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Covid is not flu, but containment does work. That seems to be the summary here.
https://www.cnbc.com/2020/03/03/who-says-coronavirus-death-rate-is-3point4percent-globally-higher-than-previously-thought.html?__source=twitter%7Cmain
According to fxempire they are expecting a 3.3mil increase in stock but decreases in refined products.
If we get a build tonight then we could be in for a bit of pain tomorrow. Oil prices probably wont recover until H2 to be frankly honest even with Opec cutting 1m barrels, but that will certainly pressure Shale tipping some over the edge.
From 4.00pm Brent lost $ 1.5 and our share price barely flinched.
A good sign for Enquest.
Agree L7,
50 usd 1-2 years, we will reduce debt but also probably burn through peak production years and reserves and SP hoovers around these levels.
60+ usd and we will add a lot value.
Johan Svedrup is the new giant field in Norway and I think peak is 500k production.
That’s what I heard one of the last big field,
production started last autumn if I remember correct.
If US production flats or declines it’s game changer and oil prices must go up a lot sooner or later in my opinion if demand continue grow.
I also heard positive news from China production today that things start to return to normal and government encourages people live as normal.
Hi romaron, I think $40 is possible but very unlikely to continue for several years, again for the reasons given.
I consider the scenario academic because the sector is in a very different place today compared to where it was 2015/16. Significant CapEx had been pumped into the sector on the basis of $100 oil. A couple of those largest investments have only just come on-line (big one in Norway, name escapes me). You understand the impact of the pullback in CapEx since 2015 as well as I do.
Shale oil and gas was the new game in town with significant investment following. The new thinking by the investment community WRT shale is well known here.
At the time OPEC thought they could smash the US shalers by holding up their own production. OPEC plays that game differently today.
It's a different world. Of course we can't account for Black Swan events, but we can diversify our investments.
Last years debt slide showed a $439m repayment due in 2021 - the PIK has increased since then but not significantly. (I'm guessing your $360m excludes the PIK). Also, if oil settled in the $50 range there would be negative 2nd order impacts on Enquest production - marginal fields like A/G would be closed sooner.
Just to be clear I feel more comfortable holding ENQ today at 21p than I did when I bought in at a similar price last May. But I wouldn't be comfortable with my investment if I anticipated $50 oil for several years, never mind $40.
under bellicose nations I think you have to include India too.
Hi L7 - It's not impossible for oil to reach $40 and it was below this level for about a year 2015/16 touching $30. We survived that and we were weaker then. I threw in the 2 years because it was the best way of getting you numbers guys to respond. It was more to get an idea of where we could tread water and for how long. I just did 70,000 bopd at $40 and thought that'll do. We've a final payment of the RCF ($360m) end Sept 2021 and the RB/HYN in 3 years. We have opex at $20 so it's how we handle capex and RCF debt. More to the point we aren't threatened at the current level but things change.
Whether it's academic or not I can see oil at $40. Unlikely, but you should model in all eventualities. If Covid-19 becomes a pandemic then you cannot forecast all the consequences. When trade is threatened barriers go up but in a global context it isn't usually wise to increase your prices (OPEC) when demand is cratering or a good move politically. I don't think OPEC's hand is as strong because in a global meltdown we'd quickly move to coal to counter other energy shortages or high prices. Needs must and a pandemic is as serious as a war. I'm not fearmongering but expediency always rules and emergency measures (martial law) are slipped in. Throw in the inevitable wars that would be a by-product of a serious pandemic and there will be volatilty the like of which none of us have seen. The world economies are preparing to drop interest rates even lower and I'm not sure how much influence OPEC will have in controlling the price of oil. That's now.
Against this there could be opportunist incursions by bellicose nations (China, US, Russia) and closing of pinch points throughout the world which will likely raise the price of oil and would benefit the NS and shale.
I've just talked myself in accepting that in the worst scenario the thing to be long of is oil!
romaron, you say, "I believe we can survive at $40 for several years "
I think the point is academic for the reasons e121 outlined, but I think any suggestion that $40 oil for several years is acceptable to ENQ equity holders is false. Their investments would be crushed. If the 'we' you refer to is bond holders and Enquest's listing then I'd agree with you. There would be several rights issues along the way.
But as I say, I think the point is academic.
e121, points to a FCF positive level @ $50. I'd be slightly up from that with a range $50-$55 for a FCF neutral point, i.e. paying off interest and maintaining current CapEx, but no repayment of principle.
Which begs the question, how is Q1 looking?
Average Brent price for the 1st two months is $59. We have the best part of 50% of oil production in Q1 hedged at a $65 floor. If oil averages between $50 - $55 through March we should see an average realised price for Q1 of approx. $60. (I haven't added anything for a Kraken premium, but I'm in the couple of bucks range which I believe is at odds with others here - time will tell).
I see $60 for Q1 as a decent outcome considering the current situation.
Discussion of the OPEC+ talks is about any short term boost to oil prices - obviously a key consideration for traders. But the primary focus of these talks is to get the oil supply into balance with demand. If OPEC+ can achieve that then they'll be looking to better pricing in H2 and through 2020. Besides, I'd guess OPEC+ don't want to offer the shalers any short term hedging opportunities. After all that's the basic operating model in the sector - hedge future production then drill. At least that's how they'd like it to be.
Morning Hitman,
It does look like the market is now baking in a mill bbls/day cut. I'm hopeful just as long as the CV news doesn't get worse.
https://uk.reuters.com/article/uk-oil-opec-lukoil/opecs-oil-cut-proposal-enough-to-push-prices-back-to-60-bbl-russias-lukoil-idUKKBN20Q0YW?il=0
Hi E121, For political reasons I expect the gap to WTI $55 to be filled very quickly by some instructions from the White House. Definitely a case of keeping production as high as possible, but current prices of WTI $47.50 are too low to enable the policy to continue.
There is an under the table deal where banks lend and don't ask questions. The US state doesnt owe equity holders anything. They should be furious with chasing production for no return, but the Directors who run these companies are more than happy with their salaries and long life overdraft facilities that appear they can always just renew.
I'd love to see those kind of moves this week, Hitman. But, IMO, that's not going to happen till there's more visibility on the demand side (i.e. the CV headlines moderate and China demand comes back with the factories coming back online). There's now a million bbls/day OPEC+ cut factored in and that can't really be a market mover in the near-term, IMO. I'd love to be pleasantly surprised though and we'd all love to see Brent move up even more from these levels. We're well hedged for Q1 and even if Brent hangs around the mid-50s till the end of the month and forces the shale sector's hand to cut capex, that's a very good outcome for us.
I'm convinced that should shalers grow a pair and announce capex cuts, their stock prices will move up. However, they probably don't know what it feels like to have even one, let alone a pair.
Expecting Brent back to $55 pre Opec Meeting, $58 by Friday. Some sort of central bank conference call in Paris tomorrow should help sentiment, .. Sp should get back to 23p/24p this week if Opec release enough detail for people to believe $65 is the target in 2H . I'm still thinking US production will remain flat in 1H 2020 due to lower cashflow which helps support prices later in the year once the data is released.
Romaron - $40 for many years is not a scenario that'll happen - US production will fall below 10 mmbbls/day at that price point and yes, half of shale will be dead and shortages will follow, pushing up oil prices. Dow's just had the all-time biggest point move up for circa 1,300 points (5.1 % up). It's a good technical sign, but I'm not convinced it's all-clear for the market. Certainly airlines struggled and oil stocks didn't fare as well as the index did, and that's pointing to CV fears still lingering in the market. I agree that we're in a good shape vis-a-vis other NS producers and we can still throw off FCF at $50 Brent. However, we'd all love to see some leveling off in the CV cases and that'll be trigger for higher Brent and oil shares.
This CV has changed things regarding our projections. Nobody has any idea how long it will last but we can make estimates of how long EnQuest can last at certain oil prices factoring in loan repayments. I cannot see the SVT dispute being a threat at this time or BP pulling out. The whole concept of being antifragile is to be able to survive during these social and economic upheavals. I'm not a scaremongerer or am I frightened because I think the exercise will calm down the more excitable among us. We are one of the more strongly positioned mid-sized oil companies able to ride out this storm and it isn't going to last years. I think it will be 3 months but the economic impact maybe 6 months. To get back on track we'll need $65 at least but forget that for the moment. I believe we can survive at $40 for several years and I doubt it will reach that level or last that long because by then shale would have folded up their tents and Putin would be an enthusiastic cutter of production. This CV will change the NS completely if it goes on for long. It possibly already has. If that happens we will be winners. Others will cease trading.
“Only Thing We Have to Fear Is Fear Itself” FDR 1932
AB might be super lucky if he's currently buying another Magnus.
Imagine if the virus had struck in 2016? EnQuest certainly wouldn't have been here. Our projects have low capex and relatively short lives. Ideal in the current scenario. How the hell Kraken missed so many bullets I'll never know. It may well be one of the last major new fields in the NS. What did Napoleon say about AB? “I know he's a good general, but is he lucky?”
The author of Black Swan also wrote a not so famous book titled Antifragile. The concept is that certain jobs, products, and industries are survivors and not so brittle. They are flexible enough to withstand the battering that markets take from time to time. I'm relatively relaxed by the performance of EnQuest in this time of turmoil. Oil is a fungible essential product and will be for decades or even generations to come, it is antifragile. Forgetting CV it is all about transition and you can toss a coin whether it will be fast or slow. I think slow but others will disagree. There will be no straight jump to EV for example as there was from land lines (hardly any in Africa for example) to mobiles. The shale phenomena is due to an aversion towards long cycle developments that may be stranded if there is a fast transition. I believe that shale developers anticipate a much higher oil price in the future and a confused transition is part of this. Conventional oil is deemed rigid and inflexible. EnQuest is well positioned imo and has done well against its peers.
On 14/11 I posted this " Buy EnQuest sell Tullow makes sense to me" Price then EnQ 18.39 TLW 147.25
on 7/1 "Here's an arbitrage. BUY EnQuest, SELL PMO." Price then ENQ 22.78 PMO 117.75
I'm not bragging (I leave that to others currently taking credit for anticipating the virus) and would certainly not have dreamed of posting such negativity on either PMO or TLW boards. I think they help illustrate the performance of EnQuest. My negative views on PMO and TLW are well known and I don't short but do avoid. I think it does show how well EnQuest has done in what has been a difficult market for oil. Trends do change and fundamentals win in the end.
Build it and they will come. The sun doesn't shine every day.