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e121 - Based on discussion here I wrote detailed note to myself of what might be the terms of the Oz loan and if correct it points to a cash flow management benefit that accrues to Enquest. A main element is that I think the DC4 CapEx DOES impact the 15% ring-fence cash flows. We may never learn the facts but I look forward to L3's workings on his $5-$10m repayment forecast.
L3 - I'd think that DC4 capex shouldn't impact on the 15% ring-fence cash flows that go towards OZ debt reduction. I'm not privy to the actual OZ loan agreement and what the T&Cs are though, but I'd think not.
What spooked the market a bit last week was the large products build in the EIA report. Basically, all API did yesterday was to adjust to the build in the EIA report last week (normal service resumed there..). This is why I'd wager today's EIA report will show a middle of the road draw for crude (between 5 and 10 mmbbls) and a lower build (than API last night of 4 mmbbls) /small draw for products.
TLW - interesting indeed. They've reduced a grand amount of $134 mill net debt from H1 2018 and H1 2019, and they have a 6 times larger market cap than us with a much higher debt? Lol - ENQ has reduced debt more than they have in the last 12 months. We're still perceived as risky by the market, unfairly. Hedging wise, Tullow 's is mostly collars and based on how they're structured, their price realisation is very much down to spot Brent prices and hence they Brent to go higher to get meaningful FCF. ENQ's hedges are a lot better as the floor price is much higher for H2.
Hi londoner7,
I have not forgotten what you asked, but my calculations are on a notepad I do not have at the moment with me. Basically, the DC4 Capex made it harder to repay much in H1. I will post the calculations later.
EIA draw for today is expected around 4Mbbls, but I expect the draw to be larger (note that Osaka/Kakenoil!).
There are a lot of rumors about shale at the moment. Just came across one that says that there are fewer DUCs than reported in the stats, which were in fact completed. That would mean productivity of shale wells is lower than assumed. Not sure if this is true. Companies could be sued by investors! On the other hand apparently there is some leeway on reporting completed wells within some time frame. If it turns out this rumor is indeed the reality, this would prop up the POO.
Did you see Tullow's results? Pretty poor. They cannot reduce net debt. Their hedging also not good. I wonder what kind of people these companies employ to do these jobs!
Hola E,
Winter is very relative, arrived yday in Porto Seguro and warm enough here.
Waking up today and looking at SP it seems like I need adapt to rice and beans:-)
FCF, will be much more interesting next year and if I remember correct we got guidance for capex and prod already in October last year for this year.
I see a potential for a big plus of FCF on top of the current schedule amortisation.
So it’s first time in many years there opens some more options.
About US, let’s hope for this stagnation and no more Trump.
Not much talk about the trade deal lately.... yday I read some article about new technology stock market open in China and at first trading day average rise of the shares was 140% and they talked about p/e numbers of 100-200.
I prefer my investment here even if both sector and Enq is disliked at moment there is a bottom and we must be close to it at these levels.
In few years things can look opposite.
Good luck all
L3, before we leave it I am interested to see the workings that get you to a $5-$10m repayment on the Oz loan in H1.
Following the earlier comments from e121 and you I think I now have an insight into a repayment structure that might apply, so I'm interested to know if your numbers fit.
L3 - We have covered this so many times in the past and to be honest I don’t know why you keep on dragging this up over and over. Maybe Osaka is correct in what he said about your round the houses deramping. I have never read one of your post that is borderline ramp/positive.
Strange if you hold a long position like the rest of us here.
L3 = AndyP
L3 You've been exposed and everyone can see through you. So do yourself a favour and stop wasting your time with these long war and peace type convoluted posts pretending to seek answers to questions you have answers to. A cynic would say you do it to dredge up the potential negatives to raise doubts in people's minds (including potential investors)
Why aren't you asking IR or better still attending the AGM? It's a rhetorical question. I've already given the answer above.
Hi E121,
As you know the data on shale production is all over the place, with some sources talking about major increases projected until the end of 2019. The weekly adjustment is also all over the place changing from a large positive value one week to a large negative value the following week. The people doing that job defend their work that in percentage terms is no larger than in the past. The problem is that since US production is now much higher the same adjustment in percentage terms represents a higher percentage of worldwide production. This is the new reality. What the market needs to see is a continued decrease of shale production. All it sees now is a decrease in the rate of growth. But we need negative growth! And the sooner the better!
OZ loan: I wrote to londoner7 about it as i believe he had mentioned the interest rate of that loan in a previous post. What I knew about the loan was the same londoner7 wrote about it which was in the RI file. But, in fact the idea that the cash sweep is monthly must not be what is going on, because it is clear that there was no cash sweep until the end of 2019. Since the loan was made in October, monthly cash sweeps would have led to a different balance than the one reported at year end, which was principal+interest accumulated since loan was made. where did you get the idea that the focus is on the Oz loan? Who wrote today/last week that it was not been repaid? It will be repaid according to the terms of the loan which have not made public. I trust that what they told you at the AGM is correct, and that they can repay it earlier (W/OUT PENALTIES!). If AK roars then repayment can happen earlier than the bonds mature. BTW the oz loan represents about 9% of net debt, but its share of the interest bill is higher because the interest paid on the loan is a few percentage points higher than the interest of the other borrowings. Now, let us give this a rest!!!
I am surprised you have never been to Brazil yet! Their main way of communicating is not English, but football!
Hi londoner7.
The October RCF hurdle is no hurdle at all. I suspect that the 2019H1 report will say it is in the bag. Since you are one of the best experts this bb, and in case you have the time, have a look at how EIA's adjustment is computed... You will find it quite uninspiring. Thinking that the market reacts so strongly so what in reality is a bit of a guess makes me wonder...
Hi chilting, We await good news from you!
Osaka-san/ Krakenoil, since your writing is very similar my advice to you is to give it a rest on the ramping labeling of people and instead do some analysis so that we can learn from you. Let me say it aloud and clear. I have never ever shorted ENQ or any other oil company! As far as the other option, that only the most idiotic investor would not state facts when the sp is moving up, my answer is that if my posts here could move the ENQ's SP, it would be much higher!
May Kraken fill up
Morning Pelle,
Nice. I've never been there, but I'm guessing it must be good weather with their 'winter' in force? I'm not sure if they can repay (or would want to) the OZ loan outside the 15% ring fence. If we generate surplus FCF next year on account of higher Brent, then I believe that surplus should go towards paying down the RCF and getting that covenant connected debt down.
To a point that L3 raised in his post earlier today, Production in the US has stagnated around the 12 mmbbls range this year thus far. Now, we did see a jump in the EIA April actuals to 12.17 mmbbls. We'll keep an eye out for what May actuals brings. But the weekly numbers are showing a stagnation right around the 12 mmbbls mark. The incentive for them to drill becomes lower at this price range - with both WTL and Bakken at large discounts to WTI. We shall see!!
Good luck
Good morning E,
In Brazil now for vacation and following here sporadic. Nice to see there a change in the SP finally last weeks.
Regarding the OZ loan, if it now have an higher interest rate then RCF.
Can they clear the OZ loan with other money next year then the allocated 15%?
As amortisation on RCF is small next year.
e121, you say, 'If Brent does go to $100 due to any unforeseen reason, then this loan could be repaid in just over a couple of years - this was discussed in this year's AGM when I brought up this topic. '
Thanks for the clarification. That's good to know.
This is the wording from the RI doc which prompted my assessment, 'monthly cash sweeps up to pre-agreed monthly amounts.'
Sorry, I don't see a reason for there to be a 'focus' on OZ loan considering overall ENQ debt. Let's face it - it is only secured by NET cash flows from 15% of Kraken, and without any covenants to go with it. Whatever net cash flows accrue from this 15% Kraken would be set aside for the OZ loan interest and principal repayment. Reading between the lines from the hedging news release around OZ repayments, $58 was the hedge floor and I'd suggest that's the minimum level that Brent needs to be at to pay down the OZ loan over 5 years. The higher Brent is above this level, the better the cushion to pay off the loan sooner than expected, i.e. ahead of the 5 years term.
No, there are no fixed amortisations for repaying the OZ loan. If Brent does go to $100 due to any unforeseen reason, then this loan could be repaid in just over a couple of years - this was discussed in this year's AGM when I brought up this topic. To make it clear, there's nothing that needs to be managed by ENQ for OZ repayments this year or in any coming years, other than repay the loan with the periodic net cash flow sweeps. If there is shortage at the end of 5 years, then ENQ can either roll it over or repay it from cash balances.
Hi L3Trader, in looking at the debt I think your focus on the Oz loan is the right one. The ENQ wording around relative interest rates was odd but bottom line your numbers of up to 9% interest and repayment around $45m pa in interest and capital look right to me. But I don't understand why you think ENQ will come up short on repayment in H1. Perhaps you have more insight into the detail of the monthly cash sweeps than me, but 15% of Kraken cash flows look more than enough. The cash will be there so if the repayment structure doesn't direct it to OZ then it remains with ENQ. Or am I missing something? I suspect the monthly sweeps are limited to ensure that OZ get maximum interest benefit from the 5 year repayment cycle. i.e. I assume ENQ don't have the opportunity to repay earlier if they were willing and able. No doubt Oz are comfortable with the 15% of Kraken as security.
In the round, this OZ facility is one of a number of debt burdens being managed by ENQ. For me the liquidity hurdle in Oct was key but I sense that the current outperformance in the SP may be due to a sense in the market that it will be cleared, and it would take a lot to derail recent progress, be it the oil price or Kraken worries. I too think the Magnus June number is important, but of course many in the market will already know it - perhaps they liked it.
I'm looking forward to the interim update. As you know I have my a cash flow expectation for the year, but I'm not inclined to tinker with it until I have hard facts from the interims. Yours is one of a number of net debt forecasts I've seen but I wouldn't take this number in isolation. There are other numbers which impact the significance of any net debt number such as CapEx spent todate and due in H2, and changes in working capital.
L3 has always been a deramper here, even on the odd occasion he has been close on his prediction he likes to celebrate it ! Now if you hold a long position and that position is underwater like he says his currently is why on earth would you celebrate it ?
cos I bloody well wouldn't !
It can be healthy questioning an investment you *claim* to hold, even if you've been doing it for a year in the most negative possible way.
However only the most idiotic investor would do this when the stock they hold has broken a prolonged downward trend and is rising strongly. Unless of course that person had been caught short..
I have a strong suspicion of which category you fall into.
Osaka-san,
Comprehension, i.e., deriving meaning from words, seems to be an issue for you.
I was not de-ramping. I provided numbers and figures in my post, something you have never done.
Anyway, it is almost the end of the work day there, and as a good salaryman, it is time for you to head to an izakaya and celebrate the SP rise.
May Kraken fill up your pockets!
L3 give your deramping a rest. Let many on here enjoy the rise upwards.
Hi E121,
I hope your holidays were enjoyable and in somewhere warm!
I read your words on encouraging conflict as a way to get a higher POO. I am afraid that bar major conflict that is not going to pus the POO higher. All signs are that the market is well supplied. To my dismay shale continues to power ahead. I was betting on it seeing declining production rates when I bought a few Brent call options, and I losing money on those at the moment!
We have now seen close to two months of oil prices in the low mid $60s. Not good! had the hedger in charge done her job, the games being played in the gulf would be irrelevant.
Your comment on the water cut at Kraken needs to be qualified. The chart shows production up to the end of April, i.e., shortly after DC4 was brought online. At the end of April 15MMbbls had been extracted from Kraken.
ENQ's SP performance is still much more tied to Kraken than to anything else, because that is what the analysts look at more closely. How many days did the breakdown last? Any idea? A week? (I am still hopeful that load #50 will happen before year end.)
What is your prediction for net debt at the end of H1? I am sticking to $1650M!
There is some talk on this BB about a takeover. My hope is that does not happen soon. I felt robbed when Ithaca and Faroe Petroleum were taken over, even though I made a good profit on both. But, had it not been taken private I would have tripled my money at some point. I am now facing having to sell my AMER holding at a minor profit. I have now to decide how to redeploy the capital from AMER...
Hi Londoner7,
When ENQ announced the OZ loan they stated that the interest rate attached to the loan was lower than RCF's interest rate. I did not interpret literally, but thought of it as the interest they would have to pay the banks that provided the RCF if they were to renegotiate the repayment terms. Indeed, this seems to be a better interpretation. At the moment the 12 month USB Libor being 2.15%, the loan is costing 8.45%. But that rate was already been 3% in recent times. So, the loan can easily have an interest rate above 9%. This is why Kraken's performance is so important. One will see how much had been repaid by H12019, but I am confident that less than $10M was repaid, and possibly as little as $5M was repaid. (assuming ir of 9% and constant repayment, $45M per year of free-cash flow of 15% of Kraken would be needed every year to pay interest and repay the principal. )
Many thanks for your contributions on the discussion of oil/gas use at AK and the gas production of Kraken. The piece of info I am mostly keen to find out is Magnus' production in June!
May Kraken fill up your pockets!