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Hi Londoner, I would be more than happy if the 93 million was included in the 600m opex. The thing is that AB is never crystal clear in his comments. The one thing that would not incidcate this is if you look at page 3 (:-) of the annual report. There it states opex +28%. This I believe is the difference between 600 and 454 which was the opex including transportation last year for production excluding kraken. But lets see. You may be right on the bond interest. I think that the average brent price will be higher than the 61 but that I am assuming on annual basis - who knows what happens in the next 4 months! Thanks for the feedback londoner
Hello Squid, Pelle,
I've got $41.90 including financial obligations for this year at 75kbopd forward.
For 2020 I've got $36.60 at 75kbopd average FY.
I wish I'd left PIK alone. Now it's bugging me. The period is key and my Sept date is imprecise. I don't know where I came up with this date. A search of the RI document doesn't reveal it. But a more important point is whether Enquest can pay the interest regardless of the threshold, after all I guess it was put in place as an option for Enquest's benefit. Does anyone know?
While looking at the RI document I found this which is also relevant to the retail bond.
' At any time on or after 15 April 2019 but before 15 April 2020, EnQuest may redeem all or part of the High Yield Notes by paying the redemption price equal to 101.750 per cent. of the principal amount of such High Yield Notes, plus accrued and unpaid interest. At any time on or after 15 April 2020, EnQuest may redeem all or part of the High Yield Notes by paying the redemption price equal to 100.000 per cent. of the principal amount of such High Yield Notes, plus accrued and unpaid interest. '
I'd guess this isn't relevant until AB buys Exxon's North Sea assets and renegotiates the RCF ;-)
squif, I've just looked at average prices for the April - Jun 3 month period and come up with $68.3. If prices stay around current levels then your call on the PIK looks the right one for the Mar-Sept 2019 period.
I should start with a caution statement - gkb47, please look away now!
squif, I always enjoy a post with numbers. I query two points in your post.
I agree that the Kraken FSPO cost ($93m) is assessed as a financial lease. However, what is less clear is Enquest's definition of operating costs. I believe that in this case Enquest are including the cost of the FSPO lease within their operating cost of $600m. I can't point to anything that confirms this. It's just my interpretation from reading other company reports where their definition of operating costs include financial leases - HUR being one example. Also, the $600m number points to a cost per barrel of about $24, similar to 2018. An additional $93m would add another $3-4 to cost per barrel. This year sees the addition of more Magnus barrels, which according to the rights document are about $17 cost - below the 2018 average. Kraken should come in with perhaps 10% higher production this year, again taking pressure off the average. While the remaining North Sea fields are in decline, which puts pressure on average costs. Putting it all together I think Enquest are guiding to a similar average cost per barrel this year but will probably come slightly under - we'll know 5th Sept.
I looked at the PIK threshold a while back so I'm going on memory. As you say, this is assessed at a $65 threshold. I believe the end of the current 6 month period is Sept. When I looked at this I felt confident that the PIK would not be triggered because of the relatively high prices early in the 6 month window. I appreciate the recent drop in the price now puts it in balance, but at the moment activation of the PIK for the period to Sept isn't a given. What happens after Sept is another matter.
Pelle - you could be right re Kraken. Indeed ABs buying campaign seems to have coincided with much more stable production so most likely.
Hi Squif
The hedging was needed, it was impossible go into 2018 without hedge for Enquest.
And oil prices just went up,up .
In my opinion it was the failed Kraken production causing the need for RI.
If I remember correct I calculated it too, and that equal the missing 100 mill
Yes 12 months from now with 60-65 oil and we alot more on safe side and far above 20p
It feels like no one cares we doing about 1 mill / day FCF today and 7 days a week
Good points pelle re BP and I agree. Yes I might be a little off here and there and I agree hopefully average brent price is higher but it was a funny coincidence that it landed at 59 where the price of brent has been swinging around. The past is the past re that hedge loss but 77M was significant in the grand scheme of things and had that not happened I feel we may have avoided the cash call last year of 113 M. But anyway, I think that if we are to get through the next 12 months then it is a completely different prospect and I think once net debt hits 1.1 BN then as they have declared they will not pay down any more and be prudent with capex although they need to acquire some more 2P reserves...
Hi Squif
Yes, leasing 93 mill.
But then you again say 213,5 mill for loan, bond and finance lease payments
So I think its double here.
I have ( mid debt around 1650x0,07= 115) + 93 leasing = 208 and I think I rounded up to 220
So I think your about 100 mill too high
On other hand you forgotten money back to BP, all in all I have around 100 mill there.
So you anyway end up with same total cost.
69k full year should be on track so far
59 usd average oil price, we ahead of that and they will have hedged more since last update.
I would not blame the guy for hedging losses 2018 that was needed safety
But for not doing well enough last autumn was worse, we could have gotten 10 usd higher avarage about 250 mill extra debt reduction safely specially when margins are tight a year like 2019.
Yes, lower capex is needed next 2 years. I would assume they go maybe also capex free H1.
And continue tight until oil recovered and good hedges in place again to come on top of things.
Amortisation is lower next year.
So finacial preasure is going down even with 60 oil going ahead.
if we at around 50 oil next year. Then I think we still talking about these SP levels in one year from now.
I spent some time the last couple of days trying to work out why Enquest is under what I perceive to be more pressure than most shares around these levels of Brent. I have always found the Enquest accounts to be very complicated and in my opinion drives some of the somewhat fleeting and evasive answers from AB. The truth is in the accounts - it just takes a while to find. Anyway, what we know is that opex is 600m usd this year and last year this was 464m (note 5b). I always asked myself does this include Kraken and the answer is of course no. This is the Kraken is the finance lease payment in addition which this year is 93169M (point 23 under Current Liabilities - Obligation under Financial Leases). So the more correct opex in my opinion is 693M usd. Then we have interest payments which again are loan, bond and finance lease payments in the main and under note 6 this was 213.5 M USD during last year. I anticipate something similar but should be a little less. Then we have capex of 275M and loan repayment obligations of 311.2M during 2019 under note 19 Borrowings. The grand total of all of this is 1492M USD. Now if I divide this by 365 and 69000 boepd I get 59.2 USD a barrel. This in my opinion is what Enquest needs to break-even this year. Of course there are break-evens and break-evens. Enquest is cash positive on barrels of oil at 693M which at 69000 boepd is 27.5 USD. But then none of the interest is getting paid so if we add that back in (213.3 M) again at 69000 boepd we get 36 USD. Anyway, I also noticed (and remembered) last year H1 we had a hedge loss of 77M usd so we can see what devastation that caused in the grand scheme of things so hopefully that individual is now fired. This probably caused a lot of the need for the reverse dividend as L3 called it yesterday. So then the next question is what will our net debt be at the end of the year if we have 69000 boepd a day and an average price of 59. Well, and this was the next discovery, given that Enquest has current borrowings of 311M to be paid this year it would be the borrowings of 735470 and the bonds of 990282. However I suspect that the bonds will go up as the interest will accrue given that the average price of oil is below 65 for the most part. Last year it went up from 934 to 990 so if we say the same increase then we have 1046. So subtracting the cash equivalents at the end of 2018 which again assuming for the purposes of the above will be roughly the same I get 735470 + 1046000 - 237000 = 1544470. Rolling ahead to 2020 and hopefully production will increase somewhat say to 75000 boepd the break even will hopefully move down but we will still be somewhat around 26 I would imagine. Anyway, capex will be lower next year say 175M. I am sure that the borrowings to be repaid next year are somewhat visible. Finally, the other interesting point is the average interest rate being paid. Roughly this is 213/(735+990+615) = 9%.