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Glad to see you're looking in from time to time L7. Your posts are always worth reading.
In the ST Oliver Shah has written an interesting piece titled "How do you solve a problem like the FTSE". I know we're not in it but HBR may be within a year but it really is a piece about the FTSE not being fit for purpose. The FTSE 100 PE is 14 v the S&P's 20's. Comments like "London listings were "based on rules designed when we still stored data on floppy discs" whilst Martin Sorrell describes the FTSE 100 as a "museum". The FTSE 100 delivered an 80% total return over past two decades to April whilst the S&P500 delivered tripled investor's returns. Admittedly the FTSE is anchored to more traditional stocks such as banks, drug makers and oil explorers. The FTSE return was wholly from dividends. Share prices fell by 12%. The malaise is chronic. There are still buyers for UK stocks but the ftse abets poor valuations.
It does end on a ray of hope though because inflation looks unavoidable and if that happens you want to own reaol assets, or shares in them - commodities, miners, oils and property.
In another article I read that the world's worst emitter of greenhous gases (28% globally), China, has one coal plant turns 20mio tonnes of coal into 4mio tonnes of oil products; 2.7 mio tonnes of diesel; 1mio tonnes of naptha and 340,000 tonnes of liquid gas. I only mention this because the last time I read of coal being turned into oil was the Nazi's doing it at the end of WW2. It can't be cheap and it is very dirty but indicates to me that any unwanted Western oil will end up in Asia.
I remember feeling smug that HBR had more gas than oil when the gas prices were low. That has changed and I won't be surprised to see something similar happen to oil. There are leads and lags that we're unaware of but the petrol queues prove that oil is a more important and visceral requirement than toilet rolls.
*bad news on the ox-cart food delivery business. I had to close it as there is no demand in Barnet for cold pizza and they all want it within a few hours of ordering. Early-mover advantage didn't play out there. Being green isn't always enough.
romaron,
Subversive? No. Just having a craic. Your game, your rules. Maybe your bolly.
It was tongue in cheek in recognition of the current board commentary on hedging. There’s no doubt the RBL requirements have raised the significance of Enquest’s hedging strategy. I’ve written copious notes to myself on this and worked numbers based around L3’s excellent post on the subject, which I had missed until E121 referred to it. (L3’s post was 31st July 13:19 for anyone that likes to work the numbers).
I don't post much these days because I feel up to speed on my current investments and to be honest not much changes between reports. I appreciate this forum has a variety of attractions, but for me it is about the investment. I appreciate the excellent posts that informed my investment in ENQ and still look in for the excellent research that pops up occasionally. Good to see so many of those early posters still here.
If I get a chance on this busy day of sport, I might edit my notes and post an example or two. I found the pricing exercise around swaps, puts and collars very revealing!
* I’ve lived in many parts of the UK, even circling GB in a sailing boat, calling in a c40 ports along the way. Each part has its own attractions and I’m currently enjoying Scotland’s. But for lockdown I’d be enjoying this coming winter in New Zealand.
Best, Londoner7.
Welcome back L7 (10.22). I suspect you're being a wee bit subversive (too long in Scotland imo) and whilst the rules of the game weren't legally binding the organiser's decision is final and that is me at my dictatorial best. I'll just see what google says in early 2022. The competition did utilise the specialist skills that are required when picking a raffle ticket or playing bingo but it is interesting to note just how competitive many of you are. Hope all is well with you. You've been away some time.
Currently I'm in a mess with all of this. Just who is running the world?
Not mentioning GE, production back above 60Kpd and No analysis om FCF 2022 being above current MCap. And off course the Tax credits! I think that article is rubbish!! Just ignore it and have a look at Tarmaks spread sheets instead LOL :)
https://www.fool.co.uk/investing/2021/09/20/will-the-enquest-share-price-explode-in-2022/
Also agrees 2022 could be a very good year if Brent stays healthy , ...no mention of deferred tax in their brief analysis
Should be possible for enq to combine and use some puts, or maybe just wait a bit with completing both ends of the collar.
I think main thing to benefit from "perfect storm" will likely be the operational part. If Magnus improves, Seligi back on track and the king of eagles exceed expectations, then Enq might end up with a lot of crude not covered by hedges long in advance.
With that said I totatally agree it would be nice to keep mpre of the upside even if it costs a few $. The world will soon consume more than 100 billion bopd and inventory can not go down forever. Sure, us and opec+ and others will increase production, but the thing is that it must exceed what humanity ever produced before in order to keep inventory stable.
GLAD
romaron, I'll not going down with a fight for the bolly.
How about using Enquests realised oil price after hedging. After all, that's the price that matters to us!
It will keep until final results in March. ;-)
Hi R - Investing.com's averages are not to dissimilar to Statista's. They have YTD average to August at 67.08 vs Statista's 66.82. For August 21, along Investing had 70.51 vs Statista's 70.75. It was 80 cents lower than Statista for July, It's not dissimilar, but we can see averages on a real-time/day-by-day basis. We could use that as our benchmark and crown the winner on Christmas Eve ;-)
Doh - early morning blues. I meant to write "this link was provided by L3trader a while ago and thanks to him".
Hello P - this link is thanks for L3trader from a while ago.
https://www.barchart.com/futures/quotes/CBM22/options/jun-22?moneyness=allRows
It gives us put option pricing for various strike prices into 2024 and more. For next year, depending on the month (say June and after), put options in the high 60s/low 70s are priced at more than $5/bbl and not in the mid to high 2s. This is why Enquest may be more reluctant to take out Puts on their own. I'm sure if Brent gets into 80s and stays there for a few days, these options at circa 70 will get cheaper, but at current levels, that is a bit too expensive. They'll probably just go with collars and that is a bit sh**ty as oil could take off in 2022 in a perfect storm scenario.
Juan yesterday 22.05. You are still in it. I think we've all seen how arbitrary forecasting Brent is. We've all done better than the 55 participants (experts?) in the Reuters poll at the time who predicted an average of $59.07 on Feb 26 earlier this year.
https://www.reuters.com/article/oil-prices-poll-int/oil-set-for-steady-gains-as-economies-shake-off-pandemic-blues-reuters-poll-idUSKBN2AQ1IG
Here's our list:
L7 64.4
Hitman 66.5
Juan 67
Therapist 71.19
Romaron 72
E121 75.5
Pelle 85
*I'm hoping that there is a reliable average for bet settlement in 2022. Not sure if Reuters will do another survey. I googled "Brent average 2021" and so far it's 66.86 as of August according to statista.com. I assume it's to the end of August.
If it's good enough for google perhaps we can use them?
Hello E,
They need increase hedge around 15m barrels over 2 years horizon. This needs to be completed with GE deal and drawing remaining RBL.
If Enq believed in higher prices end Q3 or Q4 it’s a smart move delay GE completion getting hedge 10 usd higher equal 150m.
Downside is loosing the 40% tax on GE. That loss is 9m per month.
Regarding Enq shareholder friendliness, SP performance is similar or better then peers.
In term of dividend, I think next AGM it will be the time to confirm.
Africa oil started talk about it just a month ago for Q4/Q1 and they debt free within 6 months.
So Enquest just 6-9 months behind to get in desired position
Jan - Average Brent for 2021 so far has been circa 68. I think it will end up nearer Romaron's predicted72 average, rather than yours or mine (74.5), unless Pelle's price jump in Q4 comes around. R will get to keep his bottle of Bollinger.
Hi P - You wrote "With new RBL loan there was rather big requirements hedge 1-2 year and we saw half year report the hedge was not fully there. And they only used half RBL.
So maybe they trying ride the upside in prices before draw remaining RBL , finalise GE deal and put additional hedge. Looks like they getting this right if that’s the case."
Drawing the remainder of the RBL was to happen when they were closing the GE deal. Whenever the deal closes was when the RBL would be drawn. I don't think there is anything more to it than that. I'm sure they're adding in more hedges - it would be good if they just did Puts rather than these collars. Based on the link that L3T has posted a few months ago, the cost for a put option was circa $2.50/bbl for an option that was circa $7 below the spot price a few months into the future - in this case that's close to $70 for say the H2 of 2022. Yes, you're right that it may be between say $13 to $30 mill for a range of 5 to 10 mill barrels. It just protects the downside in the event that OPEC opens taps OR Fed tapers OR Covid becomes a problem OR US production shoots OR Evergrande causes gloabl liquidity issues OR there's a very cold winter that pushes up gas consumption - leading to oil as a substiture OR any other black swan events.
I don't think $100/bbl can happen this year unless there is a supply side black swan event. I'm just not in that camp - it MAY happen sometime into 2022 after OPEC spare capacity whittles down - right now there are just way too many headwinds for oil and can't be the base case for me anyway.
Let's not forget that these current levels are great for Enquest anyway. However, I'm not anymore convinced that AB and co are really shareholder wealth creation focused and that shows up in why Enquest is so very undervalued and left to the vagaries of Brent to keep it up. I've given my thoughts to IR a few months ago and not surprisingly that's never been responded to. Let's see what they really do in the next few months!!!
Europe getting thrashed in the Ryder cup isn't leaving a good taste in my mouth tonight. :-)
Champagne - romaron,
I must be close. Mine was $67 average for 2021.
Or maybe it is as before and ab is completely clueless and the hedging has been determined by the Hedge funds
Hello E,
I think we just in the very start of high energy prices a cycle of 5-10 years. I would bet we see 100 usd brent before end year or at least Q1.
I was to early in my predictions to get Romaron’s champagne bottle for average price but good chance hit my year end price 100.
However I like hedge downside also, probably get a better re-finance and earlier dividend etc.
You say 5-10m barrels at 2-3 usd so bet is 10-30m usd to give 70 usd price minimum ?
With new RBL loan there was rather big requirements hedge 1-2 year and we saw half year report the hedge was not fully there. And they only used half RBL.
So maybe they trying ride the upside in prices before draw remaining RBL , finalise GE deal and put additional hedge. Looks like they getting this right if that’s the case.
I'm sure we can afford to spend a million quid for downside protection. I'd get put options for between 5 and 10 million bbls for 2022 at a 70 strike price and just ride the upside. Can the hedgers at Enquest at least get this right I wonder? The hedge cost per barrel would be between $2 to $3, but is fully worth it.
Given hedging is key to the stability of the firm 12 months ahead as far as Dec 22 we now have Brent at $70
In my mind more significant to Enquest than Brent cash figures as this allows their finance dept to hedge significantly and allowing for a great 2022 well in advance .
Obviously baffled, as many here, as to what is holding us back these days as value creation is obvious here . All very strange to me but remaining long as I have been since April 2020 .