The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
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So this week was full of speculation of Enquest bidding for Exxon's 15 aging fields (37k boepd), CNOOC's Scott platform (both deals in competition with Sinopec) and Exxon's assets in Malaysia for 3bn USD. We have of course no money really to do any of these deals if they were not to find a Magnus style deal I would imagine. I do remember that as long as the SFA is not refinance by October 2020 that the bonds will roll over to October 2023 which is a given and possibly creates a compelling reason for Enquest to do something now in October and November 2020.
What is the boards opinion? I am hoping that there is not another equity call and enquest does seem to have control of the financial situation and maybe could increase the SFA somewhat to pursue additional growth opportunities ahead of the rebound in oil prices. Malaysia does not appear to be realistic and Scott unreliable but maybe Exxon's North Sea assets that were expected to grow production to 60K are more likely.
There are also the 2 FPSOs which have been mooted as being potentially used in any M&A activity. Could be that this is on the radar.
Classic Squif "We have of course no money ". I can speak for myself and another investor who doesn't contribute to this mb and we discussed this yesterday. Raising money from shareholders would be a disaster but that doesn't rule out a placing but the usual discounts must be avoided.
We are attractive in several ways which means that just because we're currently potless we cannot be ruled out for deals. I sense there are big changes occurring behind the scenes and we aren't covenant threatened atm like many of our so called "peers". The whole sector has suffered but in recent months we have steadied whilst PMO and TLW come closer by quite a fall. HUR is likely gone, Spirit is in a mess, Chrysaor has indigestion, Delek has obesity, Neptune missed its IPO etc.... The majors relied on that sort of profitability and activity to follow their business plans. They need us imo. I think watching and waiting will bring us benefits. Some older assets are literally being given away free or paying the buyer to take them of their hands. Joint operations and mergers must also be considered and our 2 aircraft carriers have strategic value potentially, as does SVT.
Build it and they will come.
I have seen shareholder value drop from over 40p a share to the current 11p in circa 5 years.
So your investment 5 years ago is worth only 25% of your original investment. Not very good is it !
I believe the board should focus on restoring the share price back to 40p by prudent financial planning and paying debt back, rather than going on a EGO trip which we can't afford !
I agree Jan but sometimes they are fire sales and suitable buyers are a rarity. The sellers must be tempted to underwrite the buyers to an extent. Then you have the Bressays of the sector where the only potential buyer is EnQuest. Similarly Malaysia won't interest some companies who don't know the area and haven't the contacts or experience.
Hi Jan - please don't missunderstand me. I am fully in line with your thinking. I don't want any more equity calls and will vote against that if my vote is heard. But agree with Romaron's thoughts. Our competitors are in an absolute mess and for some reason our name is being bandied around in all sorts of contexts. If assets are being given away and the major's need a partner with strong execution capabilities maybe that puts us in some position of strength (I pray)
The assets on offer don't look very exiting unless their is some hidden gem - maybe Rochelle has more to offer, its a much newer field, 30km away from Scott, possible use for EP??? - other than that no.
Hi Squif and romaron,
I agree and understand both your posts.
Just feel the board need to remember shareholder value for those who have been loyal for many many years. This means getting the SP back up to 60p and having a party.
An interesting mix of opinions. I'm inclined to romaron's view, except I don't understand the comment, "Raising money from shareholders would be a disaster but that doesn't rule out a placing but the usual discounts must be avoided."
romaron, what sort of placing do you have in mind if it doesn't involve raising money from shareholders?
I am very much in favour of any and all of the three deals mentioned, assuming they are funded within current / target debt levels c 1-2x leverage. We should trust management to price the deals right, and I'd rather be buying today in the year of Covid and $40 oil, than next year or the year after. A Magnus style deal (or three) would be great and I would not be adverse to a full Rights Issue. If there is an equity raise I would like to retain my full pre-emptive rights and not be diluted by preferred institutional shareholders.
I understand the view of focusing on existing assets, say to wring down debt below a 1x leverage, but I suspect that production levels within the existing portfolio are dropping faster than many posters here believe, at >10% p.a. and tie-ins will do little to slow that decline - I also believe many here wants to defer those tie-ins to 2022. Enquest would quickly reach a point where the focus moved from this year's or next's FCF projections to where FCF comes from in later years, impacting the share price.
On the macro level I envisage a significant recovery in oil price over the next 3-5 years. That is my time horizon and anything beyond that would be assessed after the spike - waiting for the whisper from GS.
I'd like Enquest to be well primed with production through this period.
That's my Enquest investment thesis.
January2, you say, "This means getting the SP back up to 60p and having a party."
We'd all like to see Enquest back up to 60p, but what are the "means"?
Can you lay out a oil production and price profiles over say the next three years (2021-2023) that provide those means?
Thanks for your input L7. I have always viewed yours and L3 inputs with an increasing degree of scepticism I must admit and your post does seem to confirm that. Your agenda is it seems to seed doubt in shareholders minds over the long term validity of Enquest and what you are advocating is potentially a complete wipe-out of existing shareholders by doing one or all of the deals (!) without impacting the target debt levels v leverage. Naturally anyone who didn't have a stake in the game or at the most a minimal one would be advocating such a course of action to come in.
Well said squif.
The share price has not recovered from the Magnus rights issue. Another equity raise and loyal shareholders will suffer badly.
So while new shareholders will love the idea it's time to start looking after loyal shareholders.
New deals will add lots of value but hurt us.
I agree that there are many wolfs in sheep clothing on this messageboard who hit us with accounts figures to show off their cleverness and to add credibility but have other motives.
We are in the hands of the oil price and if that is kind to us we can easily see 60p.
We will get to where we want. Listen to management and not failed accountants (squif hit nail on head) who come on to this messageboard trying to scared you.
Hi smokin. They are all around us i agree. I suspect that there is some level of engagement in negotiations from enquest side but Having secured bressay i Don’t see the real need to do the deals and maybe a magnus style deal for one may be achievable if the fpsos can be regarded as equity in the deal. We are actually in a good position i feel so of management were to do something detrimental to shareholders it could be grounds for legal action.
Hi L7 - this is basically a retail investor's site/message board. A placing is usually aimed at institutions at a favourable price which is why I said that I was against a discount. I am definitely against the hat being passed around again. We can sit on our hands for a few more months and that is the correct stance imo. We are in a stronger position than many of our so called "peers".
Squif - at least L7 holds some shares. I filtered L3Trader ages ago. I don't care what polish they use on the handrails.
In my first job an older guy told me that "a half-truth is worse than a lie". I'm not accusing anybody but we are all possibly guilty because we never know the full story. There is still a lot of ignorance (me included) regarding refining, what spot actually is and restrictions on EnQuest including hedging policy etc... Throw in a couple of cut & pastes and suddenly people are experts.
My post on 18 Sep "Jan's pills work" was a cut & paste of an email from IR. I never mentioned it before because I was waiting for one of the experts to challenge it. They often do but I reckon it was more a case that it was due to ignorance. I did enjoy appearing clever for a short while.
Build it and they will come.
Squif,
Thank you for a very helpful summary of the situation. I was going to post something on debt and financing and enlisting CNE as a partner or selling 15% more of Kraken to it to out to rest the perceived financial constraints 1 year from now, but this week's news have led me to change my plans. It is very clear that AB is going to do some deal. The new show he is desperate to so something. However, sometimes the best of course of action is to let it go. No one is going to give anything for free to ENQ. What is AB going to do? The only person who might know is ENQ's PR representative on the board. He ends his messages w/ a one line moniker. The problem is that for him ENQ has always gone from strength to strength, so the reasons for the deal will be portrayed in PR spin.
January2, I fully agree with you. But EGO trips is what people with big EGOs embark on. And sometimes they sail to close to the wind. Paying debt back will be the best way forward unless they can get a vendor loan (or a 3rd party Oz like loan) for good assets, not aging assets with high OPEX, or assets operated by others (Exxon's assets in the North Sea), etc. But hey, there are people who believe ENQ is the company in the North Sea operator with best financial situation at the moment. I have no idea how someone can say something so outrageous. Just a few days ago CNE was mentioned in a quiz by Londoner7. Now, if financial statements are irrelevant, then anything goes...
Lomdoner7, I will write a long post to reply to your questions and will follow up with a few more. My earlier thought have been superseded by AB's impulsiveness.
All; as a LTH who has never sold a single ENQ share I bought over the years I am against deals that dilute existing shareholders. I hope that is clear to everybody. Thus, I am not keen on any deal that would result in that. Listen to chilting (who does not suffer from share_ownershipitis, as he told us he had sold his shares, who sees little or no value in any of the assets being "offered" to ENQ, apart from one.
GLA
My reference to CNE is clear. They are the company with the best financial situation at the moment. Given that it was mentioned on this board by londoner7, would be very pretentious of anyone to dismiss all other north sea operators of being in a mess.
But hey let us keep believing the PR one line moniker poster. He know when they are coming, but has yet to tell us...
Agreed squif.
Bressay has given us the potential to grow. And so will other deals we recently completed.
We should now be ruthless to get hold of some cheap bargains or walk away.
L3 you seem to think it's clever to sell off more of kraken to Cairn. Are you being serious? Lol. We have finely tuned kraken and it is providing guaranteed income. And we are looking to grow not reduce our resources. D- for you.
Debt is being paid down. And it will be paid down faster when oil price recovers.
Hi squif, whether I seed doubt in the minds of Enquest shareholders depends on where their minds are.
I try to be realistic in my views focused primarily on the company’s activities and prospects, and avoid what might be termed blatant ramping or de-ramping, because frankly I have little or no view on the short term price movements. I appreciate others feel better qualified to express those views – the board is a broad church.
You say, “you are advocating is potentially a complete wipe-out of existing shareholders by doing one or all of the deals (!) without impacting the target debt levels v leverage.”
In supporting a Rights Issue if management propose it (I’m assuming this is your concern) I seek the complete opposite of what you are saying. The existing shareholders would maintain their full equity share. In retaining sensible limits on leverage I’m advocating that we do not put ourselves into the disastrous position PMO now finds itself if events do not play out as hoped.
That would mean maintaining the existing equity / debt ratio. If the business expands through acquisition of any of these assets, with a resultant increase in FCF, this would support current or perhaps higher debt levels – I don’t know the numbers – but I have no issue with participating in an equity raise if Enquest management make a good case.
I can only assure you that I have a significant stake in Enquest – it is my 3rd largest individual share-holding – and it is full in the sense that I have no plans to increase it beyond a modest equity raise if required. But that’s just my word. You should maintain your scepticism of comments made on these boards.
By investing in Enquest – my last purchase was two weeks ago – I am supporting management in their current endeavour to profit from ‘end of life’ assets. If they were proposing a new field development I’d run a mile!
I only saw an investment case in Enquest in April 2019, until then I’d considered Enquest a basket case. I appreciate posters here will have differing Enquest experiences which will influence their views on prospects and route to success. As I said, the board is a broad church.
If you see a realistic path to 60p, or whatever you have as a target without acquisitions, I’d like to see it. But I appreciate not everyone does numbers or wants to share them.
Selling 15% of Kraken would depend on getting a good price given reserves. CNE has cash but low 2P reserves as explained by Londoner7. Only useful as a way to pay down RCF and to share more of the CAPEX costs of future tie-ins in the Kraken field. Also, diversify risk, if that money can be used to do more deals in Malaysia.
L3 Having now got an asset which is performing almost perfectly why sell any of it? We took the risk of the large start up costs. Selling part of it now would not be very bright.
As for our debt, we do not have any immediate risk (27 dollar breakeven), so why panic now?
Why are you trying to make the situation look a lot worse than it is? Did you even listen to the analysts call? There is no immediate danger unless oil price drops. But oil price is likely to improve now Covid situation getting better with vaccine nearby.
Don't waste time with your rambling long emails. People can see through them.
Just because someone says they own shares doesn't make it true.
We have until 28th October to submit a bid on the Exxon North Sea production. I guess much of the info released last week is "estate agent" leaks in order to boost interest from various parties. Lots of interviews i see on Bloomberg mention "what makes you tick".. and I think the Enq Team look at deals all the time.. that's what makes them tick..
Looking at spending $2b plus to purchase the Exxon North Sea and Malaysian assets would be a good deal..so long as it didn't require an equity raise. The project has to fund itself just like a buy to let.. but without the deposit.. Finance via Exxon saves interest and boosts the offer price to Exxon.. If we need a deposit it needs to come from existing cashflows streams..
With a margin of say 30% , we would gain NPV of say $800m moving the SP from 11p to 30p overnight. (say 50% of NAV gets added to Sp), then much higher next year as the oil price rises to say $55. Fauci says a vaccine might be authorized by Xmas.. so 6 mths to vaccinate in US , the ROW won't be too far behind.. indeed Brazil i believe has purchased the Chinese vaccine and will get it done in Q1 next year. I think they will submit a bid if Exxon supply the low cost finance.. otherwise walk away.
smokinaces, it depends on the price isn't it? That is the way companies buy or sell assets. Or at least that is the way I do it when managing real assets. What is not very bright is to say, "I am not selling at any price..."
I will write what I want. You do not need to read my posts. If your numbers go against my views then post them rather than just saying I am wrong.
I have not written that ENQ is any danger now or in 1 year from now. It is not. (Let me repeat: It is not.) What I wrote a few times is that there is no path to full repayment of the RCF by Oct21 w/ the poo below $50, w/out some borrowing/presale of oil/ etc., which is all fine but makes the point that debt repayment is much slower than anticipated. But given that a deal is in the making, ENQ will be a very different company by then.
As for: "Just because someone says they own shares doesn't make it true." But would make me a liar, which is what you are insinuating.
As I wrote before, I post as if people knew my identity.
L3 "it depends on the price isn't it? That is the way companies buy or sell assets."
I'm not sure if you've noticed that we are in Covid economic environment where companies are out looking to strip desperate companies off and noone will pay anywhere near true value for a share in Kraken. Very naive.
Hitman - I agree with your point that these leaks are most likely done with the intent of boosting the interest and price and quite possibly indicates desperation from the agents. I have not seen this level of "leaks" in the past tbh and 3 leaks involving the one company in one and the same week is probably unheard of. I could well imagine AB "sniffing" around but given the way he has structured deals in the past with Magnus and Bressay I imagine he has learnt a number of incredibly hard lessons which means that if any deal was to be concluded it would be a Magnus style deal. I think the Bressay deal could quite involve some structural deal with Cairn given they have an ownership share in Kraken. There are a lot of irons in the fire as they say however I will oppose any call on shareholders given that this has been done twice and our market cap is below the two rights call combined. I would imagine that Enquest would meet considerable resistance from shareholders and they are probably aware of this as well.
An alternative suggestion is to copy what people do with shops and small business's when they get to retirement or just want to spend their time on other projects.: they put it under management. Enquest takes over operator role for a monthly fee and uses it late-life asset expertise . The monthly fee is linked to performance so whatever extra Bob gets out of them, also improves the return to Enquest's bottom line. $20m/mth get gets us a nice annuity for no risk. Also improves the SP alot.
Multiply it lots of projects with larger companies like Exxon/BP/ CNOOC and all of a sudden , the monthly income just like a portfolio of buy to lets adds up to a nice monthly income.. This new way will be the new norm especially if your Company is a late-life asset expert in North Sea oil. The man in the pub did say "what if".. well why not try it.