The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
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Fauci vaccine by year end.
https://uk.reuters.com/article/uk-health-coronavirus-fauci/fauci-bullish-on-prospects-for-u-s-vaccine-not-worried-about-china-winning-race-idUKKCN24G30E
A Florida holiday will sort out the testing!
The news is that it looks like AstraZeneca have cleared stage 1 but are having problems with stage 2 because of the lack of the virus in the UK - it relies on some of their candidates coming into contact with the virus.
Moderna have cleared 1 and are doing 2 then they are going for stage 3 at the end of the month - they have already started manufacturing their vaccine.
Bring on the Horseshoe Crabs!
Agreed E121,
With regard to Covid19 I am expecting to hear a confirmed breakthrough on the immunization front by the end of the summer.
Although mass immunization would come some time after this. A confirmed cure would "push" the markets along nicely.
Past events have not gone our way in helping to boost oil prices. Eventually the tide must turn for POO !
I still see demand being greater than supply in 2021. The question for me is how big will the gap be ?
Chilting - my base case is that we'll have a vaccine in 2020 - Astrazeneca/Oxford are in a sweet spot there, followed by the much hyped Moderna. Pfizer isn't too far behind with their vaccine projected to be ready in early 2021. I hear what you're saying though, but my bullish thesis rests on a vaccine, which is nearly there..
I certainly agree that 2021 should be better but it will be event led.
We simply don't know how long the Covid-19 crisis will last and how much economic damage it will continue to inflict.
Until we know the answer to those questions everything else is speculation.
On the plus side we know that Enquest can keep its head above water with Brent at these levels for as long as it takes but I fear that the SP will continue to only make rather dreary progress right into 2021.
Hitman - if Biden is elected president in November, I can see Brent doing a whole lot better in 2021. If he wins, it's pretty much a given that the Dems will also win the senate and we just need to keep in mind all the new fiscal stimulus (Infrastrcuture + the $700 bill 'Buy American' that was announced last week) that'll also kick and oh, not to forget the oil sector regulations that'll kick in. Production will be constrained just as demand goes up, and oil will average in the 60s next year, IMO. The price risk is squarely to the upside in 2021.
Enquest will do well next year with FCF, just as long as they don't do any panic hedging for 2021.
Hi hitman1a, I take some interest in oil sector commentary, but I don’t attempt to translate that into an oil price forecast for the same reason I don’t day trade stocks – I’m not very good at it.
Better informed people than me are currently forecasting $43 average Brent to the end 2020, and averages of $48 and $53 for 2021 and 2022, respectively.
I’ll work with that until next month’s forecast, which I predict will be a near term price close to that day's price, with a glide path to a higher price.
Thanks for the clarity on the numbers L7 and Pelle. just wondering if you felt the Brent price was now pegged to the Opec basket.. ie movements up in Brent happen once the Saudi OSP has been set. I think Saudi plan to raise it $1/month for the next 18 mths , ie over the term of the tapered cuts into Q4 2021. so $60 in late 2021/ early 2022 might the penciled in destination point.
Probably a bit disapointed with a 18p target a year and a half away. But if we get $5 more than the numbers used in the calcs, perhaps we can see 20p/22p in Q4 2021. $10 extra ie $57 in 2021 gets us a proper rerate.. Let's see what OPEC+ can do to get us at least another $5 for 2H 2020. Target $48
Thanks Hitman.
But what happened with AB?
Wife put chains on him to not buy more shares?
Think JS was asked the question and replied the decom works were to be carried out over several years, and they anticipated an annual spend of $25m/$30m .
Thanks L7,
Using my file and assumptions with cost down through the year.
And 55k H2 current oil price I get approx 115 mill FCF H2 + 35 mill PIK so total 150 then.
2021 55k at 47,5 oil I get 235 mill + 70 mill PIK.
So over 1,5 year total 450 mill cashflow and 100 is PIK then so debt reduction 350.
I would assume somewhere halfway if things continue progress they can borrow 200 mill at better terms and take out the RCF.
What about the decommissioning cost next years. Where can it be found or estimated?
The last three pages, marked page 166 - .
Glossary – Non-GAAP measures
Hello L7,
Your right with the lower cash on hand and I used it my sheet as a note before.
What page you say refer to at back page?
I am in the 170 page report now
Hi Pelle, be careful of relying on the $288m of cash and available facilities reported end 2019. Only $144m was available cash, but still useful if a few 10s millions needs to be found at short notice.
Check out the back pages of the annual report - it has some useful and easy to reference numbers.
The FT article only had an excerpt from the Jefferies note - we know at least 3 graphs were missing (exhibits 3-5) - it didn't mention decom. The broker note might have.
Hello L7,
There is almost 300 mill cash on hand as safety also.
Anyone estimated decommissioning cost next 3 years?
Did Jefferies say anything about it?
oopps, I'd forgotten about those $31 swaps which I previously estimated as a c$24m loss at a Brent price of $41. And there were heavy hints that The Dons (2-3Kbopd net) may soon be for the chop. Offset by c$5m on the Oz $52 hedges.
Significant but probably not game changers.
Maxandmonty, thanks for the heads up.
Hitman1a, I too wondered about Jefferies workings, but I now think they are simply approaching it from a different direction, perhaps because they want to apply the same format across their sector coverage. (I was particularly intrigued by their attempt to squeeze the vastly different activities into a single metric by assigning different multiples - I also have an interest in CNE. I thought it was a worthy effort.) But I wonder if you are confusing EBITDA with Enquest’s definition of FCF – hugely different metrics.
‘Free cash flow: net change in cash and cash equivalents less net (repayments)/proceeds from loan facilities. $/Boe based on working interest production’ This definition excludes PIK. I’m going to include it.
2021 PIK = 1.07*$68m = $72.8m. At 55Kboepd equates to $3.6 boe.
Add this to $27 boe guidance = $30.6. Jefferies has $31.2 for all in costs.
I interpret the ‘sales discount to Brent’ as Jefferies way of capturing the Gas/Oil mix. For ENQ they have $4.3 boe. In the 2019 AR the crude oil price is $64.2 and the blended price $59.2 (excluding hedging), a difference of $5 boe. In 2019 gas sales accounted for 14% of total boe sales. This is almost entirely down to Magnus and in large part to the resale of used gas purchased for injection, which reduces this year and next as contracts expire. I think the Jefferies number is ‘ballpark’ but probably on the high side.
However, this nags at me. Like most here I’ve equated ENQ breakeven points to the price of Brent. Perhaps a more conservative assumption is the achieved blended price. I’ve decided to take this approach and added $3 (Brent discount) to breakeven guidance (and PIK) for $39.1 (2020), $31.1 (2020H2) and $33.6 (2021). Perhaps the interims will lead me to revise these down.
Warning – some dodgy assumptions coming up.
Jefferies has 2021 EBITDA $410m and a 3.5 EV multiple equating to 18p. I’m assuming this is an end 2021 metric. Therefore, EV = $1,435m = Mkt Cap ((18/13.6)*(£230m*1.25)) + Net Debt
Net Debt = $1,435m - $380m = $1,055m. A debt reduction over two years of 1,413-1,055= $358m.
Using Jefferies $4.3 discount to Brent, FCF (net debt reduction):
In 2020H2, 54Kboepd * ($43-$32.4 * 182 = $104m. Minus H1 PIK = $70m.
In 2021, 55Kboepd * ($47.5-$34.9) * 365 = $253m. Total = $323m. (Note the $358m above).
My assumptions:
I’m using the current $43 oil price as 2020H2 Brent average
2020, I expect 66Kboepd for H1, guidance of 60Kboepd for full year points to 54Kboepd for H2.
2021, I knocked 5Kboepd for field declines against a better Magnus number, resulting in 55Kboepd.
Using my $3 Brent discount, I get:
In 2020H2, 54Kboepd * ($43-$31.1 * 182 = $117m. Minus H1 PIK = $83m.
In 2021, 55Kboepd * ($47.5-$33.6) * 365 = £279m. Total = $362.
Bottom line, add in the c$104 extra cash saved by PIK to Oct 2021 and the RCF* $476m call is effectively met.
In many ways , my numbers for Enquest are similar to the AKER BP numbers Jefferies has on the table, which is also a buy,
Aker BP: Costs $26.3, sales discount $3.2 and net cashback $18/barrel. : Total $47.5: but it has a multiple of 4.5
Hi Pelle
Just googled FT Enquest and got the info from there.. no direct link to J.
I do have an issue with some of the Jefferies numbers ie FCF of $410m for 2021.. based on 62k /year.. implies $18 FCF/barrel.. Add that to the $27 costs Enquest mentioned, add $2.5 for sales discount and you generate $47.5 Brent.. But add $18 to Jefferies higher numbers of $31.2 (all costs) and $4.3 (discount) and you need $53.5 so I think Jefferies quoted FCF figure might have come directly from Enquest.. and Jefferies might have got the numbers wrong on their summary. As you say, it's hard to get $410m FCF on net cashback of just $12.
Alright Hitman,
if it’s leaning, it might be the monument of Neil.
Anyway, do you have a link to Jefferies?
Not the one with surname E:-)
Jefferies using cash costs of $31.2, sales discount to Brent of $4.3 and net cash to company of $12 , if Brent $47.5 in 2021. Enquest using cash breakeven of $27 for 2021.. so there is a difference of $4.2 to investigate/discuss.
I think our Kraken premium on Brent helps offset the discount on Magnus.. so Jefferies overall sales discount to Brent estimate of $4.3 might be too high by $1/$2.. I expect Brent to be higher in 2021 leading into the supercycle in 2022.. but accept we might have 1b excess in the market to drain. Might be 800m barrels, but even so.. Jefferies are implying we need another 18m to use the excess. fair enough.
Enq will probably beat the Jefferies estimated FCF and EBITDA over 2021.. The estimate of 2021 Brent $47.5 appears too low, but I'll accept it for now.. I want it to be higher but he has the right to amend later on. Analyst seems alright.. I remember he attended the 2018 AGM and wondered why Kraken was leaning into the water more on one end than the other. He though it might be a problem and the BOD assured us all the FPSO was fine.. The BOD thought he was making a joke.. but he wasn't. Pretty sure he wouldn't write positive news on Enquest if he didn't have to .. in this case the numbers could be quite impressive if Brent averages $55 in 2021.
47,5 my ass! Next summer world will scream for more oil.
12 net back? What happened to 27 breakeven next year?
hitman - a good summary thank you as I hadn't yet looked at the analysis.
I appreciate there will be a number of other factors which will influence Jefferies' target price but based on the points you make a target price of 17p for ENQ and 68p for PMO feels very disproportionate - either we're too low or they're too high. Would you agree?