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Need to start adding here soon waiting for the dip
Agree romaron. I think after the elections if Boris wins a clear majority could be the start of the trend uowards. Many uncertainties are coming to an end. Enquest should be a 1.4 (adjusted net debt) in february 2020
Simply Wall st. 24 October 2019 - "BP has net debt of just 1.4 times EBITDA, indicating that it is certainly not a reckless borrower. And this view is supported by the solid interest coverage, with EBIT coming in at 9.1 times the interest expense over the last year."
Pelle and some others think we'll be below 1.4x if the oil price holds so when do the numbers guys think we'll be at the 1.4x level of net debt to EBITDA?
We're not BP and we're not reckless but the evidence builds up as to why EnQuest is a raging BUY.
HMH 12.20 regarding paying off the bonds on maturity. I concur. The old adage that JB espoused "always, explore out of equity, develop out of debt" also applies to AB in my view. The company hasn't gone through all this pain to capitulate to populism or a quick analyst fix. In a market with possible explosive growth due to to conventional capex starvation and a shale industry built on a financial bubble only a fool would worry about creditors who although supportive through our recent travails exacted their 'pound of flesh'. They only run the company (indirectly) when they are struggling.
A certain level of debt is expected of companies that see and pursue growth and is not unusual. Even BP have around $67 bio of debt. If you want a more rousing endorsement of oil then note they {BP] have used a chunk of this debt to buy back their own shares over the past years. I realise there are also covenants on EnQuest buy-backs, dividend, PKI etc... but they were entered into in our loss making period caused by $30 oil and developing Kraken. Things are changing rapidly but I expect AB and his team to look at returns of 25% plus at a cost of 7% as irresistible. It's possible he might even increase the debt at some stage. The RCF the same. If the numbers allow there are ratios with debt that analysts and creditors like. Once we are fully in the clear I expect us to follow more traditional/conventional practises and supportable debt is totally acceptable.
Pelle, I agree.
I guess that was the purpose of the CMD. To communicate current Enquest performance and the near term plan of fast payback drilling alongside further deleverage to a sceptical market. I suspect it will take actual numbers rather than forecasts to convince them. If, as I expect, Enquest report 2019 production levels near the top of the range it adds substance to the forecasts they will make for 2020, probably at the Feb update. There's a lot of noise around current production levels with Thistle, Kraken improvements and S/C steady flow rates. I'm sure there will be more clarity by Feb, so I was relaxed that a forecast was not provided with the latest update.
Hello Hitman,
Okay, I see! Interesting post on shale, add the natural gas prices and the shale industry is in big trouble.
Regarding my spreadsheet, I stick to that for now. However, my H2 numbers running up to the CMD was way off - so will have to wait for the FY to figure out what went wrong. It could be a rather large leak in the model (I just dont see where), or we had significant front-heavy cash outflows (like Scolty/Crathes pipeline, Malaysia wells) in H2. I hope we get that 78k average and the $800m FCF next year. ;-)
Best, HMH
Hi L7
Yeah, but I get a feeling they are not into exact details. Or dont care.
You mention yourself the barclays analyst saying 2020 FCF more light.
It seems very strange , as starting 2020 maybe 10k+ vs 2019 and with a lower cost / capex structure.
Another analyst asked, how Enq planned to handle near term debt maturities.
Assuming he means the 1 April amortisation.
Even I figured out that wont be any problem what so ever.
Hi Pelle, you say, 'Guess 80k Oct will be big surpise for many, specially those with 63k assumption'.
80K in Oct may come as a surprise to some but it shouldn't to anybody who took note of the recent trading update. Therapist and I may have slightly different numbers for Oct but we've arrived at 80K+ in a similar fashion - Enquest told us the average production to end on Oct was 68,501 boepd. We have OAG numbers to end of Sept so it's simply an exercise in addition and subtraction, with some tweaking around the gas numbers.
Hello HMH
Yes, I have the vision clear.
Thinking about selling Tethys and Lundin and make the final investment here in Enq.
Just hope they prioritise a dividend of 50 mill in H2 next year.
It would make a huge difference for many shareholders, with almost no impact for Enq.
Hi L7
The 2020/21 estimates at marketscreener have basically not changed during this year.
Its first now the last 1-2 weeks I seen changes at 2019 numbers.
I also think latest with next guidance the picture needs to change.
Does the analyst check montly OGA numbers after release?
Guess 80k Oct will be big surpise for many, specially those with 63k assumption
CapEx investment to maintain current production.
Just for clarity I want to add that in addition to CapEx to maintain current production I also include a level of CapEx to maintain existing 2p resource. If 'FCF' is generated by running resources down to zero then it isn't FCF in my book. Like Moody's I like to see a maintenance of resource around 10 times yearly production.
I agree HMH.. I only mention $33/mth FCF as it proves the bond can be repaid in full by Oct 2023 if JS extends the runway..
I agree the impression I got was 0% of paying in full, but like most Shalers, companies are coming up to renewal next year and assuming the banks with rollover into a fresh one.. it might be quite brutal for equity when they can't be fully rolled over. If Enquest can show it doesn't need the money, the renewal APR will be lower than today, saving us interest that adds to the bottom line..
From poster on the investing,com website.
"Zero US producer equity issues in Q4/19 + surplus DUCs soon depleted +declining US oil rig = US oil plateau in H1/20. The major theme of our recent Oct 7, 2019 webcast SAF Group 2020 Energy Market Outlook [LINK] was the math says Permian growth forecasts have to be lowered and lowered significantly. We just believed (and still believe) that every input into the equation to calculate oil growth are worse than a year or even six months ago. And if all the inputs are lower, then the answer to the equation has to be a lot lower, not just a little bit lower. Our webcast highlighted the key inputs of increasing Permian decline rates, decreasing capital for Permian and all US producers, US oil rigs still going lower, Permian well productivity down in 2019 and DUCs likely being overstated. In the past two months, we have seen a number of the major US sellside firms dramatically lower their US oil growth forecasts for 2020."
I was looking at a version of your excel spreadsheet. 81k production with $65 from Jan 2020. It says FCF $85m/mth.. are you still ok with these numbers or have your revised the FCF/mth following CMD.
MarketScreener presents an interesting and detailed picture of Enquest's financials and broker forecasts, but I'm wary of two aspects: the transition from 2019e to 2020e, and the definition of FCF.
The transition from 2019e to 2020e - I believe the general consensus of this board is that FCF will increase (or net debt reduction will accelerate) next year. The MarketScreener data suggests the opposite. Why? I don't know if anyone has a snapshot of the earlier estimates but I'm guessing that this apparent 'divergence' of opinion is due to the 2019e being updated positively following the recent trading update while the 2020e and 2021e still reflect old forecasts. Hence the delta between the 2019e and 2020e numbers has reduced, and does not reflect broker consensus. At least that's my hope - see below.
Definition of FCF - in my book FCF is the cash left over to pay down debt, invest in growth and return to shareholders. The MarketScreener data shows a significant difference between FCF and reduction in debt. While things may be different through a large investment cycle like Kraken a few years back, I see the current phase of Enquest's investment cycle as being essentially flat, with the focus on deleverage while maintaining production through CapEx levels of $150m - $200m p.a. That isn't to say that I don't anticipate production growth in 2020, I do, but that growth is due to operational improvements primarily in Kraken and Magnus out weighing field declines elsewhere, rather than the result of CapEx.
* It's my expectation that FCF will increase in 2020 primarily due to a significant reduction in CapEx. But a comment in the Q&A section of the CMD presentation caught my attention. The Barclays analyst talking about FCF seemed to say, 'very strong this year (2019) but I think it's light again next year'. If this is his assessment then I look forward to Enquest guidance on production and EBITDA at the Feb update.
Hi Pelle,
The analysts are still clueless. Next year reduced opex will go straight into the net result, bumping our EBITDA and earnings by $100-150m. This combined with higher production will have us well above $450m creating a p/e sub 1.
Regarding production numbers going forward, we need to remember that Eagle tieback will likely offset all natural decline in 2021, and that Armada Kraken is designed to produce upward of 80kbopd. Maureen sands may prove profitable.
Hitman:
I put a 0% chance of Enquest even considering paying off the bond on maturity. The debt will be rolled over fully or partly. $265m cash and a $700m bank loan payable over 5 years is reasonable. That leaves us with a maximum of ~$750m of debt due in the comming 3 years and 9 months.
At $50m FCF/m we've got $2.25bn distributable minus $750m leaves us with $1.5bn to throw at dividends/investments over the period, and there's alot of upside in both production and POO.
Now we wait.
Best, HMH
Hi Hitman
50 mill negative capital movement also this year.
My file says 575 mill at 72,5k average and 63 oil.
To hit 75k average I think we need 80k+ in start of the year.
Therapist and L7 calculations on Oct production indicates we there.
If Mark is right about the inflection point in 6 mths time , or perhaps later if the other analyst says is more likely, then we should see Brent $70 plus in 2020, whereas I think some analysts have it in the low $60s. This business should repair itself over the next 12 mths , and the SP should rise . But we really need 75k average in 2020.
I certainly have the expectation of higher production next year , say average 75k , take marketscreen 2019 of $338m FCF, add $20m interest savings, add $80m lower capex , add $100m extra revenue, assuming Brent average same , gets us 2020 FCF target of $533m , deleveraging $44m /mth , we only need to do an average rate of $33m over next 45 mths ,to be net debt zero , which leaves $11m extra per month in 2020 to repay OZ , and dividends to consider in FY 2021 with the benefit of more FCF due to lower annual interest payments.
Hi GKB,
Yes, production should increase next year, higher average prod at Kraken,Magnus,Malaysia.
And maybe 2021 flat.
Its a bit gamble for us project so 3-5 years, what can they do with 200-250 mill capex/year?
Increase 5-10k? Stay flat ? or declines?
Only Enq knows this, and I think its a big part of the low SP also.
I have noticed several updates last week on 2019 numbers. Now debt and FCF looks more up to date.
So its positive sign, because its been stagnant for basically 9 months.
Lets hope they start look into next two years also.
More SP targets updates like RBC will come over next 3-4 months
https://www.marketscreener.com/ENQUEST-PLC-6098532/financials/