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Hello L7,
There are many assumptions in your calculations, and there was also the assumption of $90 oil when Kraken was sanctioned.
Sure, investors got crushed. Buying into an oil company with weak production and massive costs at the end of a commodity cycle is unlucky, and the company not going bankrupt is an achievement in itself.
I'd argue that we're in a different place right now on the macro level - comming up on the next commodity cycle. We also got a solid production profile with very large cash generation going forward, and we still need to grow.
One might think that there are alot of Magnuses and PM8/Seligis out there. Looking at the North Sea and Malaysia I'd argue that there are not. Enquest is not the only company looking for bargains, and in order to add anything significant to our 65kboepd old scrap don't cut it. I dont necessarily want the company to open up new fields assuming all the risk - but borrowing $1bn and taking a smaller non-operated stake in a great asset is another way to go in order to capitalize on this oil market situation and adding production instantly.
We didn't have a lot of options looking back, but with our current portfolio we have a backdrop and one need to bet big when the cards are stacked in your favour. Now is the time to lever up.
Best, HMH
Excellent posts. The situation though is that with the 2 share calls many here have a larger amount of shares than intended initially but at a feasible level. We don't need 80-90p to be back in profit which for many was as recently as February this year. L7 you write as though you are in at 80p.
We are a pretty big company now and in a stronger position than many of our "peers". If you're looking for perfection then you'll not find it here. What you do have is a financially sound company ready for the return of demand. Those pictures of Southend at the weekend convinced me that people have chosen to accept the low risk level of Covid and lost ground will be made up; maybe not all of it but production cuts will mitigate and I think much of shale has been dealt a mortal blow. EnQuest has already proven how creative it can be and is now in a strong position. I fully expect AB and his team to take advantage. If the deals and support are available we should lever up as HMH says. In fact, without outside encouragement and support we won't be able to do it so it'll be a stamp of approval from the credit markets if we do.
Build it and they willcome.
I received a reply from IR.
"We are looking at both of those options (sale/use in another field and scrap) for the vessel. The final decision will be based on maximising value as far as possible.
Hope this helps"
Well not really but TBH it was the answer I expected. With the world's attention on Covid everything was in stasis. We might start getting a dribble of news from now on as the world starts turning again. Surely it has to be worth more as a FPSO than as scrap.
romaron,
Thanks for posting your reply from IR.
I agree with you - " Surely It has to be worth more as a FPSO than as Scrap".
Something I keep telling my wife !
All the best
JAN
Thanks for sharing romaron. Cant believe and wont believe They Will simply scratch it. Keep on thinking of that start up that enquest was partnering with - seapulse. Maybe it could be deployed somewhere.
Cheers, R. That's good to know. When Brent rallies into the 40s/50s soon enough, that's when options will be many for Enquest. I strongly believe that Enquest will focus on debt reduction first and foremost, before considering any additional acquisitions and the coming rally in Brent should give us the push to get debt down to 'de-risked' levels. Opinions are dime a dozen regarding taking on more debt and making acquisitions, but I'll go by what AB/JS said in the AGM last year and that's to get debt down to manageable levels and for me, that's another $400 mill lower from here. I doubt that the debt market will be willing to open its wallet to Enquest with Brent at these levels, and hence cost and debt reduction is the near term name of the game.
Playing devils advocate here - what happens to Enquest when its three main assets start producing less crude - does the company just simply fade away?
An unexploited asset like Hurricane might be just what AB needs and if the price is right.
Also Enquest Explorer could be deployed to another part of the field to bump up production.
Hi E - I'm not being gung-ho because there is a glimmer of light it's more a case of the opportunities and collapses that will happen in the next few months. In fact we could almost be in a unique position. TLW and PMO will be saved by an increase in oil but for now are restructuring. Spirit has a for sale sign whilst Chrysaor need to digest recent purchases. RKH and HUR will be open to offers but seem to have the dreaded AVOID on their prospects. I expect the majors to continue to divest in the NS. It is too "bitty" for them. I think AB and his team will not have to go looking. Build the best mouse trap and the world will beat a path to your door. In the vanguard will be the smooth-talking teams from M&A who bring ideas and solutions when pitching. We have a window where we are sitting pretty compared to others. Remember, every company in the industry has taken a hit. We stand out because by luck or judgement we were in a good position among mid sized oil companies when the world changed. Let's not waste it.
The alternative of sitting on our hands is also attractive but I invested in this company for growth. Why stop when you're winning. If we were quoted in the US I doubt we'd even be having this discussion as they look for opportunities at times like this. Of course I'm also betting that Covid from now on will be seen as a paper tiger.
Squif,
I was thinking about Seapulse also.
FPSO Enquest Producer, 5 years old, one careless owner, Enquest Blue with go faster stripe, 625,000 bbl capacity, sleeps 97, available for deployment H2 2020. Floats, Produces, Stores and Offloads better than a diahorretic squirrel on a life raft. This FPSO will make you attractive to the opposite sex. £500 million ono.
I might get an email from Enq marketing when they read this.
GLAXXX
They might get a phone call from the police after they discovered Neil sleeping rogue in the life-boats.