on a yacht in the Bahamas (not that I've got one). I daresay I'm happier than Philip Green and certainly more popular.
I may be attacked for this which is why I may use alcohol in my defence. What if there is a plan afoot to move the EnQuest Producer to another field? You cannot play fast and loose with the authorities and decommission on a whim but there are only 180 FPSO's in the world and I'd guess not many on the production line. They are something of a rarity.
Decision time - carry on with a marginal field or cut your losses and move your major asset to a field that's got good reserves but lacks finance and a FPSO.
Interesting times indeed!
The FPSO would have to be modified and repurposed for whatever field it would potentially end up on. I'm sure the company is working on this. There are smaller fields where the economics presently isn't good enough - unless you happen to have a FPSO in the garage.
Interesting times ahead.
I think that "taken to shore for recycling" is a way of saying that the FPSO won't just be sold to the highest bidder and taken to Alang and dismantled in a highly unregulated environment.
Hi HMH - glad to see you keep a weather eye on the horizon. I'm with you on the debt. Some investors confuse our debt with a residential mortgage with an aim (for most of people) to pay it off- go to zero basically. That isn't what a company in a growth phase does. When we took out the OZ loan we weren't in a happy place. The farm out of Kraken had failed and some might read the OZ loan as a "Barclays turned us down but Wonga were happy to lend". The rate wasn't usurous but the terms were imo but needs must. They effectively have first charge on Kraken oil. A kinda temporary farm-out for up to 5 years and quite clever and astute on the part of both parties. This could be an interesting and effective alliance going forward. The bonds aren't pressing at the moment whilst the FSA will be rolled over and as long as oil recovers isn't a problem. A healthy company doesn't fear debt. In fact it needs it for funding growth and financing new deals and projects. That is where it will get interesting in the next two years. Ignoring the majors sell-offs there are quite a few oil companies in trouble and if nothing else the M&A fraternity are creative and hungry. That is without the development of our existing assets and maybe exploration might be considered?
I don't follow our "peers" that closely but over the past year we have financially (restructuring) far outperformed TLW and PMO who are by no means out of the woods. HUR and RKH cannot survive alone imo whilst the remains of Xcite will stay in the ground. For Sound the party is over and UKOG has become a cult. Having said all that there will be value in some of their assets. It is imo a buyers market and the failure of the Spirit sale is an indicator whilst I wonder about Chrysaor as they seem to have possibly bought at the top. I put "peers" in inverted commas but I think it always dangerous to pigeon-hole oil companies. I think EnQuest is "peerless" in many ways and cannot think of another oil company in the UK with such a committed CEO in shareholding terms.
*I'm a bit confused about EnQuest Producer. When I read "taken to shore for recycling" I read it as being scrapped and so did a few others on this board. I like the idea that having an FPSO almost ready to go and with our experience in heavy oil could make a huge difference in the economics of a field. Existing or in development. What exactly does EnQuest mean by "recycling" the FPSO?
The Thistle impairment will be reversed If the price of oil make Enquest reopen the platform again.
We are now in a different position with strong cashflow generation and solid production profile. I'd argue Kraken is a very good development, and that the company should engage in similar projects given the fact that going forward we're in a solid position.
I'd argue debt is low. I wouldn't compare it to the equity, but rather the FCF generation going forward in a higher oil price enviroment. That's the only thing that really matters.
Kraken trades in parity with VLSFO. That's basic economics.
If you can fill your ship up with either Kraken crude or VLSFO you will be indifferent to which you use. Therefore the auction for Kraken crude should see bids to the point where they trade on parity - because they are perfect substitutes.
At the moment VLSFO is trading at $39-40, Kraken Crude should sell at the same price. Therefor the current premium is $5.
Kraken crude is basically VLSFO, like they stated in the FY20 presentation.
A further clarification for anyone digging into this stuff.
I said, "CNE has said that Kraken pricing last year was ahead of Catcher. If I apply the same methodology (caveat emptor) I see a $5.13 premium over Brent for the full year 2019."
1 - The $5.13 number for 2019 is in addition to any premium (or discount) during 2018.
2 - If you were to take the bare 2019 numbers for CNE you'd see a premium of only $1.34 over Brent. But remember the realised price is after 'shrinkage' (talk to your Therapist about this). I use the 2018 number in an attempt to average out this impact. There's still a lot of noise, perhaps we should just ask IR what the current premium is and HMHN could calibrate it to a VLSFO price. But I repeat, with the Enquest cash flow guidance provided its all academic. A bit of fun on a Sunday evening.
Just to close my last post on the Kraken premium.
I could work just the H2 numbers (ENQ or CNE) and narrow it down but I’m not going to. In providing neutral FCF guidance based around $33 Brent ENQ will have taken account of the Kraken premium over the remainder of the year. Whether it achieves a higher lower outcome than their expectation would be a variable.
Hi HMHn, you say, “Why look at junk when you can get the cherry? Project financing is still available and our debt level is low (confirmed by J.P Morgan analyst on the FY19 call).”
Project finance may be available (I don’t know the market) but I don’t think ENQ debt is low. In fact I think it is high by most metrics. Remember ENQ lost c$425m of equity at the year end due to various write-downs. The market might allow us a cherry, but I believe it would be conditional on an equity raise.
My argument for looking at junk is that that is where AB has positioned Enquest and that is one of the reasons I’m invested here. I don’t see any record of Enquest successfully developing a cherry. Do you?
I invest in other oil companies for cherries.
You also say, “About 6 month ago I made a thread arguing that the premium was massive, the crude selling close to the price of VLSFO. This has been confirmed by Amjad, he said that Kraken was selling into the VLSFO market without refining which makes them perfect substitutes. If you don't understand that expression you should go back to your intermediate micro economics books and just look it up.”
I’m aware of the attractiveness of Kraken oil to bunker fuel market and as a result Kraken attracts a premium over Brent.
I remember your posts, and I think you pointed at a Kraken premium of c$30 over Brent based on VLSFO pricing. The challenge is finding the evidence in the ENQ published accounts.
I don’t dismiss your number, I just don’t see clear evidence for it.
In my previous post I produced a calculation which supported a c$13 premium and said, “I have a qualification”.
It occurred to me that the calculation represents the ‘additional premium’ for Kraken over that last quarter 2019, so if a premium existed prior to that period then it is additive to the $13.
CNE is an interesting case for comparison. Its production comprises Catcher (54%) and Kraken (46%), both premium grades but CNE has said that Kraken pricing last year was ahead of Catcher. If I apply the same methodology (caveat emptor) I see a $5.13 premium over Brent for the full year 2019. That’s significant and could point to a very good Kraken Q4 premium as you highlighted.
Good to see you're looking elsewhere for information and that people still cannot agree on the simple stuff.
As you say L7, we've got a FPSO with a capacity of 60kbopd free from summer. This is a $500m investment if it's made for a new project, making it an ideal farm-in tool for Enquest.
I agree with romaron. Why look at junk when you can get the cherry? Project financing is still available and our debt level is low (confirmed by J.P Morgan analyst on the FY19 call).
We should do another Kraken project. The field was found in the 80s and has been idle til development due to heavy oil not being moveable. There are other fields. And there are field where a 60kbopd FPSO can do wonders with some modifications.
There are, however, not alot of Magnuses out there. In my view this was a unique deal, and perhaps we have not yet grasped the implications of carrying the additional assets that was part of the deal.
I also see you L7 and L3 talking Kraken premium. About 6 month ago I made a thread arguing that the premium was massive, the crude selling close to the price of VLSFO. This has been confirmed by Amjad, he said that Kraken was selling into the VLSFO market without refining which makes them perfect substitutes. If you don't understand that expression you should go back to your intermediate micro economics books and just look it up. They are the same.
He probably did, but I'm hoping it will be a question of once bitten twice shy on that type of project. Was the 3rd or 4th re-entry?
I haven't a clue what might be on offer in the licence but I'm hoping for some sort of tie in to existing infrastructure, similar in type to Eagle but on a larger scale. for better margins. Eagle has been proposed and pulled so I guess it's marginal. And we still have Enquest Producer FPSO from Alma/Galia, fairly new and hardly used.