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Thanks e121, I'd missed this bit, 'Example at R/C = 1.70 and costs = $20 per barrel'.
Got it, the production volume is the 50% WI, but the revenue is derived according to the PSC formula, and the PI guesstimate is Ferna's rule of thumb, quoted by L3 as 65% x volume x oil price.
Does the rule of thumb take the quoted $18 bbl costs into account or do they need to be subtracted?
How is the 38% tax rate applied?
What is it with Enquest, every deal they do seems to be so convulted and obscure that even those that have followed Enquest for some time struggle to work out what it means in terms of Revenue, Earnings and Cash Flow. No wonder the analists mark it down in their Broker notes.
L7 - in the same 2015 CMD deck that you refer to, please look at slide 54 and you'll get your 50% WI answer.
Slides 70 detail the Revenue over Cost PSC, which is what applies to the PM8/Seligi fields' revenues, as opposed to the smaller Tajong field, which follows the Risk Services Contract model, as detailed in slide 75. The R/C PSC calculation is an example provided on slide 71, but is not an absolute % and can vary.
This link below describes the R/C PSC in some detail, but here's a summary. "In 1997, a new PSC based on the “revenue over cost” concept (the R/C PSC) was introduced to encourage additional investment in Malaysia’s upstream sector. The R/C PSC allows PSC Contractors to accelerate their cost recovery if the contractors achieved certain cost targets.
The basic principle of R/C PSC is to allow the PSC Contractors a higher share of production when the Contractor’s profitability is low and to increase Petronas share of production when Contractor’s profitability improves. The contractor’s profitability is measured by “R/C Index”, which is the ratio of contractor’s cumulative revenue over contractor’s cumulative costs. "
e121, where does a 50% WI come from?
I'm referring to the CMD pack L3 highlighted
Slides 69 & 70, indicate an 59% Enquest share of production @ $60 oil.
Isn't this the production volume quoted by Enquest?
GKB - I meant to write 'PM8 gross WI production of say 8.x kbopd (to Enquest)'. PM8/Seligi gross overall production is over 16 kbopd, with 50% straight away accruing to Petronas.
The 8.x kbopd PM8/Seligi number is what shows up in our total production statistics, but we only receive revenues for say 65 to 70% of that 8.x kbopd. I hope this clarifies...
I thought we'd nailed this yesterday. E121 your last statement:
"On the PM8 gross production of say 8.X kbopd"
You surely mean "On the PM8 nett production of say 8.X kbopd"
That is nett to Enquest? Then it's 65% of that as per the Fernan factor?
The production you're seeing on slide 23 is indeed the gross production from PM8/Seligi and that's probably running close to 16-17 kbopd at this time and Enquest gross share based on our 50% WI in that field (plus whatever we get from Tajong ) is the circa 8.6 kboepd figure that's quoted in the CMD.
On the PM8 gross production of say 8.X kbopd, the PSC formula gets applied, and we end up with saleable oil somewhere in the 65 to 70% range of that gross production figure.
L3Trader, your comments on Malaysia confuse me. (I guess you specifically refer to PM8/Seligi)
You say, ‘Did you use the effective selling price of the Malaysia production? Fernan10 used 65% of Brent price to convert Malaysia production to revenue. And he was always spot on. There is a formula for it. Others who know better can explain, if they wish.’ My query here is ‘to revenue’.
Then in a later post you say, ‘production is reported gross.’ My query here is ‘gross’.
Your pointer to the 2015 slides is useful. It states that Enquest share of production @$60 oil is 59%. In slide 23 CMD pack current ‘Gross working interest’ is shown at 15K, so I assume from this (with adjustment for price) that Enquest share of production is 56% x 15K = 8,400 boepd @ $65 oil.
At H1 total Malaysia was 8,599 boepd so doesn’t leave much for Tanjong but my translation of the gross number from the graph could be out by 1K.
My interpretation is that the production number reported is NET production attributed to Enquest, after royalties and costs, so after multiplying by the oil price the resulting number is OPERATING CASH subject only to the 38% corporate tax.
The structure means that the net attributed production number can increase with higher production, higher oil price or a reduction in costs, but at a lower proportion to the change in oil price. This also operated in reverse, hence the Enquest comment, ‘a natural hedge against the oil price’.
Question to anyone, is my interpretation wrong? If so, where?
The CNS area has two hubs: Kittiwake supporting various fields including Scolty/Crathes and the Eagle development, and Enquest Producer supporting Alma/Galia. The briefing at the CMD was that in the current Brent price environment no further development was planned at Alma/Galia. At some point production will become uneconomical and these fields will be decommissioned. At the moment these fields are economical (okay only Alma producing but I'd guess decom will be a combined affair). The Scolty/Crathes rework provides a boost to the Kittiwake platform which maintains the economical performance of various attached fields. In 2021 Eagle will be brought on line, however this comment from the Eagle development document, 'Reservoir fluids from the Eagle well will be flowed back to Kittiwake via the existing Gadwall/ Mallard pipeline and riser system.' indicates that Gadwall and Mallard will make room for Eagle.
In effect Enquest are managing declining fields for the maximum economical benefit.
I suspect that awards under the 32nd licence will also be a factor in the future of these hubs. That's the attraction Enquest offers to the OAG decision process - infrastructure in place!
CMD slide 20 has PM8/Seligi OpEx at $18.
Yes, same sort of ratios for new wells too.
E121 - Yes I think I got there after looking at those slides. 65% of gross reported production it is then at average Tapis price and I'll use $15 per barrel costs. That should be close enough for my purposes. Is it the same deal for the new wells I assume?
Pelle - Not with you (L3's phoned a friend to help though). I multiply 8,390 BOPD by 5959 and that represents what exactly?
L3 - Going back to an earlier comment you made today about de-commissioning. Galia I get but surely it's premature for Alma, 2021/2022 more likely?
I did some analysis today on decline rates since 2015 and Gadwell and Goosander are declining fast so I'm not sure they've got long, unless there's some intervention planned.
GKB - the recent ops update had Malaysia production volume at 8,390 BOEPD. This is gross and the PSC with Petronas is at a high level as follows. First 10% is royalty to Petronas. The 90% oil is subject to 'Cost oil' where all ENQ's costs are deducted (from gross revenues) and the remainder is then considered 'Profit Oil' , which is subject to a supplemental tax. This supplemental tax moves up or down with the price of Tapis.
At $60 a barrel, the projection from the CMD 2015 report was that ENQ will have entitlement of 70% of gross barrels and 60% of barrels after supplemental taxes. The whole Revenue over Cost (R/C ratio) PSC model is a bit complex to me, but suffice to say we should model circa 60 to 70% of the 8,390 BOEPD as revenue producing barrels for Enquest.
To be remembered that Malaysia produced $28 mill segment profit in H1 2019 on $78 mill revenues.
I know you can
the re-arranging was for the readers who thought it would make a difference if it was Q rather than P. some old file was a reference to Malaysia OPEX, but i cannot find it.
wrt Pelle, i am afraid i have just called a shrink in Sweden to see if she can treat his fixation on enq dividends, which have never ever existed.
GKB, the Malaysia production rate you state below
Pelle - if I multiply what by 5959?
L3 Thanks - predates my involvement in Enquest by 3 years, not gone back through every old presentation. No need for the maths though, I can handle re-arranging equations.
GKB, yes if you multiply with 5959 you get the amount and load 75 is the date
Pelle - What's with the 5959 figure? I've already told you when Kraken load 75 will arrive
please see pages 70 and 71 in
production is reported gross.
using the law of decreasing marginal return i use Ferna's rule of thumb, 65% of realized price as in his posted calculations.
why? because (0.65 x P) x Q = P x (0.65 x Q)
so whether it is 65% of P or 65% of Quantity revenue comes out the same.
OPEX in Malaysia is for sure not higher than $15/bbl
Have a great week
GKB you need multiply Malaysia production rate with 5959 and calculate when Kraken tanker 75 will arrive
E121 - Just to make sure I've got this right.
Current figure I have for Malaysia is 8,390 BOPD. So is that gross or nett? I.e. is it 70% of 8,390 times the prevailing price for Malayasian crude or is it simply 8,390 times the prevailing price of Malaysian crude to get the revenue due to Enquest?
Also anyone know what the Opex / BOPD is for Malaysia?
GKB - it's not that Malaysia crude is being sold at 65% Brent price; I'm sure that the per barrel price for Malaysia crude is more than Brent as we know. The nature of the PSC with Petronas means that Enquest is entitled to circa 65 - 70% of the Malaysia barrels produced. The actual % can vary a bit, depending on the price of oil, but a circa 70% net barrels entitlement is what Enquest has to Malaysian production.
Can anyone elaborate on Maylasia crude being sold at 65% to Brent, i.e. why - shouldn't it be selling at the Tapis price which is currently higher than Brent, is it some some kind royalty maybe? There was also discussion a bit back that at least some of it was atracting a premium (due to low sulphur for IMO) rather than a discount?