With many, many thanks to the CEO’s from Zephyr Energy, Power Metal Resources, Scirocco Energy and SpectrumX who entertained and informed us at last night’s investor event. To see their video presentations view here.
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OGA MAy now out.
GEAD for first five months at 9467boepd to Enquest but includes very low April which may have been maintenance or plumbing in new well. 9171boepd to Enquest May.
Kraken well up. No time now so more later.
Regarding these production figures.
Think our consensus H1 is 46k excluding GE.
What’s GE H1?
We been told GE 10k
I think we will see H2 improvements Magnus, Malaysia and GE to reach 59k including GE.
Therapist can probably break it down better with the fresh OGA numbers
Would be very nice have 60k+ H2 and start 2022
Moody's expects the acquisition of Golden Eagle to close by the end of the third quarter of this year leading to a full year pro-forma production of 59kboepd.
Yes, now around 50% hedge with max 72 oil if I remember correctly. So realised price today around 73,5.
"I thought my original question was clear - the type of hedge and when it's for."
I do not see how that that information matters. We know it is costless collars know the amount and average min/max price.
I would use Moody’s upgrade figures as the bottom line, Enquest are always very conservative with figures as not to underdeliver.
Let’s see how the market reacts tomorrow
@BJ....whilst us unhealthy Brits use the back of fag ( cigarette) packets !
"future FCF too accurately when it's going to be damn nigh impossible unless you know how much they hedge, at what price, when for and what type of hedge it is? If people want to"
I think what we know now about hedging gives you much better range of FCF.
Not sure what more than average min/max price of hedge you need to know.
ENQ based on fundametals is very cheap so I am not reallly sure at this point you gain much by doing more than an basic estimate. What we in Sweden call servettkalkyl.
Thank you for the historical perspective on hedging.
I am fully in agreement with you. When they announce their results in September they will report their hedging , I would hope. We will see then what volume they have hedged in light of the RBL conditions.
Hi Pelle, What matters for the SP is that Moody's upped its rating. SP targets by others might be upped as well. The good news is that the POO is c. $75/bbl and that as you write ENQ can stop assuming and just guarantee a floor price for its oil at a small cost in order to keep the upside of what acchi wrote, " their fantasy that oil would reach around $90 or $100/bbl". So, they can keep their fantasy alive for a small cost... I leave it to you to cross check Moody's calculations.
Hi Tigar, Enq has to give a lot more info to Moody's than to us to have its rating re-assessed. But, collectively (i.e., pooling together the knowledge shared in this BB we understand ENQ's moving parts calculations from than Moody's. I can guarantee you that. We even have someone watching the EP... ) I have also learned a lot by going through ENQ's annual report. THere are bits and bobs there, helpful to understand the different moving parts of ENQ.
Enjoy your weekend all. I look forward to the OGA data. Anyway, enough of ENQ for me. I am now going to read up on E121's and Modestus's kind suggestions, which i think can be very useful to diversify risk.
What other elements do the include on top of the debt?
730m x 3 = 2,2b
I have net debt end this year around 1b
So roughly 1,2b more they include as leverage
Moody's Adjusted EBITDA of $730 million and a Free Cash Flow of around $400 million in 2021
The cash flow generated will be primarily used to repay drawings under the RBL and to fund the Golden Eagle acquisition, leading to an estimated Moody's-adjusted gross leverage of around 3.0x at year-end 2021.
I agree we will know much more on H1 figures, but doubt Enquest gave Moody's the realised prices of our oil sale's for their update, or our cash position at 30th June. They run a tight ship. Bond payment should be confirmed Monday and Moody's update may give them a boost.
KO - no I am happy to have taken some profit, and if this takes the SP to 30p Monday then I might take some more profit!! Leaving some in to pay for my attendance at the 60p party of course!
My circumstances have changed since I first bought in, and the risk of being all in on one company is no longer tolerable!
ENQ still my largest holding, and happy to keep it for the dividends when they come.
I don’t have much knowledge of hedging and the company must have treasury team to advise
on hedging. Also, hedging cost is there which may have impact on decision relating to production hedging.
However, management need to realize that this is best oil price range ($70-$80) to hedge the production, they should hedge at least 30%-50% production for 2022 and 20%-30% production for 2023 in this price range subject to hedging cost involved.
In the past, company suffered badly due to their fantasy that oil would reach around $90 or $100/bbl as it was in 2012 and before. Even in Sep 2018 when oil price was around $87 for short time, and they did hedge small amount and repeated the same mistakes in later years and didn’t try to learn from past mistakes.
Only in April 2015, they made right decision at right time when they hedged 80% production for 2016 as heavy capex was involved in 2016 after that hedging strategy was not up to mark.
I am with Therapist. 49228 boepd 2021 including GE in Q4. Moody's will be wrong. We will get OGA data for May tomorrow AM or Monday.
Tigar, I like your numbers. But, there are several interpretations on how they did their calculations, e.g., did they take the realized price of hedged production rather than $55/bbl for the hedged barrels? i assume the answer is yes . Let us wait for H1 figures to get an idea of where ENQ is.
Pelle, thank you. my Swedish is getting better every month...
BTW, Petronordic carrying load #98 left AK in the early hours of the morning...
Look on the bright side -
Moody's have upgraded Enquest using low production numbers of 49 kboepd plus Golden Eagle and with Brent averaging $55.
Enquest are likely to produce more and Brent is likely to exceed $55.
If they update on mediocre expectations then in reality actual prospects are even better.
L3 you wrote so, FCF of $400+$40-$36.5 (as the other half was paid in kind in Feb and April) = $396.5M full year. Note they use hedges in place, only use $55/bbl for the 4MMbbls not hedged for 2021. So, difference would not be more than another $60M. So, adjusting for that the figure would be $460M...
But surly they are assuming $55 oil. Our hedges have collars on them that allow for oil to be sold above that $55 and the non hedged oil can be sold at current spot price above $55 if oil sold for $55 then your assumption that -$36.5m would not take place as the next bond payment would be deferred also, so FCF would be at $55 oil $496.5m so if oil is $65 and our hedge collars are $65 then we get another $180m - £36.6m FCF to add to Moodys $496.5m
Maybe Moody's have some info on the riser fix in Malaysia. Ie extra production in Q4 2021
L3 says Moodys are wrong. I guess they at least have access to the same data we have but probably more. If I add in GE at 10k for Q4 I am 49228 boepd 2021. So they are wrong or they know something we don't. Magnus maybe?
Also does their $55 Brent outside of hedging take account of any Kraken or Malysian premium on the unhedged production.
They're probably smarter than me but I have a fertile imagination.
By the way I have asked the CEO of Orcadian for more info on the Kraken premium he mentioned in their presentation. Nothing yet. Probably advised to keep shtum.
L3, In Sweden we would call H2 “ plattan i mattan”
Others can add more on hedging. The RBL has rules for hedging, so roughly speaking the strike price of the put has to be no less than 90% of the futures price, as I wrote earlier. As I wrote I would be keen on having 2/3 of net entitlement (i.e., subtracting BP's 37.5% stake in Magnus, and 1/3 of the Malaysia production) in 2021 hedged by the end of August. I have no idea how they are going to layer those hedges. There are lots of strategies.
Hi Tigar, yes, but the fair pricing of options is known under different sets of assumptions. Different assumptions different model. One key input of the models is a measure of volatility... higher volatility implies higher fair price for the option.
Agreed he got one very very wrong and hopefully got another very right. But, I want to know at the end of the year, with hopefully similar production as in 2020 what is the level of debt at that time... We have to remember GE will have 15MMbbls of 2P reserves left at the end of 2021 in the optimistic scenario put forward by the CPR people.
Anyway, Moody's will lift the SP next week, so the day traders can have their day.
Hi Pelle, Yes, I read through Moody's too fast. But they are clearly wrong there is no way ENQ's production w/out GE will average 49Kboepd in 2021. If it is that number or higher then you get to score again ...
Has Londoner7 liquidated his position? He has not even commented on the prospectus...
To me this clearly says excluding GE.
In 2021, Moody's expects EnQuest's production to decline to around 49 kboepd (excluding the production from the Golden Eagle fields), from 59 kboepd in 2020, as several mature assets ceased production
Maybe this was the trigger we needed.
Mrc you kicking yourself ?
With respect it is like that. Hedging companies do it to make a profit. We should have hedged more before the 2020 covid crash with hindsight. But the hedging companies are now lining up to make huge profits from oil without having to use a drill bit. Because they think oil is going higher? It's as you say Insurance. AB failed to call it right last year but was able to use that low oil price to pick up cheap replacement oil for the lost production because of not hedging. They have changed strategy it is plain to see and many think it is right. I am just saying hedging companies do it for the money at the expense of oil companies on average.
Thanks L3. Your knowledge of the options market is clearly far greater than my own. Interesting to hear you say 2/3 or production for 2022. Hypothetically, if today's oil prices were to remain what would you say would be a typical two-way collar that ENQ may be able to hedge at?
Personally, I would be happy to see:
1. 55k production in 2022 (which includes GE, allow for some depletion of current assets but with the view to further acquisitions or developing current fields in 2023)
2. break-even of around $30 (though am expecting lower)
3. realised price of $65, allowing for hedging
This would give around $700M of FCF.... not too shabby for a company with current MCAP of £453m.
that is not quite like that.
Buy put at $65, sell call at $72 (the costs even out), and buy call at $80 (at around $3/bbl), You guarantee $65 - $3 = $62 if Brent is < $65/bbl, will get net of PRICE - $3 up to $72 (when Brent> =$65), $69/bbl for Brent up to $80/bbl, and for Brent> $80 you receive PRICE - $8 -$3 = PRICE - $11.
No hindsight is required... Yes, it is not free, but insurance always has a cost... So, the question is are you comfortble spending $3M now to hedge 1MMbbls of October 2022 production, and stop part of the assuming as Pelle writes, or find yourself selling those barrels at a price of $50/bbl if oil price tanks to that level.
I would be more than happy to hedge 2/3 of October 22 production in this way. But, we do not take such decisions.. AB&CFO do.
And they should read Moody's report with attention:
"Despite the company's adequate liquidity over the next 12-18 months, Moody's notes that the company will face a maturity wall in October 2023 when the existing bonds come due."
They can knock down the top of the wall now by hedging more of the 2022 production...
Have a look at the futures curve:
It is in "steep" backwardation. E.g., difference b/w Oct 21 and Oct 22 contract is about $6/bbl.
So Oct 22 futures contract at $68.91.
RBL requires the put to be not 10% below this (well, it is a bit more intricate than this, but I will simplify). So, buy a put for Oct 22 w/ a strike price of $65, it would be c. $6.
(use daily not intradaly, and check Column "Last")
So, not cheap, if you buy a put with a strike price of $62 it would cost c. $5.15. You do not save much by lowering your call by $3/bbl. All down to the mechanics of how options are priced.
That is why they go for two-way collars... by sellng a call at a higher price. You can see the price at which they are trading as well. Basically, a call with a strike price of $72 trades c. $6/bbl.